Galaxy Ltd plans to upgrade its general ledger reporting with a new software

Galaxy ltd plans to upgrade its general ledger

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Galaxy Ltd. plans to upgrade its general ledger reporting with a new software package. The conversion is planned for just before year end so that it will be ready for next year. The new computer system will provide detailed information on sales, gross margin and inventory levels by product line. Required: Identify the factors that will impact on the planning of the audit for Galaxy Ltd? ( Hint : specify which items in the financial statements may be misstated and misstated by which assertions? Then what audit procedures may be applied?) Case 5.2: Audit planning Ane Ltd. was facing its first loss since listing 5 years ago and the chairperson of the board of directors was not about to let that happen. His bonus was tied to reported earnings. He owned shares in the company and knew the psychological impact of a first time loss would hit his company’s share price. He asked staff who were also affected by the bonus rules to turn the loss to a small profit by the following methods: a. Create fictitious inventory by adding false count sheets to the inventory count; b. Bring sales for the first 10 days of the subsequent years forward; c. Postpone the recognition of the expenses associated with suppliers’ invoices until the subsequent period, and d. Create false claims for credit on goods returned and volume discounts that had been supposedly agreed to by suppliers. Required: a. Bonus plans and employees share ownership are generally considered to be features that align the incentives of managers with those of shareholders. Is this the case of Ane Ltd? 3
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CASES in AUDITING b. What is the accounting impact of each of the methods listed above? For each method, identify the major account balance/class of transaction and assertion at risk of misstatement? c. For each method, list 2 audit procedures that would detect these attempts to commit fraud? 4
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  • Spring '18
  • Arthur Andersen

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