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Module III: Control Testing-Sales Processing In this module you will apply attribute sampling to Brony's Bikes' prenumbered sales invoices to evaluate whether sales have been

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Module III: Control Testing-Sales Processing In this module you will apply attribute sampling to Brony's Bikes' prenumbered sales invoices to evaluate whether sales have been processed properly. Recall from Module II that several deficiencies in the design of the controls suggest an increased likelihood of material misstatement. However, the audit team believes that the use of prenumbered sales invoices and the related requirements (agree invoice to bill of lading and customer invoice, agree prices on involce to master price list, agree calculations on invoice, and agree that customer balance is within authorized credit limit) is an effectively designed control activity and the audit team would like to rely on that control. Accordingly, the audit team has decided to test sales transactions to see whether this control activity is operating effectively. If the control is operating effectively, the audit team would be able to reduce the assessed level of control risk for the relevant assertions related to sales and accounts receivable, thereby enabling them to decrease the extent of accounts receivable confirmation and other substantive procedures related to the revenue cycle. Specifically, you want to determine whether the control related to set invoices is performed effectively. Knowing whether the control is operating effectively will help the audit team determine whether all recorded sales were shipped (occurrence assertion for sales) and whether all shipments were invoiced and recorded at appropriate amounts (completeness assertion for sales). As discussed previously in the case, invoices are mailed to customers prior to shipment, therefore, customers may have received invoices for goods not yet or never shipped. Also, in the absence of pre-numbered bills of lading, goods may have been shipped but never billed to the customer. The second possible processing problem is that customers may have exceeded existing credit limits without home office knowledge; you need to test the degree to which this has occurred. Finally, because of lack of input editing, the prices, customer number, and/or product number may be incorrect; you will test for this as well Module III: Control Testing-Sales Processing In this module you will apply attribute sampling to Brony's Bikes' prenumbered sales invoices to evaluate whether sales have been processed properly. Recall from Module II that several deficiencies in the design of the controls suggest an increased likelihood of material misstatement. However, the audit team believes that the use of prenumbered sales invoices and the related requirements (agree invoice to bill of lading and customer invoice, agree prices on involce to master price list, agree calculations on invoice, and agree that customer balance is within authorized credit limit) is an effectively designed control activity and the audit team would like to rely on that control. Accordingly, the audit team has decided to test sales transactions to see whether this control activity is operating effectively. If the control is operating effectively, the audit team would be able to reduce the assessed level of control risk for the relevant assertions related to sales and accounts receivable, thereby enabling them to decrease the extent of accounts receivable confirmation and other substantive procedures related to the revenue cycle. Specifically, you want to determine whether the control related to set invoices is performed effectively. Knowing whether the control is operating effectively will help the audit team determine whether all recorded sales were shipped (occurrence assertion for sales) and whether all shipments were invoiced and recorded at appropriate amounts (completeness assertion for sales). As discussed previously in the case, invoices are mailed to customers prior to shipment, therefore, customers may have received invoices for goods not yet or never shipped. Also, in the absence of pre-numbered bills of lading, goods may have been shipped but never billed to the customer. The second possible processing problem is that customers may have exceeded existing credit limits without home office knowledge; you need to test the degree to which this has occurred. Finally, because of lack of input editing, the prices, customer number, and/or product number may be incorrect; you will test for this as well

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