Internal auditing is going to beperforming a consulting engagement to help the XYZ Company improve itscontrols over revenue generation.Based on input from the client some of theitems to be covered in the engagementinclude:

Determine if followup on past due accountsis adequate.

Determine ifprices on the invoices are correct

Determinewhy the number and amount of credit memos issued to customers have increased by 20% over the previous year while sales have only gone up by 5%.

For each item, select twoof the tests belowwhich in your judgment are the most appropriate to gather the required evidence.Briefly explain why you selected each test.Briefly describewhat evidence you are trying to obtain fromeach test.For your response, charts are accepted

Facilitated MeetingsInquiry procedures involve discussions with process owners, process staff and those key stakeholders affected by the process - for example, customers and suppliers. With focus groups, many of these people can participate in an active interchange of ideas and issues.Example: A facilitated group of purchasing, accounts payable and manufacturing departments may be an appropriate session to gain an understanding of the purchasing cycle processes.

InterviewingInquiry procedures involve discussions with process owners, process staff and may also involve those key stakeholders affected by the process - for example, customers and suppliers.An example is developing an understanding of environmental management controls over emissions of a power station through discussion with the plant manager of the facility.

Questioning is probably the most pervasive technique used by the auditor who is reviewing operations. This type of testing may involve suggesting a viewpoint of the process to gauge management reaction - "pointed interviewing".An example may be asking management to explain an unusual fluctuation or error noted in an audit test.

Observation and Inspection Observing involves a careful, knowledgeable look at documents processed, activities and assets. It means a visual examination with a purpose, a mental comparison with standards.Example: sighting employees recorded on a firm's payroll, or observing quality control inspection processes on a production line.

Documentation ReviewThis involves a review of existing reports and documents to identify controls, to understand the business or process, and to provide evidence in supporting audit conclusion.Examples include reviewing environmental compliance manuals, key business contracts, operational/ procedural documentation or company or committee minutes.

Confirmation/ RepresentationA confirmation or representation is frequently prepared by the auditor, completed by the relevant party, then delivered directly back to the auditor. Confirmations and representations may be obtained either externally or internally.An example may be obtaining representations from an insurance agent that they had complied with certain agent policy conditions, or obtaining a representation from management regarding their opinion of controls over the audit area.

Analytical reviewComparison of inter-relationships among sets of data, and the comparison of these relationships with some pre-defined expected relationship may be referred to as analytical testing.Analytical tests include:

trend analysis - such as fluctuation analysis;

benchmarking - to, for example, industry averages, pre-determined budgets or standards;

ratio analysis - of either financial ratios or process related ratios; and

modeling techniques such as reasonableness tests or frequency distribution analysis.

Data analysis & exception tests Analysis and query of historical data files to identify trends, problems areas, exceptions,etc.

Examples:Stratify a datafile to identify types of codes & related quantities;

Stratify a datafile to identify frequency of payments by amounts in selected intervals;

Identify duplicates or gaps;

aging summary of receivables or identify debtors who exceed their credit limits.

Vouching & VerifyingTests to prove that recorded events or values took place through examination of supporting documents or systems.Detailed examination of a set of worker's compensation files for evidence of doctor's certificates for certain dates of work absence is an example of a vouching test. An example of verifying may be verifying the propriety of charges made by contractors to certain construction projects.

Process mappingProcess mapping analysis may be used as a test of business practices. In particular, where the completeness of controls or logic of business procedures are being assessed, process mapping provides a tool to identify weaknesses or inefficiencies. This macro type evaluation is an audit test -an example may be assessing a process map of an accounts payable function for excessive authorization controls.

"Walk-through"Tracing procedures beginning with original documents and following their lifecycle through the process.An example may be performing a walk-through of daily shipping document handling with a goods receiving department to verify that processed mapped controls exist.

SurveysSurveys are commonly used to gauge perceptions of a business activity.For example, a survey of a pension fund administrator's customers may provide valuable process information as to customer perception of claim handling efficiency, new member processing and retiring benefit procedure efficiency.

ScanningA less detailed procedure which is intended to detect the unusual. The effectiveness of scanning depends on the auditor's ability to identify the "unusual" items and sift through large quantities of data to flag unusual items.An example may be reviewing the check register of a company location for unusual payees and/or unusual payment amounts.

ReconciliationA specific purpose audit test designed to analyze variances between two sets of similar information.Example: Preparing or reviewing a reconciliation of differences between a physical stockc ount and company inventory records.

Recalculation & Valuation tests Amounts or values are recalculated by the auditor to verify their accuracy or to assess the reasonableness of the final valuation.