Situations:

1. XYZ is a relatively small entity but has segregated the duties of cash receipts and cash disbursements. However, the employee responsible for handling cash receipts also reconciles the monthly bank account.

2. Bredford Manufacturing Pty Ltd is an audit client with approximately $15 million in annual sales. All of its accounting is performed on a high-end microcomputer located in a separate office area in the accounting department. The microcomputer has three terminals: one in the controllers department (used mostly for analysis purposes): one in the assistant accountants area (individual is responsible for all accounting except cash receipts and sales billing), and one in the office of the individual responsible for billing and cash receipts. The office housing the microcomputer is locked each night when the controller leaves, but if the office is behind in processing, she often leaves it open for the sales clerk to work overtime and catch up on processing.

3. Bass Pro Shops Pty Ltd takes all customer orders over a toll-free phone number. The order taker sits at a terminal and has complete access to the customers previous credit history and a list of inventory available for sale. The order clerk has the ability to input all the customers requests and then generate a sales invoice and shipment with no additional supervisory review or approval.

4 . The employees of Australiana TV and Appliance Pty Ltd are paid based on their performance in generating profitable sales for the company. Each salesperson has the ability to determine a sales price (within specified but very broad parameters). Once a sales price has been negotiated with the customer, an invoice is prepared. At the close of the day, the salesperson looks up the cost of the merchandise on a master price list. The salesperson then enters the cost of the merchandise on the copy of the invoice and submits it to accounting for data entry and processing. The salespersons commission is determined by the gross margin realised on sales.

Required: For each of the above situations, evaluate the segregation of duties described and indicate the following:

(a) any deficiency in the segregation of duties described (indicate none if no deficiency is present), (4 Marks)

(b) if so, the potential errors or irregularities that might occur because of the inadequate segregation of duties, and (4 Marks)

(c) a specific audit test that ought to be performed to determine whether the potential misstatement had occurred. (8 Marks)