Reference no: EM133184099

Question - Fuzzy Co produces and sells fizzy drinks in Singapore and Malaysia. You are an audit senior of Laurel & Co and you are reviewing the purchases and sales processes of Fuzzy for the year ended 31 December 2021.

All new customers of Fuzzy Co. Are required to pass suitable credit checks. Upon passing the credit check, customers are set up in the receivables ledger master file and a credit limit is set by the sales director. The credit limits are only then changed when a customer requests an increase.

The revenue stream is mainly taken care of by a sales clerk, Florence. She receives customer orders, prepares sales invoices and processes receipts from customers. The sales prices will be automatically inserted by the sales system when generating invoices. Prices are extracted from the approved sales prices list, which is updated every six months. Fuzzy have recently hired temporary staff members to help Florence produce the sales invoices, to cope with the increase in sales.

The company has offered a 15% discount on all orders placed during the Boxing Day sale in December 2021 to stay ahead of its main competitors. The discount given was manually entered by Florence on the sequentially numbered invoice.

Required -

(a) Identify and explain the FIVE (5) components of an entity's internal control.

Regarding the controls exercised over the sales and receivables system of Fuzzy Co:

(b) Identify and explain any FOUR (4) control weaknesses in Fuzzy Co's sales and receivables process.

(c) For each of the control weaknesses identified in (a) above, provide a recommendation to improve on the weakness.