Case Summary
When a customer buys a travel package with a credit card, A-One Travel records it as a sale. If the package is canceled, no action is taken unless the customer submits a written refund request—something many miss due to the unclear policy buried on the website. As a result, some refunds are never issued, and the charges remain on the books as valid sales. When questioned, the company president insists it is not their responsibility if wealthy clients overlook the charge, emphasizing that they follow policy and do not offer exceptions.
Introduction
During the ongoing audit of A-One Travel, several significant deficiencies were identified that could seriously harm the company. The return policy for canceled trips is dangerous, as the organization does not implement it properly. This jeopardizes the company’s reputation and can lead to significant financial risks affecting its productivity. In this regard, the manager must fulfill his duties and inform the audit committee how the company’s policy should be further considered. The impact of this aspect on revenue and productivity can significantly affect the final work of A-One Travel.
Significant Deficiencies and Their Relevance to A-One’s Refund Policy
Significant deficiencies in the company’s financial reporting control system are not yet at the stage of material weaknesses and are not so severe. This type of deficiency can lead to distortions in the final reporting of the company and, as a result, appear in the wrong perception of its managers (Levy, 2019). This parameter is not sufficiently threatening to the activities of A-One Travel; however, if their consequences are stopped, and the information is promptly corrected, this can prevent them from falling into the category of material weaknesses. In this situation, a significant drawback is the false accounting and organization of statistics of canceled tour packages.
The company’s accounting department records data on the debit side of the ledger and the credit side when the client pays for the purchased service. However, the disadvantage is that if this operation is canceled, the corresponding changes are not made to the register, which leads to a distortion of the overall indicators (Levy, 2019). Thus, it harms the company as investors may be misled and unable to make an adequate decision regarding A-One Travel.
Auditor’s Responsibility of Informing the Audit Committee
The auditor must inform the audit committee about significant deficiencies so that employees can correct them and set them up correctly. In this case, the necessary information that should have been transferred to the audit committee is the insufficient accounting of canceled tour packages. To eliminate the existing shortcomings, the commission may consider several measures to improve the current situation. Implementation of an improved way to control canceled trips can become such a solution to the problem.
Evaluating Company Policy in the Audit
During the audit, the company’s policy should be aimed at improving financial reporting. The company’s attitude toward the return procedures and their execution should be disclosed in the relevant sections of the financial statements to simplify the structuring of these procedures (Levy, 2019). Information on how customers can issue returns and how this will be managed should be made available for review to optimize these processes.
A-One Travel’s return policy should be more ethical and transparent to customers. To achieve these goals, the organization can improve customer communication about its refund process and how they will be refunded. This can be added to the confirmation letter sent to customers by email when placing an order.
Impact on Financial Reporting
Failure to properly account for returned travel packages can significantly impact customer reviews and receivables in the financial statements. If returned tour packages are not registered according to the rules, they must be displayed as valid. Thus, this can lead to overestimation of receivables and incorrect financial statements. At the same time, officials who work with this type of document may be misled, creating additional confusion at the workplace.
Conclusion
In conclusion, it should be noted that the incorrect processing of travel package returns can lead to several negative consequences that affect the organization’s work. Significant deficiencies can cause an overestimation of the sales figure and, as a result, the accounts receivable displayed in the company’s financial statements. In this case, the auditor must inform the commission of the identified deficiencies so that they can take the necessary measures. The company’s return policy should be significantly redesigned to be more obvious and understandable to customers.
Reference
Levy, D. (2019). Audited Financial Statements & Reports Required For Audits Performed In Accordance With Government Auditing Standards And The Uniform Guidance July 31, 2021 and 2020. Doctoral dissertation, Massachusetts School of Law. Web.