Problem
In the management letter for last year's audit of a client with a December fiscal year end, your firm had included a comment that it was difficult to affix responsibility for the receipt of cash, recording of the cash receipts, deposit into the bank, and preparation of bank reconciliations because no one individual was primarily responsible for any one of these functions; rather, they were assigned haphazardly depending on who the company president happened to see that day. (The "chief financial officer" is the company president's close relative, but the CFO had never had any education nor experience in bookkeeping before being appointed CFO fifteen months ago.) From your discussions during interim field work with the CFO, you are told that in order to address your accounting firm's comments in the management letter, the CFO assigned the bookkeeper to receive payments from customers, record the payments against the customers' accounts, and deposit them into the bank. The CFO also decided that the client company would not prepare bank reconciliations any longer; rather, they would wait for the auditors to come in to do interim work in the late autumn, and simply pay the audit firm to prepare the bank reconciliations. After all, when the client company had previously been preparing the bank reconciliations, there were rarely any large reconciling items. While you are talking with the CFO, the CFO's telephone keeps ringing, the CFO keeps answering it, the CFO keeps saying to the callers to talk with the bookkeeper about it, and then the CFO transfers the calls to the bookkeeper. "What's that all about?" you ask, referring to the phone calls. "Oh, these customers keep saying there's an error in their monthly statements, so I let the person responsible for the customer accounts handle it. You should be proud of me. After all, we have adopted your 78 suggestion to affix responsibility for each of these functions."
Required:
a. Do you believe you should assess the internal control risk over cash receipts as low, medium, or high? Why?
b. Do you intend to simply follow your firm's standard audit program for cash, or do you want to do any additional procedures? If so, what procedures?
c. Keeping in mind that your draft comment(s) may be revised as your audit team does additional work, prepare draft comment(s) for the management letter, if you believe it is appropriate to include one or more. If you believe none is/are needed, say so.