Delphic Co is a wholesaler of furniture (such as chairs, tables and cupboards).

Delphic buys the furniture from six major manufacturers and sells them to over 600 different customers ranging from large retail chain stores to smaller owner-controlled businesses.

The receivables balance therefore includes customers owing up to $125,000 to smaller balances of about $5,000, all with many different due dates for payments and credit limits.

All information is stored on Delphic’s computer systems although previous audits have tended to adopt an ‘audit around the computer’ approach.

You are the audit senior in charge of the audit of the receivables balance.

For the first time at this client, you have decided to use audit software to assist with the audit of the receivables balance.

Computer staff at Delphic are happy to help the auditor, although they cannot confirm completeness of systems documentation, and warn that the systems have very old operating systems in place, limiting file compatibility with more modern programs.

The change in audit approach has been taken mainly to fully understand Delphic’s computer systems prior to new
internet modules being added next year.

To limit the possibility of damage to Delphic’s computer files, copy files will be provided by Delphic’s computer staff for the auditor to use with their own audit software

Required:

a) Explain the audit procedures that should be carried out using audit software on the receivables balance at Delphic Co.

For each procedure, explain the reason for that procedure. (9 marks)

b) Explain the potential problems of using audit software at Delphic Co.

For each problem, explain how it can be resolved. (8 marks)

c) Explain the concept of ‘auditing around the computer’ and discuss why this increases audit risk for the auditor. (3 marks)