Questions - Images to these questions are attached below.(a) Recommend SIX tests of controls the auditor would normally carry out on the sales system of Tinkerbell, and explain the objective for each test.(b) Describe substantive procedures the auditor should perform to confirm Tinkerbell’s yearend receivables balance (c) Identify and explain controls Tinkerbell should implement to reduce the risk of fraud occurring again and, for each control, describe how it would mitigate the risk.(d) Describe substantive procedures the auditor should perform to confirm Tinkerbell’s revenue. Fraud.During the year a material fraud was uncovered. It involved cash/cheque receipts fromcustomers being diverted into employees' personal accounts. In order to cover up the fraud,receipts from subsequent unrelated customers would then be recorded against the earlieroutstanding receivable balances and this cycle of fraud would continue. The fraud occurredbecause two members of staff who were related' colluded. One processed cash receipts andprepared the weekly bank reconciliation; the other employee recorded customer receipts in thesales ledger. An unrelated sales ledger clerk was supposed to send out monthly customerstatements but this was not performed. The bank reconciliations each had a small unreconciledamount but no-one reviewed the reconciliations after they were prepared. The fraud was onlyuncovered when the two employees went on holiday at the same time and it was discoveredthat cash receipts from different customers were being applied to older receivable balances tohide the earlier sums stolen. Tinkerbell Toys PLC (Tinkerbell) is a manufacturer of children's toys. They have been tradingfor over 35 years and they sell to a wide variety of customers including large and small toyretailers across the country. The company's year-end is 31 May 2021.The company has a large manufacturing plant, four large warehouses and a head office. Uponmanufacture, the toys are stored in one of the warehouses until they are despatched tocustomers. The company does not have an internal audit department.Sales ordering, goods despatched and invoicing.Each customer has a unique customer account number and this is used to enter sales orderswhen they are received in writing from customers. The orders are entered by an order clerk andthe system automatically checks that the goods are available and that the order will not take thecustomer over their credit limit. For new customers, a sales manager completes a creditapplication; this is checked through a credit agency and a credit limit entered into the system bythe credit controller. The company has a price list, which is updated twice a year. Largercustomers are entitled to a discount; this is agreed by the sales director and set up within thecustomer master file. Once the order is entered an acceptance is automatically sent to thecustomer by mail/email confirming the goods ordered and a likely despatch date. The order isthen sorted by address of customer. The warehouse closest to the customer receives the orderelectronically and a despatch list and sequentially numbered goods despatch notes (GDNS) areautomatically generated. The warehouse team pack the goods from the despatch list and,before they are sent out, a second member of the team double checks the despatch list to theGDN, which accompanies the goods. Once despatched, a copy of the GDN is sent to theaccounts team at head office and a sequentially numbered sales invoice is raised and checkedto the GDN. Periodically a computer sequence check is performed for any missing salesinvoice numbers.

(a) Test of control Objective of the test The auditor should attempt to verify the validity of…

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10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q