You are the auditor of Spalding Sports Wear Ltd (Spalding), and have made the following notes on
Question:
You are the auditor of Spalding Sports Wear Ltd (Spalding), and have made the following notes on Spalding's cash receipts procedures.
- Cheques are received by mail and from sales representatives, who may obtain cheques directly from customers during their visits.
- All received cheques are forwarded to the credit control clerk in the sales order department, who puts a red line through every cheque received. The credit control clerk then enters details of the cheques into the cash receipts journal and ages the receipt from the remittance advice details provided by the customer.
- After all cheques have been recorded, the credit control clerk prints the daily cash receipts report. The report details all cheques recorded into the cash receipts journal since the previous report. The credit control clerk agrees all cheques to this report, prepares a bank deposit slip and banks the cheques.
- At the end of each day, the accounts receivable ledger is updated with cash receipts data.
Complete the following:
a. Identify and explain three weaknesses in Spalding's cash receipts procedures.
b. Explain an appropriate test of control for the three weaknesses noted above.
c. In the audit of a small sized business would the auditor test internal controls?
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws