An auditor for a large wholesaler is evaluating the controls over the approval and oversight of credit sales. Which of the following procedures would be a control weakness?
A.
The credit department is responsible for approving shipments to all customers
B.
The finance committee of the board of directors periodically reviews credit standards
C.
Customers who fail to meet credit requirements must pay cash for shipments upon delivery
D.
The sales department is responsible for determining the credit ratings of customers
A control weakness in the oversight of credit sales is evident when the sales department is responsible for determining the credit ratings of customers. This structure can lead to a conflict of interest, as the sales department may be motivated to approve higher credit limits or overlook credit standards to increase sales figures. This undermines the objectivity and effectiveness of the credit approval process, which should ideally be handled by an independent department such as credit control to ensure unbiased evaluation.
Internal control frameworks and auditing standards that emphasize segregation of duties and the independence of critical control activities.
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