Henrico Retail Inc - Assignment Example

Henrico Retail Inc Sales transaction audit trail i) On basis of product number the computerized cash register verifies product number, price fromonline master file, and make calculations in order determine final amount to be charged to customer. ii) Only Visa and Mater cards are accepted and the approval or denial of card is electronically transmitted to cash register system, with credit approval code when approved. The original charge slip signed by customer is kept in cash register till it is sent to store cashier every evening. iii) A paper receipt generated by cash register for both cash and credit card sale is provided to customer. Hard drive of computerized on line cash register saves all such generated receipt records along with all calculations of transactions in transaction electronic file and this file is up dated to main server on hourly basis. Sales clerks cannot make access to transaction electronic file iv) Input changes like new products, prices, and others in master files are made and approved by Store Manager’s staff on weekly basis. With regard to employee master file, only Human Resource manager is authorized to make changes. v) Any store clerk can operate any store cash register machine provided the machine approves his/ her employee identification number. vi) At the end of the each day the store clerk, after ensuring the transaction file stored on cashier’s hard drive, prepares a Daily Deposit Sheet, that contains the following details of transactions of the day: Listing of cash sale with total cash count Listing of Credit sales Other transactions generated by register closing process Differences in cash and credit slips counts to transaction total found on reconciliation. vii) The store clerk delivers physical cash (leaving $ 200 in cash drawer), credit slips, along with Daily Deposit Sheet to stores cashier, who makes counter verifications with Daily Deposit Sheet and sign its cash and credit columns in respect of each register. viii) Every night all cash drawers are stored in safe deposit vault by the cashier. ix) Every night Brinks Security system takes cash and credit charge slip to local bank’s overnight depositary. Each day the bank emails the confirmation of deposits processed for previous day to stores accountant and stores cashier. x) Each day an independent reconciliation is made in accounts department of all Daily Deposits Sheets with amount deposits processed by the bank. Thereafter email received earlier from bank is printed and filed along with Daily Deposit Sheets. xi) Overnight the stores computer generates a summarized Daily Sales Report (providing details about total sales, cash sales, and credit sales) that is electronically stored with the server, and also transmitted to corporate office main frame by each midnight. A paper copy of this Daily Sales Report is generated for each store. xii) Perpetual Inventory Record Store’s computer server updates perpetual inventory record overnight Electronic copy is transmitted to corporate office, and no paper copy is generated. An inventory report is generated every month based on perpetual inventory file. xiii) Store’s computer generates Monthly Sales Reports on basis of daily sales reports containing sales totals for each day of month. A copy is transmitted to corporate office and a printout is taken. xiv) Based on this monthly report corporate office prepares consolidated and summarized General Ledger 2. Existence assertion for the sale account Assertions about exertion deal with whether assets or liabilities of the entity exist at a given time and whether recorded transactions have occurred during a given period. For example management assets that finished good inventories in the balance sheet are available for sale; or that sales in income statement represent the exchange of goods and services with customers for cash or other consideration. A strategy to audit existence assertion for sale in the case Henrico Retail Inc. is proposed as under: Select samples of transactions from Monthly sales Reports selected with reference to monthly sales records in General Ledger maintained by corporate office. Vouch those monthly sales reports with Daily Sales Report generated by each store’s computer and transmitted to corporate office. A paper copy is available with each store that may help in this audit procedure. Vouch the daily sales transaction selected from Daily Sales Reports to the source documents like, Daily Deposit sheet. Listing in Daily Deposit Sheet may be verified with receipts of cash and credit sales submitted by store clerk to store’s cashier. Verify daily cash deposit with reference to daily e-mail being received by the cashier and the entries in Daily Deposit Sheet submitted by store clerk. Compare few of the daily sales quantitative transactions provided in Monthly Sales Reports with inventory report generated monthly and the perpetual inventory file on basis of which monthly inventory report is generated. Sufficient paper based audit trails are available to audit the existence assertion, like Daily Deposit Sheet, email containing the confirmation of deposit, sent by bank to cashier and store’s manager, perpetual inventory file, Daily Sale Reports; and Monthly Sales Reports. 3. The evidence sources to test the existence of sales transaction at one store would be as under: Original charge slips for credit sales Master File Transaction Electronic file Daily Deposit Sheet Bank’s e-mail confirmation of deposit Daily Sales Report Perpetual Inventory file Original charge slip helps in verifying the credit sales in the listing of Daily Sales Report. Cash sales listing can be verified with deposit e-mail confirmation sent by the bank. Prices, calculations an each sale can be checked with the help of Master file, Transaction Electronic file. Perpetual inventory file, that is being updated every night, will provide information about quantities issued on each sales transaction. 4. Auditing Valuation assertion for the sales Assertion about valuation deals with whether, asset, liability, revenue, and expense components have been included in the financial statements at appropriate amounts. Audit strategy with regard valuation assertion for the sales would be as under: Verify whether the input changes made in master file by Store Manager’s staff with regard to price are effectively working immediately from the date of changes. Verify few transactions from Transaction Electronic file with reference to master file. Verify all credit charge slips with listing of credit sale in Daily Sales Report in order to ensure that all credit sales for the day are being reflected. Verify quantity sold as shown for each transaction in Transaction Electronic file with reference to Perpetual Inventory file. Certainly there is paucity of paper evidences while auditing valuation assertion for the sales. Practically all the evidences like Transaction Electronic File, Master File, and Perpetual Inventory file are electronically kept records. Only Credit charge slips, Daily Sales Reports are available in paper format. Accordingly valuation assertion for sales cannot be asserted without relying on IT audit specialists to test electronic only processes. 5. The assistance from IT systems auditors is required particularly in accounting systems enumerated hereunder: Initial recording and subsequent changes in the Master file, on the basis of which the computer start processing the both cash and credit sales. The detail of transactions recoded in Transaction Electronic File can only be authentically verified by an IT audit expert. Perpetual Inventory record that is automatically maintained overnight need the services of an IT audit expert to ensure the correctness of the record. 6. Control Deficiencies in existing Sales System The major difference is that there is no provision of recording credit sales otherwise than sales through credit cards. Accounts Receivables other than credit card sales do not figure in the entire system. Same store clerk execute cash sales as well as prepare the Daily Deposit Reports. There is no automatic check internal control system. General ledger maintained at corporate office records sales only on basis of monthly report. A month is long gap when there is large network of stores. No separate cash accounting record showing daily cash sales, forming part of main accounting records at corporate office, is being maintained at different stores. There is no system to verify perpetual stock record, maintained automatically by computers, with physical stocks on regular intervals, at least once in a month. Losses on account of theft, pilferages, shrinkages, and evaporations go unnoticed and no adjustments are being made for such losses in perpetual stock recording systems. Credit Cards other than Master and Visa are not being accepted. Read More