13-22 (OBJECTIVES 13-3, 13-4,
13-22 (OBJECTIVES 13-3, 13-4, 13-5) The following are commonlyperformed tests of controls and substantive tests of transactionsaudit procedures in the sales and collection cycle:
1. Compare the dates of recording sales in the sales journalwith the invoices and shipping documents to see if there is anydiscrepancy.
2. Examine the evidence, such as the accountant’s initials, toensure that the accounts receivable master file is reconciled tothe general ledger.
3. Compute prices and extensions on sales invoices and trace theprices on invoices to the approved price list or the price masterfile.
4. Find out whether statements detailing outstanding amountswere sent to customers on a monthly basis.
5. Examine sales returns for receiving reports that have beensigned by an authorized employee.
6. Obtain a prelisting of cash receipts and trace their amountsto the cash receipts journal, testing for names, amounts, anddates.
7. Trace cash receipts entries recorded in the cash receiptsjournal to the bank statement for a month.
Required.
a. Identify whether each audit procedure is a test of control ora substantive test of transactions.
b. State which of the seven transaction-related audit objectiveseach of the audit procedures fulfills.
c. Identify the type of evidence used for each audit procedure,such as inspection and observation.
Answer:
|
Transactions |
Test of control/ Substantivetest of transactions |
Audit objectives |
Evidence used for each auditprocedure |
|
|
1. |
Compare the dates of recording sales in the sales journal withthe invoices and shipping documents to see if there is anydiscrepancy. |
Test of controls |
Timing |
Inspection (documentation) |
|
2. |
Examine the evidence, such as the accountant’s initials, toensure that the accounts receivable master file is reconciled tothe general ledger. |
Test of controls |
Accuracy |
Posting and Summarization |
|
3. |
Compute prices and extensions on sales invoices and trace theprices on invoices to the approved price list or the price masterfile. |
Substantive test of transactions |
Accuracy |
Recalculation |
|
4. |
Find out whether statements detailing outstanding amounts weresent to customers on a monthly basis. |
Substantive test of transactions |
Accuracy |
Confirmation |
|
5. |
Examine sales returns for receiving reports that have beensigned by an authorized employee. |
Test of controls |
Occurrence |
Inspection (documentation) |
|
6. |
Obtain a prelisting of cash receipts and trace their amounts tothe cash receipts journal, testing for names, amounts, anddates. |
Substantive test of transactions |
Completeness |
Re-performance |
|
7. |
Trace cash receipts entries recorded in the cash receiptsjournal to the bank statement for a month. |
Test of controls |
Occurrence |
Re-performance |
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
