Question: You have been engaged to review the internal control procedures

You have been engaged to review the internal control procedures used by Data Flow Inc. During the course of your review, you note the following practices:
a. The credit manager maintains the trade receivables records and handles all collections from customers, because the accounting department personnel are not authorized to handle cash receipts.
b. All cash received from customers is deposited daily in the company’s bank account.
c. Employees who handle cash receipts are not permitted to write off trade receivables as uncollectible.
d. Invoices that require payment are first verified by the accounting personnel for accuracy. An accounting clerk stamps them “ paid” if they are cleared for payment, and sends them to the treasurer, who issues and signs the cheques.
e. The cheques issued by the company treasurer are not pre- numbered.
f. After preparing the bank reconciliation, any difference between the adjusted cash balance per the company’s books and the adjusted balance per the bank statement is debited (or credited) to the cash account.
Indicate whether each of these six practices reflects a strength or a weakness of the internal control system. Provide justification for your answer.

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  • CreatedAugust 04, 2015
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