Auditing
Chapter 14
Audit of the Sales and Collection Cycle:
Tests of Controls and Substantive
Tests of Transactions
Solution of Practising Problems
14-4 BestSellers.com could integrate its online ordering system with its inventory system so that a book shipment is made only after the customer’s credit card company approves the customer’s purchase. Because credit card issuers often transfer funds electronically almost immediately after a sale, BestSellers.com could also set up their system to ship books only after payment has been received by the credit card issuer. Finally, BestSellers.com could arrange with an online credit service bureau to run credit checks on customers purchasing over a preset minimum amount. Although BestSellers.com sells its goods through the Internet, the company should still record sales revenue when the books are shipped to customers.
14-6
Tests of controls:
1. On a sample of sales invoices, examine proper authorization and indication of internal verification of sales amounts. 2. Examine approved computer printout of unit selling prices. 3. Examine file of batch totals for initials of data control clerk; compare totals to summary reports.
Substantive tests of transactions:
1. Recompute information on sales invoices. 2. Trace entries in sales journal to related sales invoices. 3. Trace detail on sales invoices to shipping documents, approved price lists, and customers' orders.
14-9 1. Credit is authorized before a sale takes place.
Test: Analyze the allowance for uncollectible accounts and write-offs of accounts receivable during the period to determine the effectiveness of the credit approval system.
2. Goods are shipped only after proper authorization.
Test: Review physical inventory shortages to determine the effectiveness of inventory control.
3. Prices, including payment terms, freight, and discounts, are
Audit of the Sales and Collection Cycle:
Tests of Controls and Substantive
Tests of Transactions
Solution of Practising Problems
14-4 BestSellers.com could integrate its online ordering system with its inventory system so that a book shipment is made only after the customer’s credit card company approves the customer’s purchase. Because credit card issuers often transfer funds electronically almost immediately after a sale, BestSellers.com could also set up their system to ship books only after payment has been received by the credit card issuer. Finally, BestSellers.com could arrange with an online credit service bureau to run credit checks on customers purchasing over a preset minimum amount. Although BestSellers.com sells its goods through the Internet, the company should still record sales revenue when the books are shipped to customers.
14-6
Tests of controls:
1. On a sample of sales invoices, examine proper authorization and indication of internal verification of sales amounts. 2. Examine approved computer printout of unit selling prices. 3. Examine file of batch totals for initials of data control clerk; compare totals to summary reports.
Substantive tests of transactions:
1. Recompute information on sales invoices. 2. Trace entries in sales journal to related sales invoices. 3. Trace detail on sales invoices to shipping documents, approved price lists, and customers' orders.
14-9 1. Credit is authorized before a sale takes place.
Test: Analyze the allowance for uncollectible accounts and write-offs of accounts receivable during the period to determine the effectiveness of the credit approval system.
2. Goods are shipped only after proper authorization.
Test: Review physical inventory shortages to determine the effectiveness of inventory control.
3. Prices, including payment terms, freight, and discounts, are