Auditing Cash, Financial Investments, Receivables, and Revenue, accounting homework help

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Reference Case Study 11-49 in the textbook.

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 an entry is made debiting a receivable
account (from the credit card) and crediting sales. When a ticket is
canceled, the only entry made is to a database that maintains specific
flight information on seat availability. Jane has discovered that
customers are emailed 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, the receivable is billed to the credit card and
collected; when it is billed to the credit card, many customers complain
and are given a refund, with an accompanying journal entry being made
for the cancellation.

After analyzing the “Canceled Reservation” form, you note that it
says nothing about requiring a written cancellation for a refund. UA’s
controller responded to your inquiry about the policy of requiring a
written request for a refund by indicating that the policy is presented
on the website’s “business policies and procedures” section.
Furthermore, the controller says that in total about two-thirds of the
customers ask for and receive refunds, while one-third do not. She then
states to you that “the other one-third must not be aware of the policy,
or simply don’t care. What the heck, caveat emptor!” At this point, you
discussed the situation with Bill Radman, partner-in-charge of the
audit.

Subsequently, he made an inquiry of Zaird’s attorneys about the
legality of the policy, and received a reply that while it is probably a
questionable policy, they are unable to say it is illegal—in fact, it
probably is not. Upon further investigation you find that this policy
has been in existence for three years (since your first year on the
audit) and neither you nor anyone else in your firm has identified it
previously.

Required:

1. Is this a significant deficiency? Should it be reported to the audit committee?
2. Should it be reported elsewhere? Where? How?
3. What impact should this policy have on the audit?

Your paper should be 3-4 pages in length. Follow APA format. Include a title page and reference page. Use two outside academic
sources other than the textbook, course materials, or other information
provided as part of the course materials.