Question

For each of the following three control activities, write a likely test of control that the auditor would perform (be specific in the test you write).

A sale is recorded only when a shipment has been made.

A manager must authorize all sales returns that are greater than $1,000.

Cash disbursement in the Disbursements Journal must be accompanied by supporting documents: purchase order, receiving document, and vendor invoice.

Answer 1

Answer:-

1.A sale is recorded only when a shipment has been made:-The auditor will first inquire about the process of recording sales and understand the same.Then he will select a sample from the sales made during the period and inspect the same.The checks while inspecting the same would be comparing the date of shipment and the date when the sales are recorded in the system i.e.,the date of invoice.Also,he can check the FOB terms and ensure that the same are properly followed.In case of any descrepancy,he can discuss the same with the management and arrive at a conclusion.

2.A manager must authorize all sales returns that are greater than $1,000:-The auditor will first read the Standard Operating Procedure and understand the authority levels defined in it for sales and sales returns.Then he will select a sample from the sales return greater than $1,000 and ensure that the same are being authorized and signed by the manager.In case of any descrepancy,he can discuss the same with the management and arrive at a conclusion.

3.Cash disbursement in the Disbursement Journal must be accompanied by supporting documents:-purchase order,receiving document,and vendor invoice:-The auditor will get a dump of all the cash disbursements made during the audit period.He will select a sample and get the supports of the selected samples.After obtaining the sample, he will inspect that the samples have the necessary supportings and are being authourized by the authorized personnel.In case of any descrepancy,he can discuss the same with the management and arrive at a conclusion.