Assignment:
Analytical essay on A-one Travel
The A-one travel is a company providing tours and travel service to its customers. The company has provided online booking facility to its customers. Willing customer can purchase their desired travel package via credit cards. The cancellation facility, if customer is unwilling, is also provided by the company.
During the course of my audit of A-one travel the following discrepancies in the policy of company are observed:
1. (a) Although the company is providing online cancellation facility to its customers but it is policy of the company not to record the booking cancellation in the books of accounts until the customer makes request in writing. This is the policy of company and it is stated that it is mentioned on company's website. Going through the website it was found that although the company has mentioned the said policy on the website, but it is very difficult to trace this policy in the content of website.
At the time of booking by the customer company records the booking by debiting to accounts receivable and credit to sale which is general accepted accounting policy. On cancellation this entry should be reserved in the same way as it is made on the booking time, but the company is not doing so until a written request is received from customer. The resultant is that the account receivables as well as sales of the company are overstated.
(b) As a result of this policy of the company some customers are never given their refund due to non submission of written request. As no reverse entries are passed, the sale of the company is overstated.
2. The above mentioned defective policy of the company was discussed with company's vice president and found him in full support of the policy. Mr. Vice president was of the opinion that there is nothing wrong with the policy of the company if any customer is not getting his refund back; it is not responsibility of the company.
The matter is of concern to policy of the company and interest of customers as well as related to financial statements of the company, I feel my responsibility that audit committee should be informed to take appropriate decisions and provide proper guidance to me in this regard.
3. This policy of the company should be addressed in the report of auditors and the auditors should mention in their report that the company has adopted the policy of refund to customers only in case of request in writing but the disclosure of policy is not made in proper way on the website resulting into over stating of total revenue and account receivables of the company.
4. No doubt that A-one's policy is completely legal but I strongly feel that I have to discuss it with A-one's board so that the policy can be made more ethical or at least more transparent to customers. I opine that the policy should be clearly disclosed somewhere at easily accessible place of website of the company so that the customers are aware of it and willing of refund can submit their request in writing.
5. The policy of company of not to make refund to customers without written request has effect in the financial statements of A-one that the sales of A-one is overstated and it carries account receivable on higher side. The company neither recognizes liability for refund to customers nor adjusting sales. Therefore the financial statements of company do not present a true and fair view of the affairs of company. If the company is firm determined with no flexibility in present policy than also the company should adjust its figures of sales and account for liability of probable refund to customers.
You are conducting the audit of A-One Travel. There are two major concerns you have in A-One's operations:
1. 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.)
2. 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:
1. 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.
2. Discuss your responsibility in informing the audit committee of this situation, if you feel the need to inform them at all.
3. Should the company policy be addressed elsewhere as part of the audit? If so, where and how should it be explained?
4. 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?
5. How does this policy affect what you report as sales and accounts receivable on the financial statements?