FROM DESIGN AND DEVELOPMENT TO SALES

Background

In 1989, Robert Smith’s opened a small fruit and vegetable market in Bethlehem,

Pennsylvania. Originally Smith sold only produce grown on his family farm and orchard.

As the market’s popularity grew, however, he added bread, canned goods, fresh meats,

and a limited supply of frozen goods. Today Smith’s Market is a full range range

farmers’ market with a strong local customer base. Indeed, the market’s reputation for

low prices and high quality draws customers from other Pennsylvania cities and even

from the neighboring state of New Jersey. Currently Smith’s Market has 40 employees.

These include sales staff, shelf stockers, farm laborers, shift supervisors, and clerical

staff.

Viewed in this way his market is a well-known of all in the city of Bethlehem. With

this strategy it enables the company to become a global leader in the electronics

distribution industry. However, Smith has noticed a decline in profits and sales, while his

purchases of products from resale have continued to rise. Although the company does

not prepare audited firm to assess his company’s sales procedures and controls, Smith

noticed that he must create a solution for his market. A revenue cycle procedures

which described in Part V Alternative Causes in internal controls with Data Flow

Diagram and System Flow Chart is one of the solution in this scenario.

To support this strategy, the company needed to overcome a number of

expandable challenges. Historically, market has mainly focused on cost management to

deal with these pressures (Gapenski, Vogel, and Langland-Orban 1993). Due to the
complex interrelations among purchaser, supplier and payers, which characterize the

Smith’s Market Accounting System, the way Robert Smith manage revenues and

accounts receivable differs substantially from that in firms in most other industries.

In this study it shows that the mode of payment by the cash, check or credit card

to the clerk is having a deficiency for the clerk has many roles in a market and he must

submit his collection every end of the day in to the main branch. Smith remained

unaffected in response to the incident. Smith’s Market need to maintain and stabilize revenue

streams and improve collections has thus sparked the creation of a new industry of

consultancies that specialize in helping their clients improve their performance at managing the

revenue cycle. Examples include Hourly Pay, CareerBuilder and Payscale to name but a few of

the players in this new and growing industry.

Statement of the problem

 Take down electronic channels, basically these are services related to the Accounting

Department like Accounts Receivable Ledger.

 One of the biggest problems faced by Smith today is a huge range of products

which includes bread, canned goods, fresh meats, and a limited supply of frozen

goods, which make it difficult to maintain inventory and even it complicates the

brand image of the company.

 The internal system error that caused some transactions.

 Causes disparity in some account balances.
Point of View

Having this market deficiency we can here the different point of view of

Smith’s Market. It includes Robert Smith, consumer and the staff and clerk.

RELEVANT FACTS

AU Section 325 (PCAOB Release 2007-005A )

 A deficiency in design exists when (a) a control necessary to meet the

control objective is missing or (b) an existing control is not properly designed so

that, even if the control operates as designed, the control objective would not be

met.

 A deficiency in operation exists when a properly designed control does not

operate as designed or when the person performing the control does not possess

the necessary authority or qualifications to perform the control effectively.

Smith’s Market experience a material weakness which is a deficiency, or a

combination of deficiencies, in internal control over financial reporting, such that there is

a reasonable possibility that a material misstatement of the company's annual or interim

financial statements will not be prevented or detected on a timely basis. In the Smith’s

Market in Bethlehem, it was clear that his internal control was 6ynot in place. They must

pay attention of what happen in a market in order to find solution in there Accounting

Department.

In conclusion to our relevant facts, there is a reasonable possibility of an event when

the likelihood of the event is either "reasonably possible" or "probable”.

In 2002, Congress passed the Sarbanes-Oxley Act (the "Act"), which, among other things, established

new provisions related to internal control over financial reporting. Section 404 of the Act requires

company management to assess and report on the effectiveness of the company's internal control. It

also requires a company's independent auditor, registered with the Public Company Accounting

Oversight Board ("PCAOB" or "Board"), to attest to management's disclosures regarding the

effectiveness of its internal control.

ALTERNATIVE COURSES OF ACTION

 Ensure Duties Are Segregated

Segregation of duties is a basic, key internal control and one of the most

difficult to achieve. At the most basic level, it means that no single individual

should have control over two or more phases of a transaction or operation. It is

used to ensure that errors or irregularities are prevented or detected on a timely

basis by employees in the normal course of business. Segregation of duties

provides two benefits: 1) make a deliberate fraud more difficult because it

requires collusion of two or more persons, and 2) make it much more likely that

innocent errors will be found. If a single person can carry out and conceal errors

and/or irregularities in the course of performing their day-to-day activities they

have generally been assigned or allowed access to incompatible duties or

responsibilities.
 Correct Errors Promptly

Even well-designed internal controls can break down. Employees

sometimes misunderstand instructions or simply make mistakes. However, errors

detected at any stage of a process should receive prompt corrective action and

be reported to the appropriate level of management.