Audit Case St. James Engagment

MEMO

To: Betty Watergate

From:

Date: December 3, 2011

Subject: St. James engagement

Betty,

I have reviewed the narratives prepared by Rob in regards to the audit planning procedures for the current year’s December 31, 2009 financial statement audit. After reviewing the narratives there were some interesting findings in regards to the manual sales accounting systems which create risks that increase the likelihood of material misstatements in the financial statements, but can be minimized by the proposed IT-based sales accounting system. These findings can be found in the table below.

Risks of Manual System | How Risks Impact Financial Statements | New IT System Features that Mitigate Manual System Risks |

Staff could pad their sales figures in order increase their bonus amount. | This risk would cause sales figures to be inflated higher than they should be, therefore, misstating revenue figures as well as having the same effect on salary and wages figures. Both would affect the income statement. | This risk becomes minimized in the new IT system through the selling price, product quantity, and personal code are accounted for automatically electronically, therefore, employees cannot inflate numbers and sales are automatically accounted for. |

Miscalculation of sales discounts, price deductions, or even the sales price as the cashier relies on the sales person for help in these areas and is then calculated by hand. | Again, this risk could mislead sales figures in either a negative or positive manner it would vary by error as well sales tax being wrong (calculated based on total price calculated). | This risk would be minimized as all prices and taxes would be calculated automatically electronically without human error. If there is an error manager only password would have to be used. |

Without keeping accurate records of inventory employees as well as customers could make off with inventory whether accidental or intentional. | This risk...