HENRICO RETAIL, INC.Understanding the IT Accounting System and Identifying
Audit Evidence for Retail Sales
Erika Iniguez - Cesar Romo - Mohamed Qadri - Bao Hoang
Auditing in the Retail Industry
Largest Industry: 10% of our GNP
Optimized Infrastructure & Operating Efficiencies
Efficient Auditing Process
True Business Value
Challenges with Audit Systems in Retail
Inefficient audit planning
Errors in manual data entry
Data loss Non-standardized audit
practices
Point of Sale
Consolidated Sales
Accounts
During this scan, the following are calculated by the computer:
- Product code- Quantity- Total price- Tax
Receipts - A Paper receipt is kept in the cash drawer.
- An electronic receipt is kept in the computer’s hard drive.
- Credit sales contain an extra credit approval slip PAPER AND ELECTRONIC receipt with the approval code.
- The hard drives are backed up on the store’s server every hour.
- The clerk closes the register
- At this point, the computer automatically updates the store’s server.
- A paper and electronic receipt of the
cashier’s total transactions for the day are printed.
- The cashier records the total amounts on
the daily deposit sheet.
- The cash drawer is counted and receipts
for credit sales are checked for any differences.
- Cash and paper versions of credit receipts are taken to the store cashier and the store cashier verifies the Daily Deposit Sheet and initials the sheet.
-Then, those cash and credit receipts are stored in the vault until Brinks security service picks it up for delivery to the bank’s overnight depository.
- The bank immediately gives the cash credits and charge credits based on their arrangements with the credit companies.
- An electronic email is sent to the store accountant and the cashier with confirmation of deposit.
- An independent person verifies the information received from the bank and then reconciles to the totals on all the Daily Deposit Sheets from Henrico.
- After reconciliation, the bank’s confirmation is printed on paper and attached to the Daily Deposit Sheets and filed.
- The store’s server produces a Daily Sales Report each night from all processes and transactions downloaded from each register’s closing processes and sends it electronically to the corporate office main frame.
- A paper copy is also printed and filed at the store.
- The store’s computer server also updates the perpetual inventory records.
- This information is only updated electronically.
- Inventory Reports and Sales Reports are electronically generated every month and transmitted to the corporate office.
- Only the monthly sales report is printed in paper at the store.
- The corporate office’s computer prepares the consolidated General Ledger, which summarizes the posting of the total monthly sales to the consolidated sales account on paper.
Plan and Design an Audit Approach
Two things to consider…
Collect sufficient evidence to meet auditor’s professional responsibility
Cost of accumulating evidence must be kept at a minimum to be profitable
Know the client’s strategies…
Understand and Assess Internal Control and Risks
Assess Risk of Material Misstatements
Three categories of Assertion Classes of transactions and events Account balances at period end Presentations and disclosures
TRANSACTIONS
Common Assertions within the three categories
Existence/Occurrence Completeness Accuracy
Existence/Occurrence Assertion An assertion made stating that a stated
amount actually exists
SALES ACCOUNT
Strategy for Auditing Existence Assertion for Henrico Sales Consolidated Sales Account
Information from the General Ledger General Ledger (Paper/Electronic)
Monthly Sales Report Monthly Sales Report (Paper/Electronic)
Daily Sales Report Daily Sales Report (Paper/Electronic)
Downloaded register closing processes Bank reconciliation Sheet
Cash and credit slips sent to depository Register Closing Process
*Daily Deposit Sheet (*Handwritten by sales clerk with differences reconciliation)
Register closing printout (Computerized Printout) Price Master List
Is IT support necessary? Yes, accounting procedures and internal
control processes depends heavily on electronic records.
Paper evidence needs to be matched with electronic form.
Examining sales transaction for ONE store
Monthly Sales Report Daily Sales Report Bank Reconciliation Sheet Daily Deposit Sheet
Why these sources?
Generated by each store individuallyMore specificMore detailedPaper
Evidence to examine for each transaction The type of transaction that occurred
Cash or credit? Daily Deposit Sheet
Credit Slip Cash amount
Bank Reconciliation Sheet Specific credit deposit If cash, check ending balance
Daily Sales Report Total Credit/Cash Receipts Ending balance
Monthly Sales Report Total Cash/Credit Sales Ending balance
*EXTRA STEP Check inventory for proper reduction due to sales transaction
Management Assertions
Assertions About Classes of Transactions and events
Assertions on Account Balances
Assertions on Presentations and Disclosures
Occurrence Existence Occurrence and Rights and Obligations
Completeness Completeness Completeness
Accuracy Valuation and Allocation Accuracy and Valuation
Classification Classification
Cutoff
Rights and Obligations
Assertions on Account Balances Valuation and Allocation
o Assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any resulting valuation adjustments are appropriately recorded
o SAS 31
Valuation and Allocation of Sales Inventory
o Perpetual Inventory System
o IT audit specialist
Cash in the bank o Request bank
statements
Allowance for Uncollectible Accountso Sales on Credit Not
Received
Valuation and Allocation of Sales Liabilities
o Inventory purchased on credito Amount of inventory purchased
What is Accruracy and Valuation? Financial and other
information is disclosed appropriately and at the appropriate amounts o Dealing with both
balance sheet and income statement
Accuracy and Valuation
Inventory o Cost of Goods Sold
Sales Returns and Allowanceso Amount credited to saleso returned merchandise
Price and quantity
IT System Auditors For Henrico Retail ,Inc Information technology audit, or information
systems audit Collecting and evaluating evidence of an
organization's information systems Evidence determines if the information systems
are safeguarding assets. These reviews may be performed in conjunction
with a financial statement audit, internal audit, or other form of attestation engagement.
IT Evaluation on Henrico, Inc Perpetual Inventory
Records stored on computer serverNo paper reports are generatedPerform IT audit in electronic form for
assuranceRISK!!!!
Control Deficiencies Management Control
Approval and Price Change Control
Voided Sales Receipts and Calculations
Reconciliations Reviewed and Analyzed Test for detail Employee Fraud is more common than you think!http://www.youtube.com/watch?v=VrARLen4hIk
Management & Internal Control Sec 404 Sarbanes
Oxley Act
Identify Procedures
Test Procedures
Audit Objective #3
AccuracyTransactions are stated in correct amountsAccuracy in selling and billing prices
○ Overstates or understates sales and revenueAccuracy in Transferring Info
Phase IV :Complete the Audit and Issue an Audit Report
Combine Information, reach an overall conclusion
Fairly Presented??
Highly subjected
Audit Report with Financial Statements
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