SOAL ASSIGNMENT FINANCIAL AUDIT II

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The following is a list of controls (numbered 1 through 7 below) typically implemented in the revenue cycle.

a.For each control identified, briefly indicate the financial misstatement that could occur if the control is not implemented effectively.

b.Identify a test of control that the auditor can perform to determine the operating effectiveness of the control.

1.All transactions under $10,000 may be approved by the computer authorization program. The credit manager must approve all transactions over $10,000.

2.All invoices are priced according to the authorized price list maintained on the computer. Either the regional or divisional sales manager must approve any exceptions.

3.All shipping documents are prenumbered and periodically accounted for. Shipping document references are noted on all sales invoices.

4.Customer complaints regarding receipt of goods are routed to a customer service representative. Any discrepancies are immediately followed up to determine the cause of the discrepancy.

5.All merchandise returns must be received by the receiving department and recorded on prenumbered documents for receipts. A document is created for each item (or batches of like items). Returns are sent to quality control for testing, and a recommendation for ultimate disposition is made (scrap, rework and sell as a second, or close out as is), noted, and sent to accounting for proper inventorying.

6.The quantity of items invoiced is reconciled with the packing document developed on receipt of the order and the shipping notice by a computer program as the goods are marked for shipment. If discrepancies appear, the shipping document prevails. A discrepancy report is prepared daily and sent to the warehouse manager for follow-up.

7.The company pays all freight charges, but the customer is charged a freight fee based on a minimum amount and a sliding scale as a percentage of the total invoice. The policy is documented, and the computer automatically adds the charge.

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The audit of the revenue cycle accounts of Acco, Inc. has been planned with a low preliminary assessment of control risk related to each of the relevant assertions. A sample of sales transactions was selected for testing. Each of the following types of control or transaction processing deficiencies uncovered in the sample was significant enough to cause the auditor to increase control risk assessment from low to moderate. For each deficiency (labeled as a. though i. below) discuss the type of financial statement misstatement that may result, the assertion(s) affected, and the effect on the nature, timing, and/or extent of related substantive tests. Each type of deficiency should be considered independently from the others.

a.No evidence that price and quantity on the invoice were compared with the supporting documents

b.Failure to approve customer credit before shipping the merchandise on open account

c.Recording sales before they were shipped

d.Recording sales several days after they should have been recorded

e.Recording sales several days before and several days after they should have been recorded

f.Lack of customer orders; items were shipped

g.Lack of shipping documents; customer order was found

h.Incorrect invoice price

i.Quantity shipped differed from the quantity billed