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You are the senior auditor of Richardson’s, and you are auditing the sales and receivables area of Clarkson Ltd, a water filter manufacturer, for the year ending 30 December 2016. The following procedures have been identified.
Required
(a) Identify three (3) internal control activities in Clarkson’s sales and receivables, and explain if the control activity prevents or detects material misstatements, and how this is achieved.
(b) For each of the controls identified in (a) provide one (1) test of control that could be undertaken to verify the effectiveness of the control. Justify your answer.
(c) Identify and explain three (3) internal control weaknesses in Clarkson’s sales and receivables processing system.
(d) For each of the weaknesses in (b) identify one account balance at risk of misstatement and the assertion at risk. Justify your answer.
(e) Select two (2) of the weaknesses identify in (c) and explain one improvement to controls that could be implemented for each, to reduce the risk of material misstatements.
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