You have been requested to prepare the report for the owner of Dresden's Designer Fashions, M/s Doris Dresden, advising her of the internal controls and any weaknesses in thesales/receipts cyclein her expensive designer label women's clothing store.

You have documented the sales/receipts cycle using a narrative format as per the appendix.

In your report(i) you are required to identify and document the existing internal controls and the related audit assertions. (ii) You are also required to identify and document theweaknessesin the systems with recommendations of internal control procedures to address the deficiencies.

(iii) Dresden's Designer Fashions are expanding their operations and consequently their accounting section and wish to appoint a Financial Controller.M/s Dresden has requested that you sit on the selection panel to interview applicants for the position of Financial Controller.In the report, you are required to advise her of the firm's eligibility to provide the non-assurance services, identifying any potential independence issues with reference to APES110: Code of Ethics for Professional Accountants.

Thebody of your reportshould contain the following headings:

Sales and Receipts - Existing Controls and Related Audit Assertion

Sales and Receipts - Weaknesses and Recommended Internal Control Procedure

Independence Issue

Appendix:

Sales and Cash Receipts Cycle

• Each sales clerk has their own sales book containing, perforated, pre-numbered, three-copy, multi-coloured sales slips.
• A central cash register is located at the store entrance operated by the store supervisor.
• Sales invoices in triplicate are prepared by the sales clerk; original and second copy given to the cashier. Third copy remains in sales book.
• Cash sales -customer pays sales clerk- marks all copies 'paid' and presents the money to the supervisor(cashier) with the invoice copies.
• Supervisor puts clothing into bags after comparing with description on the invoice and price on sales tag. Rechecks clerk's calculations, any corrections are approved by the sales clerk who changes her sales book at that time.
• Credit sales are approved by the supervisor from an approved credit list after the sales clerk prepares the three-part invoice. Supervisor then enters the sale in her cash register as a credit or cash sale. Second copy given to customer
• End of day supervisor summarises the sales and cash comparing the totals with the cash register tape and prepares summary. Supervisor deposits the cash in bank's lock box, bank mails deposit slip to the accounts receivable clerk.
• Cashier's copies of the invoices and a summary of cash receipts - sent to accounts receivable clerk.
• Each day the sales clerks summarise their sales on a daily summary form, which is used to calculate employees' sales commissions. The summary is sent to the accountant (who is not allowed to handle cash). The accountant inputs the supervisor's summary and the clerk's daily summaries into the firm's computer on a daily basis. A printout is generated of all input and summaries.
• The accounting summary includes sales by sales clerk, cash and credit sales and total sales and is compared by the accountant with the supervisor's and sales clerk's summaries - reconciling all differences.
• Computer updates accounts receivable, inventory and general ledger master files. The assistant accountant files all sales invoices by customer number. Sales printout lists invoice numbers in numerical sequence.
• Secretary opens mail each morning in owner's office. Correspondence/ complaints given to the owner. Secretary prepares prelist of cash receipts - totals list - prepares a deposit slip and deposits the cash daily.
• Copy of prelist, deposit slip, remittance advices given to accountant to record and update the accounts receivable ledger via computer. Accountant reconciles computer printout to prelist and deposit slip. The deposit slip from the bank for cash sales is reconciled with the cash receipts journal.
• Accountant prepares a weekly aged trial balance of accounts receivable from computer. A list of unpaid bills over 60 days is automatically prepared and given to the owner who approves any write-offs of bad debts. The list is then forwarded to the accountant to process.
• The accountant prepares and mails statements to the customers each month. The owner reviews any complaints or disagreements and informs the accountant of any corrections.
• Each month a general ledger trial balance is printed, from which the accountant prepares monthly financial accounts, prepares a bank reconciliation however does not reconcile the general ledger to the aged account receivable trial balance.
• Each month the accountant prints out the perpetual inventory totals and compares the list with inventory count sheets prepared on the last day of the month by the sales clerks. The owner reviews the inventory shortages and approves the adjustments to be processed by the accountant.