Auditing and Assurance Services Report: Deficiencies Analysis

This report provides an analysis of auditing and assurance services, specifically focusing on the internal control deficiencies identified within Toy Universe Pty Limited (TUPL). The report highlights five key deficiencies: lack of adequate documentation, lack of authorization, lack of separation of duties, inadequate control over the safeguarding of assets, and no review or oversight of inventory levels. Each deficiency is explained in detail, outlining its potential impact on the reliability of financial statements. The report also proposes control tests and actions that can be implemented to mitigate the risks associated with each deficiency. The discussion covers the segregation of duties, authorization protocols, inventory management, and documentation procedures. The analysis is supported by references to relevant auditing and assurance services literature.

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and assurance services
Name of the University
Name of the student
Authors note

1AUDITING AND ASSURANCE SERVICES
Part C:
Requirement a:
Five deficiencies that can be identified in the internal control of Toy Universe Pty
Limited are as follows:
 Lack of adequate documentation
The evidence of underlying transactions is provided by the documentation that helps
in the appropriate establishment of financial statements of business (Louwers et al. 2016).
Goods delivered by TUPL to customers and the record of the goods sold are not forwarded to
the despatch department. Furthermore, records of signature of customers as a proof that
goods have been received are not recorded by couriers.
 Lack of authorization
It is essential for business to introduce the level of authority that would help in
eliminating the risk of improper recording of sales and purchase made. There is no
reconciliation of suppliers’ statement resulting from change in purchase ledger department
(Arens et al. 2016). Supervisor and purchase ledger clerks both can record the detail of
supplier in purchase ledger master file.
 Lack of separation of duties
Small business is subjected to frauds as they have few employees performing multiple
roles. Internal control of organization becomes effective when the duties of properly assigned
to individual. The process of credit checks and credit limit provided to customers are not
checked by either sales manager or sales director.
 Inadequate control over the safeguarding of assets

2AUDITING AND ASSURANCE SERVICES
Lack of control in safeguarding of assets is another deficiencies faced by
organization. Purchasing of equipment has led to surplus of assets that is more than
requirement of business. Management of TUPL has not done anything to reduce the surplus
of old equipment.
 No review or oversight of level of inventory
Basic review procedures are sometimes not performed by business such as TUPL.
The inventory systems are not integrated with the website of organization and at the time
placing the orders, levels of inventories are not checked (Simnett et al. 2016).
The identified deficiencies in internal control of TUPL would weakness the internal
control system and there arises the risk of material misstating the financial statements.
Organization would fail to reconcile significant accounts that lead to improper presentation if
financials of business.
Requirement b:
The deficiency of internal control in segregation of duties between supervisors and
purchase ledger clerks can be controlled by making enquiries and observing the performance
of various duties and functions. Deficiencies relating to improper documentation can be
controlled by selecting sales invoices sample and examine them for second person review
(William et al. 2013). TUPL should segregate duties regarding custody for inventories and
over purchases of assets. The credit limits provided to customers and credit checks given
should be performed by sales director. It is required by organization to properly authorize the
credit limit granted, inventory level. Details of supervisors and recording of raw materials
details should be done separately by separate levels of authority. Furthermore there needs to
be review of clerical accuracy of sales invoices entered by second person.

3AUDITING AND ASSURANCE SERVICES
Requirement c:
Deficiency Explanation Control Test of control
Lack of authorization Sales director and sales
manager of TUPL is
not involved in the
process of credit limits
and credit checks and
sales team are directly
involved in placing the
orders.
Sales team would be
restricted to get
involved in the process
of providing customers
with credit limits on
their purchase.
The test of control
adopted here is to
observe ad make
enquiries about
performance and
various duties of dales
manager and sales
director.
No review or oversight
of level of inventory
Inventory system is not
integrated with the
website and no proper
check is done for
evaluating the
inventory levels.
Recording of
inventories should be
done using perpetual
records and procedures
should be established
for checking the
clerical accuracy of
sales transactions.
Enquiries should be
made about level of
inventories maintained
an invoice amount
relating to inventories
should be recomputed.

4AUDITING AND ASSURANCE SERVICES
Lack of adequate
documentation
There is no proper
documentation of
customer receipts and
sales orders are not
forwarded to despatch
department.
For the preparation of
adequate
documentation and its
sequencing is done by
using pre numbered
requisitions (Eilifsen
et al. 2013).
There should be
enquiries and
observation about pre
numbered documents
and evidence of
accounting should be
inspected.
Lack of separation of
duties
Supervisors as well as
purchase ledger clerks
of organization can
make changes in the
purchase ledger master
file.
Duties should be
segregated from over
recording of sales
invoices to making
changes in purchase
ledger file.
Making enquiries and
observation about
various function
performances.

5AUDITING AND ASSURANCE SERVICES
.
References:
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance
services. Pearson.
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance
services. McGraw-Hill.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Franci
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015.
Auditing & assurance services. McGraw-Hill Education.
Simnett, R., Carson, E. and Vanstraelen, A., 2016. International Archival Auditing and
Assurance Research: Trends, Methodological Issues, and Opportunities. Auditing: A Journal
of Practice & Theory, 35(3), pp.1-32.
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A
systematic approach. McGraw-Hill Education.