Case V Mark Hobson is an internal auditor employed by Comstock Industries. He is nearing completion of an audit of the Avil Division conducted during the first five weeks of the year. The Avil Division is one of three manufacturing divisions in Comstock and manufactures inventories to supply about 50 percent of Comstock's sales. In addition to the manufacturing divisions, Comstock has two marketing divisions (domestic and international) and a technical service division that offers worldwide technical support. Each customer is assigned to the most suitable manufacturing division, which functions as the supplier for that customer. The manufacturing division then approves the customer's credit, ships against orders obtained by the sales representatives, and collects the customer receivables when due. This allows order-to-order monitoring of customer credit limits against customer orders received. Potential Observations Two items concern Mark. First, there was a material dollar amount of inventory of part number A2 still carried on the Avil books at year-end, despite the fact that the Fast-tac machining component in which part A2 was used is now considered first generation and is no longer manufactured. Company policy requires an immediate write-off of all obsolete inventory items. Second, some accounts receivable still carried as collectible at year-end were more than 180 days old. All receivables are due in 30 days, which is standard for the industry. Mark believes many of these old accounts are uncollectible. The division manager's administrative assistant, Brenda Wilson, performed the aging of accounts receivable rather than the division accountant, as is standard practice. The division accountant refused to discuss the circumstances of Brenda's actions. The Auditee's Comments Mark scheduled a meeting with Brenda to discuss his concerns. "Well, Mark," Brenda responded, "I know that policy requires that obsolete inventories be written off, but part A2 is just not being used at present. We might start to make those Fast-tac components again. Who knows? Wide ties are coming back again, aren't they? Fast-tac could, too. There are plenty of customers, especially in the third world, that are finding those second- and third-generation machines pretty expensive to maintain. I mean, there is a policy that states obsolete inventories should be written off, but there is no policy defining an obsolete part."