During a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?
A)The owner reviews errors in billings to customers and postings to the subsidiary ledger.
B)A controller receives the monthly bank statement directly and reconciles the checking accounts.
C)The owner reviews credit memos before they are recorded.
D)The controller reconciles the total of the detailed accounts receivable accounts to the amount shown in the ledger.

Question

Quizplus · Accepted Answer

The most effective control to offset the weakness of the accounts receivable clerk having access to cash and approving credit memos would be to have the owner review credit memos before they are recorded. This ensures that any unauthorized or fraudulent credit memos are detected and prevented before they can be processed. The other controls listed do not specifically address this weakness. While they may be effective controls, they do not directly mitigate the risk of unauthorized credit memos being approved and processed.

During a Review of a Small Business Entity's Internal Control