Question

Colorado Springs Company (CSC) is a wholesaler with fiscal year ended December 31 of previous year. Since it is publicly-traded, it undergoes external audit. The most recent audit was completed in February of this year. As part of the audit of the financial statements, the auditors tested the effectiveness of management’s assessment of internal control over financial reporting. The auditor found out that existing internal controls were inadequate. Specifically, CSC’s accounting system for sales, cash receipts, accounts receivables, and accounts payable had material weakness. The audit revealed that there were:

Poor accounting system of recording keeping

Late deposits of cash receipts

Excessive aged and high accounts receivable balances

Disregard for early payments for discounts on invoices

Late payments of accounts payable (sometimes due to lack of cash)

Lax appropriate segregation of duties

Relaxed rules on accounting principles’ application

Unqualified supervisor and management

Inadequate control on supervisor and management overrides

Lax oversight by external board of directors

-For each finding above, indicate internal control principle that CSC violated.

-For each finding above, provide an appropriate recommendation for CSC to correct the weakness.

Your response should include two to three pages of written text in addition to any calculations and solutions you offer to support your thinking. Document formatting and any citations

Please include any tables or calculations needed.

Answer 1

1)Since the problem is with keeping the data in accurate manner. They can use accounting packages like quickbooks, tally etc
2)A policy for timely deposits and strictly follow the policy to ensure accurate results
3)An policy on receivables and collection practices as industry norm is to maintain it in less than 90 days and follow it
4)They should allow the early collection of invoice so that receivable will come down and cash related problem will not occur
5)The account payable policy should be written and discusses with vendors and follow it
6)Hire more staff to divide responsibilities more so that it makes little bit easy.
7)one person has to be made effectively responsible for accounting sign off.
8)Train staff or hire staff that is already trained in order to expertise .
9)Develop all the policies and procedures regarding how overrides will be carried out and followto the policy.
10)Train board members on proper oversight practices or replace board with members who understand these practices.