While performing an internal control audit in conformity with PCAOB Standard No.
ID: 2458424 • Letter: W
Question
While performing an internal control audit in conformity with PCAOB Standard No. 5, the auditors must be able to identify both control strengths and control weaknesses. Items (1) through (11) present various control strengths and deficiencies. For each item, select from the following list the appropriate response., A. Control strength for the revenue cycle (including cash receipts)., B. Control deficiency for the revenue cycle (including cash receipts)., C. Control strength unrelated to the revenue cycle.,1. Credit is granted by a credit department.,2. Sales returns are presented to a sales department clerk who prepares a written prenumbered shipping report.,3. Statements are sent monthly to customers.,4. Write-offs of accounts receivable are approved by the controller.,5. Cash disbursements over $10,000 require two signatures on the check.,6. Cash receipts received in the mail are received by a secretary with no record keeping responsibility.,7. Cash receipts received in the mail are forwarded unopened, with remittance advices, to accounting.,8. The cash receipts journal is prepared by the treasurer’s department.,9. Cash is deposited weekly.,10. Support for disbursement checks is canceled after payment by the treasurer.,11. Bank reconciliation is prepared by individuals independent of cash receipts record keeping.
Explanation / Answer
1. Credit is granted by a credit department (A)- It is an appropriate control- To follow the credit policies laid out by the top management before deciding to lend credit -by the credit dept. only 2. Sales returns are presented to a sales department clerk who prepares a written prenumbered shipping report. (B) Deficient- as sold items returned are marked by the receiving clerk in the items received back report and not shipping report 3. Statements are sent monthly to customers (A)- Strength- Periodic statements help to maintain accurate records and timely rectifications , in the event of errors 4. Write-offs of accounts receivable are approved by the controller (B)- Deficient- Approval & execution -both should not be vested with the same person.approving authority should be in the hands of somebody other than he who keeps records 5. Cash disbursements over $10,000 require two signatures on the check. C - This control is unrelated to revenue cycle- It's a control for disbursing heavy amounts through checks. 6. Cash receipts received in the mail are received by a secretary with no record keeping responsibility. (A)- Verily advisable- as that secretary , after recording receipt at his ledger, sends copies to accounts, and the cash to the cashier. 7. Cash receipts received in the mail are forwarded unopened, with remittance advices, to accounting. (B) control is Deficient-It should be opened , recorded there, then cash to be remitted to cash dept. under advice to accounts with papers 8. The cash receipts journal is prepared by the treasurer’s department (B)- Journals are the responsibility of the accounts dept. - from the cash vouchers given by the treasurer dept. 9. Cash is deposited weekly. (B) Deficient- cash should be deposited on a daily basis. 10. Support for disbursement checks is canceled after payment by the treasurer. C- seems to be not relating to revenue cycle- 11. Bank reconciliation is prepared by individuals independent of cash receipts record keeping (A) Appropriate control- Avoids any make-over.
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