Audit Program Design Part 2
Audit Program Design Part II
Kendrick Cross, Teresita Gunn, Geri Franco, Heather Swayze
ACC/546
July 08, 2013 Joseph Oloyede
Sales and Collection Cycle
When engaged in auditing a public firm, such as Apollo Shoe Inc., an auditor must determine when to trust in the company’s internal controls and when to ascertain auxiliary testing methods are obligatory to analyze control risks. The sales and collection cycle is rather a substantial fraction of the audit because this unique segment employs a multitude of documentation and records ranging anywhere from customer and sales orders, shipping documents, credit memos, and general journal entries; therefore, a working comprehension of the diverse paperwork is indispensable. “Before auditors can assess control risk and design tests of controls and substantive tests of transactions, they need to understand the business functions and documents and records in a business” (Arens, Elderly, & Beasley, 2012, p. 443).
Test of Controls Taking a glimpse into the Apollo Shoes Inc., the organization appears to have implemented control systems that coincide with the following business functions essential to the sales and collection cycle: (1) processing customer orders, (2) granting credit, (3) shipping goods, (4) billing customers and recording sales, and (5) processing and recording cash receipts (Arens, Elderly, & Beasley, 2012). However with regard to (a) processing and recording sales returns and allowances, (b) writing off uncollectible accounts receivable, and (c) providing for bad debts (Arens, Elderly, & Beasley, 2012), these business functions are absent from the Apollo Shoes work paper control systems and these deficiencies require identification. For instance there appear to have been some discrepancies discovered in the sales and accounts receivable area and Darlene Wardlaw indicated that some sales transactions were missing the
Kendrick Cross, Teresita Gunn, Geri Franco, Heather Swayze
ACC/546
July 08, 2013 Joseph Oloyede
Sales and Collection Cycle
When engaged in auditing a public firm, such as Apollo Shoe Inc., an auditor must determine when to trust in the company’s internal controls and when to ascertain auxiliary testing methods are obligatory to analyze control risks. The sales and collection cycle is rather a substantial fraction of the audit because this unique segment employs a multitude of documentation and records ranging anywhere from customer and sales orders, shipping documents, credit memos, and general journal entries; therefore, a working comprehension of the diverse paperwork is indispensable. “Before auditors can assess control risk and design tests of controls and substantive tests of transactions, they need to understand the business functions and documents and records in a business” (Arens, Elderly, & Beasley, 2012, p. 443).
Test of Controls Taking a glimpse into the Apollo Shoes Inc., the organization appears to have implemented control systems that coincide with the following business functions essential to the sales and collection cycle: (1) processing customer orders, (2) granting credit, (3) shipping goods, (4) billing customers and recording sales, and (5) processing and recording cash receipts (Arens, Elderly, & Beasley, 2012). However with regard to (a) processing and recording sales returns and allowances, (b) writing off uncollectible accounts receivable, and (c) providing for bad debts (Arens, Elderly, & Beasley, 2012), these business functions are absent from the Apollo Shoes work paper control systems and these deficiencies require identification. For instance there appear to have been some discrepancies discovered in the sales and accounts receivable area and Darlene Wardlaw indicated that some sales transactions were missing the