(iii) To help achieve the budgeted sales for the year, Sampson is about to introduce bonuses for its sales staff. The bonuses will be an increasing percentage of the gross sales made, by each salesperson, above certain monthly targets. (iv) The company is using a new general ledger software package. The financial controller is impressed with the new system, because management accounts are easily produced and allow detailed comparisons with budgets and prior-period figures across product lines and geographical areas. The conversion to the new system occurred with a minimum of fuss. As it is a popular computer package, it required only minor modifications. (v) As part of the conversion, the position of systems administrator was created. This position is responsible for all systems maintenance, including data backups and modifications. These tasks were the responsibility of the accountant. Required: For each of the scenarios above, explain how the components of audit risk (inherent, control or detection risks) are affected
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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(iii) To help achieve the budgeted sales for the year, Sampson is about to introduce bonuses for its
sales staff. The bonuses will be an increasing percentage of the gross sales made, by each
salesperson, above certain monthly targets.
(iv) The company is using a new general ledger software package. The financial controller is impressed
with the new system, because
comparisons with budgets and prior-period figures across product lines and geographical areas.
The conversion to the new system occurred with a minimum of fuss. As it is a popular computer
package, it required only minor modifications.
(v) As part of the conversion, the position of systems administrator was created. This position is
responsible for all systems maintenance, including data backups and modifications. These tasks
were the responsibility of the accountant.
Required:
For each of the scenarios above, explain how the components of audit risk (inherent, control or detection risks) are affected.
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