Ateneo de Davao University Ateneo de Davao University School of Business and Governance School of Business and Governance Bradmark Comprehensive Case Bradmark Comprehensive Case
Revenue Cycle Revenue Cycle
In Partial fulfillment of the Requirements In Partial fulfillment of the Requirements
In the Course In the Course IT Audit – IT IT Audit – IT Presented to! Presented to! Mrs. Mylene S. Caballero Mrs. Mylene S. Caballero Professor Professor Presented "y! Presented "y!
Course and Section! Course and Section!
Date! Date!
Bradmark Wholesale General Supply
An ACL™ Case Study
Bradmark is a wholesale general supply company that ships to business customers throughout Northeast Pennsylania! New "ork state! and Southern Connecticut# Bradmark has deeloped a
competitie edge by o$$ering a wide ariety o$ %uality products at competitie prices# &he company's products range $rom paint to watering cans#
Bradmark is a publicly owned company! whose board o$ directors has retained your $irm to conduct the annual audit# "ou are the in(charge auditor who is currently e)amining Bradmark's reenue and e)penditures procedures and related accounts# Bradmark's main o$$ices are in its Allentown! PA warehouse# &he $ollowing describes your client's system con$iguration and business procedures#
System Overview and Background
Bradmark's in$ormation system is a recently purchased application that runs on a client(serer network con$iguration# *ames Walker! a systems designer in Bradmark's +& department! played a central role in implementing and modi$ying the system to meet Bradmark's speci$ic needs#
Because o$ Walker's $amiliarity with the system! he was asked by top management to
temporarily oersee the initial running o$ the new system to en sure a smooth transition $rom the old legacy system# A$ter seeral months! *ames Walker was o$$ered a promotion to Warehouse ,anager and gien permanent responsibility $or product purchasing#
Sales and Cash Receipts Procedures
&he $lowchart in -igure . and the record layout in -igure / 0see the related PowerPoint $ile $or $igures1 illustrate Bradmark's sales and cash receipts procedures#
Sales Department
Customer orders are receied by mail or $a) in the sales department# 2ne o$ the sales sta$$ accesses the customer record and reiews the aailable credit be$ore creating a Sales +noice record# -or customers with insu$$icient aailable credit! the clerk submits the order to the credit manager $or approal# +$ granted! the credit manager erbally authori3es the clerk to increase the customer's line o$ credit accordingly# -or approed sales! a record is added to the Sales +noice $ile# &he system automatically assigns an +noice Number! which is the primary key $or the record# &he clerk manually enters the remainder o$ the order data#
Warehouse
Based on input $rom the sales inoice! the warehouse terminal automatically prints a stock release document! which the warehouse sta$$ uses $or picking the goods# &he goods are sent to the Shipping 4epartment along with the stock release document# 2nce the goods hae le$t the warehouse! the clerk con$irms to the system the %uantity sold and it automatically updates the 5uantity on 6and $ield in the respectie inentory record#
&he shipping department receies the goods! prepares them $or shipment! selects a carrier and prepares the packing slip and bill o$ lading 0B2L1# 2nce the goods are shipped! the clerk adds a
record o$ the shipment to the Shipping Log $ile# Billing
At the end o$ the day the system automatically searches the Sales +noice an d Shipping Log $iles $or items shipped and prepares a hard copy customer inoice! which is mailed to the customer the $ollowing morning# &he current date is then placed in the 4ue 4ate $ield o$ the Sales +noice $ile#
Cash Receipts
,ary! the cash receipts clerk! receies the customer checks and remittance adises directly $rom the customer# She records this transaction by entering the +noice Number 0taken $rom the remittance adice1 into the system# &he system automatically creates a Cash 7eceipts record# +t assigns a 7emittance Number as the primary key and adds this number to a $ield in the related Sales +noice record# &he +noice Number $rom the Sales +noice is also added to the remittance record as a re$erence# ,ary then manually adds the customer number! amount! and payment date to the Cash 7eceipts record# At the end o$ the day she prepares a deposit slip and sends the
checks to the bank# She $iles the remittance adice in her o$$ice# Risk Assessment Procedure (Analytical Procedure)
nderstand the entity! industry! and environment (Business Risk " #nherent Risk)
By revie#in$ the Com%any "ac&$round' using the matri) $ormat below identi$y an operational 0business1 risk related to the reenue cycle# Brie$ly describe the audit ob8ectie and ACL procedures to answer this concern#
Operational/Audit Risk (indicate which) Operational/Audit O!ective Audit Procedures to e Per"ormed #sing
AC$ 9)amples: process
e$$iciency! $raud! losses due to errors
Control Risk Assessment
() System Documentation "y usin$ *lo#charts
a) Com%are the dia$ram of the current system or e+istin$ system #ith the dia$ram on ho# the system should #or&! Revenue cycle – sales %rocessin$, cash recei%ts
0+nsert here the two diagrams: a1 the current system or e)isting system; and b1 the corrected system ( how the system should work1
b1 <se %uestionnaire to recogni3e internal control weaknesses in the diagram aboe:
+nsert here 5uestionnaire
-) Identification of Control Activities
.1 -rom the case description and the associated $lowcharts! assess Bradmark's internal controls oer its reenue cycle procedures#
Check whether the following les are used by the company: Custome r File Sales Invoice File Cash Receipts File * ine Item File Inventor y File Shipping og File +mplemented Not implemented
= Line +tem -ile ( !he ine Item le contains a record of every product sold" Since a single transaction can involve one or more products# each record in the Sales Invoice le is
associated with $linked to% one or more records in this le"
SA$%S PR&C%SS#' SS*%M Control Activities Audit
+indin,s-#nternal Control eaknesses Potential %rrors or +rauds our Recommendations as Auditor- Preventive or /etective Control P0S#CA$ C&'*R&$S-Transaction authori.ation Se$re$ation of duties Su%ervision Accountin$ records Access Inde%endent verification #* C&'*R&$S-CAS0 R%C%#P*S SS*%M Control Activities Audit
+indin,s-#nternal Control eaknesses Potential %rrors or +rauds our Recommendations as Auditor- Preventive or /etective Control P0S#CA$ C&'*R&$S-Transaction authori.ation Se$re$ation of duties
Su%ervision Accountin$ records Access Inde%endent verification #* C&'*R&$S ) Conclusions!
/inherent ris&' control ris&' and detection ris&, su"stantive test) Substantive tests for- Sales %rocessin$, Cash recei%ts
a1 <sing the case description! the $lowchart! the $ile structures! and the selected $inancial data below! speci$y an audit ob8ectie 0that can be achieed using ACL™1 $or each management assertion presented in the matri) below# -or each audit ob8ectie! brie$ly describe the ACL test procedure# As an e)ample! the $irst row in the matri) has been completed $or you#
Selected Bradmark Financial Data
Sales >!?@!#
Accounts 7eceiable !@>/!/>@#@D
Allowance $or 4oubt$ul Accounts 0#D/ ) Sales1 .D@!DD
Net Accounts 7eceiable !!>@#@D
%anagement Assertion
Audit O!ective Audit Procedures to e Per"ormed #sing
AC$ Existence or
Occurrence
Verify that the AR represents actually owed to Bradmark
Use ACL to prepare confirmation letters for customers Completeness Valuation or Allocation Accuracy
Testing the Accuracy and Completeness Assertions: Review Sales Invoices for &nusual !rends and '(ceptions
Insert your ans#er here0
Testing the Accuracy and Completeness Assertions: Review Sales Invoice and Shipping og Files for )issing and uplicate Items
Insert your ans#er here0
Testing the Accuracy and Completeness Assertions: Review ine Item and Inventory Files for Sales +rice ,ccuracy
Insert your ans#er here0
Testing the Accuracy and Completeness Assertions: !esting for &nmatched Records
Insert your ans#er here0
Testing the Existence Assertion: Selecting ,ccounts to Conrm
Insert your ans#er here0
Testing the Valuation/Allocation Assertion: ,ging ,ccounts Receivable
Insert your ans#er here0
b1 6and in a report describing the audit tests and your conclusions about the results o$ the test#
Audit &ests Conclusions
!esting the ,ccuracy and Completeness ,ssertions:
a% Review Sales Invoices for
&nusual !rends and '(ceptions b% Review Sales Invoice and
Shipping og Files for )issing and uplicate Items
c% Review ine Item and Inventory Files for Sales +rice ,ccuracy d% !esting for &nmatched Records
!esting the '(istence ,ssertion: a% Selecting ,ccounts to Conrm !esting the -aluation.,llocation
,ssertion:
a% ,ging ,ccounts Receivable
b% Conclusions $or Substantie &esting 0$airly presented or GAAP compliance1
Command log:
