Michelle Adrianna / 2201733616 / LA55

TUGAS GSLC

9-54 The following is a list of controls (numbered (1) through (7)) typically
implemented in the revenue cycle.
a. For each control listed, briefly indicate the financial misstatement
that could occur if the control is not implemented effectively.
b. Identify a test of control that the auditor can perform to
determine the operating effectiveness of the control.

No. List of Controls Potential Auditing Procedures

Misstatement if Not to Test Effectiveness
Implemented of Control
1 All transactions under The recording of all a. for implement the
$10,000 may be transactions must not computer
approved by the be misstated. But, the program all
computer authorization collectability of procedures
program. The credit receivable might be should be
manager must approve impaired. Hence, it is reviewed and
all transactions over quite possible that net conclude the
$10,000. receivable might be level that the
overstated. credit department
tests and also
monitors the
accuracy of the
authorization
program
b. Consider
program testing
by submitting all
transactions
against it and tell
if the given
transactions are
correctly
processed
2 All invoices are priced Sales and receivable a. Review all control
according to the might be indicated procedures used by
authorized price list incorrectly. If the the sales
maintained on the more sales are billed department to
computer. Either the than authorized, the apply authorized
regional or divisional receivable might not prices and continue
sales manager must be collectible. If fewer security of the
approve any exceptions. sales are billed than price list from
the authorized, the unlawful changes
 customers might not b. Take sales
complain and the invoice’s sample
company will and check the
understate sales as price charged per
well as receivables. unit with the copy
Though, the of the authorized
authorized prices will price list kept by
not be collected. The the sales
company is basically department
less profitable. c. Submit a sample
of invoices to the
system and
decide that all
items are
invoiced related
to authorized
prices.
3 All shipping documents Shipments may not be a. Review the
are prenumbered and recorded and sales of control
periodically accounted company would be procedures of
for. Shipping document understated. It is also client used to
references are noted on probable that occasionally
all sales invoices. shipments could be account for all
recorded double goods. Test a
resulting in an sample of the
overstatement accounting of
receivables and sales company to
conclude that all
goods were
correctly
accounted for.
4 Customer complaints Accounts receivable a. See that the
regarding receipt of might be overstated separation of
goods are routed to a as customer duties as
customer service grievances are not mentioned in the
representative. Any adjusted. control procedure
discre-pancies are in reality exists.
immediately evaluated to b. Review customer
determine the cause of complaint’s
the discrepancy. sample to
conclude the
procedures
applied tofollow-
up and rectifies
the complaints.
5 All merchandise returns Accounts receivable a. Review related
must be received by the might be overstated procedures and
receiving department and and sales returns inquire about the
recorded on prenumbered might be understated procedures used
documents for receipts. if the receipts are not for handling
 A document is created
for each item (or batches
of like items). Returns
are sent to quality control
for test-ing, and a
recommendation for
ultimate disposition is
made (scrap, rework and
sell as a second, or close
out as is), noted, and sent
to accounting for proper
inventorying.
6 The quantity of items
invoiced is reconciled
with the packing
document developed on
receipt of the order and
the shipping notice by a
computer program as the
goods are marked for
shipment. If
discrepancies appear, the
shipping document
prevails. A discrepancy
report is prepared daily
and sent to the
warehouse manager for
follow-up.
7 The company pays all
freight charges, but the
customer is charged a
freight fee based on a
minimum amount and a
sliding scale as a
percentage of the total
invoice. The policy is
documented, and the
computer automatically
adds the charge.
quickly recorded. returned goods
Inventory might be
overstated if quality
control department
does not analysis the
merchandise to
conclude its quality
Accounts receivable a. Examine packing
and sales could be slips and shipping
misstated in each documents for a
direction, but it is sample of
much probable that an invoices for a
understatement would sample of invoice
be undetected as for shipped
customers might not goods.
complain about not b. Consider
being properly billed computer
for all goods shipped program’s testing
by submitting
fictitious data to
determine that the
proper action is
taken.
Accounts receivable a. Pick a sample of
and sales could be invoices and
misstated in each compute again
direction, but it is the freight charge
much probable that an to conclude if it is
understatement would calculated in
be undetected as conformity with
customers might not the company
complain about not policy
being properly billed b. Consider
for all goods shipped computer
program’s testing
by submitting
fictional data to
conclude if the
calculation is
correctly done
9-61 Refer to Exhibit 9.10
a. What are typical substantive procedures in the revenue cycle, and
how are these procedures related to management assertions?
Management Assertion
Existence/occurrence—Recorded sales
and accounts receivable are valid.
Completeness—All sales are recorded.
Rights and obligations—The accounts
receivable are owned by the
organization (e.g., none have been
sold).
Valuation or allocation—Sales and
accounts receivable are properly
valued and recorded in the correct
period. Revenue has been recognized in
accordance with GAAP.
Presentation and disclosure—Credit
balance and related-party accounts
receivable are properly disclosed.
Revenue recognition policies have been
properly disclosed.
Management assertions are claims made by members of
management regarding certain aspects of a business. The concept is
Substantive Procedures
1. Perform substantive analytical
procedures.
2. Trace sales invoices to customer
orders and bills of lading.
3. Confirm balances or unpaid invoices
with customers.
4. Examine subsequent collections as
evidence that the sale existed.
5. Scan sales journal for duplicate
entries.
1. Perform substantive analytical
procedures.
2. Trace bills of lading to sales invoice
and sales journal.
3. Account for sequence of sales
invoices in sales journal.
1. Inquire of management.
2. Review minutes of board meetings.
1. Verify clerical accuracy of sales
invoices and agreement of sales
invoices with supporting documents.
2. Trace sales invoices to sales journal
and customer’s ledger. 3. Confirm
balances or unpaid invoices with
customers.
4. Foot sales journal and accounts
receivable trial balance and reconcile
accounts receivable trial balance with
control account.
5. Review adequacy of the allowance
for doubtful accounts.
6. Perform sales cutoff test.
1. Obtain confirmations from banks and
other financial institutions.
2. Inquire of management.
3. Review work performed in other
audit areas.
4. Review revenue recognition policies
for appropriateness and consistency.
 primarily used in regard to the audit of a company's financial
statements, where the auditors rely upon a variety of assertions
regarding the business. The auditors test the validity of these
assertions by conducting a number of audit tests. The consideration of
management assertions during the various stages of audit helps to
reduce the audit risk.

b. For the following procedures (labeled (1) through (6)), indicate

the assertion that is being tested.

No. Procedures Management Substantive

Assertion Procedures
1 Take a block of shipping Completeness Perform substantive
orders and account for the analytical procedures
invoicing of all items in the
block and account for the pre-
numbering of the documents.
2 Review the general access Existence / Trace sales invoices to
controls to the computer Occurrence customer orders and
application and the authorized bills of ladding
ability to make changes to
computer price files.
3 Recompute the invoice total Valuation or Confirm balances or
and individual line items on a Allocation unpaid invoices with
sample of sales invoices. customers
4 Review client documentation Existence / Examine subsequent
to determine policy for credit Occurrence collection as evidence
authorization that the sale existed
5 Select a sample of shipping Completeness Account for sequence
notices and trace to invoices. of sales invoices in
sales journal
6 Randomly sample entries into Valuation or Trace sales invoices to
the sales journal and trace Allocation sales journal and
back to sales orders and customer’s ledger
shipping documents.