Ans 1. (i) Following are the risk & control to be implemented to mitigate that risk:
a. Risk -
Control - 1. There should be different person allocated to each & every activity performed by Brenda.
ii). Short procedures to be performed by auditor to check the Hummingbird's revenue:
a. Physical verification of Inventory: Auditor should calculate the closing inventory for the year ending & should do inventory audit to confirm the same. This is required to confirm that revenue of all the products sold has been properly accounted for in the system.
b. Verify the billing data with dispatched data: Auditor should reconcile the billing data with dispatched to check the revenue leakage. There might be a situation where products has been dispatched, however, billing has not been done or vice versa.
c. 3 way reconciliation Billing data vs dispatched data vs revenue accounted: Billing data should be reconciled with dispatched data & with revenue accounted in the accounting system. This will ensure that all the dispatched goods were billed & all the billed transactions has been accounts in the system.
d. Verify the key customers invoiced prices with prices in agreement: Auditor should check the prices invoiced to the key offline customers with the prices in agreement. This will ensure that all the sold materials were priced appropriately as compared to agreed prices. There is no unauthorized price charged to the customers.
e. Verify the integration of online prices with the approved prices by management: Auditor should audit the system which provide online prices to the customers. these prices should be in line with management approved prices.
f. Account balance confirmation from customers: Auditor should ask for confirmation from customers on account balance. This will ensure that customer has received & accounted all the revenue transactions & there is no disputed transaction between the company & customer.
2. COSO principles:
a. Focus No. 10.6 - Management segregates incompatible duties, and where such segregation is not practical management selects and develops alternative control activities.
As per this focus point, there should be segregation of duties between order booking, Invoice processing & payment processing. One person should not be responsible for above 3 activities. However, these acitivities should be linked with each other to have smooth sales system.
b. Focus No. 10.5 - Management considers control activities at various levels in the entity.
As per this focus point management should have maker checker mechanism over all the three activities done by Brenda. Further, control activity should be there on customer account balance confirmation to have assurance on the revenue transactions.
c. Focus No. 11.1 - Management understands and determines the dependency and linkage between business processes, automated control activities, and technology general controls.
As per this focus point, there should be automated control activities on the online business. As the order confirmation is automatic activity, then management should have strong internal control on the order confirmation. For ex. System should not allow order above finance approved credit limit until & unless the customer pay the organisation.
Further, System should not show online price below management approved product price.
revenue is generated by contracts to supply toiletries to hotels. Below is a descripsion of the sales system...
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