Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large number of suppliers. As part of the interim audit work four weeks prior to the company year’s end, you are testing the procurement/purchases systems, attending the inventory count and examining the sales and cash receipts. Purchasing/Procurement System When the quantity of a specific part falls below re-order level, an e-mail is sent to the procurement department detailing the part required and the quantity to order. Parts inventory is monitored by the store’s manager with a copy of the e-mail filed on the store manager's computer. Procurement department staff check the e-mail, allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). The order is identified by a unique order number with a copy of the EDI order filed in the order database by the computer system. When goods are received at Carosel, the stores clerk confirms that the inventory agrees to the delivery note. The clerk also checks the order database to ensure that the inventory were in fact ordered by Carosel since delivery is refused where goods do not have a delivery note. The order in the order database is updated to confirm receipt of goods, and the perpetual inventory system updated to show the receipt of inventory. The physical goods are added to the parts store and the paper delivery note is stamped with the order number and is filed in the goods inwards department. The supplier sends a purchase invoice to Carosel using EDI; invoices are automatically routed to the accounts department. On receipt of the invoice, the accounts clerk checks the order database, matches the invoice details with the database and updates the database to confirm receipt of invoice. The invoice is added to the purchases database, where the purchase day book (PDB) and suppliers individual account in the payables ledger are automatically updated. Attending the Inventory count On the day of the inventory count, you attended site 4 at Carosel. You observed the following activities: Pre-numbered count sheets were being issued to client's staff carrying out the count. The count sheets showed the inventory ledger balances for checking against physical inventory. All count staff were drawn from the inventory warehouse and were counting in teams of two. Three counting teams were allocated to each area of the stores to count, although the teams were allowed to decide which pair of staff counted which inventory within each area. Staff were warned that they had to remember which inventory had been counted. Information was recorded on the count sheets in pencil so amendments could be made easily as required. Any inventory not located on the pre-numbered inventory sheets was recorded on separate inventory sheets – which were numbered by staff as they were used. At the end of the count, all count sheets were collected and the numeric sequence of the sheets checked; the sheets were not signed. Sales and Cash Receipts Carosel has experienced substantial success, with customer numbers increasing by approximately 15% annually. Sales at Carosel are categorized as cash sales and credit card sales. All sales are recorded on a computer, including the amount of each sale and the parts issued. This information is electronically transferred to the accounts office. Cash collected from each office is counted by two accounts clerks and two security guards before being banked daily. The total cash is reconciled with the sales information transferred. The cash received is then recorded in the cash book and general ledger. Required a) What are the audit procedures that an auditor will normally perform prior to attending the client's premises on the day of the inventory count? b) State the aim of a test of control and the aim of a substantive procedure and in respect of your attendance at Carosel’s inventory count, state one test of control and one substantive procedure that you should perform?
Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large number of suppliers. As part of the interim audit work four weeks prior to the company year’s end, you are testing the procurement/purchases systems, attending the inventory count and examining the sales and cash receipts.
Purchasing/Procurement System
When the quantity of a specific part falls below re-order level, an e-mail is sent to the procurement department detailing the part required and the quantity to order. Parts inventory is monitored by the store’s manager with a copy of the e-mail filed on the store manager's computer.
Procurement department staff check the e-mail, allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). The order is identified by a unique order number with a copy of the EDI order filed in the order database by the computer system.
When goods are received at Carosel, the stores clerk confirms that the inventory agrees to the delivery note. The clerk also checks the order database to ensure that the inventory were in fact ordered by Carosel since delivery is refused where goods do not have a delivery note.
The order in the order database is updated to confirm receipt of goods, and the perpetual inventory system updated to show the receipt of inventory. The physical goods are added to the parts store and the paper delivery note is stamped with the order number and is filed in the goods inwards department.
The supplier sends a purchase invoice to Carosel using EDI; invoices are automatically routed to the accounts department. On receipt of the invoice, the accounts clerk checks the order database, matches the invoice details with the database and updates the database to confirm receipt of invoice. The invoice is added to the purchases database, where the purchase day book (PDB) and suppliers individual account in the payables ledger are automatically updated.
Attending the Inventory count
On the day of the inventory count, you attended site 4 at Carosel. You observed the
following activities:
Pre-numbered count sheets were being issued to client's staff carrying out the count. The count sheets showed the inventory ledger balances for checking against physical inventory.
All count staff were drawn from the inventory warehouse and were counting in teams of two.
Three counting teams were allocated to each area of the stores to count, although the teams were allowed to decide which pair of staff counted which inventory within each area. Staff were warned that they had to remember which inventory had been counted.
Information was recorded on the count sheets in pencil so amendments could be made easily as required.
Any inventory not located on the pre-numbered inventory sheets was recorded on separate inventory sheets – which were numbered by staff as they were used.
At the end of the count, all count sheets were collected and the numeric sequence of the sheets checked; the sheets were not signed.
Sales and Cash Receipts
Carosel has experienced substantial success, with customer numbers increasing by approximately 15% annually.
Sales at Carosel are categorized as cash sales and credit card sales. All sales are recorded on a computer, including the amount of each sale and the parts issued. This information is electronically transferred to the accounts office.
Cash collected from each office is counted by two accounts clerks and two security guards before being banked daily. The total cash is reconciled with the sales information transferred.
The cash received is then recorded in the
Required
a) What are the
b) State the aim of a test of control and the aim of a substantive procedure and in respect of your attendance at Carosel’s inventory count, state one test of control and one substantive procedure that you should perform?
![](/static/compass_v2/shared-icons/check-mark.png)
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)