Auditing XYZ Company: upper deviation rate versus tolerable
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Sales and Collection Cycle
The XYZ Company billing department has decided to assign one employee to each of its customers. This employee will be responsible for granting credit to the client and then handling the billing. XYZ believes this will result in better customer service, because the client will only have to deal with one person and that one person will be very familiar with the credit terms. As an auditor, would you agree with XYZ's decision?
Assume an account receivable confirmation is returned with a note to the auditor describing a difference between your client's records and the customer's records. Clearly describe below two potential non-misstatement timing differences that could cause a discrepancy between a client's receivable records and his/her customer's records. The timing differences you describe should be such that after investigation you would determine that your client's receivable balance is not misstated due to these differences.
Sampling
Your manager, Sally, believes that nonstatistical sampling is the best method to use on the audit of YaYa Corporation. You, however, believe that statistical sampling is by far the best method. In addition, you have a great deal of training in the proper use of sampling techniques. Prepare an argument to convince Sally why statistical sampling should be used.
Before performing sampling procedures in an audit of controls, Sue set the tolerable deviation rate at 4.0%. After the procedures, she computes a computed upper deviation rate of 5.4%. What can Sue conclude about the client's controls?
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The XYZ Company billing department has decided to assign one employee to each of its customers. This employee will be responsible for granting credit to the client and then handling the billing. XYZ believes this will result in better customer service, because the client will only have to deal with one person and that one person will be very familiar with the credit terms. As an auditor, would you agree with XYZ's decision?
No. Segregation of duties has its downside, such as having customer deal with two people instead of one. But, the segregation can prevent and detect errors, intentional and unintentional and is the "gold standard" for controls. If you permit the person authorizing credit to also send out the bills, they might collude with a customer, authorize credit to them and send them goods without making them pay (delete the invoice), splitting the bounty with the customer. If they innocently granted credit ...
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