Auditing The Default Customers

Question: Describe about the Auditing for The Default Customers. Answer: A. Identification of F/S level risk: OVS used to charge an amount for as late return fees. However, this practice led to decreasing the number of customers, as they are reluctant to return on time. Next, OVS eliminated this fee and started the rule of considering the movie as sold if not returned after 30 days. The customer will be charged $25, when they will come to purchase new DVD. There is a chance that the customer will not come again to purchase and company will loose the amount. The company should charge an amount at the time of renting the DVD, so that they will not be at loss, if the DVD is not returned. They should maintain proper records for each customers both in manual renting and on line sell or renting (Bekaert, Hoerova Duca, 2013). B. Audit Approach: OVS should be asked to maintain proper records about the customers when renting DVDs. It will help them to find out easily the default customers and the due date to return. Customers name, phone numbers and address should also be recorded in register so that in case of default they can be contacted through phone call or given address. When selling through online, apart from on line records, they should maintain a manual record of customers so that in case of any hack or virus attack, company can track the customers with their manual records (Mohseni, 2014). C. Materiality: The materiality concept states that some substances, whether individually or with any other substance are material for true and fair presentation of financial statements in consistence with generally accepted accounting principles. Auditor must verify the changes they have made and OVSs expansion during 2005 into renting the DVDs through internet. Auditor should also verify their earning and records regarding their newly started programme Movies by Mail (Brooks Guo, 2015). D. Identification of account specific risk: OVSs newly started programme Movies by mail is excellent but they were facing difficulties to run the programme smoothly. They use Moonwatcher web designer (MWD) to make the sales and receipt of money from customers. However, in past they faced crashes of website many times and the only advice from MWD was to reboot the system. There is high risk involved regarding the permanent crash of the server and OVS can lose their money through this experience. Therefore, they should maintain manual records regarding the customers and their phone number, name ant amount of money due from them. E. Procedures to test risks: To test the risks, following procedure should be followed: Fix a meeting with OVS and discuss with them about the primary risk detected Ask them to provide the records related to the detected risks To measure the materiality of the detected risks To suggest them the ideas to reduce the risks or remove the risks, wherever possible (Chen, 2016). F. Control issues with new IT systems: Their new IT system, that is, Moonwatcher Web Designer (MWD) is having problem of crashing their system frequently. Other than the advice of rebooting the system, they could not provide any alternative solution to the problem. OVS can fix a meeting with to solve this issue and if they are not able to resolve the issue, they can search for alternative service provider. References: Bekaert, G., Hoerova, M., Duca, M. L. (2013). Risk, uncertainty and monetary policy.Journal of Monetary Economics,60(7), 771-788. Brooks, L. L. Z., Guo, P. (2015). Audit Firm Tenure, Audit Materiality, and Last-Minute Earnings Management.Journal of Forensic Investigative Accounting,7(1). Chen, L. H., Chung, H. S. H., Peters, G. F., Wynn, J. P. (2016). Does incentive-based compensation for chief internal auditors impact objectivity? An external audit risk perspective.Auditing: A Journal of Practice and Theory. Mohseni, A. (2014). Audit Approach to Audit Risk Management, Quantitative Determination of the Components of Audit Risk and Determine the Impact on the Components of Audit Risk in Audit Sampling.Quantitative Determination of the Components of Audit Risk and Determine the Impact on the Components of Audit Risk in Audit Sampling (May 22, 2014).