Determine whether the deficiency is significant and should be reported to the audit committee.

Question

You have worked with Zaird & Associates, CPAs, for a little more than a year and are beginning your second audit of Universal Air (UA). This year you even have an assistant reporting to you—Jane McClain. Jane has come to you with a concern. She noticed that when sales are “booked” over the Internet by credit charge, an entry is made debiting cash (from the credit card) and crediting air traffic liability. When the scheduled flight occurs, UA recognizes the revenue from the ticket. If a ticket is canceled on the Internet, the only entry made is to a database that maintains specific flight information on seat availability. Jane has discovered that customers are e-mailed a “Canceled Reservation” form when this occurs, but no accounting journal entry is recorded, and no refund occurs until the customer requests (in writing) a refund. If the customer never requests the refund, a credit to the individual’s credit card account is never issued; when they do not get refunds on their credit…

Answer 1

Question

Chapter 11, Problem 51EC

a.

To determine

Determine whether the deficiency is significant and should be reported to the audit committee.

b.

To determine

Determine whether the significant deficiency should be reported elsewhere and how.

c.

To determine

Determine the impact of policy on the audit.

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