Sales and Receivables
Test of Controls:
Assertion Controls
 Existence 1. Recording of sales is
supported by customer
orders, sales orders approved
by the credit department and
approved and executed
shipping documents.
2. A clerk independent of
accounts receivable prepares
and mails monthly statements
to customers for all trade
accounts receivable and
follows up on any complaints.
 Completeness 3. Prenumbered shipping
documents are accounted for
to determine that a sales
invoice is prepared for all
shipments.
4. Prenumbered sales invoices
are accounted for to
determine that all sales are
recorded.
5. Procedures to ensure timely
recording if sales and proper
cut-off are established.
 Rights and 6. Clerk should check sales
Obligations orders and sales invoices for
terms to determine that
transaction is a sale rather
than a consignment
 Valuation or 7. Goods are counted and
Allocation descriptions and quantities
are compared to the
descriptions and quantities on
Test of Controls
1. Examine for approved
customer order, sales order,
shipping document and copy
of sales invoice for a sample
of entries in the sales journal.
2. Observe whether a clerk
independent of the accounts
receivable bookkeeper
prepares and mails monthly
statements and follows up
any complaints. Examine files
on complaints received in
prior months.
3. Observe the client
performing the procedure or
select a sample of shipping
orders and examine the
invoice that bills the sale.
4. Observe the clerk recording
sales if they account for the
numerical sequence of
invoices.
5. Inquire how procedures are
followed, observe these
procedures and inspect prior
shipment reports sent by the
shipping clerk to the billing
clerk. Also provides evidence
as to existence.
6. Observe the control being
performed.
7. Observe the performance of
the control and examine a
sample of shipping orders for
the signature on the shipping
documents that indicates
 the sales orders and shipping
documents prior to shipping.
8. Customer credit is approved
by a responsible official prior
to merchandise shipment.
9. Sales invoices are checked for
a. proper pricing
b. arithmetic accuracy
c. terms
10. The accounts receivable
subsidiary ledger is balanced
to the general ledger control
account regularly.
 Presentation 11. Sales must be properly
and Disclosure classified to generate accurate
segment reporting.
that the counting and
comparison occurred.
8. Examine a sample of sales
order for credit approval
prior to shipment.
9. Perform the following:
a. Inquiry about the updating
and use of price lists.
b. Examine a sample of
invoice copies to determine
that they contain a signature
indicating that the price,
mathematical accuracy and
terms have been checked.
10. Observe that the controls are
being performed. Foot the
accounts receivable
subsidiary ledger and
compare the total with the
balance appearing in the
general ledger control
account.
11. Verify that the invoice copy
contains the signature that
indicates approval of account
classifications used.
Audit Program for Test of Controls
WP Done
Audit Procedures Ref By Date
1. For a sample of entries in the sales journal,
A. Compare date in the sales journal to approved
customer order, sales order, shipping
document, and copy of sales invoice for
a. Customer order number
b. Invoice number
c. Customer name
d. Date
e. Description of goods
f. Quantity
g. Price
h. Invoice amount
i. Terms
B. Determine credit approval
C. Determine that signatures are on invoices
indicating independent checking for
a. Proper pricing
b. Mathematical accuracy
c. Terms
D. Examine signature evidencing recheck of
account coding.
2. For a sample of shipping documents, examine
signatures indicating that for goods shipped, goods
are counted, quantities and descriptions of the
goods shipped are compared to quantities and
descriptions on sales orders and shipping
documents prior to shopping, and the transactions
are recorded in the sales journal.
3. Discuss the procedures with the person who mails
to customers monthly billings for all trade accounts
receivable and follows up on any complaints.
Review the client’s correspondence files reflecting
resolution of these items.
4. Observe the procedures followed to ensure a
proper cutoff of sales at year-end.
5. Observe that the accounts receivable subsidiary
ledger is balanced to the general ledger control
account regularly.
6. Examine evidence of accounting for the sequence
of sales orders, shipping documents, and sales
invoices.
Substantive Tests
Audit Objectives Audit Procedures Specific Procedures
 To determine 1. Review the sales journal, general  The client accumulates the
that recorded ledger and accounts receivable. sales invoice, customer’s
sales are 2. Trace sales journal entries to copies order, the sales order bearing
authorized and of sales orders, sales invoices and credit approval and the
are for shipping documents. shipping documents. Request
shipments 3. Trace shipping documents to entry access to these files to pick a
actually made to of shipments perpetual inventory sample.
nonfictitious records.  Trace from the entry
customer. 4. Compare prices on sales invoices removing the goods from
 To determine with unauthorized price lists or inventory to the perpetual
that existing properly executed contracts inventory record
sales 5. Trace shipping documents to  Examine the cash receipts in
transactions are resultant sales invoices and entry payment for the sale.
recorded on a into sales journal and accounts  Confirm the existence of
timely basis. receivable master file. individual transactions with
customers
 To determine 6. Compare dates of recorded sales  For a sample of shipping
that existing transactions with dates on shipping documents and examine that
sales records or perform sales cutoff entries were made in the
transactions are tests. sales journal and account
recorded on a receivable subsidiary ledger.
timely basis.  For a sample of sales
invoices, investigate the
procedure from recording
movements of merchandise.
 To determine 7. Recompute information on sales  For a sample of entries in the
that recorded invoices. sales journal, examine:
sales are for the 8. Trace entries in sales journal to sales a. Sales invoice, shipping
amount of invoices document, and customer
goods shipped 9. Trace details on sales invoices to order for consistency of
and are shipping documents, price tests and descriptions.
correctly billed customers’ orders. b. Sales orders for credit
and recorded approval.
c. Check prices and
extensions.
 Compare the date of each
invoice with:
a. The date on the related
shipping document
b. The date of entry in the
accounts receivable
subsidiary ledger.
  To determine 10. Examine document supporting sales  Review a sample of entries in
that sales transactions for proper the sales journal and the
transactions are classification. supporting sales invoice to
properly determine whether the sales
classified. invoice was coded correctly
and whether it results in
proper presentation and
disclosure of the transaction
in the financial statement.

Sales Adjustments
Test of Controls

WP Done
Audit Procedures Ref By Date
1. Account for credit memoranda.
2. Prove the footings of credit memorandum register.
3. Trace the posting of credit memorandum to the
general ledger.
4. Review credit memoranda for approval.
 5. Check credit memoranda concerning returned
goods for:
a. Arithmetic accuracy
b. Quantities returned
c. Unit prices
6. Inspect credit files in support of accounts written
off as uncollectible.

Audit Program for Test of Controls

Substantive Tests
Audit Objectives
 To determine if the amount of sales
returns and allowances are so
immaterial, they can be ignored in the
audit.
 To determine that the sales returns and
allowances are valid and not fictitious.
Audit Procedures
1. Review the use and authorization of
credit memoranda.
2. Review credits for returned merchandise
if supported by receiving report on the
return shipment
3. Verify prices, extensions and footings and
trace postings from the sales returns
journal to the customer’s accounts in the
subsidiary receivable ledger.
Cash Receipts Transactions
Test of Controls
Assertion Controls
 Existence or 1. An employee prepares a
Occurence prelisting of cash receipts
before further processing.
2. A validated deposit slip is
obtained for daily deposits
and compared to the cash
receipts summary.
3. Duties of handling cash
receipts are segregated from
posting to accounts
receivable. These functions
are performed by separate
independent employees.
4. A bank reconciliation is
prepared monthly by a person
not involved in handling cash,
accounts receivable, or
general ledger records. The
reconciler should receive the
unopened bank statement
and maintain control over it
until the reconciliation is
completed.
 Completeness 5. Prelisting and cash register
procedures should be
monitored.
6. Checks should be restrictively
endorsed as soon as they are
received.
7. A daily cash summary is
prepared and reconciled to
total of prelisting receipts. The
summary total is compared to
the total in the cash receipts
journal and the total on the
validated deposit ticket.
8. The cash receipts journal total
is independently reconciled to
the total posted to accounts
receivable.
Test of Controls
1. Observe whether a prelisting
is prepared and inquiries of
the preparer about the
procedures followed.
2. The auditor tests this control
by obtaining copies of the
validated deposit slips and
comparing them to the cash
receipts summary.
3. Observe the separation of
duties and inquiring of client
personnel about their
responsibilities.
4. Observe whether the bank
reconciliation have been
prepared by an independent
employee.
5. Observe the monitoring of
these procedures.
6. Observe the procedures in
effect.
7. Inquire of employees who
carry out the procedure
about the regularity and
consistency of its
performance.
8. Observe the procedure and
inquire of personnel
performing the procedure.
  Rights and 9. Cash receipts are deposited
Obligation intact daily in the company’s
bank account.
 Valuation or 10. Cash receipts should be
Allocation recorded at the amount
indicated on the remittance
advice prepared by a third
party.
 Presentation 11. The accounting supervisor
and Disclosure approves classifications made
in journalizing to reduce the
likelihood of payments being
posted to the wrong accounts,
resulting in credit balances in
accounts receivable.
9. Observe the procedure and
compare the cash in the
prelisting with the validated
deposit slip.
10. Compare entries in the cash
receipts journal to
remittance advices.
11. Determine that the
supervisor’s signature of
approval is recorded.

Audit Program for Test of Controls

W0P Done
Audit Procedures Ref By Date
1. Compare remittances or other details of cash
receipts with the entries in the receipts book.
2. Compare the recorded receipts with individual
deposits as shown by bank statements.
3. Compare the composition of authenticated
duplicate deposit slips with the recorded receipts.
4. Compare the recorded receipts with an
independent record prepare before receipts are
transmitted to the cashier.
5. Test of cash discounts and other allowances or
credits.
6. Test postings to the general ledger to the
customers’ ledger, and to other subsidiary ledger.
7. Review cash receipts for unusual items.
Substantive Tests
Audit Objectives Audit Procedures Specific Procedures
 To determine 1. For a sample of entries in the cash  To test the accounts
that recorded receipts journal, trace to the receivable, trace from the
receipts prelisting of cash receipts and to entry in the accounts
represent actual remittance advice. For a sample of receivable ledger to a cash
collections of entries, reconcile daily deposit to receipts listing to a deposit
cash from validated deposit ticket. ticket listing the payment and
customers. to the customer’s remittance
advice.
 To determine 2. For a sample of days, verify that all  To test the recording of cash
that all receipts cash receipts are recorded by receipts, compare the names
of cash and reconciling daily listing(s) of cash and amounts included in the
checks are receipts and validated deposit ticket prelisting for selected days
recorded. to cash receipts journal. with the entries in the cash
receipts journal.
 To test for lapping, identify a
period of several consecutive
days and trace the names
and amounts from the
prelisting of cash receipts to
the validated deposit ticket
to the cash receipts journal,
and to the posting in the
accounts receivable ledger.
 Test the arithmetic accuracy
of cash collections by footing
the cash receipts journal, and
by footing the accounts
receivable subsidiary ledger
reconciling it to the control
account.
 To determine 3. For a sample of entries in cash  To test the credit balances in
that debits to receipts journal, examine the accounts receivable,
cash and credits remittance advice and verify that select transactions from the
to accounts discount taken was appropriate. cash receipts journal and
receivable are Foot accounts receivable subsidiary recomputed the cash
valued at ledger and reconcile to the general discounts allowed to
amounts ledger account. customer who have made
received. payments.
 Reperformance of the
procedures of credit approval
for verification of approvals if
necessary.
 To determine 4. Review account coding for a sample  To test for errors in coding,
that cash of entries in the cash receipts compare entries in the cash
receipts journal. receipts journal with the
transactions are remittance advices.
recorded to
result in
presentation
and disclosure
in accordance
with PAS/PFRS.