Question 7.11 free essay sample

a. The risk that Spring Water face is residual risk. Residual risk is the risk that remains after management implemented internal control or taken some response to inherent risk. In this case, Spring Water Spa Company already applying internal control activities in their daily operation so that to reduce inherent risk that may bring harm to their company. b. In the sales/cash receipts system of Spring Water, there were 3 different levels of authorized people doing their respective independent job of processing their company daily sales. They have the main control strength of segregation of duties among the employees from different positions:- -The sales person mainly focus on the recording of initial order by customer, then print the sales receipt from cash register that shows the total, any discounts, sales tax and grand total. After that collect payment from customer either by check or credit sales, gives the receipt to customer and then deliver the item to customer. We will write a custom essay sample on Question 7.11 or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Besides, he also handles sales return by issue return slip when necessary. The assistant manager main job is to provide a daily reconciled report for the manager’s review by using the totals in the cash register tapes, cash in the cash register, total of consecutively numbered sales invoices and the return slip. The manager review cash sales, credit sales, and credit sales. Besides, he also prepares the daily bank deposit and physically makes the deposit at the bank and files the validated bank deposit. At the end of month, the manager performs bank reconciliation. At last, the cash register tapes, sales invoices, return slips, and reconciled report are mailed daily to corporate headquarter to be processed with files form other store and weekly Sales and Commission Activity Report is returned to each store manger for review.. c. In the sixth component of the COSO ERM framework deals with control activities, the control activities in the Spring Water Spa Company falls on :- i . Proper authorization of transaction and activities ii. Segregation of duties segregation of accounting duties iii. Design and use of documents and records iv. Independent checks on performance reconciliation of two independently maintained sets of records d. Problem avoided or risk mitigated by the control identified in question b:- only sales person is authorized to touch the cash register to take order from customer so if there is any fraud committed at the cash register, the sales person will be liable and thus, he will take good care of the accuracy of every each transaction that being recorded by him. after payment has been made by customer, then only the receipt will be given to the customer and to be directed to the warehouse to obtain the item purchase or shipment of delivery is made. This means that after payment is settled by customer, the sales person will come out with a receipt as evidence that payment has been made and the items shall be taken out to customer. This will avoid the risk of items delivered out of store without any evident of payment and bring to abnormal stock lost. assistant manager job of preparing reconciled report again reviewing of those sales transaction records that made by sales person and therefore any discrepancy or abnormal figure found will be detected by the assistant manager. after manager review the report, reconciliation will be done to ensure the accuracy of the data and after that the reconciled report and other records are mailed daily to corporate headquarters to be processed. This level of activities reduce the risk that manager to commit fraud. e. Spring Water can improve its system of control by create a well designed computer information network for their cash/ receipts cycle so that to reduce the human error risk, redu ce work redundancy and to make sure the process of the cash/ receipts cycle will be carried out more effectively and efficiently.