am Pty Ltd (Graham) is operating in the retailing sector selling a wide range of electrical products, such as computers, headphones, smart televisions. In the audit of Graham for the financial year ending 30 June 2020, you have obtained the following information in relation to the client’s internal control over the sales and collection cycle. All sales are for credit. Customer orders are received in the order department by a clerk who is responsible for preparing three copies of pre-numbered sales order form. After the sales order form has been completed, two copies of sales order form is then passed to the credit department for credit approval. The approval of credit is made by the Head of the credit department who noted on both copies of the sales order form. Next, one copy of approv
2.1 Graham Pty Ltd (Graham) is operating in the retailing sector selling a wide range of electrical products, such as computers, headphones, smart televisions. In the audit of Graham for the financial year ending 30 June 2020, you have obtained the following information in relation to the client’s internal control over the sales and collection cycle.
All sales are for credit. Customer orders are received in the order department by a clerk who is responsible for preparing three copies of pre-numbered sales order form. After the sales order form has been completed, two copies of sales order form is then passed to the credit department for credit approval. The approval of credit is made by the Head of the credit department who noted on both copies of the sales order form.
Next, one copy of approved sales order forms is passed to the shipping department where ordered products are shipped to customers. In the meantime, the other copy of approved sales order forms is used by a clerk in the billing department to generate customer’s invoices, which are not pre-numbered. The computer automatically determines the unit prices for the items from an approved list of billing price. The computer then automatically multiplies the number of items times the unit price and adds the extended amounts for the total amount of the invoice. Based on the invoice, an accountant records the transaction into the computerised accounting system.
Graham is currently sending statements to all customers every month.
Required: Based on the information available above:
(a) Evaluate the strength of the client’s internal control over the sales and collection cycle by identifying and explaining THREE (3) control activities present in the system. (Limit your answer to 20 words, including explanations, for each of the control activities).
(b) State 1 relevant assertion that is addressed by each of those control activities identified in requirement (a).
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