Victoria is overseeing the accounts receivable ledger. Her main focus is the posting of entries for sales and sales returns to the control account and the individual accounts receivable accounts. The members of her team have each been given specific tasks, which are detailed in the audit program. A predominantly substantive approach is being taken to the audit of accounts receivables for this client because, although controls at the company are generally good, the accounts receivables area is not significant enough to justify extensive controls testing.
Due to staff shortages this year, Victoria has been assigned a group of inexperienced audit assistants. Therefore, she has to be very careful when evaluating the results of the testing. In some cases, the working papers are not completed with sufficient detail; in others she has to ask the audit assistants to redo the work.
Required
(a) Help Victoria explain to her audit assistants the reasons why they must account for the numerical sequence of sales invoices, credit (sales returns) memos, sales orders, and shipping documents.
(b) One of the audit assistants is checking credit memos. The task is to compare the dates, products, quantities, prices, and amounts on credit memos and supporting documents with the entries to customer accounts for sales returns and allowances. The assistant checks all memos with dates up to and including December 31 (year end) and reports that he finds nothing unusual. Why would Victoria send the assistant back to examine credit memos with January dates? Explain.
(c) Why is it important for Victoria to undertake some procedures herself, such as reviewing the accounts for unusual items, instead of assigning the tasks to the assistants? What types of things would she be looking for when performing these procedures? What other procedures would be best performed by a more senior auditor?