AUDITING 2

AUDIT OF THE SALES AND COLLECTION CYCLE

PBL REPORT PROBLEM 14-24

Trisakti University Teodoros Randy Christian - 023090300 Excellent Class Program Safira Amanda - 02309 Novanti Nur Cahyani - 023091057 Faculty of Economy September 28, 2011

AUDIT OF THE SALES AND COLLECTION CYCLE

Problem 1 : Are sales invoices independently compared with customers order for prices, quantities, extensions, and footings? Analysis : a. Recorded sales are for the amount of goods ordered and are correctly billed and recorded. (Accuracy) b. Examine indication of internal verification on sales documents. c. Incorrect prices may be charged, the customer may be billed for the wrong quantity, or the total amount may be computed incorrectly. d. Re-compute information on the sales invoices. Trace details on sales invoices to shipping records, price lists, and customers' orders. Problem 2 : Are sales orders, invoices, and credit memoranda issued and filed in numerical sequence and are the sequences accounted for periodically? Analysis : a. Recorded sales and credit transactions are for shipments actually made and existing sales transactions are recorded. (Occurrence and Completeness) b. Account for the numerical sequences of sales orders, invoices, and credit memoranda. c. Shipments or returns are not recorded. Orders from customers are misplaced and not filled. d. Examine correspondence concerning credit memoranda to assure that they were properly issued. Trace sample of shipping documents to related sales invoices and entries into the sales journal and accounts receivable master file. Confirm accounts receivable. Problem 3 : Are the selling and cash register functions independent of the cash receipts, shipping, and delivery, and billing functions? Analysis : a. Existing transactions are recorded; recorded transactions exist. (Completeness and Occurrence) b. The auditor should observe the employees and discuss the procedures with personnel. c. Sales could be made and not recorded, with the employee keeping the proceeds of the sale. d. Trace selected shipping documents to related duplicate sales invoices, the sales journal, and accounts receivable master file.

AUDIT OF THE SALES AND COLLECTION CYCLE

Problem 4 : Are sales generated through the companys Web site automatically recorder in the sales system? Analysis : a. Existing transactions are recorded. (Completeness) b. Online shipping documents are pre-numbered and accounted for weekly. c. Online sales could be made but not recorded. d. Select a sample of online shipments (using the pre-numbered online shipping documents), and trace to a sales invoice, sales journal or listing, and the accounts receivable master file. Problem 5 : Are all C.O.D, scrap, equipment and cash sales accounted for in the same manner as charge sales and is the record keeping independent of the collection procedure? Analysis : a. Existing transactions are recorded. (Completeness) b. The auditor should observe the activities of those employees and discuss the procedures with personnel. c. These unusual sales could be made but not recorded and the proceeds kept from the company. d. Examine sales documents for these sales and trace the entries into the cash receipts journal. Problem 6 : Is the collection function independent of and does it constitute a check on billing and recording sales? Analysis : a. Existing transactions are recorded and recorded sales are for the amount of goods ordered and are correctly billed. (Completeness and Accuracy) b. The auditor should observe the activities of employees and discuss the procedures with personnel. c. A receivable might intentionally not be recorded, allowing the cash to be kept from the company. d. Trace from the shipping records to the sales invoice, to the accounts receivable master file, and to the cash receipts journal. Problem 7 : Are accounts receivable master files balanced regularly to control accounts by an employee independent of billing functions?

AUDIT OF THE SALES AND COLLECTION CYCLE

Analysis : a. Sales and cash receipts transactions are properly included in the accounts receivable master file and are correctly summarized. (Posting and summarization) b. Observation of procedures and examination of indication of internal verification. c. Unintentional errors could be posted in the control accounts and left undetected for long periods of time. d. Perform tests of clerical accuracy--foot journals and trace postings from journal to general ledger and accounts receivable master file. Problem 8 : Are cash receipts recorder by persons independent of the mail-opening and receipts-listing functions? Analysis : a. Existing cash receipts transactions are recorded. (Completeness) b. Observation and discussion of procedures with employees. c. Cash could be received, not recorded, and kept from the company by an employee or lost prior to deposit. d. Trace receipts recorded on a list such as from a prelisting of cash to the books of original entry. Confirm accounts receivable. Problem 9 : Are receipts deposited intact daily on a timely basis? Analysis : a. Transactions are recorded on the correct dates. (Timing) b. Compare date per books to the date that the deposit appears on the bank statement. c. Cash receipts might be recorded in the wrong accounting period, lost, or stolen. d. Trace cash recorded on a list, such as a prelisting of cash, to the cash receipts journal and to the bank statement.

AUDIT OF THE SALES AND COLLECTION CYCLE

Conclusion: Those problems related with designing tests of controls and substantive tests of transactions for each of the five classes of transactions in the sales and collection cycle, including sales, cash receipts, sales return and allowances, write-off of uncollectible accounts receivable, and bad debt expense. In designing tests of controls for each class of transactions, auditors focus on testing internal controls that they intend to rely upon to reduce control risk. First, the auditor identifies the internal controls, if any exist, for each transaction-related audit objective. After assessing control risk for each objective, the auditor then determines the extent of tests of controls that must be performed. The auditor also design substantive tests of transactions for each class of transactions to determine whether the monetary amounts of transactions are correctly recorded. After the design of tests of controls and substantive tests of transactions for each audit objective and each class of transactions is completed, the auditor organizes the audit procedures into a performance format audit program. Preferences Elder Randal J, Beasley Mark S and Arens Alvin A., Auditing an Assurance Services, Pearson Prentice Hall, 12th editions, 2008.