Group 1
Apollo 7: Control evaluation and testing in the revenue cycle – evaluate the results of the control testing of the revenue cycle using the materials in the case. Look for patterns in errors that may indicate specific weaknesses over assertions. Refer to chapter materials for basic audit procedures and discussion of how to evaluate the results of your tests based on the preliminary risk assessment. Try to identify trends or specific areas of concern based on the results of control tests that were performed.
Some specific trends/areas of concern: * Although Sales went down by 4% Sales Returns increased by 202.39%. * As mentioned in a previous report, the loan to the CEO’s secretary is incorrectly accounted for under Other Receivables. * Apollo sent Mall-Warts an unsolicited order in December even though Mall-Warts had informed Apollo in November that they were going into bankruptcy. * The accounting and control manual has not been kept current. * Customers who are shopping at Apollo’s location are allowed to pick their own orders. * 33% of the errors found were overbilling errors. While the amount is not material, over 70% of the errors occurred a month before the end of a quarter. Also, none of the billing errors were under billing. * Several transactions were missing the bill of lading. * Two invoices out of 51 were found with no information other than the invoice number and overcharge amounts. * 55.82% of sales were made with no credit approval.
The most obvious control issue is the lack of credit approvals (31out of 51 samples), which could affect valuation of Accounts Receivable. For example, Mall-Warts owes Apollo over $17 million as of 12/31/11. There were indications that Mall-Warts could be having problems and some of that $17 million may become uncollectible. The company ordered $4,333,275 of merchandise in