Smackey Dog Foods, Inc. is in suburban Chicago that is a privately owned by three sisters Sarah, Kim, and Jillian. They started by producing natural dog food with ingredients they bought from a local grocery store. These products were discovered by local pet stores and small grocery stores and the company became distributors to the grocery store in the area. Because of the demand increased for their products, the three sisters decided to hire more workers to manage their growing company. Also, Smackey Dog Foods, Inc. sales increase rapidly from previous year and the sisters decided to opened a boutique division and called it Best Boy Gourmet. Sarah is the president and general manager, she went to a banker to request a loan…show more content… Sarah has to have a good audit in order for her to receive a loan. This in itself, is an indication of a certain amount of pressure, so she might be willing to do certain procedures that could change her numbers, if only slightly. So based on that fact, there is a risk of fraud involved. Based on the information that has been provided, she is basing her revenue projections on Jillian’s sales team, which as previously discussed, is off 11% on average There were internal control weaknesses in Smackey’s inventory and warehousing cycles. There were no procedures in place for the receipt, storage and disposal of any returned dog foods, single person processing of purchase orders, purchased materials, the storage of raw materials and finished goods, and receipt of purchased materials.
Accounts receivable confirmations can be either positive or negative. In the case of Smackey, it is recommended that an invoice confirmation be implemented under the positive confirmation approach. Confirming accounts receivables are affected by the sample size of many factors. Some of those major factors are control risk, tolerable misstatement, financial statement misstatement, tolerable accounts receivable, inherent risk, and the type of…show more content… Confirmation is the process of obtaining and evaluating a direct communication from a third party in response to a request for information. There are two classification of account receivable confirmations. Positive and negative confirmation. Both positive and negative confirmation are used in auditing accounts receivable. One way an auditor can verify the accuracy of the accounts receivable records being examined is to see if those books correctly reflect transactions that have occurred between the company and its customers. Contacting customers directly helps auditors verify that accounts listed actually exist, that balances shown as owed are correct and that payments marked as received are accurate. Positive confirmations requires the customer to respond to the auditor whether the customer's records do or do not correspond with the auditor's records, while negative confirmation requires a response only if there is a discrepancy. In the case of Smackey Dog Food audit, a positive confirmation will be implemented. An invoice confirmation can be implemented under the positive confirmation approach. Confirming accounts receivables are affected by the sample size of many factors. Some of those major factors are control risk, tolerable misstatement, financial statement misstatement, tolerable accounts receivable, inherent risk, and the type of confirmation. (Arenas, Elder, & Beasley,
