Forest Limited
Inventory
Firstly, Forest Ltd. owned an automated machine used in creditor's ledger. The machine is programmed to use two currency units, United States dollar and Australian dollar. It appeared that there was no distinction between the rates of the two currencies, resulting in inaccurate creditor balances.
Secondly, End month turnover have proved challenging, with creditor balances mistakenly re-set at zero at the beginning of every month. This has required each creditor's history to be re-entered manually each month, a time-consuming process that is taking accounting staff away from their normal duties.
Thirdly, Forest Ltd. relies on automated technology to collect, maintain and communicate data to support accomplishment of their objectives. Nevertheless, there is a significant correlation in risk between the creditors and Forest Ltd., implying that systems with security problems also produce less useful management information. In order to have a strong secured program when developing their Information Technology system, Forest Ltd. should seek qualified professionals. Additionally, they should also recognize the need to understand and manage the associated risks.
There need to be qualified personnel charged with the responsibility to handle the security and information system. In most technical cases, auditors should assess level of risk within each area, and use the test as part of the overall audit plan. Sometime the company auditor can depend on client's control in order to minimize audit risk. Unfortunately, the client's controls cannot be trusted to some extent or may be inefficient to determine whether they can be trusted. In this case, the auditor may bypass the client's control system and apply direct substantive tests to the account balances.
Unauthorized employees should not be allowed to access the company's confidential data related to cash or other assets. Records susceptible to breach may motivate some employees to mismatch inventory records. Finally, Forest Ltd. should be aware, that the greater the reliance on Information Technology for managing and controlling key business operations, the greater the likelihood that inadequate systems will prevent business goals from its achievement.
Accounts Payable
Forest Ltd. acquires timber from U.S. firms, which demands payment in $U.S. before the timber being cut. The U.S. firm may dictate terms or conditions of payment after receiving the money. This may automatically result in inappropriate or unsecured transactions, which may again elevate audit risk.
The auditor should secretly inquire more about U.S. firms offering timber to be aware of unexpected fraud, which may arise from the money paid for timber. The auditor should use professional judgment to determine whether there is transparency and accountability before the payment. Most importantly, payment should be carried out during the exchange of commodity (timber).
Receivables
Forest Ltd. deferred most shipments of woodchips, irritating the Japanese customers who were threatening to take away 20% from amount owed as compensation for time lost in production. This 20% deduction will automatically land Forest Ltd. into financial problems, which may again increase the audit risk.
The Forest Ltd. customer (Wood Ltd.) claimed to have received a product contaminated with microbe. Wood Ltd. complains that microbe affects the physical structure of the chips, reducing the pressure the chips can withstand. This made them not to pay their dept that is already five months overdue.
Forest Ltd. should learn to manage their time of business operation. The company should deliver its order in a timely manner .Timely delivery avoids unnecessary inconveniences that may be encountered by the customer. Forest Ltd. should comply with the contractual capacity signed on the order form to avoid misinterpretation of the scheduled delivery time.
Auditor should thoroughly screen complains arising from Forest Ltd. customers before making a conclusive decision. This is to enable the company to know whether the grievance is considerable and significance for audit plan. This must be in line with the prescribed business law.
Attention should be paid to the creditors' payments schedules to avoid unnecessary overdue as in the case of Wood Ltd. The agreed cost should be kept under control and between the quality of public service production and effectiveness. All business operations should rely on information and payment policy as part of the state's financial regulation.
The employees in Forest Ltd. should maintain their job ethics to avoid issues related to contaminations, which may result from unknown grudge. The external security from Forest Ltd. should be strengthened to protect the company from external harm, which may damage its products.
Commitments and Contingencies
A protester suffered a broken leg, allegedly because a timber truck hit him. He then claimed that the contractor...
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