You are working on the audit of Bubble Ltd and have just completed an evaluation of controls

in the cash receipts area. You note the following key controls as part of your evaluation:

All cash handling is independent of the accounting function.

Cash receipts are matched to specific sales invoices before being posted to the

accounts receivable master file.

There is an independent check that cash receipts are recorded in the correct

account.

There is a comparison of deposit slips, prelists and the posting to the cash receipts

journal.

There is a policy of depositing cash receipts each day.

(a) For each of the five controls identified above:

I. Describe the purpose of the control- what is the control designed to prevent or

detect? ( 5 Marks)

II. Identify the account(s) and assertion(s) that this control will have an effect on in

the financial report. (5 Marks)

III. Give one example of a procedure that could be used to test the control. (5 Marks)

(b) Mr Simon, one of the audit assistants, tested the controls in relation to cash receipts

and documents the following:

Sixty cash receipts transactions were selected from the cash receipts journal (five per

month) and tests performed as per the audit plan. Four (04) immaterial errors were

found. These errors were discussed with the client, who corrected them based on

information provided. As the errors were immaterial and subsequently corrected, it is

concluded that cash receipts controls are working satisfactorily and there is sufficient

appropriate audit evidence to rely upon them. The tolerable rate of deviation for this

test, as per the audit plan, is 5 per cent.

Do you think the audit assistants conclusion regarding the cash receipt controls is

correct or not? Explain. (5 Marks)