2. Your friend David, who owns a small business that sells face masks to restaurants has asked you for a favour. He knows you are an audit senior at Richards and Associate and therefore knowledgeable about best practices related to the policies and procedures that a company should implement to ensure it operates efficiently, while complying with laws and improving the reliability of financial reporting, David outlines the following as an extract of the procedure surrounding his company's cash cycle: (1) Payment by customers are usually dropped off at the reception desk. These are passed on to the cashier who opens the envelopes and records the cheques or cash in a logbook and then placed them into a small cashbox that is kept locked. A receipt is mailed to the customer within two business days. (ii) The contents of the cashbox are counted daily and every other day these sums are deposit at the bank by whomever in the accounts team is available on that day. (iii) The cashier records the details of the logbook into the cash book and updates the accounts receivable sub-ledger. (iv) Usually on a monthly basis the cashier performs a bank reconciliation, which is then filed. If things get hectic and a month is missed, he then catches this up in the following month's reconciliation. Required: a) Identify and explain THREE deficiencies in David's system above. (3 marks) b) Suggest a control which David should implement to address each of the deficiencies identified above. (3 marks) 3. The following are internal controls related to various cycles. i Cheques are signed by the CEO, who compares the cheques with the underlying supporting documents ii Sales invoices are matched with shipping documents by the computer system and an exception report is generated. iii Receiving reports are prenumbered and accounted for on a daily basis. iv The accounts receivable sub-ledger is reconciled to the general ledger. v Sales invoices are independently verified before being sent to customers. Required For each internal control above, identify one specific control activity to which it relates AND identify the ISA assertion being addressed. (5 marks) 2. Your friend David, who owns a small business that sells face masks to restaurants has asked you for a favour. He knows you are an audit senior at Richards and Associate and therefore knowledgeable about best practices related to the policies and procedures that a company should implement to ensure it operates efficiently, while complying with laws and improving the reliability of financial reporting, David outlines the following as an extract of the procedure surrounding his company's cash cycle: (1) Payment by customers are usually dropped off at the reception desk. These are passed on to the cashier who opens the envelopes and records the cheques or cash in a logbook and then placed them into a small cashbox that is kept locked. A receipt is mailed to the customer within two business days. (ii) The contents of the cashbox are counted daily and every other day these sums are deposit at the bank by whomever in the accounts team is available on that day. (iii) The cashier records the details of the logbook into the cash book and updates the accounts receivable sub-ledger. (iv) Usually on a monthly basis the cashier performs a bank reconciliation, which is then filed. If things get hectic and a month is missed, he then catches this up in the following month's reconciliation. Required: a) Identify and explain THREE deficiencies in David's system above. (3 marks) b) Suggest a control which David should implement to address each of the deficiencies identified above. (3 marks) 3. The following are internal controls related to various cycles. i Cheques are signed by the CEO, who compares the cheques with the underlying supporting documents ii Sales invoices are matched with shipping documents by the computer system and an exception report is generated. iii Receiving reports are prenumbered and accounted for on a daily basis. iv The accounts receivable sub-ledger is reconciled to the general ledger. v Sales invoices are independently verified before being sent to customers. Required For each internal control above, identify one specific control activity to which it relates AND identify the ISA assertion being addressed