Final Project - Requirement 2 & 4
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TheCaseonUrgentMedicalDeviceIncPart1.docxRunning head: THE CASE ON URGENT MEDICAL DEVICE, INC 1
THE CASE ON URGENT MEDICAL DEVICE, INC 2
The Case on Urgent Medical Device, Inc
Part #1
The Case on Urgent Medical Device, Inc
Requirement 1- Fraud Risk
Auditors have a responsibility in identifying fraud risk in revenue recognition because they are guided by bodies such as the Public Company Accounting Oversight Board-PCOB, and auditing standards. For instance, PCOB mandates auditors to plan and perform audits with the aim of obtaining reasonable assurance that the financial statements are free of error or fraud (Public Company Accounting Oversight Board-PCOB, 2019).
a.
|
Fraud Risk Factor |
Accounts Affected |
Audit Assertions (AU Section 326) |
Possible issue based on the risk factor identified |
|
1. Pressure |
Customer Invoices |
There is pressure for distributors to increase sales |
The need to increase sales triggers distributors to persuade customers to make orders. As such, the distributors are paid for sales orders that have not been delivered |
|
2. Nature of control environment |
Sales orders |
There are many related transactions |
The information on sales orders is for 3-way match control. That means sales orders that have not been shipped but have been invoiced are difficult to track |
|
3. Nature of items |
Product |
There are products with similar weights |
The products with similar weights have different unit prices; as such, accountants might swap the prices leading to financial loss to the organization. |
b. The solutions to the identified risk factors include reducing the level of pressure exerted to the distributors to make orders even before the customers place the orders
The organization should establish a controlled environment in which sales orders are counter checked with the shipment data to prove that the orders have been delivered before the distributors are paid.
In the case of the nature of the items, the organization should vary the weight of the products so that there is no swapping of prices between cheap and expensive products.
Requirement 2:
Requirement 3: Areas of risk
A
Memorandum
To : The Chief Executive Officer,
From : Data Analyst,
Date : November 25th, 2019.
Subject: ANALYSISOF DATA FROM URGENT MEDICAL DEVICE INC.
The data on shipment ID, invoice ID, and sales order ID was entered in tableau software and the resulting graph showed that the organization used the information to cross check for consistency. As such, it was a control measure. However, it is difficult to identify when sales order ID and the invoice ID are not matching because there is no comparison of the two data. In cognizant of the challenge, it is necessary that the sales order data is compared directly with the shipment data and with the invoice data because there are scenarios where the sales orders have been received, customer invoice has been delivered but the products have not been shipped.
In relation to territory and sales goal quarter, the analysis revealed some territories that were allocated relatively lower sales goal quarters. It creates difficulties in comparing the performance of different territories. For instance,Northeast and West territories have higher sales goal quarter allocations while Southwest has the lowest. The analysis also revealed that a product called hinged titanium axle has the highest unit price while the standard cost is relatively low.Comparatively, it has the biggest profit margin.
B
Summarily, the three charts show that some products made by the organization have a higher profit margin compared to others. It also showed that some territories had higher sales quarters compared to others.
References
Public Company Accounting Oversight Board-PCOB (2019). AS 2401: Consideration of Fraud in a Financial Statement Audit. Web. Accessed on 26/11/2019
