Instructions:
1. This assignment is to be submitted in accordance with assessment policy stated in the Subject Outline and Student Handbook.
2. It is the responsibility of the student who is submitting the work, to ensure that the work is in fact her/his own work. Incorporating another's work or ideas into one's own work without appropriate acknowledgement is an academic offence. Students can submit all assignments for plagiarism checking (self-check) on "Turnit -in" before final submission in the subject. For further details, please refer to the Subject Outline and Student Handbook
ASSIGNMENT QUESTION 1
Everyday Supplies Pty Ltd is a single-store retailer that sells a variety of tools, garden supplies, lumber, small appliances, and electrical fixtures to the public, although about half of Everyday Supplies' sales are to construction contractors on account.
Retail customers pay for merchandise by cash or credit card at cash registers when merchandise is purchased. A contractor may purchase merchandise on account, if approved by the credit manager based only on the manager's familiarity with the contractor's reputation. After credit is approved, the sales associate files a prenumbered charge form with the accounts receivable supervisor to set up the receivable.
The accounts receivable supervisor independently verifies the pricing and other details on the charge form by reference to a management-authorised price list, corrects any errors, prepares the invoice, and supervises a part-time employee who mails the invoice to the contractor. The accounts receivable supervisor electronically posts the details of the invoice in the accounts receivable subsidiary ledger; simultaneously, the transaction's details are transmitted to the bookkeeper. The accounts receivable supervisor also prepares a monthly computer-generated accounts receivable subsidiary ledger without a reconciliation with the accounts receivable control account, and a monthly report of overdue accounts.
The cash receipts functions are performed by the cashier, who also supervises the cash register clerks. The cashier opens the mail, compares each cheque with the enclosed remittance advice, stamps each cheque "for deposit only", and lists cheques for deposit. The cashier then gives the remittance advices to the bookkeeper for recording. The cashier deposits the cheques daily, separate from the daily deposit of cash register receipts. The cashier retains the verified deposit slips to assist in reconciling the monthly bank statements, but forwards to the bookkeeper a copy of the daily cash register summary. The cashier does not have access to the journals or ledgers.
The bookkeeper receives the details of transactions from the accounts receivable supervisor and the cashier for journalising and positing to the general ledger. After recording the remittance advices received from the cashier, the bookkeeper electronically transmits the remittance information to the accounts receivable supervisor for subsidiary ledger updating. The bookkeeper sends monthly statements to contractors with unpaid balances upon receipt of the monthly report of overdue balances from the accounts receivable supervisor. The bookkeeper authorises the accounts receivable supervisor to write off accounts as uncollectible when six months have passed since the initial overdue notice was sent. At this time, the credit manager is notified by the bookkeeper not to grant additional credit to that contractor.
Required:
Describe five internal control weaknesses in Everyday Supplies' internal control for the cash receipts and billing functions. Explain why each is a weakness.
ASSIGNMENT QUESTION 2
Jack Wood is the engagement partner for the financial report audit of Clayton Ltd for the year ended 31 December, 2014. The following material events or transactions have come to Wood's attention before he is scheduled to issue his report on 28 February, 2015.
a) On 3 January, 2015, Clayton Ltd received a shipment of raw materials from Bangkok. The materials had been ordered in October 2014, and shipped FOB shipping point in November 20X7.
b) On 15 January, 2015, the company settled and paid a personal injury claim of a former employee as the result of an accident that occurred in March 2010. The company had not previously recorded a liability for the claim.
c) On 25 January, 2015, the company agreed to purchase for cash the outstanding shares of Monash Electrical Ltd. The acquisition is likely to double the sales volume of Clayton Ltd.
d) On 1 February, 2015, a plant owned by Clayton Ltd was damaged by a flood, resulting in an uninsured loss of inventory.
Required:
For each of the above events or transactions, discuss audit procedures that should have brought the item to the auditor's attention, and indicate the treatment required in the financial report. Give reasons for your decision.