Question
Following is the extracted description of sales and cash receipts for Baby's Shop, a store dealing in expensive babies' clothes. Sales are for credit only,
Following is the extracted description of sales and cash receipts for Baby's Shop, a store dealing in expensive babies' clothes. Sales are for credit only, using the store's own credit system rather than credit cards.
Customer orders are received and checked by an order clerk to make sure all the information is correct and goods is in hand. Orders that satisfy all criteria result in the production of a sales order that lists the goods ordered. The sales order is then forwarded to the credit supervisor, who approves credit sale based on an approved list of criteria and notes his approval on the sales order. The approved sales order will be sent to the sales department.
In the sales department, each sales clerk has their own sales book. Sales clerks prepare the sales invoices in four copies, which are not pre-numbered. The original copy is sent to customer, the second one is given to James, the accountant, and the third one is given to the supervisor. The fourth copy is retained by the sales clerk in the sales book. Each clerk summarises their sales each day on a daily summary form, which is used to calculate and record employees' sales commissions.
James, who also receives payment from customers, records the sales transactions into the firm's computerised accounting system based on the copy of invoice that he is given. The accounting provides a complete printout of all input and summaries. The accounting summary includes sales by sales clerk and total sales. Jenny compares this output with the
5
supervisor's and sales clerks' summaries and reconciles all differences. The computer also updates accounts receivable master file on a daily basis.
Required: Based on the information available above:
(a) Critically evaluate the strength of the client's internal control over the sales and collection cycle by identifying and explaining THREE (3) internal control activities present in the system. (marks)
(b) For each internal control listed in (a), identify a financial report assertion that the control addresses. ( marks)
(c) Critically evaluate the weaknesses of client's internal control through the identification and explanation of one (1) weakness in the sales system at Baby's Shop. ( marks)
2.2 In auditing accounts payable, auditors are given a list of 1,000 suppliers with the total value of $30,000,000 and use their judgment to select the items with a value above $30,000.
Required: Explain why this is or is not an example of audit sampling. If this is not an example of audit sampling, state a sampling method that the auditor should use in checking the above account. Indicate the population and sampling unit in your sampling method.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started