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You are engaged in your first audit of Pesky Pest Control Pty Ltd for the year ended 30 June 2012.

You are engaged in your first audit of Pesky Pest Control Pty Ltd for the year ended 30 June 2012. The company began doing business in July of the previous year and provides pest control services for industrial enterprises. Additional information is as follows: The office staff consists of a bookkeeper, a typist and the president, Mike Feld. In addition, the company employs 15 service representatives on an hourly basis who are assigned to individual territories to make both monthly and emergency visits to customers’ premises. The service representatives submit weekly time reports, which include the customer’s name and the time devoted to each customer. Time charges for emergency visits are shown separately from regular monthly visits on the reports. As part of your evaluation you note the following:-

1) Pesky Pet requires customers are required to sign annual contracts which are prenumbered and prepared in duplicate. The original is filed in numerical order by contract anniversary date and the copy is given to the customer. The contract entitles the customer to pest control services once each month. Emergency visits are billed separately.
2) Fees for monthly services are payable in advance—quarterly, semi-annually or annually—and recorded on the books as ‘income from services’ when the cash is received. All payments areby cheques received by mail.
3) Prenumbered invoices for contract renewals are prepared in triplicate from information in the contract file. The original invoice is sent to the customer 30 days prior to the due date of payment, the duplicate copy is filed chronologically by due date and the triplicate copy is filed alphabetically by customer name. If payment is not received by 10 days after the due date, a cancellation notice is sent to the customer, and a copy of the notice is attached to the customer’s contract. The bookkeeper notifies the service representatives of all contract cancellations and reinstatements, and requires written acknowledgment of receipt of such notices. Mike Feld approves all cancellations and reinstatements of contracts.
4) Prenumbered invoices for emergency services are prepared weekly from information shown on the service representative’s time reports. The customer is billed at 300 per cent of the service representative’s hourly rate. These invoices, prepared in triplicate and distributed as shown above, are recorded on the books as ‘income from services’ at the billing date. Payment is due 30 days after the invoice date.
5) All remittances are received by the typist, who prepares a daily list of collections and stamps a restrictive endorsement on the cheques. A copy of the list is forwarded with the cheques to the bookkeeper, who posts the date and amount of each cheque received on the copies of the invoice in both the alphabetical and the chronological files. After posting, the copy of the invoice is transferred from the chronological file to the daily cash receipts binder, which serves as a subsidiary record for the cash receipts book. The bookkeeper totals the amounts of all remittances received, posts this total to the cash receipts book and attaches the daily remittance tapes to the paid invoices in the daily cash receipts binder.
6) The bookkeeper prepares a daily bank deposit slip and compares the total with the total amount shown on the daily remittance tapes. All remittances are deposited in the bank the day they are received. (Cash receipts from sources other than services need not be considered).
7) The financial report is prepared on an accrual basis.


i)Identify at least four key controls and indicate the tests of controls you would use to examine the revenue from services account for the year ended 30 June 2012.

ii)Identify any inherent concerns that you would have about the controls, that might cause you place less reliance on controls even if the test of controls appear adequate.
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Internal control is a process designed to achieve following objective:
· Effectiveness and efficiency of operations
· Reliability of financial reporting
· Compliance with applicable...

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