Workshop 6a Internal Controls on Cash Function Question

You are the auditors with Messrs Sekhar & Tan, Chartered Accountants. During the planning phase of the audit, the audit team has documented the internal control procedures over the cash function of the client, BCS Berhad, in the form of a narration. You have assessed that BCS internal control over the cash function to be of moderate risk and a reliance strategy is planned to test the effectiveness of the internal controls over cash function.

The following narration describes the internal control system over cash function, as documented by the auditors:

1. Isobel receives cash and cheques for BCS Berhad and records the amounts received in the cash receipts journal. She initials on the cash receipts journal indicating that she is the person responsible for preparing this document. She immediately stamps the cheques with a restrictive endorsement limiting the cheques deposits to the companys bank account. She writes the amount received on the payment voucher returned by the payer with the cash payment, and initials on the payment voucher. She totals the cash and cheque on the daily cash report, initials on the document and sends the cash and cheques to Jorgen to count. Jorgen send the payment vouchers to Abhu to record. A copy of the cash receipts journal is sent to Scott.

2. Jorgen counts the cash, and signs on the daily cash report as evidence of counting. He then prepares and signs the bank deposit slip. This signature indicates that he has reviewed the payments and determined that they should be recorded in BCS bank account. He sends the cash and the bank deposit slip with his signature to Scott.

3. Scott receives a copy of the cash receipts journal from Isobel and compares it to the cash recorded by Jorgen on the bank deposit slip. Scott initials the bank deposit slip indicating that he has agreed (checked them for agreement) the cash on the cash receipts journal and the bank deposit slip with the cash he receives. He investigates and resolves any discrepancies. Scott stores the cash in a locked safe until it is ready for deposit. Deposit into the companys bank account is made daily.

4. Abhu prepares the journal vouchers, with the journal entries to debit cash and credit accounts receivable based on the payment vouchers provided by Jorgen. Abhu signs on the journal vouchers as evidence of preparing the journal entries. He compares the debits to the cash account and the credits to accounts receivable with the bank deposit slip on a daily basis and initials the daily reconciliation report indicating that they agree. He investigates and resolves discrepancies.

Required:

Describe the tests that can be performed by the auditors to test the controls described above.