John Walker is the audit senior on the audit of Alpha Limited, a sportswear company. The following is an excerpt from an interview between John and the sales ledger clerk, Allan Border. 

John: What are the controls over the cash receipts? 

Allan: Good. The receptionist opens the mail each day to ensure each cheque is crossed. The receptionist then gives me all the cheques to post against the sales subsidiary ledger. 

John: What happens then? 

Allan: I make a list of all the cheques received - for control purposes. Then I record each cheque against the customer's record on the sales subsidiary ledger. After the cheques have accumulated for a couple of days, I give them to the receptionist to bank. The receptionist keeps all banking slips as a record in case there are any queries later. 

John: Are there ever any differences between the cheque value and the associated invoice? 

Allan: Sometimes there are. Usually it relates to a special discount that has been authorised by me or the sales manager. If the differences are not material, I will normally raise a credit note to write off the difference. 

John: What about reconciliations? 

Allan: Of course! The cheque listings that I have prepared are reconciled to the cash recorded in the sales subsidiary ledger; this is then reviewed by the financial controller. The main reconciliation of the sales subsidiary ledger with the control account in the general ledger is performed only at the end of each year. This one is, of course, checked by you people as part of your annual audit. You cannot get a better independent check than that! 

QUESTION:

(a) List one control strength and three control weaknesses in the cash receipts/sales subsidiary ledger system of Alpha Ltd and state why it is a strength and why it is a weakness.

Answer rating: 100% (QA)

Control Strength The receptionist opening the mail each day to ensure each cheque is crossed Strengt... View the full answer