You have just completed your initial interview with Jen Compton, the controller of Pine Cone Company. This is the first time that your firm will be auditing Pine Cone Co. In accepting the engagement, you contacted the previous auditor, who spoke of Pine Cone Co. in glowing terms. Pine Cone Co. has changed auditors because this previous auditor won a lottery and has decided to retire early. You are to perform a financial statement audit along with the two junior auditors who have been assigned to assist you.

Based on your interview with Jen , you put together the following notes about Pine Cone Company and its operations:

Pine Cone Co. has four small manufacturing plants and a large warehouse.

All finished goods are stored at the warehouse; all orders are shipped out of the warehouse upon receipt of the sales order from the salesperson.

Pine Cone Co. employs a sales force of 20 people. Each salesperson is responsible for writing up his or her own sales orders. Pine Cone Co. uses a four-part, pre numbered sales order that is distributed as follows:

white copy to accounting pink copy to warehouse yellow copytosales blue copy to customer

Pine Cone Co.'s accounting department uses the sales order to prepare the customer invoice, a four part, pre-numbered document that is distributed as follows:

white copy to customer

pink copy filed numerically in accounting, which serves as the sales register yellow copy filed alphabetically by customer name, which serves as the accounts receivable sub-ledger

blue copy filed alphabetically by salesperson, which is used to calculate salespeople's commissions and annual bonuses

All cash receipts pass directly from the receptionist to the accounts receivable clerk.

The accounts receivable clerk records cash receipts in a journal. Receipts are issued to any customer who requests one.

The accounts receivable clerk matches the cash receipt to the appropriate yellow copy of the invoice. Invoice is stamped "paid" and transferred to a "paid" file. The accounts receivable clerk deposits the cash receipts in the bank three times a week.

Jen prepares the monthly sales and accounts receivable journal entries from adding machine tapes prepared by the accounts receivable clerk (i.e., total sales, accounts receivable sales, and receipts on account).

Required:

a.Identify all weaknesses in Pine Cone Co.'s sales/accounts receivable described above and recommend improvements.(15 marks)

b.Describe the audit procedures you would perform on the above system.

(10 marks)