10.36 Accounts receivable transaction file LO1, 3, 8

Nicola is managing the performance of audit procedures on the trade receivables transaction file. Her main focus is the posting of entries for sales and sales returns to the control account and the individual debtors accounts. The members of her team have each been given specific tasks which are detailed in the audit program. A predominantly substantive approach is being taken to the audit of trade receivables for this client because, although controls at the company are generally good, the trade receivables area is not significant enough to justify extensive controls testing.

Due to staff shortages this year, Nicola has been assigned a group of inexperienced audit assistants. Therefore, she has to be very careful when evaluating the results of the testing. In some cases, the working papers are not completed with sufficient detail, and in others she has to ask the audit assistants to redo the work.

Required

(a) Help Nicola explain to her audit assistants the reasons why they must account for the numerical sequence of sales invoices, credit (sales returns) memos, sales orders and shipping documents.

(b) One of the audit assistants is checking credit memos. The task is to compare the credit memo and supporting documents with the entries to debtors for sales returns and allowances as to dates, customers, products, quantities, prices and amounts. He checks all memos with dates of up to and including 30 June (year-end) and reports that he finds nothing unusual. Why would Nicola send the assistant back to examine credit memos with July dates? Explain.

(c) Why is it important for Nicola to undertake some procedures herself, such as reviewing the accounts for unusual items, instead of assigning the tasks to the assistants? What types of things would she be looking for when performing these procedures? What other procedures would be best performed by a more senior auditor?