Reference no: EM132677552

You and your colleagues have been assigned to the audit of a private company, Rose Pty Limited, which operates a plant nursery with a turnover of $6 million a year. The total number of full-time employees working for the company is 16, together with between five to seven casual employees as and when required on weekends. The company is run by a husband and wife team who are the directors and shareholders and a full-time accounts clerk, Sofia, who is responsible for all accounting-related tasks including accounts receivable, inventory, payroll and accounts payable. All accounting functions are performed on a standalone personal computer (PC). The access to various applications is controlled by passwords. Sofia records passwords to each application in her top drawer. Backups for all applications are done on a regular basis, appropriately labelled and maintained in a 'backup' case next to the PC.

• The office of the company is located in a small office building inside the nursery which is well fenced. The company trades seven days a week, but Sofia only works Mondays to Fridays. The office is also used by various other members of the staff to process sales invoices and dispatch documents during the weekend.

• A monthly income statement and balance sheet are prepared as part of the roll-forward procedure. Monthly reconciliations are also prepared by Sofia for all balances on the balance sheet; however, the directors concentrate their review on the income statement.

Required:

Problem (a) From the information above, identify FIVE significant internal control weaknesses.

Problem (b) For each weakness identified in (a) above, recommend a practical and effective internal control procedure that could be introduced to overcome this weakness.