7.71Rock Island QuarryEvidence Collection in an Online System. Your firm has audited the Rock Island Quarry Company for several years. Rock Island's main revenue comes from selling crushed rock to construction companies from several quarries owned by the company in Illinois and Iowa. The rock is priced by weight, quality, and crushed size.

Past procedure. Trucks owned by purchasing contractors or by Rock Island needed to display a current certified empty weight receipt or be weighed in. The quarry yard weigh master recorded the empty weight on a handwritten "scale ticket" along with the purchasing company name, the truck number, and the date. After the truck was loaded, it was required to leave via the scale where the loaded weight and rock grade were recorded on the scale tickets. The scale tickets were sorted weekly by grade and manually recorded on a summary sheet that was forwarded to the home office. Scale tickets were prenumbered and an accountant in the home office checked the sequence for missing numbers.

Audit procedures for revenue (and receivables) involved evaluating the controls at selected quarries (rotated each year) and vouching a statistical sample of scale tickets to weekly summaries. Weekly summaries were traced through pricing and invoicing to the general ledger on a sample basis, and general ledger entries were vouched back to weekly summaries on a sample basis. Few material discrepancies were found.

New procedures. At the beginning of the current year, Rock Island converted to a local area network of personal computers to gather the information formerly entered manually on the scale ticket. This conversion was done with your knowledge but without your advice or input. Now all entering trucks must weigh in. The yard weigh master enters "NEW" on the terminal keyboard and a form appears on the screen that is similar to the old scale ticket except that the quarry number, transaction number, date, and incoming empty weight are automatically entered. Customer and truck numbers are keyed in. After the weigh-in, the weigh master enters "HOLD" through the terminal. The weight ticket record is stored in the computer until weigh-out.

When a truck is loaded and stops on the scale, the weigh master enters "OLD" and a directory of all open transactions appears on the screen. The weigh master selects the proper one and enters "OUT." The truck out-weighs and the rock weights are computed and entered automatically. The weigh master must enter the proper number for the rock grade but cannot change any automatically entered field. When satisfied that the screen weight ticket is correct, the weigh master enters "SOLD," and the transaction is automatically transmitted to the home office computer, and the appropriate accounting database elements are updated. One copy of a scale ticket is printed and given to the truck driver. Rock Island keeps no written evidence of the sale.

Required:

It is now midyear for Rock Island, and you are planning for this year's audit.

1. What control procedures (manual and computerized) should you expect to find in this system for recording quarry sales?
2. The computer programs that process the rock sales and perform the accounting reside at the home office and at the quarries. What implication does this have for your planned audit procedures?
3. What are you going to do to gather substantive audit evidence now that there are no written scale tickets?