Chapter 14:Audit of the Sales and Collection Cycle:Tests of Controls and Substantive Tests of Transactions

YourTeam.Com is an online retailer of college and professional sports team memorabilia, such as hats, shirts, pennants, and other sports logo products.Consumers select the college or professional team from a pull down menu on the company's web site.For each listed team, the web site provides a product description, picture, and price for all products sold online.Customers click on the product number of the items they wish to purchase.The following are internal controls YourTeam.com has established for its online sales:

1.Only products shown on the web site can be purchased online.Other company products not shown on theweb site listing are unavailable for online sale.

2.The onlinesales system islinked to the perpetual inventory system, which verifies quantities on hand before processing the sale.

3.Before the sale is authorized, YourTeam.com obtains credit card authorization codes electronically from the credit card agency.

4.Online sales are rejected if the customer's shipping address does not match the credit card's billing address.

5.Before the sale is finalized, the onlinescreen shows the product name, description, unit price, and total sales price for the onlinetransaction.Customers must click on Accept or Reject sales button to indicate approval or rejection of the online sale.

6.Once customers approve the online sale, the onlinesales system generates a Pending Sales file, which is an online data file that is used by warehouse personnel to process shipments.Online sales are not recorded in the Sales Journal until warehouse personnel enter the bill of lading number and date of shipment into the Pending Sales data file.

Required:

a.For each control, identify the transaction-related audit objective(s) being fulfilled if each control is in effect.

b.For each control, describe the potential financial misstatements that could occur if the control was not present.