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Carlisle Textile Company needs certain records to be stored in their sales processes. Sales invoices, sales orders, remittance advice, delivery notes, debit cards, and credit cards are examples of these records. The first piece of paper that can be of place in a modern distribution system is the sales order, which is generated during the purchasing process and used to prepare the sales invoice. The purchase order is a receipt request that is often delivered to buyers prior to the arrival of products. The purchase order specifies the arrival date and time. The sales order is essential to the production department as it offers a list of products that need to be shipped out (Etoh, 2015). After the goods delivery, a sales invoice is developed from the sales order for payment purposes. The sales order often constitute of sales order number, delivery dates, and line items, and prices including the quantities and price.
The sales invoice is another important document in sales system that is used to make payment requests. Sales invoice reflects information of the sales, products purchased, price, item quantity and terms of payment. Sales invoice also acts as a record for both seller and the buyer (Johnson, 2017). Remittance advice is a document that accompanies pay that is often sent to the supplier by the customer. Remittance advice is however not a must, but they need to be sent to the seller to match invoices with payments. Companies prepare shipping notices when releasing goods from warehouses. Shipping notices also include copy that is sent to accounts. A copy of shipping notices is also often accompanied by the products (Etoh, 2015). Debit is also an essential document in the sales system. The credit card is commonly used to denote return of damaged goods. Any debt owed by the customer is always shown on the debit card.
Carlisle Company should put in place some sales processes that will change the company sales system and make it valuable. Sales processes are a group of actions and work-flows in a firm that is valuable. Sales process starts with the order from a customer and ends with payment of cash. Sales processes aim at processing sales and cash efficiently and timely. The operations are chain-linked together right from the entry of sales order to a collection of cash. Sales process ensures customers receive goods and services (Davies, 2017). Customer orders are fulfilled, and customer records are maintained through the sales process. Entry of sales order occurs when the customer sends their list of goods and services, and the sellers fill the order. After receiving the request, the products and services are delivered and tracked to customers. The seller then uses the records to bill customers for the goods and services ordered. Finally, payment of goods and services is made by the customer. The diagram below illustrates the sales processes.
Sales processes framework
Entry of sales order
Records are very crucial. The record is the information a seller has on the customer, including; customer contacts, dates of purchases, the frequency of purchase, goods, and services purchased, and bill payment methods. The sales records also help the seller to identify the most valuable marketing source.
Receipt order contains data about the order and approves its’ reception by the customer accountable for it. Receipt order bears the name and contact of the seller and supplier, and the items in order. Supply and delivery dates, amount of the ordered goods, tax, shipping charges, and other expenses are all indicated on the receipt order. The receipt order can always be corrected in case of any error before being filled (McMahon, 2017). The receipt also includes the terms and conditions of the order, which consists of the information on changing orders, exchange or return of goods after receiving, and payment details.
Dispatching of goods
Dispatching of goods is the control of operation planning processes and order in a company. Several procedures are put in place that the Carlisle Company should adopt when dispatching goods to the furniture and clothing retails. Before shipping goods, the seller should check the items to ensure the products are of the required quality, specifications, and quantity. Damaged goods should not be dispatched unless the customer agrees. The vehicle transporting the sending the goods should be checked to ensure the goods are in right conditions and are well packed (Mem11014B, 2012). When dispatching, the firm should provide maintenance of delivery records. The driver should sign for the goods after being satisfied the items are in excellent condition. All dispatching paperwork should be processed appropriately. It is often the management responsibility to ensure that everyone adheres to the dispatch procedures.
Sales return system process involves the return of goods by the customer to the seller because of defects or if the products fail to fulfill the buyer specification. The number of goods returned must be deducted from the sales. If the purchases were initially delivered on credit, then the receivable identified goods must be replaced by the number of sales returned. A credit card is a document used in sales return system by the buyer or refunds when overcharge occurs. When a credit card is issued, it represents sales return whereas when a credit card is received, it represents the purchase returns.
Fraud related to new sales and sales return system
Fraud is a term used to refer to an act done intentionally by one or more personnel in the management, employees, individual charged with governance. It involves certain means to acquire illegal benefits. In Carlisle Textiles Company, an act of fraud was observed when the staff and other managerial staffs in the Cumbrian distribution Centre defrauded a large number of stocks and sold the stock to the small independent businesses within the industry and shared the profits among themselves (Frank et al., 2002). Fraud has got two major categories which include fraudulent financial reporting and misappropriation of assets. Dishonest accounting reporting can happen when an individual falsify accounting records to mislead the creditors (Frank et al., 2002 4). Corporate scandals are also a way of frauding financial reporting. Stealing asset from a company is a form of misappropriation of assets. Assets can always be physical regarding cash and record or digital regarding intellectual property and customer data. Fraud is facilitated by the thirst for quick acquisition of wealth and prosperity. Corrupt corporate cultures such as the Carlisle corporate that had crooked staffs can result in fraud.
Characteristics of internal control system
Internal control factors are processes developed and sustained by management to offer guarantee concerning attaining the unit’s objective in respect of consistent accounting reporting, active and competent operation and agreement with appropriate regulations and guidelines. From the lecture three notes, an internal control system has various components such as interior environs, risk valuation procedure, control actions, data and message, and monitoring.
Information and communication is a component of internal control that states the internal control information should be communicated efficiently and timely so that risks can be adequately addressed. Communication ensures provision, distribution, and procuring necessary information. Information is disseminated throughout the organization by internal communication. Information and communication in combination with the other interior control components ensure achievement of the organization objectives (Deloitte, 2017). Controlling the information and communication provides the organization receives the right data. Communication makes it possible for management to pass information about the entity objectives; discussion also makes the organization objectives easily understood by all members of the firm. Internal communication also facilitates the performance of other features of the control by disseminating information across the entity.
Control activities are processes, procedures, policies, techniques, and mechanisms that assist management to minimize risks. Risk assessment process determines the need to control movement this is because the threat to organization objective is identified only during risk assessment. Control activities can either be preventive or detective (Bragg, 2017). Preventive actions inhibit the incidence of risk events as the activities predict the potential problem before the occurrence. Detective activities, on the other hand, identify issues and inform the management after the event occurrence. Detective activities offer the administration an opportunity to adopt corrective measures. Some commonly used control activities include; Authorization, verification, review and approval, reconciliation, segregation of duties, and training.
The environment in which control operations takes place involves management’s omission, honesty, and moral principles. Management’s idea and functioning style and technique of transmitting power and accountability is a controlled environment. Indicators of efficient control environment involve having policies guides the internal control system (Zhang, 2016a). Environmental deficiency can be experienced when management dominates controls. Managers set control environment by establishing policies, procedures, processes, standards, and structures in an organization. The internal control environment consists of five factors. Integrity and ethical values is a control environment factor. This element is mainly achieved when a team has a code of conducts that are communicated to everyone in the organization. Another factor is the competence of employees. The management ensures hiring of competent personnel by determining the required ability and skills for a particular position. Accountability and authority play a vital role in the control environment. Management should ensure efficient reporting and authority positions (Zhang, 2016a). Board of directors and managers play an important role in the control environment by providing direction on the firm plans and performance. The Board also provides oversight function to the corporate internal control.
Risk assessment is essential in managing risks in an organization and making a decision. Risk assessment processes include; identifying organizational risks, analyzing potential threats such as cost, and analysis of cost-benefit. Risk assessment can be conducted internally by holding a managerial meeting. The evaluation can be done by asking the management and other members of the organization of any risk. The assessment can also be done through observation and inspection (Zhang, 2016b). Reviewing the previous year’s audit reports, letters from the management and board reports can also be a way of conducting an assessment. Identifying and mapping of the business process is also assessment method. A risk control matrix is a tool that is used in the risk assessment process. Risk assessment process identifies and controls risk that might affect the objectives of the organization.
Monitoring is one of the features of internal control which involves; evaluation of internal processes and initiating corrective action when possible (Bragg, 2017). Monitoring is the process of evaluating the efficiency of internal components over time and taking necessary corrective actions.
Role of exterior accountants in interior controls
The exterior accountant will ensure the physical protection of assets from fraud. This is because if a company fails to provide valid financial information, the business partners will rate the firm to be poor and therefore match away. The auditor should also have right personnel policies and practices. The auditors will clear the company from all its malpractices and enhance good corporate governance practices (AIS, 2009). The auditors will have to uphold a sovereign boldness and an existence of individuality from the customer. The auditors will have to perform independently to strengthen credibility and assurance of the external audit. It is also the auditor responsibility of segregating duties and authorizing procedures especially for important assets such as cash and inventory. The auditor will also be able to obtain a reasonable declaration that the accounting reports taken as a whole are off fraud activities and organized by the financial context (Garcia, 2017). The auditor will only assess the data to ensure reasonable reassurance but not to fix problems.
The external auditor will also have the responsibility to understand the entity and its surrounding. The auditors need to understand the customers’ setting, activities, and internal controls. To understand the environment, the external auditors will have to do an initial corporation risk valuation (AIS, 2009). The auditors will have to inspect the electric accounting data system to ensure there is no data compromisation. The auditors will have to associate the CT firm with other industries to note any irregularities that could rise from incorrect financial reporting.
Roles of external auditor in substantive testing of sales and sales returns
The external auditors will observe the inputs and outputs. The auditors will also ask about processes. Re-performance of processes will be done by the auditors. Evidence of authorization such signing and initialing of documents will be auditors’ responsibility. The auditors will also evidence the independent reconciliation (Olonje, 2017, 23). The auditors must observe and evidence the log-in attempts and log-in failures. The auditors will also undertake the evidence of review of exceptional reports. The external auditor will also be responsible for ensuring continuous maintenance of professional cynicism in the audits.
Carlisle Textile industry should have all the sales documents. The company should maintain sales processes and records to ensure a successful business. Information and communication should be promoted to all members of the organization to provide smooth work-flow. Fraud is often motivated by the urge of wealth and prosperity. Therefore, the CT Company should set code of conducts that guide the employees. The company should also have specific criteria for hiring employees. They should hire employees that match the job qualifications. The new management should communicate clearly on the firm objectives and ensure all employees work towards achieving the same goal.
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