You have been assigned to the audit of Compu Co. (CC), a new client of your firm, Neer & Farr, Chartered Accountants. You are responsible for the accounts payable section of this year's audit. You have prepared the following description of the accounts payable system from discussions with CC staff.

Head office of CC processes the accounts payable for its branch offices. When a new branch is set up on the auto¬ mated accounts payable system, it is requested to send to head office a detailed accounts payable trial balance and an accounts payable vendor list, approved by the manager of the branch. The accounts payable vendor list includes vendor name, address, discount terms, and other descriptive information, such as telephone number and personal contact.

The head office accounts payable department consists of an accounts payable supervisor and three clerks.

The accounts payable supervisor assigns and records vendor codes on the original vendor list provided by the branch manager. Vendor codes are assigned alphanumerically, based on the vendor's name. This list is used as a source of input to the computer system, and a photocopy of the list is returned to the branch for its reference.

The branch manager approves the invoices and codes them as to general ledger allocation prior to sending them to head office for payment. The supervisor reviews the allocation of the invoices and passes them on to one of the clerks. Each clerk is responsible for specific branches. The clerks scan the vendor list, call up the vendor file on the screen, and enter the invoice details into the system. If the vendor is not on the vendor list, the clerks check for similar names on the screen to verify that the vendor has not been set up since the vendor list was printed and then add a new vendor using the standard method. The clerks then record the invoice against this new vendor.

By means of an error message, the system identifies invoices that have already been entered for payment so that invoices that have inadvertently been entered twice are detected. However, the accounts payable clerks are able to override this error message since it is sometimes necessary for an invoice to be entered twice (e.g., if partial payment was made earlier and the balance is now being paid in full). Once an invoice has been entered for payment, the accounts payable clerk files the invoice alphabetically by vendor name.

Cheques are run Mondays and Thursdays, based on due dates. Because of the high volume of cheques processed, the accounts payable supervisor signs all cheques. However, cheques for amounts greater than $50,000 must also be signed by the head office controller. The cheques are mailed directly to suppliers from head office. A copy of the cheque register, showing which invoices have been paid, is sent to the branch.

The partner on the CC engagement has requested that you prepare a memo that identifies the control strengths and weaknesses in CC's accounts payable system and analyzes their impact on this year's audit (i.e., identifying tests of controls and compensating audit procedures needed). The memo should also provide practical recommendations for the resolution of the accounts payable system weaknesses.

Required Prepare the memo requested by the partner.