Question
In the audit of Andy, you have obtained the following information in relation to the clients internal control over the sales and collection cycle. Andy
In the audit of Andy, you have obtained the following information in relation to the clients internal control over the sales and collection cycle.
Andy Pty Ltd (Andy) is operating in the retailing sector selling a wide range of electrical products, such as computers, headphones, smart televisions. All sales are for credit.
Customer orders are received in the order department by a clerk who is responsible for preparing three copies of pre-numbered sales order forms. After the sales order form has been completed, two copies of the sales order form are then passed to the credit department for credit approval. The approval of credit is made by the Head of the credit department who noted on both copies of the sales order form.
Next, one copy of approved sales order forms is passed to the shipping department where ordered products are shipped to customers. In the meantime, the other copy of approved sales order forms is used by a clerk in the billing department to generate customers invoices, which are not pre-numbered. The computer automatically determines the unit prices for the items from an approved list of billing price. The computer then automatically multiplies the number of items times the unit price and adds the extended amounts for the total amount of the invoice. Based on the invoice, an accountant records the transaction into the computerised accounting system.
Andy is currently sending statements to all customers every month.
Required: Based on the information available above:
(a) Critically evaluate the strength of the clients internal control over the sales and collection cycle by identifying and explaining FOUR (4) internal control activities present in the system. (8 marks)
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