Auditing and Assurance Services, Student Value Edition (16th Edition)
16th Edition
ISBN: 9780134075754
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
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Question
Chapter 14, Problem 34C
a.
To determine
Prepare a flowchart for the billing function as a means of understanding the system.
b.
To determine
State the internal controls over sales for each of the six transaction-related audit objectives.
c.
To determine
State a useful test of control to verify the effectiveness of the control.
d.
To determine
State appropriate substantive tests of transactions
e.
To determine
Combine the audit procedures from requirement c. and d. into an efficient audit program for sales.
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As orders are received from customers, a personnel in the sales department prepares a sales order and sends a copy to the credit department for checking the viability of the customer's credit. A copy of the sales order is then sent to the shipping department for the preparation of the goods for delivery, the delivery receipt and the sales invoice which is then sent to the customer. A copy of the sales order, delivery receipt and the sales invoice is then sent to the accounting department for recording. What area in the transaction cycle is deemed a control weakness instead of a strength?a. The approval of the customer credit.b. The preparation of the delivery receipt.c. The preparation of the sales invoice.d. None can be deemed as a weakness.
Precision Industries, Inc., is a manufacturer of electronic components. When a purchase order is received from a customer, a sales clerk prepares a serially numbered sales order and sends copies to the shipping and accounting departments. When the merchandise is shipped to the customer, the shipping department prepares a serially numbered shipping advice and sends a copy to the accounting department. Upon receipt of the appropriate documents, the accounting department records the sale in the accounting records. All shipments are FOB shipping point.
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How can the auditors determine whether Precision Industries, Inc., has made a proper year-end cutoff of sales transactions?
The following procedures are used by Complete Wholesale Incorporated.a. All sales are made on account, with each sale being indicated on a sequentially numberedsales invoice.b. Customer payments are received in the mail by the office receptionist, who sends the checksto a cashier for deposit and the remittance advices to the accounting department for recordingagainst the customer’s account balance.c. The office receptionist is assigned the job of handling all customer complaints.d. When a customer has a legitimate complaint about goods sold to the customer on account, thereceptionist will phone the accounting department to request that the customer’s account becredited for the sales allowance.e. The company’s inventory is stored in a locked warehouse that is monitored by surveillancecameras.f. Payments to the company’s suppliers are made only after the supplier’s invoice is received andcompared to the receiving report.Required:1. Indicate whether each procedure represents a strength or…
Chapter 14 Solutions
Auditing and Assurance Services, Student Value Edition (16th Edition)
Ch. 14 - Describe the following documents and records and...Ch. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Prob. 9RQCh. 14 - Prob. 10RQ
Ch. 14 - Prob. 11RQCh. 14 - Prob. 12RQCh. 14 - Prob. 13RQCh. 14 - Prob. 14RQCh. 14 - Prob. 15RQCh. 14 - Prob. 16RQCh. 14 - Prob. 17RQCh. 14 - Prob. 18RQCh. 14 - Prob. 19.3MCQCh. 14 - Prob. 19.1MCQCh. 14 - Prob. 19.2MCQCh. 14 - Prob. 20.1MCQCh. 14 - Prob. 20.2MCQCh. 14 - Prob. 20.3MCQCh. 14 - An auditor is performing substantive tests of...Ch. 14 - Prob. 21.2MCQCh. 14 - Prob. 22.1MCQCh. 14 - Prob. 22.2MCQCh. 14 - Prob. 22.3MCQCh. 14 - Prob. 23DQPCh. 14 - Prob. 24DQPCh. 14 - Prob. 25DQPCh. 14 - Prob. 26DQPCh. 14 - Prob. 27DQPCh. 14 - Prob. 28DQPCh. 14 - Prob. 29DQPCh. 14 - Prob. 30DQPCh. 14 - Prob. 31DQPCh. 14 - Prob. 32DQPCh. 14 - Prob. 33DQPCh. 14 - Prob. 34CCh. 14 - Prob. 35ICA
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- Precision Industries, Inc., is a manufacturer of electronic components. When a purchase order is received from a customer, a sales clerk prepares a serially numbered sales order and sends copies to the shipping and accounting departments. When the merchandise is shipped to the customer, the shipping department prepares a serially numbered shipping advice and sends a copy to the accounting department. Upon receipt of the appropriate documents, the accounting department records the sale in the accounting records. All shipments are FOB shipping point.  Assume that all shipments for the first five days of the following year were recorded as occurring in the current year. If not corrected, what effect will this cutoff error have upon the financial statements for the current year?arrow_forwardWhen Legacy Co. receives telephone and fax orders, the billing department prepares an invoice. The invoice is mailed immediately. A copy of the invoice serves as a shipping notice. The shipping department removes inventory from the warehouse and prepares the shipment. When the order is complete, the goods are shipped. The clerk checks the customer’s credit before recording the sale in the general journal and the account receivable subsidiary ledger. The receptionist opens the mail and lists all payments. The receptionist also handles all customer complaints and prepares sales return forms for defective merchandise. The cashier records all cash receipts in the general journal and makes the appropriate entry in the accounts receivable subsidiary ledger. The cashier prepares the daily bank deposit. Describe at least four internal control weaknesses at Legacy Co.arrow_forwardWhich statement about Revenue Cycle is correct? The customer and accounts payable department gets copies of the invoice.The sales order department prepares the invoice.The billing department uses the sales order and shipping documents to create the invoice.The accounts receivable department uses the sales order to update the accounts receivable subsidiary ledgerarrow_forward
- Choose the one correct answer. As orders are received from customers, a personnel in the sales department prepares a sales order and sends a copy to the credit department for checking the viability of the customer's credit. A copy of the sales order is then sent to the shipping department for the preparation of the goods for delivery, the delivery receipt and the sales invoice which is then sent to the customer. A copy of the sales order, delivery receipt and the sales invoice is then sent to the accounting department for recording. What area in the transaction cycle is deemed a control weakness instead of a strength?a. The approval of the customer credit.b. The preparation of the delivery receipt.c. The preparation of the sales invoice.d. None can be deemed as a weakness.arrow_forwardEach of the below describes a procedure consistent with a strong system of internal control except…  Question 7 options:  The customer order department determines when a sale has occurred and should be recorded.  The accounts payable department agrees purchase requisitions, purchase orders, receiving reports, and invoices prior to payment.  Quantities ordered are excluded from the receiving department copy of a purchase order so receiving personnel count and inspect merchandise received.  The use of remittance advices for customers' payments on accounts receivable received in the mail.arrow_forwardWhen the store manager receives a requisition note, he issues three copies of purchase order. Two copies of these orders are sent to the vendor and one copy remains in the stores file. When the goods are received, the store manager matches the purchase order with the invoice and forwards them to accounts payable department for payment of dues. Which of the following statement best describes the internal control over the purchasing process? Inadequate control over accounts payable. Inadequate segregation of duties. Inadequate segregation of duties. Adequate internal control exists.arrow_forward
- The sales department receives the unstandardised sales order since customer orders are mailed, e-mailed or faxed to the sales department. The sales clerk first converts the unstandardised sales order into the standardised sales order. For this purpose, the sales representative requests the missing information, if any. When the order is received, the sales clerk checks the customer’s creditworthiness of the customer from his computer terminal. Three years ago, the sales clerk requested the accounting department to provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the creditworthiness of the customers. The sales clerk is using the same procedure to check the creditworthiness of the new customers.The customer’s order is rejected if the customer’s credit is not verified. The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardised…arrow_forwardThe sales department receives the unstandardised sales order since customer orders are mailed, e-mailed or faxed to the sales department. The sales clerk first converts the unstandardised sales order into the standardised sales order. For this purpose, the sales representative requests the missing information, if any. When the order is received, the sales clerk checks the customer’s creditworthiness of the customer from his computer terminal. Three years ago, the sales clerk requested the accounting department to provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the creditworthiness of the customers. The sales clerk is using the same procedure to check the creditworthiness of the new customers.The customer’s order is rejected if the customer’s credit is not verified. The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardised…arrow_forwardAll of the following are true concerning an invoice except: When a shipment arrives, the receiving department counts the items received against the purchase order. The vendor ships items ordered after it receives a purchase requisition. The invoice is sent to the buyer's accounting department where it is placed in the voucher. Ⓒ When all coples are in the voucher, the accounting department can record the purchase and approve its payment.arrow_forward
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