Henrico's sales system is IT-based with computerized cash registers on the floors of all of its stores. At the point of sale, Henrico's sales clerks scan the bar code on the price tag of the product being sold to read the product number. If the quantity of a product being sold exceeds one, sales clerks can either enter the quantity being sold for that particular product code or scan the bar code for each individual item being purchased. At that point, the computerized cash register performs the following:

- Identifies correct unit price for that product number from the online price master file stored on the store server

- Notifies the clerk if product number is invalid

- Calculates total price of purchase (price \(\times\) quantity)

- Extends totals, calculates sales taxes, and determines final transaction amount.

Before the sale can be completed, sales clerks must indicate whether this is a cash or credit sale. For credit sales, Henrico only accepts VISA or MasterCard credit cards. Sales clerks swipe the customer credit card through a card reader directly linked to VISA and MasterCard to initiate the online credit card approval process. When the credit card agency's electronic approval is transmitted back to the cash register system, the credit approval code is electronically recorded on the cash register hard drive before the charge slip is generated for customer signature. When credit is denied, customers must either pay by cash or the sales clerk voids the sale. The original signed copy of the credit charge slip is maintained in the cash drawer. For both cash and credit sales, the cash register generates a customer paper-based receipt while a duplicate record of the transaction is stored on the cash register's hard drive in an online file that is backed up hourly to the store's computer server. This electronic transaction information documents on the register's hard drive the product number, unit price, quantity sold, the extended transaction totals, and credit card agency approval information. Sales clerks have no access to the transaction electronic file. In addition, sales clerks can only read unit price information and have no access to change unit prices in the online price master file. Only the store manager's staff has access to the price master file. Each week, the store manager's staff approves price changes and new product listings to be added to the price list master files. And, only the store's human resources manager is authorized to input changes to the employee master file of valid employee identification numbers. Store clerks are allowed to operate any machine on the floor as long as the clerk has a valid employee identification number. If a cash register is not currently being used, all the sales clerk has to do is enter his or her employee identification number before scanning any product being sold. The system will not proceed without a valid employee identification number. Generally, operation of the cash register is self-explanatory although some problems have occurred previously. New sales clerks receive two hours of training on the operation of the cash register before serving customers on the sales floor. Henrico management believes "on the job experience" is most effective. At the end of each day, sales clerks select the "register closing" option on the cash register. That process automatically updates both the transaction online file stored on the cash register's hard drive and the backup file stored on the store's server. The closing process generates a receipt printout at the register that summarizes the total amount of cash sales, credit sales, sales returns, and any other míscellaneous transactions for the day. The sales clerks count the cash in the drawer and list the total cash count on a Daily Deposit Sheet (a preprinted blank form). In addition, sales clerks summarize total credit sales on the Daily Deposit Sheet by listing total amounts from the credit sales slips in the register. The sales clerks also record on the Daily Deposit Sheet the cash, credit, and other transaction totals indicated on the cash register receipt generated by the register closing process. The sales clerks reconcile their cash and credit slip counts to these transaction totals and indicate any differences in amount. At that point, the sales clerks take the cash drawer, which includes credit slips, to the store cashier who is located in the store cashier's office. The store cashier verifies the Daily Deposit Sheet and initials the total cash and credit sales columns listed on the Daily Deposit Sheet for each register closed indicating that the amounts in the drawer reconcile to the amounts on the Daily Deposit Sheet. The cashier leaves \(\$ 200\) in each cash drawer to begin the following day. Cash drawers are stored overnight in the store's vault. Each night, a local Brinks security service picks up the cash and credit charge slips collected during the day for delivery to the overnight depository at the store's local bank. The next day, the bank immediately gives the store cash credits for all charge slips presented based on the bank's arrangement with VISA and MasterCard. And, the bank automatically credits the store's bank account for all cash received. The bank emails the store accountant and the store cashier a confirmation of the deposit processed each day....

Discussion Questions:

[1] Describe the sales transaction audit trail from the point of sale to the general ledger posting to the consolidated sales accounts at the corporate office. Be sure to emphasize which aspects of the audit trail are in paper or electronic form.
[2] Develop a proposed strategy for auditing the occurrence assertion for sales transactions. Describe whether there is a sufficient paper-based audit trail to audit that assertion without relying on IT audit specialists to test electronic only processes.
[3] What evidence source would you use to select a sample of sales transactions to test the occurrence of sales transactions at one store? Why would you use this source? What evidence would you examine for each transaction selected?
[4] Develop a proposed strategy for auditing the accuracy assertion for sales transactions. Describe whether there is a sufficient paper-based audit trail to audit that assertion without relying on IT audit specialists to test electronic only processes.
[5] What portion, if any, of the accounting system will likely require the assistance of an IT systems auditor, who evaluates evidence existing only in electronic form?
[6] What control deficiencies can you identify in the existing sales system?