An auditor is trying to understand the internal control structure of his client. The following come to the attention of the auditor.

i) The company implemented a system of budgets and standards but appeared to pay little attention to deviation unless they were huge.

ii) Departmental heads were heavily reprimanded if the departmental physical inventory count was significantly less than the amount in the perpetuity inventory records.

iii) There were problems with the end-of-year cut-off; often accruals were omitted and were recorded only at the insistence of the auditor.

iv) The internal auditors are involved in a great deal of routine clerical, administrative work, and occasional special assignments required by the company secretary.

v) The company had a credit officer who approved all credit sales above a certain amount; there seemed to be no apparent criteria but based on the officer’s subjective & perceptive judgment. The firm appeared to have many slow-paying customers.

Required:

a) Assess the control risks. Be specific as to which accounts would require more extensive testing, if the control risk is high.

b) Provide some test of control procedures to be conducted by the auditor. Present your answers in the following structure:

No	a) Potential Control Risk (Accounts affected)	b) Test of Control(s)
i)
ii)