What are the answers to case 1?

CASES CASE 12 Mark Hobson 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 is an internal auditor employed by ComI tock Industries. He is nearing completion of an audit of should be written off, but there is no policy defining an 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 And as for those receivables Brenda continued, 'that obsolete part supply about so pereent of Comstock's sales In addition tois certainly a judgment call, too. Who knows if those the manufacturing divisions, Comstock has two market accounts will be collected? We're in a slight recession now ing divisions (domestic and international) and a technical When things pick up, we'll probably collect a few.There service division that offers worldwide technical support. isnt even a policy in this division on writing off recein Each customer is assigned to the most suitable manuac lsI checked. Nothing says I have to write them off. So turing division, which funetions as the supplier for that who are you to say I have to? customer. The manufacturing division then approves the eustomer's credit, ships against orders obtained by the Brenda, be straight. You know those parts will never be sales representatives, and collects the customer receiv used. And you know those receivables are bad ables when due. This allows order-to-order monitoring of customer credit limits against eustomer orders received, Look, Mark, Brenda finally bargained. its only two weeks from the close of the year. Let's let these items ride till after the close so that everyone gets their bonuses Then, I promise '1ltake a fresh look at both inventories Two Potential Observations Two items concern Mark. First, there was a material dollar and receivables. I'll write them down after year-end, ater amount of inventory of part number A2 still carried on the the financial reports are issued. No one will know. And. Avil books at year-end, despite the fact that the Fast-tac afteall who's to be hurt? machining component in which part A2 was used is now considered first generation and is no longer manufactured. The Division Manager Company policy requires an immediate write-off of all obsolete inventory items. Second, some accounts recelv Mark continued his audit, drafted his report containing able still carried as collectible at year-end were more than 180 days old. All receivables are due in 30 days, which is and reviewed the report with the division manager, Hal observations related to the inventory and receivables, standard for the industry. Mark believes many of these old Wright. Hal s visibly disturbed accounts are uncollectible. Gee, Mark, this couldnt have come at a more awkwand The division managers administrative assistant, Brenda time. Our figures just passed muster by the independent Wilson, performed the aging of accounts receivable rather outside auditors. There was a guy out here for our inven- than the division accountant, as is standard practice. The tory count in November, and Brenda already sent her division accountant refused to discuss the circumstances of spreadsheet on year-end receivables to corporate head- Brenda's actions quarters. No one up there, in our group or on the CPA audit team, was the least bit critical. If you go raising a big stink, particularly now, the independent outside auditors will catch us writing off inventory and recelv- ables, they'll adjust profit, and there will be hell to pay for all of us. And, Mark, this is no clear-cut issue either. The Auditee's Comments Mark scheduled a meeting with Brenda to diseuss his concerns Well, Mark, Brenda responded, I know that policy I mean, I can see how you can write a report calling for clearer policy, but not one calling for specific write- A2 is just not being used at present. We might start to downsThat's way out of your jurisdiction. But still, 1 make those Fast-tac components again. Who knows? promise, we'll look at all this after our statements go to Wide ties are coming back again, arent they? Fast-tac bed. Right now, I feel the managers of this division have could, too. There are plenty of customers, especially worked their hearts out and I intend to fight to protect 2-44 NTERNAL AUDITING ASSURANCE&ADVISORY SERVICE