Question 7.11
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. 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.
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. 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.