Question
You are the auditor of Cannon Ltd. (Cannon), and have made the following notes on Cannon's cash receipts procedures: Cheques from customers are received by
You are the auditor of Cannon Ltd. (Cannon), and have made the following notes on Cannon's cash
receipts procedures:
Cheques from customers are received by mail and from sales representatives, who may obtain
the cheques directly from the customers.
All cheques are to be then forwarded to the client control clerk in the sales order department,
who restrictively crosses the cheques so that they can only be banked into Cannon's bank
account. She then enters the details of the cheque into the system via a terminal. She attempts
to age the receipt from remittance advice details provided by the debtor, as attached to the
cheque. If inadequate details are provided, she allocates the receipts to the oldest balance first.
After all cheques have been processed, the credit control clerk prints the daily cash receipts
report. She agrees all cheques to this report, prepares a bank deposit slip and banks the
cheques.
At the end of the day, the accounts receivable ledger is updated with cash receipts data.
Required:
a) Identify any strengths in the internal controls described above (3 marks).
b) Identify any weaknesses in the internal controls described above (3 marks).
c) Discuss the implications of each of the weakness you have identified (3 marks).
d) What will be your assessment of internal controls relating to Cannon's cash receipts system?
(1 mark).
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