Identification of Tests of Controls
Southeast Shoe Distributor, Inc.:
Identification of Tests of Controls for the Revenue Cycle
(Sales and Cash Receipts)
LEARNING OBJECTIVES
After completing and discussing this assignment you should be able to • Recognize common documents and records used to record transactions in the revenue cycle • Recognize common control activities used to process transactions in the revenue cycle • Identify client control activities that reduce the likelihood of material misstatements • Link client control activities to management assertions • Identify tests of controls for each control activity identified
INTRODUCTION Southeast Shoe Distributor (SSD) is a closely-owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men's, women's, and children's shoes to retail shoe stores located in small to midsize communities. The company's basic strategy is to obtain a broad selection of designer-label and name-brand merchandise at low prices and resell the merchandise to small, one-location, retail stores that have difficulty obtaining reasonable quantities of designer and name-brand merchandise. The company is able to keep the cost of merchandise low by (1) selectively purchasing large blocks of production overruns, overorders, mid- and late-season deliveries, and previous season's stock from manufacturers and other retailers at significant discounts, (2) sourcing in-season name-brand and branded designer merchandise directly from factories in Brazil, Italy, and Spain, and (3) negotiating favorable prices with manufacturers by ordering merchandise during off-peak production periods and taking delivery at one central warehouse. During the year, the company purchased merchandise from more than 50 domestic and international vendors, independent resellers, manufacturers, and other retailers that frequently have excess inventory. Designer and name-brand footwear sold by
Identification of Tests of Controls for the Revenue Cycle
(Sales and Cash Receipts)
LEARNING OBJECTIVES
After completing and discussing this assignment you should be able to • Recognize common documents and records used to record transactions in the revenue cycle • Recognize common control activities used to process transactions in the revenue cycle • Identify client control activities that reduce the likelihood of material misstatements • Link client control activities to management assertions • Identify tests of controls for each control activity identified
INTRODUCTION Southeast Shoe Distributor (SSD) is a closely-owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells men's, women's, and children's shoes to retail shoe stores located in small to midsize communities. The company's basic strategy is to obtain a broad selection of designer-label and name-brand merchandise at low prices and resell the merchandise to small, one-location, retail stores that have difficulty obtaining reasonable quantities of designer and name-brand merchandise. The company is able to keep the cost of merchandise low by (1) selectively purchasing large blocks of production overruns, overorders, mid- and late-season deliveries, and previous season's stock from manufacturers and other retailers at significant discounts, (2) sourcing in-season name-brand and branded designer merchandise directly from factories in Brazil, Italy, and Spain, and (3) negotiating favorable prices with manufacturers by ordering merchandise during off-peak production periods and taking delivery at one central warehouse. During the year, the company purchased merchandise from more than 50 domestic and international vendors, independent resellers, manufacturers, and other retailers that frequently have excess inventory. Designer and name-brand footwear sold by