Identification of internal controls. Stan Stuart from Stuart and Steigler LLP ha

Question

Identification of internal controls. Stan Stuart from Stuart and Steigler LLP has been assigned to audit the local college bookstore. One of the first things he does to plan the evaluation of the company's internal control is to tour the bookstore. The store has three main areas with items available for sale: one for clothing and one for office supplies and computer accessories on the first floor, and one on the second floor for textbooks and reference books. Customers can enter the book- store through three doors, two on the first floor and one on the second floor. Stu- dents can pay for their purchases on either floor. The first floor has two places to pay for purchases, one in the middle of the clothing area and the other in the office supply area. The third place to pay for purchases is on the second floor in the book section. All cash registers are conveniently located in the middle of the sales area. 43. After completing the tour, Stan asked Jean Harris, the bookstore manager, sev- eral questions. Explain why he asks each.

Explanation / Answer

e. Stan asked this question to check the internal controls placed by book store for its employees, so that unfavourable incidents such as fraud and embezzlement cn be avoided. Its a general practice in many stores that, sales clerks record only a part of purchase and own the balance part for free for their personal profits.

f. Stan asked this question because he felt that if purchase receipts are not given to customers, then it might be possible that such sales go unrecorded and unaccounted for, which means there is a chance for sales clerk to do the fraud and keep the money for such sale in his own pocket. Maybe the receipt thrown in trash bin was not even actual receipt for what Stan purchased?

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