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Dear Tutor,
Per March/June 2017 Audit risk question, the examiner identified that there may be a problem with the recoverability of new customers.
But I instead treated it as an existence problem because the sales staff might have admitted bogus customers and therefore customers might not exist at all.
Accordingly, auditor responses were different in both cases and I focused on debtor circularization to confirm the existence.
Madam, I wanted to ask, since my point is different from the examiner but it makes sense. I hope that i will not be penalized for this.
Thank you!
If customer did not exist at all – they would be non-payers (from the outset!) – not slow payers.
I am on holiday this week and do not have access to questions but I am pretty sure the scenario paints a picture of slow payment due to lack of creditworthiness of new (but real) customers.Fraud should not be wholly “invented” as the basis of an answer – an auditor does not assume that staff are “wrong-uns” – it would be very unprofessional.
Also, it would be a very poor (and therefore highly unlikely) fraud to set up bogus customers accounts since they would be very soon detected by their non-payment.
“Hurling Co introduced a new bonus based on sales targets for its sales staff. This has resulted in a significant number of new wholesale customer accounts being opened by sales staff. The new customers have been given favourable credit terms as an introductory offer, provided goods are purchased within a two-month period. As a result, revenue has increased by 5% on the prior year”
Madam this is the extract.
The sales team would not only have to set up bogus customer accounts – but raise fictitious orders/invoices – but where would the goods be despatched to? I think existence of the customers (as bona fide customers of Hurling) is too far fetched. Existence of sales is considered in the answer in the context of sales cut-off.
If customers do not exist they are not going to reply. Although response confirms existence – non-response does not confirm non-existence.
In any case you don’t get “penalised” in ACCA exams – there is no negative marking.
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