Part1: Inventory in Dubai Window Glass Co
Fivedeficiencies in the management sector
Thewarehouse manager decided to undertake the task of inventory countinstead of assigning it to a specialist as it has been the case inpast years. The manager’s decision is wrong because he is familiarwith the whole inventory process in the company, thus he knows allthe discrepancies that exist. Moreover, because he will be the onedoing the oversight and reviews he might end up hiding some of theshortcoming that may appear after compiling the final list, to avoidcriticism from the firm’s management.
Despitethe fact that, there are 10 teams who participated in the countingprocess each team comprising of two members of staff, from financeand the manufacturing department the teams lack distinctive divisionof responsibility. In addition, the plan set of each member countingindependently, hinders the chances of identifying errors, as well asincreases chances of having a final copy with unreliable information.
Theinternal audit teams in the firm are working on inventory countsinstead of reviewing performing and controlling sample test counts.In addition, they are relying on counting sheets, which have serial,product codes, and descriptions but there is no column forquantities, thus it is not easy to know the actual quantity of goodsin the firm. Also, some inventories left out on the sheets areentered on separate sheets which are not numbered thus the wholeprocess will not be accurate and comprehensiveness because
Inaddition, the sheets with product codes and descriptions aresequentially numbered and completed in ink however, they lacksignatures of the counting teams. Thus, in case any issue is raisedconcerning counting done on aisle, the inventory audit team will notbe able to know the team they are supposed to ask. Thus, the countingprocess lacks accountability.
Lastly,not all the damaged goods found out during the counting process areseparated from the rest and the teams are just supposed to indicatethe level of damage on the sheets they are using to take inventory.This practice makes it very difficult for the finance group toallocate the exert amount to be used in repairing the damaged tools,because they will be relying on written materials which could beexaggerated instead of analyzing the damage on goods physically.Additionally, the damaged goods can be sold to accidentally tocustomers.
Recommendationsfor the deficiencies
Insteadof involving the warehouse manager and his staffs, the firm shouldbring in another supervisor who is not involved completely with theinventory unit for example, internal audit manager. By doing, thechances of fraud and wrong inventory data will be minimized.
Theten teams used should be well informed on what is expected from themthat is one member is supposed to physically count the aisle whilethe other one counter checks. This will enhance good coordination andeach member will be accountable of his or her work.
Insteadof the internal audit just checking the inventory sheets, they shouldsample check all the counting done by the teams to confirm whetherthe process was accurately done. Moreover, to make sure that thefinal list that they will formulate will be very reliable.
Inaddition, the inventory sheets should have a space for signing uponcompletion of counting aisle. This will ensure accountability in caseany question is raised concerning a certain aisle. The supervisoroverseeing the process is supposed to check where the sheets handedover to him or her are signed before assigning the group anotheraisle to count.
Lastly,all the damaged goods are supposed to be clearly indicated by theteams carrying out the inventory process, and after completion of theprocess, they should be moved to a central area by appropriatemachinery. By doing this, chances of selling the damaged goods tocustomers will be minimized, as well as the finance team will be ableto access the damaged goods easily and allocate appropriate funds.
Part2: Jebel Ali’s sales systems
Recommendationof five tests of controls
Totest whether the systems where customers’ information is beingstored are reliable, the auditor is supposed to enter fictitiousclient’s account number into the system. The computer is supposedto reject the order. This will ensure that the orders processed arefrom valid customers only. Secondly, the auditor should inspectthoroughly customers’ credit application forms formulated by thecredit agency, as well as follow credit limit as per the salessystems. This test ensures that the company’s goods are deliveredto clients with good credit card ratings. Thirdly, invoices should besampled based on the current price list. This is done with the aim ofensuring that all goods are sold only at the authorized prices. Inaddition, the auditor should visit warehouses regularly to confirmthat the process of dispatch is done accordingly(Dutta, 2013).Thisis done to ensure that all the goods are dispatched to the rightclients and in adequate quantities. Lastly, the systems should bereviewed frequently to check whether there was an omission during thewhole sequence. This is done to guarantee completeness of all incomefor goods dispatched.
Substantiveprocedures to follow in confirming receivables balance
Substantiveprocedures involves evaluations of significant trends and ratios thatappear abnormal, and procedures that clarify financial statements.The auditor of Jebel Ali Toy Company can conduct a constructivecirculation of all receivables. This can be done by the auditor bysending reminder letter to ensure follow up of all non-replies afterbeing given permission by the company. Then, the company’saccountant should calculate receivables by evaluating end of yearcash receipts and contrast them with previous years. Additionally,the auditor should assess the sales ledger reconciled and then sampleGDN (goods dispatch notes) and countercheck with the invoices ofsales. This is done to ensure that the financial year documents havebeen done appropriately(Dutta, 2013).The accountant is supposed to present all the matured debts to thecredit manager so as he or she can decide on whether they deserveallowance or not. In addition, the auditor is supposed to ensure thatnot all the post yearly credit notes are included in the list ofdepts. In addition, he or she is supposed to assess all the salesledger concerning credit balances to discuss with the company whetherthey will be classified as payables. Lastly, it is the work of theauditor review annual debt balances to compare them with GDN lists toensure existence.
Substantiveprocedures to follow in confirming revenue
Theauditor is supposed to compare and contrast income against previousperiods and budget, to investigate variations. The accountant issupposed to acquire the list of all toys sold throughout the year andcompare to identify existence of any significant fluctuations.Furthermore, the end of year gross margin is supposed to becalculated and compared with the result of previous years. Inaddition, the auditor is expected to sample larger clients’ salesinvoices to ensure that they got accurate discounts, as well as,sample invoices and calculate the taxed amount. The auditor shouldalso ensure that clients’ orders match with the dispatch lists.Furthermore, a sample of dispatch notes should be followed up toensure that the process was done as expected. Finally, the company’saccountant is expected sample some of the credit notes issued and theend of financial year, and compare them with previous years toconfirm whether the company undertook proper returns.
Dutta,S. K. (2013). Statisticaltechniques for forensic accounting: Understanding the theory andapplication of data analysis.