Kiara Outdoor Berhad is a Sintok based wholesaler of rafting and camping equipment that

serves outdoor sports camping retailers throughout the northern area of peninsular

Malaysia. You have been hired by Kiara Outdoor Berhad to evaluate their processes, risks

and internal controls. Below is the revenue cycle procedures of Kiara Outdoor Berhad.

Sales Order Procedures

Customer orders are mailed or emailed to the sales department. The sales clerk checks the

customer's creditworthiness from a computer terminal by running a validation application.

The credit check program determines if the customer's account is up to date regarding

payments and the customer has not exceeded his or her credit limit. Computer controls in

the application prevent further processing of any transactions that fails the credit check.

The credit manager may override the validation control.

The clerk then records the sales order through his/her computer terminal after the

customer's credit is verified. A digital copy of the order is distributed to the warehouse and

shipping department for further processing. The sales clerk records the sales in the sales

journal. Finally, the clerk files the hard copy of the customer order in the sales department.The warehouse manager is prompted by receipt of the digital sales order on the warehouse

terminal. The manager prints out two copies of order, the stock release and a shipping

notice. A warehouse clerk uses the stock release to pick the selected items from the shelves

and sends them to the shipping department along with stock release and the shipping notice.

The warehouse manager then updates the inventory subsidiary ledger and the general ledger

control account from his/her computer terminal.

The shipping clerk will match the goods, stock release and shipping notice to the

corresponding digital sales order displayed on his terminal. The shipping clerk will print

out three copies of the bill of lading and a packing slip if goods and all documents are

match. Two copies of bill of lading and the packing slip are sent along with the goods to

the transporter. The stock release copy and shipping notice are sent to the accounts

receivable (AR) department. The third bill of lading copy is filed in the shipping

department.

Upon receipt of the stock release and shipping notice, the AR clerk manually creates a hard

copy invoice which is immediately mailed to the customer. The clerk then uses information

on the stock release to update the AR subsidiary ledger and general ledger (GL) from his

computer terminal. The clerk files the stock release and shipping notice in the AR

department.

Cash Receipt Procedures

Customer payments come directly to the general mail room along with other mail items.

The mail clerk sorts the mail, opens the customer payment envelope, removes the

customer's cheque and remittance advice (RA) and reconciles the two documents. The

clerk manually prepares two hard copies of remittance list to control the cheques and RA.

One copy will be sent to the AR department along with the corresponding RAs. The other

copy of remittance list accompanies the cheques to the cash receipts department.

Once the cheques and remittance list arrive in the cash receipt department, the accounts

clerk reconciles the documents, endorses the cheques and manually prepares three hard

copies of deposit slip. The clerk then updates the cash receipts journal and the GL from his

computer terminal. Then he sends the cheques and two copies of deposit slip to the bank.Finally, he files the third copy of the deposit slip and the remittance in the department. The AR clerk reconciles the remittance list and RAs then updates the AR subsidiary ledger

and GL. Finally, the remittance list and RAs are filed in the department.

Question

(a) Identify FIVE (5) internal control weaknesses of revenue systems at Kiara Outdoor

Berhad.

(b) Identify ONE (1) risk involves for EACH internal control weaknesses identified in (a).

(c) Suggest ONE (1) physical control procedure for EACH internal control weakness

identified in (a).

(d) Suggest ONE (1) information technology (IT) control procedure for EACH internal

control weakness identified in (a).