INTERNAL CONTROL - PRELIMINARY ANALYSIS

CLIENT: Lakeside Company

SYSTEM: Revenue and Cash Receipts Recycle-Distributorship Cash
Receipts
DATE: January 15, 2015
PREPARED BY:
List each document found in this system, the number of copies, and
whether it is prepared internally or externally.

Answer each of the following questions. For each "No" answer, comment
on whether an internal control weakness is indicated.
QUESTION
(1) Is each
document within
this system prenumbered?
(2) Is the
authority for
completing each
document clearly
delineated?
(3) Are all
documents
subsequently
reviewed by an
independent
party within the
company?
(4) Are
appropriate
procedures clearly
spelled out for
completing and
reviewing each
document?

YES
X

NO

COMMENT
Each document within the system is
numbered in order for
better
accessibility of the report prepared.

All processes made by the team are

based on standards and so authority
and complete.

A number of the documents are

reviewed prior to the beginning of this
system such as the sales invoice and
bill of lading.

In order for better performance and

analysis of the document. We used
procedures to help us complete the
review of the documents.

QUESTION
(5) Is the recordkeeping function
independent of
the custody
function at all
points throughout
the system?
(6) Are all
mathematical
computations
independently
verified?

YES
X

(7) Does recordkeeping begin at

the origin of the
transaction?

(8) Are all

transactions
authorized?

NO

COMMENT
Records such as receipts and invoices
are provided with lots of copies for
better
keeping
of
documents
throughout the system.

All computations are independently

verified except for the cash discount.
The flowchart is unclear as to the
procedures to be applied when the
sales division calculation does not
agree with the customer payment.
As stated in revenue and cash
receipts cycle presented by Lakeside
Company, we can say that recordkeeping began in the origin of the
transaction.
All transactions pass through different
departments and then assessed by
the
higher
management
for
authorization.

Abernethy and Chapman

INTERNAL CONTROL Control Risk Matrix Revenue Cycle
Client: Lakeside

Sales orders recorded on

pre-numbered forms.

Timing:

Classification:

Accuracy:

Posting and
Summarization:

Internal Control

Completeness:

Occurrence:

Revenue Transaction-Related Audit

Objectives

L
L

Deficiencies

L
Compare quality and
description of items on
shipping and description of
items on shipping
documents with the related
duplicated sales invoice.
Match sale invoice to the bill M
of lading.
Perpetual Inventory Record

Controls

L
Examine Accounts
Receivable for approval of
credit.
Inventory Verification
Mathematically check
extensions and footings,

H high risk, M- moderate risk, L- low risk

Summary: Overall Lakeside has a high risk of potential misstatements
and materiality gives their set of internal controls. Although they have an
outside computer center to keep track inventory, sales and purchases.
There is still high risk when it comes to accuracy of the information being
submitted. Ms. Luck is the controllers Office, is responsible for manually
recording transactions from the third copy of bill of lading. Whether due
to human error or other factors these records could be misrepresented
and would lead to misstatement as Ms. Lucks work is not double
checked. If an error were to occur this could lead to incorrect inventory
verifications and massive amounts of fluctuations as information is
submitted on weekly basis.