Below is the extract of system for billing and recording accounts receivable which is in use at Laverton Corporation Ltd (Laverton), a manufacturer of desktop computers. 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 customer’s name and address, customer’s account number, quantity and items ordered. After the sales order form has been prepared, the customer’s 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 customer’s invoice. The billing clerk determines the unit prices for the items from a list of billing prices and enters it manually to the computer system. The 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: 

(a) Evaluate the strength of the client’s internal control over the sales and collection cycle by identifying and explaining TWO (2) internal control activities present in the system. State 1 relevant assertion that is addressed by each of those internal control. Note: you should limit your answer to 40 words per evaluation.

(b) For each control listed in section (a), list a useful test of control to verify the effectiveness of the control.