Question # 01 Marks 5 You are the senior incharge of the audit of Glow Ltd, and

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Question # 01 Marks 5
You are the senior incharge of the audit of Glow Ltd, and a juniormember of your audit team has asked you the controls which youwould expect to see in the company’s sales system.
Glow Ltd is a large private company which purchases products frommanufacturers and sells them to retailers. It operates from asingle warehouse where the products are received from suppliers,stored and sent to the customers. You understand that there shouldbe sufficient staff to ensure that there are strong internalcontrols in the sales system.
The company’s sales ledger is maintained on computer, and itis integrated into the stock control system so that goods arededucted from the book stock records when they are dispatched tothe customers.
You are aware that following departments are involved in the salessystem and receipt of cash from customers:
a. The sales department
b. The credit controller
c. The cashier
d. The dispatch department
e. The sales accounting department
All sales are made on credit and there are no cash sales.
You are aware that the documents in the sales system include:
a. Customer order
b. Order confirmation
c. Dispatch note
d. Sales invoice
e. Credit note
f. Sales day book
g. Sales ledger
h. Cash book
i. Remittance advice and cheque from the customer
j. Statements sent to customers
The junior member of the audit team has asked you the questionlisted below.
Required:
Describe the controls which you would expect to be in salesoperation to ensure that goods are only sent to authorizedcustomers who have placed an order with the company
Fundamentals of Auditing (ACC311) Assignment # 02
Fall Semester 2009
Question # 02 Marks 5+5
Mr. J is the sole shareholder of FL stores, a company which owns achain of stores in west of Punjab. The stores mainly stock food andgroceries.
Each store is run by a full time manager and part time assistants.Mr. “J” spends on average half day a week at each storeand spends rest of his time in other business activities.
All sales are for cash and are recorded on till rolls which themanager retains. Shop manager wages are paid monthly by cheque byMr. “J”. Wages of shops assistants are paid in cash outof the takings.
Most purchases are made from local wholesalers and are paid in cashout of the takings. Large purchases over Rs. 1,000 must be made bycheques signed by the shop manager and countersigned by Mr. J.
Shop managers bank surplus cash once in a week, apart from a floatin till.
All accounting records including the cash book, wages and sales taxrecords are maintained by the manager. Mr. J reviews the weeklybank statements when he visits the shops. He also has a look atinventories to see if inventory levels appear to be about right.All invoices are kept in a drawer by a manager and are marked witha cash book reference, and where appropriate a cheque number whenpaid.
Required:
Discuss the weakness in the Inventory and Cash Control System of FLstores and how those weaknesses can be removed orremedied.

Explanation / Answer

1.   Customer Order must have the Invoicing andShipment address, since customers might have its warehouselocated       away from main factory /office. 2.   Dispatch note should have referenceof the internal computer genereted numbers on confirmed orders andshould be       prepared on the basis ofOrder confimed and not on the basis of customer order withoutcustomer's confirmation. 3.   Dispatch note should be prepared strictlyon the basis of shipping address given in the confirmed customerorder. 4.   Test check the instances of customerdenial of paying invoices on the ground of non-receipt of goodsfrom Glow Ltd. 5.   Dispatch department should be independentof collection department i.e. the persons working in dispatchdepartment       should not report tocollection department. Q2. Weakness In Internal Control System ========================== 1.   Purchases may be from different sourcesfor less than 1000 in order to pay cash on the same day or on thenext day.              manager should be responsible for purchase but paymentsshould be made by assistant after checking the invoiceitems       withthe items received in stock. 2.   Accounting records maintained by the samepersons who is also incharge of cash receipts and payments.              assistant should be made responsible for cash receiptsand payments and manager can make enties in the booksof       accounts. 3.   Since manager has control over payingassistant's salary, he can use his position to take undue benefitsfrom him.         assistant salary should also be made in cheque by Mr. Jhimself to avoid manager's control over assistantactivities.

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