During your audit of Lish and Company's December 31, 1998 financial statements, you become aware of the
Question:
During your audit of Lish and Company's December 31, 1998 financial statements, you become aware of the following controls or procedures Lish has implemented over credit sales and cash collections:
a. Sales terms are approved by supervisory personnel before shipment.
b. All credit memoranda are prenumbered sequentially and controlled.
c. Shipping documents are prenumbered sequentially and controlled.
d. Copies of shipping documents are hand-carried to the billing department within one hour after shipment.
e. Sales invoices are compared with sales journals and with customers' individual subsidiary records.
f. In contrast to prior years, noncredit (cash) sales are handled in one centralized location, rather than throughout all departments.
g. Unused checks are prenumbered and locked in a fireproof vault accessible only to the treasurer, who is one of two endorsers on customers' checks.
Required:
For each control or procedure, indicate: (1) a potential error or fraud that might circumvent the control or procedure, and (2) the internal control objective that is served by the control or procedure. Organize your answer as follows.
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