Question

11-27 (Objectives 11-3 , 11-4) The following are misstatements that can occur in the sales and collection cycle:

A customer number on a sales invoice was transposed and, as a result, charged to the wrong customer. By the time the error was found, the original customer was no longer in business.

A former computer operator, who is now a programmer, entered information for a fictitious sales return and ran it through the computer system at night. When the money came in, he took it and deposited it in his own account.

A nonexistent part number was included in the description of goods on a shipping document. Therefore, no charge was made for those goods.

A customer order was filled and shipped to a former customer, which had already filed for bankruptcy.

The sales manager approved the price of goods ordered by a customer, but he wrote down the wrong price.

A computer operator picked up a computer-based data file for sales of the wrong week and processed them through the system a second time.

For a sale, a data entry operator erroneously failed to enter the information for the salesman’s department. As a result, the salesman received no commission for that sale.

Several remittance advices were batched together for inputting. The cash receipts clerk stopped for coffee, set them on a box, and failed to deliver them to the data input personnel.

Required

Identify the transaction-related management assertion(s) to which the misstatement pertains.

Identify one automated control that would have likely prevented each misstatement

Answer 1

1) Solution:

Transaction-related audit objective(s): Recorded transactions exist; Transaction properly posted and summarized

Automated control: Key entry verification;

Explanation: A transposed sales invoice can be automated control by key entry verification, reconciliation to customer number on purchase order and bill of lading; and check digit. The objective is to ensure that transactions are properly posted and summarized

2) Solution:

Transaction-related audit objective(s): Recorded transactions exist

Automated control: Scheduling of computer processing

Explanation: The objective is to ensure on existent recorded transactions; and automated control can be done by input security controls over cash receipts records; scheduling of computer processing; Controls over access to live application programs; and controls over access to equipment

3) Solution:

Transaction-related audit objective(s): Current transactions are recorded

Automated control: Preprocessing review to ensure correct part numbers are used

Explanation: The objective is to ensure that current transactions are recorded; and automated control can be done by cutoff procedures; ccorrect file controls; and programmed controls such as check for sequence of dates

4) Solution:

Transaction-related audit objective(s): Recorded transactions exist

Automated control: Preprocessing review to ensure customers are current and in the system

Explanation: The objective is to ensure on existent recorded transactions; and automated control can be done by preprocessing authorization and review; and programmed controls such as comparison to customer file

5) Solution:

Transaction-related audit objective(s): Accurate amounts are stated in the transactions

Automated control: Preprocessing review so that correct prices are used for goods ordered by customers

Explanation: The objective is to ensure that the accurate amounts are stated in the transactions; and automated control can be done by preprocessing review; and programmed controls

6) Solution:

Transaction-related audit objective(s): Recorded transactions exist; Transactions are recorded on the accurate dates

Automated control: Cutoff procedures and check for date sequence

Explanation: The objective is to ensure on existent recorded transactions; and automated control can be done by ccorrect file controls; cutoff measures and programmed controls such as date sequence

7) Solution:

Transaction-related audit objective(s): Current transactions are recorded

Automated control: Conversion confirmation so that information of sale is inputted

Explanation: The objective is to ensure that current transactions are recorded; and automated control can be done by cconversion verification and programmed controls such as check field for completeness

8) Solution:

Transaction-related audit objective(s): Current transactions are recorded; correct dates are noted

Automated control: Control totals reconciled to manual totals of all batches

Explanation: The objective is to ensure that current transactions are recorded; and automated control can be done by reconciling the control totals and manual of all batches total