Company overview:

You have been appointed as one of the auditors for this company.

The business has one main branch in the city and despite all its competitors opening online stores, and introducing the latest machinery, the directors prefer to use the same trusted methods they have used for the last 20 years. The company also mainly deals with large cash transactions and has very few accounts.

The business has four family members that are on the board of directors and employs 30 staff members. None of the board of directors have any accounting knowledge.

There is currently no record keeping for staff attendance and no code of conduct is given to the staff. This has been highlighted in a previous audit. Some of the staff members have no formal qualifications but have been hired for their experience in the industry.

You discover that the managing director of the company is good friends with one of the board of directors.

As you examine the previous auditing report, you notice some inconsistent information with the report.

You also find it challenging to get all the information from the accountant as he is not providing you with all the relevant information you are requesting.

There have been some rumors regarding the company, and the shareholders would like a new auditing firm to prepare the auditing report. The previous auditor (from a different auditing company), accepted a paid holiday from the company suppliers and the board of directors were not happy about this.

Your auditing company has sent one experienced auditor and one newly qualified auditor to prepare the report.

The company recently invested in a new accounting system to assist them with tracking various transactions throughout the company. Their antivirus programmed has also expired but the IT department has assured them this is not a problem.

Sales department:

The following have been noted as customer complaints:

-delivery of the product is always later than stated

-the product quality is not as depicted in the picture

-product is more expensive than competitors

-managers are unwilling to assist (poor customer service)

There have been two serious complaints from customers, relating to the product being opened and damages on the product before it has been opened.

The delivery company does not communicate when the product will be delivered, and most deliveries take place weeks after stated delivery date.

The management acknowledged they had received a few complaints about the delivery company and have started looking at an alternative delivery company.

Management says they have responded to all customer complaints in a timeously manner and that customers who have had problems with their products have been reimbursed or given a replacement.

However, when reviewing the records, the auditor cannot find record of the reimbursement or replacement of products. The manager was able to produce a photocopy of the request for prices from the new potential delivery company.

The auditor also found a comment from one of the managers on social media where he responded rudely to a comment from a client.

The auditor decided to arrange a meeting with the delivery company personally to confirm this.

Suppliers:

The Accounting system indicates that the suppliers have been paid for the month, but the auditor was unable to find supporting evidence of this. The manager verbally reassured the auditor that this had been done.

The auditor called the suppliers himself to determine whether payment had been received for the month as well as past payments. After a discussion with the various suppliers, it seems that most payments are made late or only partially paid. He asked the supplier to also send the original copies of the invoices issued. Most suppliers have now stopped credit terms and have agreed to cash on delivery only.

The suppliers are based in Dubai and due to various restrictions, they have outsourced delivery to various companies around the UAE.

Accounting department:

The Accountant, Mariam, has been employed at the company for the last 3 years and has her masters in accounting sciences. She has two assistants, Sara and Ahmed. Sara is studying part time and Ahmed has no formal qualifications. The accounting team attends professional training once a month.

The accounting department is off limits to customers and can only be accessed with a password.

Human resources (HR):

Payroll indicates that staff are paid on the 25^th of every month but when talking to employees many of them say they only receive their salaries on the 26^th or 27^th of the month. The new auditor has reviewed the attendance records of the staff for the month as well as the biometric system which is linked to the cameras in the HR office, which the auditor reviewed. He also manually rechecked all calculations of wages to staff and could not find any discrepancies.

Additional information:

The auditor has decided to use computer assisted auditing techniques (CAATs) to help him with the process. The first software he has installed is Audit Board.

He has also created a dummy customer transaction which he has then put through the system to see how it would be recorded.

The auditor has calculated the following financial ratios for the year and compared them to the results the company was hoping to achieve.

Financial ratios
Ratio	Actual	Budget (expected)
Gross profit percentage	20%	15%
Net profit percentage	25%	35%
Trade payables ratio	30 days	20 days
Trade receivables ratio	40 days	30 days
Current ratio	1.25:1	1.40:1
Acid test ratio	1.00:1	0.80:1

The companys yearend is the 31^st October 2021. The interim audit date is planned for the 31^st July 2021 and the final audit date is scheduled to be completed by the 15^th December 2021.

Project Tasks:

Evaluate the principles of internal control in the organisation as well as the tests of control. Control deficiencies needs to be identified from the case study. In your answer discuss, examine techniques to record and evaluate accounting systems.