Question
The head office of Lighttime Sdn. Bhd. Wholesalers of electrical equipment, has asked you to review the system of control over cash collection at the
The head office of Lighttime Sdn. Bhd. Wholesalers of electrical equipment, has asked you to review the system of control over cash collection at the Selayang branch because it suspects that irregularities are taking place. The branch is the largest single outlet of the company and has substantial annual sales invoiced by the branch. Enquiries reveal the following procedures for invoicing sales and collecting cash. (Cash refers to currency and cheques)
1. There are two invoice sets that are used for cash sales and credit sales respectively.
2. When payment for cash sales is received by the cashier, one copy of the invoice is stamped as paid and filed alphabetically, and the other is given to the customer.
3. Mail is opened by the secretary to the credit controller, who passes any cheques to the credit controller for his reviews, without recording the amounts received.
4. The credit controller gives the cheques to the cashier by depositing them in a cheque tray on the cashier's desk.
5. The cashier then makes a listing of the cheques which is used by credit controller for posting to the account receivables ledger.
6. The cheques from credit customers and receipts from cash sales are banked daily by the cashier, except for once a week when sufficient currency is retained to reimbursed petty cash
7. The credit controller obtains approval from head office to write off bad debts. Any subsequent remittances received in respects of these accounts are credited to 'sundry income.'
Required:
(a) List control weaknesses in the accounting for cash receipts
(b) Suggest improvements in internal control to prevent irregularities in the collection of cash
(c) Explain substantive audit procedures necessary to determine whether any irregularities have taken place.
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