As the Jr auditor, you have been asked to gather information regarding the different internal processes that exist at A&E Landscaping Inc. The below narrative has been provided to you by Emma Inkling. When a new client engages the company to perform a landscape job, Ana or Emma will complete a contract outlining the details of the work to be performed, timing and price. The contract is sent to the customer to be signed prior to the start of the job. All clients are required to pay a 20% deposit before the job will be initiated. Once the job is 50% complete, the company will issue a Progress Billing Report. This will indicate to the company the status of the work performed and detail what is left to be accomplished. The customer is required to sign off their agreement with the progress. Once the report is signed, Lauren will create an invoice to be sent to the client charging 50% of the contract price. At the completion of the job, another Progress Billing Report is signed by the client indicating they are satisfied with the work. Once signed, Lauren will send the final invoice. Payment terms are due on receipt of invoice. The company does not perform any credit checks on clients or identify credit limits. Every week, Ana and Emma review the Sales Journal for the week to ensure that the invoices issued are correct. They each sign off on the listing. Snowplow services are offered from the period Nov 1 - Mar 31. All contracts are for the entire 5 month period. Ana generates all the contracts in October which are mailed or emailed to customers for signature. Contracts can be paid on a monthly basis or upfront for a 5% discount, if paid by Nov 1. Lauren keeps an excel file which lists the contracts. If the customer has indicated they will pay upfront, she will issue an invoice and enter it into the accounting system as unearned revenue. Each month she will recognize 1/5 of the revenue by making a journal entry to move it from unearned revenue into revenue. For clients that pay monthly, Lauren issues an invoice at the beginning of each month. Credit memos are rarely issued, however if necessary, only Ana or Emma can issue one. Clients pay their invoices via cheques. Lauren is the in-house bookkeeper who works on Mondays, Wednesdays and Fridays. On the days she is in the office she will open the mail and set aside any cheques that have come in. On days she is not in the office, Emma will open the mail and set the cheques aside for Lauren to deal with on her next day in. Lauren will fill out the deposit book each day and leave it for Emma to go to the bank to make the deposit. As Lauren fills out the deposit book, she will also enter into the accounting system the receipt of payment. When invoices to be paid are received, either via email or in the mail, they are given to Emma for approval to pay. Lauren will then enter them into the accounting software. Every Friday, Ana will go through the payables listing and print cheques for supplier invoices. The cheques are kept in Ana's office, in her unlocked filing cabinet drawer. All cheques issued must have 1 authorized signature - either Emma or Ana. When the cheques are signed, Ana will sign the original invoice indicating it has been paid and pass both the cheques and the invoices to Lauren who will send them out to the vendors and updates the accounting records appropriately. Bank reconciliations are performed on a monthly basis by Lauren. Emma will review the year end bank reconciliation in anticipation of the year end audit. The company keeps an inventory of gravel, stone and interlock bricks as these are common materials needed in their jobs. Sometimes there are delays in receiving these items from suppliers, so the company decided to keep a stock on hand to avoid unnecessary delays on their jobs. Manuel is the foreman in charge of monitoring the status of all landscape jobs. Part of his job includes monitoring inventory levels. When he sees there is a need to place an order he will create a PO in the system and send it to the vendors. When the shipment is received, Lauren will create a receiving report. Manuel will agree the receiving report to the original PO and sign off to indicate that the correct goods were received. When the invoice is received from the vendor, Lauren will match it to the original PO. She will initial the invoice to indicate that it matches the goods/quantity/price per the original PO. At the end of each quarter, Manuel will perform an inventory count. All full-time employees are on a salary, part-time employees are paid hourly. Paycheques are issued every Friday for the previous week's work. The company uses an outside payroll service to process payroll. The hours for the previous week are due to the payroll company by the following Tuesday. Part-time employees use an App called TrackMyHours to log their hours. At the end of day Friday, they must email their hours to Manuel. Manuel approves the hours and enters them into the form sent by the payroll company. Once payroll is processed a report is sent back to the company and Lauren enters the data into the accounting system. The payroll company requires an email from Ana or Emma as authorization to change any pay rates. The company will need to purchase large pieces of equipment from time to time. Sometimes these purchases are financed by the bank. Only Ana or Emma have the ability to purchase equipment or enter into financing agreements. They have decided that both need to be listed on any financing arrangements. Required: Based on the above narrative, draft a memo to Ana and Emma discussing the nature of their control environment. Consider the following: 1 What controls currently exist and what is their purpose? 2 Are there areas of control weakness? Make suggestions on improvements. As you journey through the rest of the audit, you will need to refer back to this narrative often. In each section you audit, there will be 1 control test identified for you to test the controls in that area