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CaseStudyPejaSko-Volume-I.pdf Your team is chosen by the Audit Partner of CheckofExcellence & Co on the audit of RemoBake Ltd. You need to assign the roles within your team, as well as appoint Audit manager. All the questions must be answered in writing and submit on the student website on or before May 13, 15:00. After the work is submitted, one of the team members will be called to present one of the case study questions, chosen randomly, therefore all team members need to discuss all answers thoroughly. Case Study RemoBake Ltd. RemoBake Ltd. is a cheesecake bakery, very famous in town for its high-quality products. They grow their own cows, accounted as livestock, feeding them properly, therefore their cheesecakes are exceptionally delicious. RemoBake Ltd. has been on the market for 15 years. It has been founded and run since then by Ivan Miller, who once was a chef in several Michelin star restaurants. He owns 75% of the shares in the company, remaining 25% belong to local farmers. Ivan Miller widely uses his connections in fashionable magazines and get a significant promotion on advertisements, both locally and internationally. Main customers are local grocery shops, but since the purchase of modern freezer and opportunity to ship the frozen cheesecakes, there are some international customers as well. RemoBake Ltd. is a new client for CheckofExcellence & Co. The previous auditor company was on the assignment for six years, besides Audit Partner married Ivan Miller’s daughter, therefore the management decided to change the auditing company. Before accepting RemoBake Ltd. carried out all necessary procedures for client’s approval, as well as applied all necessary safeguards. Here we need to mention, that CheckofExcellence & Co have croissant bakery as their customer but received a written consent from the croissant bakery managing director. Through the inquiry and inspection procedures, you are becoming familiar with RemoBake's processes and classes of transactions, as described in the following sections. Revenue Sales orders The sales orders placed by grocery chains are received by e-mail, usually once or twice a week, with the detailed schedule of expected pickups and orders entered to the order system. The sales orders from local shops are received by phone and are also entered into the order system. All orders are entered into the system by the warehouse manager who also performs a role in the sales department. Orders received must be authorized electronically in the system by the Chairman, who has information about the current balance of outstanding receivables and the amount of revenue from the customers within the last three months, the last six months, and the last year. While Mr. Miller is on holidays, the Company Lawyer approves sales orders for him. These orders are counter approved by Mr. Miller, once he is back from his holidays. The warehouse personnel print the approved order, which is sent to the customer via email or fax. If the customer has not provided further feedback within three days prior to shipping, the order is automatically given the status "sale orders ready for delivery". If the order is from a new customer, the Chief Accountant performs a credit rating. The customer files a standardized form for credit assessment, attaching the necessary legal documents and financial data. The financial data is assessed by the Chief Accountant and the legal documents are checked by the company's lawyer. Once the documents have undergone this scrutiny, final approval is required from the Chairman, who also grants payment terms (including the sales prices, payment terms, etc.) and is involved in negotiating the prices and other terms of trade with the customer. The Chairman updates the sales prices in the accounting software: the Chairman and the company's lawyer are the two people in the company authorized to make these changes. The company decided not to establish credit limits because "it is too much hassle to review them periodically". Mr. Miller also cross-references the prices and payment terms periodically by comparing the sample of actual sales invoices with the prices recorded and authorized in the accounting software. This is done in order to eliminate the risk of manipulating sales prices and changing them without management's authorization. The person responsible for collecting outstanding debts and contacting the customers is the Chief Accountant. In the case of larger outstanding balances, the Chairman is also involved in the process. At the time of delivery, the warehouse employees print the order confirmation from the sales order system, collect the goods from storage and load them into the delivery van. Before shipping, all items are scanned and the status of the order is changed to "order shipped, not invoiced". In the case of deliveries to individual shop owners, the goods are delivered by REMOBAKE. In the case of orders placed by grocery chains, they organize transport to collect the inventory. The orders are invoiced by the Chief Accountant periodically and - even on a daily basis if required. The sales invoices to individual shop owners are printed and delivered along with the inventory. The shop owner or shop assistant confirms the quantity delivered by signing the delivery note, collects the original sales invoice and confirms (via signature) the copy of the sales invoice that is taken back to REMOBAKE's accounting department. After obtaining the signed copy of the sales invoice, the Chief Accountant changes the status of the order in the system to "order shipped and invoiced". The printed version of the order is kept together with the accompanying copy of the invoice (for bookkeeping purposes) numerically in a separate voucher binder. Once a month, the Chief Accountant performs a review of the "orders shipped not invoiced" with the warehouse manager to make sure that all invoices and revenues are properly recorded. Invoices for the grocery chains are issued after physical delivery based on the signed delivery note and posted to the clients. Estimates Provision for bad debt: the Chief Accountant reviews the accounts receivable once a year before preparing the annual financial statements to assess the need to offset for bad debts and make an estimate for bad debt provisions in the financial statements. The list with the suggested amount of provisions is then given to the Chairman, who approves the final assessment. Obvious bad debts are recognized and based on experience from previous years, 5 percent of the total balance at 31 December is booked as provisions for bad debts, if there are no indicators of larger losses. Claims Provision: Each year the Chief Accountant, the company's lawyer and Ivan Miller discuss the need for this type of provision. However, in the end no amount has been provided due to the absence of possible claims. Inventory obsolescence: Due to the nature of quick circulating inventory, REMOBAKE has no formal policy for provisioning its products. The warehouse manager reviews the inventory levels twice a week and identifies the stock that could have expired. Due to the nature of REMOBAKE's business, it is very rare for the warehouse manager to identify expired inventory. However, in such situations, the warehouse manager informs the Chief Accountant, who estimates the level of provision, if necessary. No formal procedure exists. Upon review, you have noted the following internal controls in the routine that you believe reduce the assessed risk of material misstatement regarding the completeness of the assertions, the accuracy of the amounts recorded on the account balance of sales, and the existence and valuation of account balances of receivables: · Credit assessment and granting of trade terms (all new customers are subject to a credit rating). · Orders sent but not invoiced; reconciliation performed by the Chief Accountant. · Establishing the terms of trade and monitoring of prices, payment terms. Purchase of goods Orders The purchase of goods includes food for the livestock (grain and hay for the winter, specialized vitamins and additives), specialized bacteria colonies used in the production of cream cheese (most of which are imported) and some raw milk- the company has to purchase additional milk in order to fulfill the planned production volumes. Suppliers of the additional milk comes mostly from the 10 local farmers who are also minority shareholders of REMOBAKE. The main technologist is responsible for purchasing the raw milk and additives used in the production process. The raw milk is delivered every day by farmers. There is no requirement for a special ordering process for raw milk. The technologist confirms the quantities of milk upon delivery and collects its samples, which are then sent to the external lab for sanitary control. In the meantime, the milk is sent to the production process while the samples are being checked. The sanitary conditions have been checked many times on site and farmers have undergone several training courses in the sanitary procedures. The strict rules have ensured that the company has never experienced any major issues regarding the quality of the raw milk purchased. The technologist confirms the quantity of milk delivered on the delivery note, which is also signed by the farmer. Once all deliveries have been made, the delivery notes are forwarded to the Chief Accountant, who collects them. Deliveries during the weekend are confirmed by the designated person in charge of the production process over the weekend. Every 10 days, the Chief Accountant prepares a summary for each farmer based on the daily delivery notes from the last 10 days and makes the payment for the raw milk. The farmers obtain a summary from the technologist with the following delivery. In case of any dispute, the farmers deal with the technologist regarding issues of quantity, or with the Chief Accountant concerning prices or payment conditions. Disputes are rare in practice. The main technologist controls the inventory of additives used in the production process and makes the purchase orders accordingly in the system. The purchase order is approved electronically by the Chairman. After this stage, the warehouse manager records the purchase order in the warehouse system as "ordered, not received" with respect to quantity and agreed price and terms. The main technologist then makes the order with the supplier. Orders are placed based on the technologist's previous experience as a result of the production plan. There is no maximum order level in place. Purchases of other goods and services are placed by staff in charge of specific area of the business and are generally made in writing, but also via telephone, internet or e-mail. All orders above EUR 500 must be approved by Mr. Miller, while smaller orders below EUR 500 can be approved by the Chief Accountant. Receipt of goods The technologist confirms the quantity of raw milk upon receipt of the delivery note, which is also signed by the farmer. Physical copies of the delivery notes are forwarded to the Chief Accountant. Upon delivery of other inventory items, the warehouse manager matches the quantity of the delivery to the purchase order. He then updates the delivery note in the system with the quantity and changes the status to: "ordered