Case 5 2
Case 5 - Exercise 2
Abernethy and Chapman
Internal Control Evaluation
Client:
Prepared by:
Date:
Exhibit 5-2 is a portion of the audit program that Mitchell designed to test the operating efficiency of controls in the revenue and cash receipts cycle. For each individual test, indicate the anticipated results if the control procedure is working properly. Also, if the control is not functioning properly, list the potential problems that exist. Use the following format for your response:
Step
Anticipated Results
Potential Problem(s)
1-A
The total listed on the sales invoice should agree with the total on the sales invoice slip. In addition, evidence should be present to indicate that a Lakeside employee has already made this same comparison.
If the invoices do not agree, the possibility is raised that fictitious or misstated sales are being recorded. Lack of tangible evidence (e.g., initials) that the matching procedure has been carried out would indicate that the employees are not complying with the requirements of the system.
1-B
The quantity and description of the items sold should be the same as the items shipped. Again, Lakeside employees are supposed to have previously made this comparison and left their initials or other proof of the execution of this test.
Differences warn the auditor that sales have been both billed and recorded incorrectly, or incorrect amounts or types of inventory have been shipped. Once again, a lack of compliance by Lakeside’s employees may be shown if this comparison has not been made.
1-C
Cash received as per the remittance list should be consistent with the invoice and the invoice slip. Customers should be encouraged to include the amount of payment on the invoice slip as a further control procedure. Because of the discount, the auditor may want to perform this step in connection with the discount computation in step 1-d.
The cash may have been stolen, or someone in the company may be engaged in lapping.
1-D
Calculated
Abernethy and Chapman
Internal Control Evaluation
Client:
Prepared by:
Date:
Exhibit 5-2 is a portion of the audit program that Mitchell designed to test the operating efficiency of controls in the revenue and cash receipts cycle. For each individual test, indicate the anticipated results if the control procedure is working properly. Also, if the control is not functioning properly, list the potential problems that exist. Use the following format for your response:
Step
Anticipated Results
Potential Problem(s)
1-A
The total listed on the sales invoice should agree with the total on the sales invoice slip. In addition, evidence should be present to indicate that a Lakeside employee has already made this same comparison.
If the invoices do not agree, the possibility is raised that fictitious or misstated sales are being recorded. Lack of tangible evidence (e.g., initials) that the matching procedure has been carried out would indicate that the employees are not complying with the requirements of the system.
1-B
The quantity and description of the items sold should be the same as the items shipped. Again, Lakeside employees are supposed to have previously made this comparison and left their initials or other proof of the execution of this test.
Differences warn the auditor that sales have been both billed and recorded incorrectly, or incorrect amounts or types of inventory have been shipped. Once again, a lack of compliance by Lakeside’s employees may be shown if this comparison has not been made.
1-C
Cash received as per the remittance list should be consistent with the invoice and the invoice slip. Customers should be encouraged to include the amount of payment on the invoice slip as a further control procedure. Because of the discount, the auditor may want to perform this step in connection with the discount computation in step 1-d.
The cash may have been stolen, or someone in the company may be engaged in lapping.
1-D
Calculated