Control weaknesses – NBC Institute

AA – May 2016 – L2 – Q4 – Internal Control Systems

Identification and improvement of control weaknesses in the sales system of Sofa Ltd.

Question

You are carrying out the audit of the sales system of Sofa Limited, a company that manufactures office furniture. The company has annual sales revenue of N150 million. All the shares are owned by Sofi and her husband Andy. Neither is involved in the running of the business. The chairman is responsible for running the business, but does not own any of the company’s shares.

The bookkeeper maintains all the accounting records and prepares the annual financial statements.

A stand-alone computer is used to maintain the accounting records, including those of the sales system. Standard accounting software is used, which was purchased from an independent supplier. For the sales system, a sales ledger is maintained to which sales invoices, credit notes, cash, and discounts are posted. When sales invoices are posted and credit notes are input into the computer, the value is updated in both the sales ledger and the nominal ledger.

You have determined that the documents and personnel involved in the sales ledger are as follows:

When order is received by telephone, it is recorded by the sales clerk in the sales department. This is usually done on a notepad.
The sales clerk will then pass the sales order to the stores, to the goods outwards department where the office furniture is kept.
If the goods ordered are in inventory, then the goods will be loaded onto one of the delivery trucks. A two-part dispatch note will be prepared to accompany the sales order. This is usually done before the stores have received the sales order from the sales department.
The goods are delivered to the customer together with the top copy of the goods dispatch note.
The driver on his return will inform the sales department that the delivery has been successful and will maintain the last copy of the goods dispatch note in the stores.
At the end of the week, the sales department prepares a sales invoice for the customer.
When the post is received, it is opened by a staff of the sales department.
The person opening the post will both make a list of all the cheques
received and that same person will then go to the bank and bank the
cheques. Upon return, the remittances and cheque paying-in book are
passed to the book keeper for updating the receivables ledger.
The receivables ledger is reviewed by the book keeper on a monthly basis
to see which customers are above their credit terms and will inform the
sales staff who to telephone and chase their debt.

Required:

a. Identify and describe eight weaknesses in the sales system of Sofa Limited. (8 marks)

b. Provide recommendations to rectify each of the weaknesses identified. (8 marks)

c. Explain why segregation of duties is important in an internal control system. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Control weaknesses, Fraud risk, Internal Control, Sales System, Segregation of Duties
Level: Level 2

Series: MAY 2016

AA – Nov 2015 – L2 – Q1b – Internal Control Systems

Identifying internal control weaknesses in a company and recommending audit tests to ensure effectiveness.

Question

Success Nigeria Limited is a company engaged in haulage business. The services provided by the company, which has over 100 trucks in its fleet, include lifting of petroleum products from the depots to the filling stations of its clients spread over many locations.

The Central Store for spare parts for repairs of the trucks is located at the Head Office. The inventory operation is handled by the Personal Assistant to the Managing Director in addition to his normal schedule of duties in the Managing Director’s office. Spare parts supplied are received by the Personal Assistant who keeps them in the Central Store without raising any Goods Received Notes for the items. The invoices and delivery notes brought by vendors are submitted to the accounts department directly for payment. Because of the pressure of work in the Managing Director’s office, the Personal Assistant to the Managing Director does not maintain any inventory records. Whenever there is a need for spare parts required for truck repairs, a pre-printed requisition form is completed by the mechanic in charge of the repair. The form is submitted to the Personal Assistant who supplies the spare parts from the Central Store. The mechanic collects the parts without any acknowledgment of receipt. The requisition forms collected for all the spare parts supplied are kept in one of the cabinets in the Personal Assistant’s office, and they are collated by the Accountant on a monthly basis whenever he is to prepare the management accounts.

At the end of the financial year, December 31, 2014, the Accountant conducted an inventory count of the items in the Central Store for the purpose of using the value for the preparation of the financial statements for the year ended December 31, 2014. The Managing Director observed later while reviewing the financial statements that the repairs and maintenance account did not reflect the true position of the repair works carried out on the trucks during the year.

Required:
i. Describe FIVE Internal Control weaknesses from the above scenario. (5 Marks)
ii. Recommend controls required to address the identified weaknesses in (i). (5 Marks)
iii. Describe the audit tests to be carried out to assess if each of the controls is operating effectively. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Control weaknesses, Internal Control, Risk Management
Level: Level 2

Topic: Internal Control Systems
Series: NOV 2015

AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence

Recommends actions the auditor can take when audit evidence is insufficient due to control weaknesses.

Question

After performing tests of controls, the auditor is of the opinion that the audit evidence is not sufficient to support the audit opinion; in other words, many control errors were found.

Required:
Recommend FIVE (5) actions that the auditor may take in response to this problem

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit response, Control weaknesses, Insufficient audit evidence, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: AUG 2022

AA – May 2016 – L2 – Q4 – Internal Control Systems

Identification and improvement of control weaknesses in the sales system of Sofa Ltd.

Question

The bookkeeper maintains all the accounting records and prepares the annual financial statements.

You have determined that the documents and personnel involved in the sales ledger are as follows:

When order is received by telephone, it is recorded by the sales clerk in the sales department. This is usually done on a notepad.
The sales clerk will then pass the sales order to the stores, to the goods outwards department where the office furniture is kept.
If the goods ordered are in inventory, then the goods will be loaded onto one of the delivery trucks. A two-part dispatch note will be prepared to accompany the sales order. This is usually done before the stores have received the sales order from the sales department.
The goods are delivered to the customer together with the top copy of the goods dispatch note.
The driver on his return will inform the sales department that the delivery has been successful and will maintain the last copy of the goods dispatch note in the stores.
At the end of the week, the sales department prepares a sales invoice for the customer.
When the post is received, it is opened by a staff of the sales department.
The person opening the post will both make a list of all the cheques
received and that same person will then go to the bank and bank the
cheques. Upon return, the remittances and cheque paying-in book are
passed to the book keeper for updating the receivables ledger.
The receivables ledger is reviewed by the book keeper on a monthly basis
to see which customers are above their credit terms and will inform the
sales staff who to telephone and chase their debt.

Required:

a. Identify and describe eight weaknesses in the sales system of Sofa Limited. (8 marks)

b. Provide recommendations to rectify each of the weaknesses identified. (8 marks)

c. Explain why segregation of duties is important in an internal control system. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Control weaknesses, Fraud risk, Internal Control, Sales System, Segregation of Duties
Level: Level 2

Series: MAY 2016

AA – Nov 2015 – L2 – Q1b – Internal Control Systems

Identifying internal control weaknesses in a company and recommending audit tests to ensure effectiveness.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Control weaknesses, Internal Control, Risk Management
Level: Level 2

Topic: Internal Control Systems
Series: NOV 2015

AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence

Recommends actions the auditor can take when audit evidence is insufficient due to control weaknesses.

Question

After performing tests of controls, the auditor is of the opinion that the audit evidence is not sufficient to support the audit opinion; in other words, many control errors were found.

Required:
Recommend FIVE (5) actions that the auditor may take in response to this problem

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit response, Control weaknesses, Insufficient audit evidence, Substantive Testing
Level: Level 2

Topic: Audit and Assurance Evidence
Series: AUG 2022

Question Tag: Control weaknesses

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AA – May 2016 – L2 – Q4 – Internal Control Systems

Identification and improvement of control weaknesses in the sales system of Sofa Ltd.

AA – Nov 2015 – L2 – Q1b – Internal Control Systems

Identifying internal control weaknesses in a company and recommending audit tests to ensure effectiveness.

AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence

Recommends actions the auditor can take when audit evidence is insufficient due to control weaknesses.

AA – May 2016 – L2 – Q4 – Internal Control Systems

Identification and improvement of control weaknesses in the sales system of Sofa Ltd.

AA – Nov 2015 – L2 – Q1b – Internal Control Systems

Identifying internal control weaknesses in a company and recommending audit tests to ensure effectiveness.

AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence

Recommends actions the auditor can take when audit evidence is insufficient due to control weaknesses.

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AA – May 2016 – L2 – Q4 – Internal Control Systems

Identification and improvement of control weaknesses in the sales system of Sofa Ltd.

You're reporting an error for "AA – May 2016 – L2 – Q4 – Internal Control Systems"

AA – Nov 2015 – L2 – Q1b – Internal Control Systems

Identifying internal control weaknesses in a company and recommending audit tests to ensure effectiveness.

You're reporting an error for "AA – Nov 2015 – L2 – Q1b – Internal Control Systems"

AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence

Recommends actions the auditor can take when audit evidence is insufficient due to control weaknesses.

You're reporting an error for "AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence"

AA – May 2016 – L2 – Q4 – Internal Control Systems

Identification and improvement of control weaknesses in the sales system of Sofa Ltd.

You're reporting an error for "AA – May 2016 – L2 – Q4 – Internal Control Systems"

AA – Nov 2015 – L2 – Q1b – Internal Control Systems

Identifying internal control weaknesses in a company and recommending audit tests to ensure effectiveness.

You're reporting an error for "AA – Nov 2015 – L2 – Q1b – Internal Control Systems"

AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence

Recommends actions the auditor can take when audit evidence is insufficient due to control weaknesses.

You're reporting an error for "AA – Aug 2022 – L2 – Q3c – Audit and Assurance Evidence"

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