Charge on the audit of fine chem

Assignment Help Accounting Basics
Reference no: EM131034566 , Length: 2000 Words

TaskCase Study - The information below applies to Questions 1, 2 and 3.

You are the senior in charge on the audit of Fine Chem Pty Ltd (FCPL), a private company controlled by three pharmacists; Janine Cole, Peter Davis and Warren Banks, who form the Board of the company. You firm has just been appointed to complete this audit. FCPL operates 10 pharmacies in the Sydney region. Each of these pharmacies employs one or more pharmacists and a number of sales staff. Janine Cole, Peter Davis and Warren Banks work in each pharmacy on a rotational basis and fill in when there are staff absences. FCPL is looking to expand its operations to Melbourne, and is currently negotiating the finance for and purchase of two additional pharmacies.

As part of the planning stage you have calculated following financial ratios:

Ratio Industry Average
Audited 2015
Unaudited 2016
Quick asset ratio 1.13 1.45 1.45
Invenory turnover (days) 21 25 30
Debt to equity ratio 2.1 1.5 1.5
Gross Profit ratio 0.35 0.45 0.45
Times interest earned ratio 5 6.8 7.2

As you continue in your work on this company you discover the following information about the purchases, accounts payable, sales, cash and inventory systems.

FCPL has a centralised buying operation, managed by Eva Thomson, and a climate controlled storage area attached to the shop at Parramatta. Each week the chemist/store manager at each of the pharmacies provides details of stock required to Eva Thomson. Eva checks if the goods are in the storage area. If they are not currently available she then logs in to the appropriate supplier web site and orders the required goods. Eva emails a copy of the online order to all pharmacies indicating the amount ordered for each pharmacy.Some goods are delivered directly to the individual pharmacies. On receipt, they are checked against the online order copy sent by Eva and entered into the inventory system by one of the shop sales staff.

Other goods such as cosmetics, perfumes, vitamins and other supplements are only directly delivered to the Parramatta pharmacy and later distributed to the individual pharmacies. Eva checks all goods received at the Parramatta pharmacy against the order that she has placed, enters the goods into the perpetual inventory system and files the order alphabetically. Once a week, FCPL uses a contract courier with a climate controlled van to deliver this stock to the other pharmacies. Eva receives all the invoices and enters them into the accounting software, a comprehensive cloud based accounting system.

The company accountant, David Wells, is a contractor working 2 or 3 days as required. He approves the invoices for payment and loads the payment batch file up to the bank. This triggers a record of the payments being made in the accounting system. David reconciles the bank account each week. When David is unavailable to approve payments Warren Banks approves the payments. The payment system records who approves the payments based on the login identification used to access the system. Access to the system can be from any computer connected to the internet. Login is through a login identification and password system. There is no automated system to regularly change the passwords. You noted that last year this cloud based system was hacked. Tax file details were stolen from a number of clients of the cloud based system, false tax returns were lodged and tax refunds stolen by the hackers. Fortunately FCPL employees were not targeted by these hackers.

All sales are either cash or EFTPOS transactions. The cash registers are linked to the accounting software updating the perpetual inventory system and cash at the end of each day's trading. As a perpetual inventory system is used no physical stocktakes are undertaken.

Cash is banked daily by the pharmacist at each pharmacy. As part of the weekly bank reconciliation process David reconciles the daily banking to the cash register/accounting system records. David downloads a balance sheet and profit and loss statement each month and provides these to the Board for their monthly meetings. The accounting system includes a dashboard which can be customised by David to meet the needs of the Board. David has not customised the dashboard as only Warren has expressed an interest in it. Although all Board members have access to the accounting system Warren is the only Board member who regularly accesses the system.

You have noted that one of FCPL's major suppliers is Banks Supplements Ltd. You have further discovered that the CEO of this company is Melinda Banks, the wife of Warren Banks. Banks Supplements Ltd is a large organisation supplying supplements to a growing Asian market.

Question 1:

Analyse the ratios in conjunction with the additional information and identify from your analysis, implications for the audit and any particular audit steps that need to be undertaken to reduce audit risk. For example if there was a worsening debtor's turnover, one of the audit steps would include a review of the provision for doubtful debts. Ensure that you also identify any potential weaknesses in this ratio analysis and any additional information that you will need to make a judgement about the business risk facing the company.

Question 2:

Identify the strengths and weaknesses in the internal control system described above. For each control weakness, identify the financial report assertions that may not be met. Suggest a control to correct any of the deficiencies identified. Identify how this weakness will affect your audit, indicating the additional audit steps and audit evidence that you will need to collect to reduce audit risk.

Question 3:

The COBIT framework identifies seven categories of threats to the computer information system. Consider each of these categories to evaluate the audit and business risks that arise from the information system. Suggest changes that could be made to minimise these risks and identify how these risks will impact on the audit that you will undertake.
Rationale This assessment has been designed to assess your ability to:

  • be able to demonstrate risk management methodologies and the role of internal controls in a audit context;
  • be able to design an audit plan and select and apply appropriate audit procedures for a financialstatement audit;
  • be able to exercise critical and reflective judgment.

Reference no: EM131034566

Questions Cloud

Design a data warehouse architecture : Exploratory Data Analysis and Decision Tree Analysis - Discuss how your high level warehouse architecture design in part A could incorporate the capture processing storage and presentation of big data.
Should the government build the bridge : A company is considering building a bridge across a river. The bridge would cost $2 million to build and nothing to maintain.
Identify various cost aspects for developing his interface : Your journal 3 task is to identify various cost aspects for developing the HIS interface that is accessible through smart handheld devices and integrating the HIS interface securely with other information systems in the hospital
How can social dilemmas hinder global negotiation : How can social dilemmas hinder global negotiation? Give several examples. Choose a country and define foreign investor risks. Do you think that they investor risks can be avoided? Why or why not?
Charge on the audit of fine chem : You are the senior in charge on the audit of Fine Chem Pty Ltd (FCPL), a private company controlled by three pharmacists; Janine Cole, Peter Davis and Warren Banks, who form the Board of the company.
What factors limit chinese economic growth : what is international marketing research? what kind of problems can the research experience at each stage of doing research when in different culture?
How the firm should adjust its mix of capital and labor : Suppose a firm finds that the marginal product of capital is 60 and the marginal product of labor is 20. If the price of capital is $6 and the price of labor is $2.50, describe how the firm should adjust its mix of capital and labor
What is costco impact on the supply chain : How has costco changed retailng and Is Costco business to consumers or business to business marketing or both ?
Developing a comprehensive literature review chapter : This will consist of developing a comprehensive literature review chapter for the business research proposal. You will have to identify a business research topic, describe the literature on the research topic and provide hypotheses based on the li..

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Determined the market value of the land

Determined the market value of the land to be $18,000 at the end of the accounting period.

  The coca-cola company and pepsico

The coca-cola company and pepsico.

  Minimum and maximum cardinalities on the diagram

In both cases of components being used to make products and components being used to make other components, we need to keep track of how many components go into making something else. Draw an E-R diagram for this situation and place minimum and ma..

  Explain the time value of money is it important for

explain the time value of money. is it important for accountants to have an understanding of compound interest

  Define the term green computing and state the primary goals

Define the term green computing and state the primary goals of this program.

  The company desires a 35 profit margin per hour of labor

padong remanufacturing rebuilds spot welders for manufacturers. the following budgeted cost data for 2006 is available

  What was the average annual rate of return on long-term

what was the average annual rate of return on long-term government bonds 30-year treasury bonds during the period 1984

  Goltra clinic is considering investing in new heart

goltra clinic is considering investing in new heart monitoring equipment. it has two options option a would have an

  Charles is a single person age 35 with no dependents in

charles is a single person age 35 with no dependents. in 2010 charles has gross income of 75000 from his sole

  Receipt of the first payment, and the recognition of revenue

Receipt of the first payment, and the recognition of revenue (assume Baylor uses the perpetual inventory method).

  Calculate the net present value assuming that the benefits

a highway department is considering building a temporary bridgeto cut travel time during the three years it will take

  Company''s ability to break even

We've all experienced (or heard about) the challenges that the airlines have been facing. Read the Zacks Investment Research article, "Airline Industry Stock Outlook - August 2012." Identify three factors that are affecting airline company's abili..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd