Reference no: EM133156887

Question - You are the audit senior on an audit engagement. You are asked to review the company's accounting processes and comment on the effectiveness of internal controls. The following is an excerpt from the audit working paper files prepared by the audit staff:

A finance company derives a large part of its business from financing retail purchases of furniture and electronic items, with terms generally over 2 or 3 years. Each day, there is a large volume of mail to process, which contains cheques, money orders, and customer correspondence. An account associate opens the mail, sorts the contents into payments or correspondence, and then prepares a payment listing. After preparing the payment listing, the account associate then takes the cheques to the bank for deposit, but the payment listing is given to a separate person to enter into the computer.

All cheques for purchases over $15,000 must be approved by 2 supervisory personnel. Given the small size of the office, this includes only the manager, the assistant manager, and the accountant. This restricts the number of signees who may be on vacation at any one time and creates a problem when one or, especially, two of these people are away from the office on business trips. To alleviate this problem, all authorized signers have an electronic signature on file that can be printed on the cheques. If authorized signers are away from the office, the accountant will print the cheque with one electronic signature and sign the cheque manually.

Required - For the above situation:

1. Identify two (2) control weaknesses.

2. For each control weakness identified in (i), explain the implications of the control weakness on the company's financial statements.

3. For each control weakness identified in (i), provide a recommendation to remedy the control weakness.