Beauty Supply Co. (BSC) is a national supplier of beauty pro…

Beauty Supply Co. (BSC) is a national supplier of beauty products. BSC sells a variety of beauty supplies (wholesale and retail) on a credit basis on terms of 2/10, net 30 days to a large number of customers across Canada. BSC is a new audit client of Bert & Ernie (B&E) LLP Chartered Professional Accountants. Simon Fung, the audit senior, has documented the following narrative over the sales, receivables, and cash receipts process after completing his interview with the company’s Controller:   Orders and Sales Customer orders are received in writing (either by mail or e-mail) or by telephone from retail stores that sell the company’s products. New credit customers must fill out a credit application form which must be approved by the company’s credit supervisor. Once approval has been made, the customer’s credit limit will be entered into the sales module of the computer system. The computer has a programmed control to notify a sales clerk if processing a sale would exceed authorized credit limits. The computer will not allow a sales order to be processed if the customer’s credit limit will be exceeded.   A sales clerk will prepare a two-part pre-numbered sales order. Part #1 is sent to the warehouse and part #2 is sent to the billing clerk. Customers whose orders were not approved for credit are sent a letter stating the reasons for not filling their orders.   The warehouse fills the orders and prepares the goods for shipment to the customers. Any items that are not in stock at the time an order is filled are marked “backordered” on Part #1 of the order form. The shipping clerk prepares a four-part pre-numbered “bill of lading” with the copies distributed as follows:   Copy #1 is sent to the customer with the inventory Copy #2 is attached to Part #1 of the sales order form; the two documents are sent to the billing clerk.  Copy #3 is retained at the warehouse in numerical sequence Copy #4 is given to the truck driver delivering the inventory, as it has the customer’s shipping address, contact information, etc.    From the documents received from the shipping clerk, the billing clerk prepares a three-part pre-numbered sales invoice electronically. Invoice prices are automatically entered into the invoice upon entry of the inventory item number. Invoice quantities are entered by the billing clerk based on the number of units shipped (from the bill of lading).  The invoice copies are then distributed as follows:   Copy #1 (original copy) sent to the customer in the mail. Copy #2 is matched and attached to the sales order copies and bill of lading. Before they are filed by customer in the billing department, the details are matched to ensure the documents agree. Copy #3 is sent to the bookkeeper to serve as the basis for posting to the individual customer accounts and preparation of the monthly sales journal.   Upon request from a customer, a customer statement can be generated by the bookkeeper and sent to the customer.      Cash Receipts Customers can pay by cash, cheque, or electronic funds transfer (e-transfer). Cheques and/or cash are received in the mail or at the cash counter and recorded immediately on the cash receipts listing by the receptionist. They are then given to the bookkeeper so that the bank deposit can be prepared. Once all the cash receipts have been collected, the bookkeeper will take the deposit to the bank for processing. He deposits the cash and cheques into the bank every day. He will then give the bank-stamped bank deposit slip to the billing clerk, along with a listing of which customers have paid their accounts. The bookkeeper will also retrieve the information from the bank account and summarize which customers have paid via e-transfer.   The bookkeeper will provide the bank deposit slip and a listing of e-transfers to the billing clerk, who will then use these as a basis for posting cash receipts to the customer’s individual A/R accounts. The billing clerk will update the A/R Control account in the G/L based on the total amount deposited. If a customer pays within the discount period and takes the 2% discount, the bookkeeper must approve the discount taken.     Month-End Procedures The bookkeeper performs a number of month-end procedures, including the following: Bank reconciliations Review of the aged A/R Listing to identify delinquent accounts. The bookkeeper will notify the billing clerk so that phone calls can be made to encourage collection or to find out the reasons why collection has not been received.  Write-off of A/R and the allowance for doubtful accounts (AFDA) provision   Required: Identify three significant internal control weaknesses. For each control weakness, describe how an error could occur as a result of the weakness. Then, provide management with recommendations for improvement. Be specific!                                                                                                                       Identify two significant internal control strengths. For each control strength, explain how the control would prevent, detect, or correct errors. Then describe how you (as an auditor of BSC) would test the control. Be specific!      
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Your firm, RWM International LLP, has recently been appointe…

Your firm, RWM International LLP, has recently been appointed the auditor of Fabulous Furnishings Ltd, a boutique furniture store, with locations across the country. You are responsible for analyzing the purchases cycle. The controller has provided you with the following documentation: Fabulous FurnishingsPurchases Cycle Internal Control Documentation The purchasing process begins in the spring when new furniture trends hit the market. When a store manager feels that they need more product, they send Brandy Baxter, a purchasing clerk in the purchasing department, a request to purchase specific goods. The store manager will send a purchase requisition form to Brandy. Brandy has standard manufacturers that she makes furniture purchases from.  Purchase requisition forms must be signed by the store managers themselves, not sales associates. Brandy has a signature file that she can compare the signatures to; however, she has been with the company so long that she recognizes almost all signatures, so she has not had to look at the files in a long time.  Since store managers are responsible for their own operations, there is no limit on the dollar amount of purchase requisitions. Brandy inputs the information from the purchase requisition form into a purchase order and selects the predetermined vendor from a list that has been approved by Fiel Mandas, the Purchasing Supervisor.   The purchase order is then forwarded to the Fiel for review, where she compares it to the related requisition form for item and quantity accuracy. A photocopy is made and filed in numerical order with the appropriate photocopy of the purchase requisition. The original purchase order is then sent back to the Brandy who e-mails it to the corresponding vendor.  All goods are received in the warehouse, which is accessible by warehouse employees only. The goods are checked against the packing slip by a receiver. If the goods are acceptable, a receiving report is prepared and signed off by the receiver. A copy of the signed receiving report is then forwarded to the purchasing clerk who matches it to the file copies of the purchase requisition and purchase order. If there are damaged goods, it is not usually known until the packaging is removed. At that point the receiver will put the damaged goods in the garbage and make a note on the receiving report for Brandy to follow up. If there are differences in the details (over/under shipments, wrong products, etc.), Brandy will follow up with the vendor and determine a resolution. If no problems are noted, copies of the three documents are sent to the accounts payable group for payment and the goods are shipped to the requisitioning store. When the accounts payable group receives the documents from the purchasing clerk, they file them alphabetically by supplier in the filing cabinets. When the invoices are received, the accounts payable clerk keys them into the system and prints the cheques for signing by the appropriate signing authority after all three documents are agreed. The Assistant Controller signs all cheques that are $20,000 and under. Cheques over $20,000 must also be signed by a second signing authority, the Controller. The signing authorities examine the details of the purchase order and receiving documents. If the details agree, the cheque is signed and returned to the accounts payable clerk to mail. If the details do not agree or if some supporting documentation is missing, the cheque is still signed so as not to slow down the payment process; however the accounts payable clerk must obtain the appropriate documentation prior to mailing the cheque. Once per year, a full inventory count is done. All of the warehouse employees are involved in the count, but the only person authorized to make adjustment to the perpetual inventory records is the store manager.  Overall, things appear to be running smoothly. The only comment that stuck out to you was that the Controller commented that inventory turnover has not been as good as it has in the past. He thinks this is due to the economy and has not looked into it much further.  Required:In the space on the next two pages: 1.    Identify three significant internal control weaknesses. For each control weakness, describe the weakness in detail and explain how an error could occur as a result of the weakness. Then, provide management with recommendations for improvement. Note: at least one of your weaknesses must relate to a lack of segregation of duties. Be specific! (12 marks) 2.    Identify two significant internal control strengths. For each internal control strength, describe the strength in detail and explain how the control would prevent/detect/correct errors. Then describe a procedure that describes how the auditors could test the control. Be specific! (8 marks) 
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