Case study 2 (Auditing practice)

Summary

The transcript depicts a meeting between a visitor and Miss Vinnie CH to discuss sales ledger controls. The visitor identifies strengths in daily mail checks and cash recording but points out weaknesses in segregation of duties, suggesting improvements. The sales ledger clerk's dual role in handling cash receipts and reconciliations is criticized, and the clerk's authority to grant discounts is questioned. The visitor concludes that the company's control risk is high due to insufficient internal controls against fraud.

Takeaways

• 🔍 The auditor is meeting with Miss Vinnie to discuss sales ledger controls.
• 💼 The receptionist is responsible for opening the mail and ensuring checks are crossed.
• 📋 A list is made for control purposes and checks are recorded against customer records.
• 🏦 After a few days, the receptionist banks the accumulated checks and keeps banking slips for queries.
• 📉 Differences in check values are sometimes due to authorized special discounts.
• 🔄 The checklist is reconciled to the cash recorded in the sales subsidiary ledger, reviewed by the financial controller.
• 📅 The main reconciliation in the sales ledger is performed only at the end of each year.
• 🚫 The sales ledger clerk should not have the responsibility of preparing listings and recording checks.
• 🔑 The receptionist should not be responsible for both opening mail and depositing checks to reduce fraud risk.
• ❌ The sales ledger clerk should not have the authority to authorize special discounts; higher management should handle this.
• ⚠️ The overall control risk of the company is high due to insufficient internal controls to prevent and detect fraud.

Q & A

What is the process for handling cash receipts in the company?

The receptionist opens the mail daily, ensures checks are crossed, makes a list for control purposes, records each check against the customer's record on the sales ledger, and after a few days, deposits them at the bank while keeping banking slips for record.

How does the company deal with discrepancies between check values and associated values?

If there are discrepancies, they are usually due to authorized special discounts. If the differences are not material, a credit note is raised to write off the difference.

What is the frequency of the sales ledger reconciliation?

The checklists are reconciled to the cash recorded in the sales subsidiary ledger, which is reviewed by the financial controller. The main reconciliation in the sales ledger is performed only at the end of each year.

What are the strengths of the company's current sales ledger controls?

The strengths include daily mail checks to ensure each check is crossed and the reconciliation of check listings with the cash recorded in the sales subsidiary ledger, which reduces the probability of errors over cash balances.

What are the weaknesses in the sales ledger controls as highlighted by Miss CH?

The weaknesses include the lack of segregation of duties, the sales ledger clerk handling both the preparation of check listings and writing them in the ledger, and the receptionist handling both opening mails and depositing checks. Additionally, the sales ledger clerk is allowed to authorize special discounts.

Why is the segregation of duties important in the company's sales ledger controls?

Segregation of duties is important to prevent fraud and errors by ensuring that different individuals perform different tasks, thereby reducing the risk of a single person controlling an entire process.

What recommendations does Miss CH make to improve the company's control risk?

Miss CH recommends that tasks such as opening mail and depositing checks should be done by different personnel, and that the authority to authorize special discounts should be held by higher management levels.

What is the current control risk of the company according to Miss CH's assessment?

The control risk of the company is rather high due to insufficient internal controls that are not enough to prevent and detect frauds.

How often does the sales ledger clerk prepare the checklists for the checks received?

The sales ledger clerk prepares the checklists for the checks received after they have accumulated for a couple of days.

What is the role of the financial controller in the reconciliation process?

The financial controller reviews the reconciliation of the checklists prepared by the sales ledger clerk to the cash recorded in the sales subsidiary ledger.

What is the significance of the annual audit in the context of the sales ledger?

The annual audit checks the main reconciliation in the sales ledger, which is performed only at the end of each year, ensuring the accuracy and integrity of the financial records.