Significant Deficiencies in Accounts Receivable Discussion

You are conducting the audit of A-One Travel

There are two major concerns you have in A-One’s operations:

When a customer purchases a travel package via credit card, the accounting department records a debit to accounts receivable and a credit to sales. However, if the customer cancels the package, no entry is made at the time of cancellation. The customer must request a refund in writing and only then is the credit card refunded and reversing entries made. As expected, customers call A- One upset that their credit card charges have not been reversed in a timely matter, as they were not clearly made aware that refund requests must be made in writing. (This policy is stated on the company website, but it is very difficult to find.)

As a result of this policy, some customers are never given refunds because they do not submit a written refund request. Because no reversing entries were made, these still appear as valid credit card sales on A-One’s books. You speak to A-One’s president, who states that it is not his problem if his wealthy clientele overlook the charge and are not concerned with getting their money back. He sticks to his company policy and does not offer “freebies.”

Checklist:In your analytical essay address the following:

Because this is a situation you have never before encountered, you will need to research significant deficiencies. Describe what significant deficiencies are and how you think this situation applies.

Discuss your responsibility in informing the audit committee of this situation, if you feel the need to inform them at all.

Should the company policy be addressed elsewhere as part of the audit? If so, where and how should it be explained?

Even though the A-One’s policy is completely legal, do you feel you have to discuss it with A-One’s board to make the refund policy more ethical or at least more transparent to customers?

How does this policy affect what you report as sales and accounts receivable on the financial statements?

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