You are the auditor for Lambda Ltd, a sportswear company. The following is an excerpt from an interview between you and the sales ledger clerk, Sandy. Auditor: What are the controls over the cash receipts your company receives? Sandy: Good. The receptionist opens the mail each day and makes sure each cheque is crossed. She then gives me all the cheques to post against the sales ledger. Auditor: What happens then? Sandy: 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 the bank-in slips as a record in case there are any queries later. Auditor: Are there ever any difficulties between the cheque value and the associated invoice? Sandy: 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. Auditor: What about reconciliations? Sandy: 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 reconciliation 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 than that! Note: You may assume that any procedures not documented above have not been performed. Required: (a) Identify any three (3) internal control strengths in the cash receipts / sales ledger system of Lambda Ltd. (b) Identify any five (5) internal control weaknesses in the cash receipts / sales ledger system of Lambda Ltd. (c) For each weakness you have identified in part (b), suggest one way to rectify the problem. Be as specific as possible.
You are the auditor for Lambda Ltd, a sportswear company. The following is an excerpt from an interview between you and the sales ledger clerk, Sandy.
Auditor: What are the controls over the cash receipts your company receives?
Sandy: Good. The receptionist opens the mail each day and makes sure each cheque is crossed. She then gives me all the cheques to post against the sales ledger.
Auditor: What happens then?
Sandy: 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 the bank-in slips as a record in case there are any queries later.
Auditor: Are there ever any difficulties between the cheque value and the associated invoice?
Sandy: 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.
Auditor: What about reconciliations?
Sandy: 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 reconciliation 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 than that!
Note: You may assume that any procedures not documented above have not been performed.
Required:
(a) Identify any three (3) internal control strengths in the cash receipts / sales ledger system of Lambda Ltd.
(b) Identify any five (5) internal control weaknesses in the cash receipts / sales ledger system of Lambda Ltd.
(c) For each weakness you have identified in part (b), suggest one way to rectify the problem. Be as specific as possible.
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