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You are the audit partner that engaged in auditing SoClean Ltd ( SC ) for the financial year end 3 0 June 2 0 3
You are the audit partner that engaged in auditing SoClean Ltd SC for the financial year end June which is a manufacturer of detergent products, the company has been trading for the past o years and sells to wide variety of customers including large and small wholesalers and retailer across Australia.
SoClean has a manufacturing plant located in VIC, large warehouses in major states across Australia and the head office located in VIC. After manufacturing the products are stored in one of the warehouses until they are dispatched to customers. The company do not have internal audit department
Sales ordering, goods dispatched and invoicing
Each customer has a unique customer account number which is used to enter sales orders when they received in writing from customers. The orders are entered by a sales department clerk and the system automatically checks whether the goods are available and that the order will not proceed for the customer over their credit limit
For new customers, sales manager completes a credit application, that thoroughly checked by the credit controller Credit check using rd party services and decided what will be the credit limit Once its done credit controller then set up the customer within the system with the credit limit
The company has a price list which is updated twice a year. Wholesale customers are entitled to quantity discount which is agreed and approved by the sales director and set up within the customer master file.
Once the order is entered, an acceptance is automatically sent to the customer by email confirming the goods ordered and likely dispatch date. The warehouse closest to the customer received the order electronically, dispatch list and sequentially numbered dispatch notes are automatically generated. The warehouse team pack the goods from the dispatch list and before they are sent out, a second member of the warehouse team double check the dispatch list to the dispatch note which accompanied the goods.
Once dispatched, a copy of the dispatch note is sent to the accounts team at head office and a sequentially numbered sales invoice is raised and checked with the dispatch note.
Periodically a computer sequence check is performed to identify any missing sales invoice numbers.
Fraud
During the year, a material fraud was uncovered. It involved cashcheque receipts from customers being diverted into employees personal accounts. In order to cover up the fraud, receipts from subsequent unrelated customers would then be recorded against the earlier outstanding receivable balances and this cycle of fraud would continue.
The fraud occurred because two members of staff who were related colluded. One processed cash receipt and prepared the weekly bank reconciliation; the other employee recorded customer receipts in the sales ledger. An unrelated sales ledger clerk was supposed to send out monthly customer statements but this was not performed. The bank reconciliations each has a small unreconciled amount but noone reviewed the bank reconciliations after they were prepared. The fraud was only uncovered when the two employees went on holiday at the same time and it was discovered that cash receipts from different customers were being applied to older receivable balances to hide the earlier sums stolen.
Required:
A Recommend FIVE tests of controls the auditor would normally carry out on the sales system of SoClean and explain the objective for each test.
B Describe THREE substantive procedures the auditor should perform to confirm SoClean yearend receivable balance.
C Identify and explain THREE controls SoClean should implement to reduce the risk of fraud occurring again and for each control, describe how it would mitigate the risk.
D Describe THREE substantive procedures the auditor should perform to confirm SoClean revenue.
Hi team, please give me each steps nice and easy so that i can use it for my good understanding
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