Reference no: EM132970298

Simply Cleaning Co is a window cleaning company. Customers' windows are cleaned monthly, the window cleaner then posts a stamped addressed envelope for payment through the customer's front door.

Simply Cleaning has a large number of receivable balances and these customers pay by cheque or cash, which is received in the stamped addressed envelopes in the post.

Required:

Problem i) Explain why it is important for an auditor to obtain an understanding of the entity and its environment.

Problem ii) Explain what is meant by
a) A test of control.
b) A substantive procedure.
c) Give ONE example of each in relation to sales invoicing.

Problem iii) For the cash cycle of Simply Cleaning:

a) Identify any THREE deficiencies in the system that may arise and suggest controls to address each of these deficiencies.

b) List THREE tests of control the auditor of Simply Cleaning would perform to assess if the controls are operating effectively.

c) Describe SIX substantive procedures an auditor would perform in verifying a company's bank balance.