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Part 2 - Practical Case A junior auditor (Initials AW) condueted the tests of controls on the Sales and Accounts Receivable process for Kagaya Tea Warehouse's (KTW) wholesale operations. They completed the audit program using the evidence items provided. Your role is to review the work and identify any mistakes in Ziva's work. Here is some information about the client KTW. Besides having its own stores in major shopping centers in Sydney, KTW also sells its products wholesale to retailers in Queensland and Victoria. The following points describe the Sales, Accounts Receivable and Cash Receipts processes. - Salesclerk (Ziva) receives orders over the phone from wholesale customers. - Ziva uses the computer system to prepare the Customer Order. Gibbs is the Sales Manager. and he must approve all orders over $5,000. Ziva keeps a copy of the signed Order on file and also sends a copy to the Warehouse Clerk (Anthony). - Anthony receives the copy of the Customer Order and goes through the Warehouse to fill that particular order. - Anthony prepares a Packing Slip using a barcode seanner - the Slip lists everything in the box - this should equal everything that was ordered. However some times an item ordered by a wholesale customer may be out of stock or there is not enough inventory to fill the order. - Once goods are scanned and the Packing Slip is complete - the computer automatically updates the system and Accounts Receivable are notified. Abbey is the AIR Clerk - on a daily basis she creates and posts Sales Invoices to wholesale customers. - Invoices are created in an automatic system - prices are obtained from a Master Price List file. The system also automatically calculates each line item on the invoice (quantity x price) and invoice total. Once an invoice is created on the system - the accounting software automatically creates the relevant journal entries. - The original Packing Slip is included in the box shipped to the customer. A copy of the Packing Slip is filed in the Warehouse. - KTW does not make the deliveries to wholesale customers. KTW uses a professional courier company specializing in transporting delicate items. The courier company picks up orders daily from KTW. The courier must sign the copy of the Packing Slip filed by the warehouse as proof of shipment/delivery. - Wholesale customers have 30 days to pay their account from the date on the invoice. If a customer pays within 10 days, a 5% discount is given. Customers must calculate their own discount and deduct it from the payment they make (if applicable). - Customers can make payments via cheque or electronic funds transfer (EFT) directly into KTW's bank account. [1] Kagaya Tea Warchouse Pty Lid Testing of Sales and Cash Receipts Internal Controls - Audit Program Period ending 30 June 2010 A following team member has collected audit evidence contained in the subsequent paces. Use that evidence to conduct the following tests of intemal controls. Kagaya Tea Warehouse Pty Lud Summary of deviations/exceptions detected during testing Period ending 30 June 2010. The tolerable number of deviations set by the Audit Manager is 2 deviations over all tests conducted. The preliminary control rikk assessment is LOW. Kagaya Tea Warchouse Pty L.d Conclusions of faternal Control Testing Period ending 30 June 2010. Conclusion on whether controls are operating effectively: What should the control risk be. What will be your next steps as the auditor? Sales Journal Entries Cash Journal Entries Sales Master Price List 11 Packing Slips \begin{tabular}{|c|c|} \hline \begin{tabular}{l} Ordert: \\ Packings: \\ Dale: \\ Customer: \end{tabular} & \begin{tabular}{l} TW Packing Slip \\ 1456 \\ 1678 \\ 17/01/2010 \\ Moomba China Pty utd \end{tabular} \\ \hline Oiv Pros & Product \\ \hline 135 Jape & Japanese Rce Bowls \\ \hline 180Jape & Japanese Soup Bowls \\ \hline 90Japen & Japanese Deep flowts \\ \hline \multicolumn{2}{|c|}{ Courier signature: } \\ \hline \end{tabular} [7]