Financing and Accounting of Apple and Henrico Companies - Case Study Example

Financing and accounting al Affiliation Case study Apple Company Employees As of September 27, the Companyhad approximately 92,600 full-time equivalent employees and an additional 4,400 full-time equivalent temporary employees and contractors. Approximately 46,200 of the total full-time equivalent employees worked in the Company’s Retail segment. Net sales of the company as at September 27 2014 were at 182,795 million dollars. Net income for the business as at September 27 2014 were at 39, 510 million dollars. Total assets as at September 27 2014 was at 231, 839 million dollars. Total cash flow that was obtained from operating activities was estimated at 41, 063 million dollars as at September 27 2014. Business strategy The commitment of the company is to bring the best user experience to customers through its innovative hardware, software and services. The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers products and solutions with innovative design, superior ease-of-use and seamless integration. As part of its strategy, the Company continues to expand its platform for the discovery and delivery of third-party digital content and applications through the iTunes Store. Critical business process The most critical factors that are used are those that are involved in building and expanding the retails of the products such that there is efficiency in distribution of the products. The distribution process is effective to enable competition. Apple Company is involved in designing manufacturing and marketing of mobile communication and media devices. The products of the company include, iPod, Apple TV, iPhone, iPad, Mac software applications, the iOS and OS Operating systems, I Cloud, and a variety of accessory. Marketing and distribution The company sells its products to education, enterprise, government markets and SBM consumers. The sales are done either directly to consumers through the direct online stores or retailers. The company maximizes the sale of its goods through expanding their own retail stores worldwide. Competitors Principal competitive factors important to the Company include price, product features, relative price, performance, product quality and reliability, design innovation, a strong third-party software and accessories ecosystem, marketing and distribution capability, service and support and corporate reputation. Competitors that they face are from other mobile companies such as Samsung. Accounting information associated to critical processes Accounting information that is critical are those on executive compensation, security ownership and principal fees and services. Other information that are important are those on the assets that the company have, the numbers of employees that provide the production power and financial statement schedules. Accounting methods The accounting methods that are used those that record transaction as expenses and incomes. The processes also determine the revenues from the sale. There is preparation of balance sheets in the accounting process to determine the assets and liabilities that the company has. The company also in their accounting methods prepares financial statements at the end of each financial period. Evidence sources to asserting sales transaction The company experience inadequate design of information technology in general. The inadequacy also applies to application tools which prevent the system of information that is used from providing accurate and complete information consistent with the financial reporting needs and the objectives that are set. Management of the organization and employees lack qualifications and training that enable them to fulfill the duties that they are assigned. In the consideration, the employees may not be able to prepare well the financial statements. This occurs when the employee that is assigned the duty to prepare the accounts do not have the knowledge to do so. Posting of sales to general ledger After obtaining the values from the journals, entries are made through debiting the cash and crediting revenues. In debiting cash from sales, the entries are made on the first column of the general ledger labeled account number. The entry is then moved to the column that is labeled debit and the total amount of cash that was obtained from the transaction is entered. Crediting revenues that is obtained from the sales is entered into the column that is labeled credit on the general ledger. The amounts for the revenues are entered and after the entry, there should be consideration made that the amount of credits and debits are balanced. In Apple Company there generation if from the data that is summarized for transactions in the cash sales, debit and credit sales and miscellaneous transactions of the day. The records are done on Daily Deposit Sheet. There is then verification of the sheet by the store cashier and the debit and credit sales listed. From this the values for record in general ledger is obtained. Manual control risks and automated control risks in Apple In preventive control, there is security of assets as compared to detective control. In the control, there is restriction of access to cash, inventories, equipment and other assets. In Henrico Company, sales clerks have no access to change in unit price. The sales clerks have also no access to transaction electronic file. In the company, the store clerk is only allowed to operate the machines when they have a valid employee identification number. In detective control there is no security for assets as the information on the assets are carried out and are compared. In Apple Company, detective controls are used where there is generation of a customer based receipt record that is on hard disc drive to enable comparison in case there are errors. There is the development of approvals, authorization and also verification. Management in the business does the authority on some activities that are to be taken by the workers. The transactions that need much supervision are also stated to ensure that they consider the objectives and aims of the business. There is formation of policies in the type of control. In detective control, there is reconciliation that is done to the workers but policies are not involved (McHugh & Rowe, 2006). Proposed strategy for auditing In Apple Company, there is little involvement of it specialist as there is ability of the transactions that occur to be purely recorded on paper. In assertion of the transactions that occur on sales, there is ability for it to be done without involvement of specialists as all that is needed will be available in the books of account. The IT that is involved is that which may not require a specialist for accessing it. Selection of testing complete assertion of sales In Apple In Aplple Company, the Ownership assertion tests are considered to make sure whether there is a claim that can be made by the audit client. The claim is that that is possible with reference with the balance sheet. In the choosing of the resource, there is consideration of the agreements that were made to make sure that there are no capitalized leases that occur. In choosing of the resource, there should be the consideration of authorization (Cosserat & Rodda, 2009). The consideration makes sure that there is following of internet controls or the procedures of the other company when there is making of purchases or during the disposal of fixed asserts. Accuracy is also considered for completeness in transaction on sales such that there are considerations such as depreciation, repairs and maintenance of the goods that are sold. Asset movements consider additions ad disposals. All these factors are considered to make sure that there is coming to a source that considers all the factors. Deficiencies in the control process of Apple One of the deficiencies that affects the Apple Company is due to the absence of segregation of duties within a significant account or the process. The deficiency is also caused due to inadequacy in the segregation. In the company, there is inadequacy in the control over the safeguard of assets. This is seen to apply in the control that the auditors determine that would be effective internal control over reporting of finance. Accounting portion with IT assistance Classification in the activity ensures that there is recording of the transactions that have occurred into proper accounts such that there is uniformity in the transactions that occur at a given period of time. There should be rights of obligation in transactions that are recorded. Assertion in periods that ends considers different aspects. In the period, there should be existence of assets, liabilities and equity of interest. The records that are made on the transactions of sales are brought out through the existence of these factors. Rights and obligations are also considered such that the entities control the rights of one to assets and liabilities. All these factors make sure that the transactions that are carried out in the sales of a company are reflected in the books of account hence into financial statements. In assertion of accuracy of sales transactions using the method, there can be less or no involvement of IT audit process as the transactions are those that can be asserted and accuracy obtained without their involvement (McHugh & Rowe, 2006). These processes are carried out in the books of accounts. The recordings on the books of account do not involve IT. Difference between preventive control and detective control Tests of control are used in both the aspects making the source that is used to determine accuracy to be used in determining the occurrence of sales. Test of controls that can be applied to sales transactions on general ledgers can be used also to determine the transaction that occurred that could lead to the error that occurs in the recording of transactions. General ledgers can be used to perfume substantive tests (Cosserat & Rodda, 2009). Substantive tests are those that will bring out the errors that might have occurred in sales transaction. In finding the errors that occur, there is determination of the occurrence of these transactions. Case study 2: Henrico Posting of sales to general ledger There are factors that are to be considered by a business when posting the sales that are made into general. Before posting the transactions are to be summarized from the journals for the business and it is from the journals that the entries to the general ledger are developed. General ledgers are used to record all transactions that a business carries in form of cash. From sales, the cash transactions carried out are posted to journals. The journal entries will be done with consideration of debits and credits. Cash sales that are carried out in the business are done through the use of two accounts. The entries that are made are done with consideration on cash that is received from customers. 1. Difference between preventive control and detective control Preventive controls are those controls that are used in a business to discourage errors or irregularities from occurring. Detective control on the other hand is controls that are designed to find the irregularities or errors after they have occurred to the company. In preventive control, there is segregation of duties among different people in the company to reduce the risks that occur due to inappropriate actions. In the control, there are responsibilities that are put to author use, record transactions. Preventive controls are put forward to make sure that the objectives and goals of a company are achieved. In detective control, there is no declaration of responsibility but there is review of performance in different sectors where the management compares transactions that are made (McHugh & Rowe, 2006). The transactions that are compared are those on forecasts, budget and those that ensure that the goals and objectives are achieved. 2. Proposed strategy for auditing The sales audit strategy is done with consideration of different approaches on sales and data. Audit on sales is done with close cooperation with those in the finance department and are concerned with records on the sales transactions that are made. The strategies that are made on the sales transactions are those are to ensure that the deadlines for recording the transactions are met and the audits are done efficiently (Leung, 2011). Audit strategy is that that should ensure that there is minimal disruption to the company’s staff. In strategizing the audit of sales the method used is that which makes sure that there is planning on the task that is played by each individual in the sales chain from the start of audit from the point of sales and the timetable that is used in the audit is agreed between all the staff that is involved. There are elements that are considered in the audit strategy. There should be discussion with the management to ensure that there is review on the management accounts. There should be assessing of the risks that are involved in assessment of sale transactions (Leung, 2011). There should be review on the design and implementation on transactions that are done on the sales. 3. Evidence sources to asserting sales transaction In Henrico Company, evidence on the sales that occur can be identified through the use of Daily Deposit Sheet. Using the source is appropriate due to the factors that are entailed in the sheet. The sheet provides accuracy and occurrence in transactions that are made on sale as the sales clerk summarizes the total credits and debits that are made on transactions. The summary is also based on totals that are indicated on the cash registry receipt generated by the register closing process. The source is also appropriate as there is reconciliation of the totals of cash, debits and credit slips that counts to the transactions and indicate any difference that occurs in the totals (McHugh & Rowe, 2006). The adjustments are made to make sure that there is accuracy on the records of transactions. The source can enable the comparison of controls to make sure that there is movement through achievements of objectives. 4. Strategy for auditing accuracy The use of assertion in obtaining evidence on transactions that takes place is important as the management is considered to be responsible for fair presentation of the financial statements. There are different assertions that are used. There is assertion on the classes of transactions and the events incurred during the period in which the audit is taken. Occurrence is an important aspect as there it makes sure that the transactions and events that have been recorded have occurred or are pertain to the entity (Leung, 2011). Completeness is considered and this makes sure that the actions and transactions that should be recorded on sales have been recorded. In assertion, there is also the consideration of accuracy to make sure that the transactions that have been recorded are done appropriately. Cutoff in the event of assertion makes sure that the transactions that have occurred to the company have been recorded at an appropriate time in a given financial statement. Recording at appropriate time ensures that there is balance in the books of account that are accessed at a given time. 5. Use of the same sample transaction on occurrence and accuracy The source that is used for occurrence can also be used to determine accuracy. In both the processes, there is consideration of issues that occur in transactions. In occurrence, there is recording of transactions that occur on sales. Analytical procedures are used in determination of accuracy in the transactions that occur on sales (Cosserat & Rodda, 2009). The analytical procedures that are used also enable the determination of transactions that occur. Analytical procedures often include running various financial ratios and comparing them to industry benchmarks. For the revenue cycle, the auditor examines the gross profit margin and the amount of growth that the company has experienced in one year. As part of the analytical procedures, he should analyze the organizations maximum capacity for sales if its facility and employees were fully utilized. He must also examine the accounts receivable account to ensure it is not outgrowing sales. If it is, this could indicate that the company is a credit risk and may have cash flow problems in the future. 6. Selection of testing complete assertion of sales In selecting a test that is used to completeness in assertion of sales, there is the consideration of ownership, occurrence, authorization, accuracy and cutoffs. In occurrence, there is the determination on whether the transaction that was recorded actually took place. The determination is done with consideration of documents such as invoices, purchases and titles. Completeness is considered and this makes sure that the actions and transactions that should be recorded on sales have been recorded. In assertion, there is also the consideration of accuracy to make sure that the transactions that have been recorded are done appropriately. Cutoff in the event of assertion makes sure that the transactions that have occurred to the company have been recorded at an appropriate time in a given financial statement. Recording at appropriate time ensures that there is balance in the books of account that are accessed at a given time. 7. Manual control risks and automated control risks There are differences that occur between manual control and automated control risks. Control that is done in a manual way is that which include procedures that review and approves transactions in the control. In Henrico Company there is reconciliation of cash, debit and credit slip counts to transactions to transaction totals and indicate any difference in the amounts. Automated risk controls are those that involve the procedures of initiating, processing, recording and reporting transactions. In Henrico Company, there is automatic update on both the transactions that are done online and stored on the cash register’ hard disk and the backup of the same stored on stores’ server. In manual control, there is the development of approvals, authorization and verification. Management in the business does the authority on some activities that are to be taken by the workers. The transactions that need much supervision are also stated to ensure that they consider the objectives and aims of the business. There is formation of policies in the type of control. In automated control, there is reconciliation that is done to the workers but policies are not involved. The reconciliations that are made require one to relate different sets of data to one another of other departments. Reconciliation in the control also ensures investigation and identification of differences that occur resulting to correlation of activities. 8. Accounting portion with IT assistance In Henrico Company, there are several uses that involve IT. For all types of sales that are done in the company, there is generation of cash registry on a paper based receipt while a duplicate record of the transactions is stored on the hard disk in an online file the electronic transactions information documents on the hard disk are stored in terms of product number, unit price, quantity sold, the extent of transaction totals and transaction totals. There is also the storage of bank approval information. These transactions done through the assistance ensures that there is accuracy and security in transactions that are recorded. 9. Deficiencies in the control process A deficiency that occurs in controls is inadequate design control as compared to preparation of the financial statement that is being audited. In this process, the deficiency occurs as there will be no identification of the risks and errors that are associated to the process. Another deficiency that occurs is inadequate design of internal control over a significant account or process. In this aspect, there is no determination of accuracy in the accounts as there might be the problem that exist due to incompleteness. In the design controls, there is the probability of insufficient control consciousness that exist within the organization. This is able to occur due to management at the top of the company and the control environment. References Cosserat, G., & Rodda, N. (2009). Modern auditing. Chichester, UK: John Wiley & Sons. Leung, D. (2011). Inside accounting. Burlington, Vt.: Gower. McHugh, G., & Rowe, D. (2006). Financial reporting and auditing. Dublin: Oak Tree Press Read More