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?
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?
Allowing the sales department to determine the credit ratings of customers is a control weakness because it lacks segregation of duties and can create a conflict of interest. The sales department's primary goal is to increase sales, and if they are also responsible for approving credit, they may be incentivized to approve credit for customers who may not be creditworthy in order to boost sales, thereby increasing the risk of bad debts. Instead, the credit department or an independent body should handle credit approval to ensure impartiality and preserve the integrity of the credit approval process.
no segregation of duties as sales should not approve the increase in credit limit , should be by credit department
Why D?
D is the correct answer because it creates a conflict of interest and compromises the objectivity needed in the credit approval process.