Module III: Control Testing-Sales Processing

1. This plan doesn’t test sales revenue and accounts receivable for completeness. The most important control to assure completeness is prenumbered shipping and billing document. Unfortunately, the sales processing system does not provide for pre-numbered bills of lading, and bills of lading are not accounted for. Because of this deficiency, goods may have been shipped to customers but never billed to the customer. Thus, they don’t constitute an effective sampling unit. The auditors might want to select customer orders at random and determine whether goods were shipped and invoices sent to customers for those shipments. The auditor can account for sequence of sales invoices in sale journal or conduct a reconciliation of inventory with sales. In addition, analytical procedure, such as comparing monthly sales by product line with prior period may be used. The existence/occurrence and valuation assertions are the most critical for revenue accounts and a more relevant in this scenario. Vouching a sample of recorded sales transactions back to customer orders and evaluating the quality of evidence of shipment provide support for the assertion that they actually exists. The auditor should compare the quantities billed and shipped with customer orders and verify the clerical accuracy of the sales invoices to provide assurance on valuation.

2 & 3. See Table
4. Based on the sampling plan results, the auditors can be self-assured regarding the control of the correctness of product prices, extensions, footings, and quantities. Also, the auditor should be content that customer balances are within authorized credit limits. Unfortunately, missing bills of lading and bills of lading not signed by the carrier raises some concern since the deviation of 5.70% is above the sample risk of 5%. This may lead the auditor to