3.1. Below is the extract of system for billing and recording accounts receivable which is in use at Velocity Vessel Voyages Ltd (VVV), a manufacturer of specialised cameras. All the sales are in credit.

An incoming customer order is received in the order department by a clerk who prepares a company sales order form (3 copies). The sales order form, which is not pre-numbered, contains information such as the customers name and address, customers account number, quantity and items ordered. After the sales order form has been prepared, the customers order is attached to it.

One copy of the sales order is then passed to the credit department for credit approval. After investigation, approval of credit is noted on the form. If credit is not approved, the sales order form will be returned to the order department and an order clerk will inform customers. If credit is approved, the sales order form is then passed to the billing department where a clerk uses a computer to generate a (three-copy) pre-numbered customers invoice. The billing clerk determines and enters the unit prices for the items from a list of billing prices to the computer system, followed by a review and approval by the sales manager to ensure the accuracy of the unit price. The accounting system automatically multiplies the number of items times the unit price and adds the extended amounts for the total amount of the invoice, and also records the sales transaction in the accounting system. One copy of invoices is sent to the shipping department.

Another copy of the sales order is sent to the shipping department where a clerk creates a shipping document (3 copies) and sends goods to customers. After the order has been shipped, a copy of the shipping document is returned to the billing department. The shipping department copy of the invoice is filed in the shipping department.

Required: Based on the information available above:

(a) Evaluate the strength of VVVs internal control over the sales and collection cycle by identifying and explaining THREE (3) control activities present in the system. (Limit your answer to 20 words, including explanations, for each of the control activities). (6 marks)

(b) State 1 relevant assertion that is addressed by each of those control activities identified in requirement (a). (3 marks)

3.2 You are working for a public accounting firm in Melbourne and were the auditor of Barwon Company Ltd (Barwon) for the financial year ending 30 June 2020. Barwon had been operating in the Melbourne market for several years before having its shares listed on the Australian Securities Exchange (ASX) since 1 July 2019.

Barwon has just prepared its half-yearly financial statement for the period ending 31 December 2020. Barwons Board of Directors (BOD) has just been aware that as per regulations set out in the Corporations Act 2001, Barwon needs to get its half-yearly financial statements either audited or reviewed by a public accounting firm. The BOD of Barwon has approached you with a view to getting to know more about the similarities and differences between a review and an audit service and to receiving advice on what type of service would best suit it. The audit partner in your firm requests you to prepare a letter addressing Barwons BOD regarding this issue.

Required:Write a letter to the BOD of Barwon advising them of the similarities and differences between a review of financial statement and an audit of financial statement, and of the type of service that suits the client. Your discussion should focus on: the similarities and differences in level of assurance, audit procedures, benchmark or criteria, types of opinion, applicable standards, audit fees etc. (6 marks)