6. Assessment of control risk Scenario: Ricky Warne is the audit senior on the audit of Nicholls Ltd, A sportswear company. The following is an excerpt from an interview between Ricky and the sales ledger clerk, Adam McGrath. Ricky Adam Ricky Adam Ricky Adam What are the controls over the cash receipts your company receives? Good. The receptionist opens the mail each day and makes sure each cheque is crossed. He then gives me all the cheques to post against the sales ledger. What happens then? I make a list of all the cheques received for control purposes. Then I record each cheque against each customer's record on the sales ledger. After the cheques have accumulated for a couple of days, I give them to the receptionist to bank. The receptionist keeps all banking slips as a record in case there are any queries later Are there ever any differences between the cheque value and the associated invoice? Sometimes there are. Usually it relates to a special discount that has been authorised by me or the sales manager. If the differences are not material, I will normally raise a credit note to write off the difference. What about reconciliations? Of course! The cheque listings that I have prepared are reconciled to the cash recorded in the sales subsidiary ledger; this is then reviewed by the financial controller. The main reconciliations of the sales ledger is performed only at the end of each year. This one is of course, checked by you people as part of your annual audit. You cannot get a better independent check that that! Ricky Adam Required (a) Comment on any control strengths or weaknesses in the cash receipts/ accounts receivable system of Nicholls