SGV Co.

Test of Control
Over Sales and Accounts Receivables
of G2B Company
 SGV Co.
Documentation of the understanding of the entity
• Nature of the Entity
G2B Company is a merchandising type of business. It
engages in the selling of chocolate products. Based on
the documents given, G2B company sold these products
to different customers namely: Cupcake and Coffee;
Robinsons Market; Bride for Rent; SM Supermarket; and
Honest, Inc.
 SGV Co.
Business Process
• The sales processing system of G2B Company starts when an order is received from
the customer in any form such as fax or facsimile. After receiving the order, the
entity now checks if there is stock for each item ordered. If there is enough stock,
the entity prepares three copies of delivery note, one for the inventory department,
one for the customer and one for the sales department. Together with the delivery
note for the customer, the goods are shipped to the customer. However, if there is
insufficient stock for the order, the entity will address the customer about the matter
and when the customer agreed to the modification of the order, the new order will
be delivered together with a delivery note. The business will also be sending the
invoice to the customer which includes the item ID and description, the quantity and
the amount.
• The company’s policies as regards to its sales are to record revenue when the goods
are delivered and it uses periodic inventory system via FOB Destination.
 Audit Findings SGV Co.

• There is the presence of discrepancies from the goods that are ordered and
those that are delivered.
First is the order of SM supermarket of item P21 (80 boxes of Walnut Prine)
compared to the goods delivered of just 50 boxes.
The second one is the order of Cupcake and Coffee which includes item T81 (1
Amaretto Truffles) which was changed into item T71 (1 Cognac Truffles).
These discrepancies, however, have a reasonable explanations which are
supported by a memorandum. This memorandum states that the item which was
first ordered are not available and that the customer has agreed to alter its order.

Working paper.
 SGV Co.
ACCOUNTS RECEIVABLE
Management Audit Objectives Audit Procedures Audit Findings
Assertions (Test of Controls
Performed)
Completeness To determine that all Assumption: Documents All transactions relative to
transactions relative to given are the actual accounts receivables are
accounts receivables are documents related to the completely recorded in the
recorded in proper accounting transactions- Ensured by proper accounting period.
period. the Senior as per inquiry of
the auditors.

Existence To determine that all   All recorded accounts

receivables exist and Inquiry receivables actually exist.
represent bona fide Vouching
obligations owed to the
company.

Valuation To determine that accounts   All accounts receivables are

receivables are properly Re-computation properly valued and are
valued and recorded at proper Reconciliation recorded in accordance with
amounts.   PAS/PFRS.
 SALES SGV Co.
Management Audit Objectives Audit Procedures Audit Findings
Assertions (Test of Controls Performed)
Measurement To determine whether sales are Re-computation Sales are properly measured.
measured properly. Reconciliation
 
Completeness To determine that all Assumption: Documents All transactions relative to
transactions relative to sales are given are the actual sales are completely recorded
recorded in proper accounting documents related to the in the proper accounting
period. transactions- Ensured by the period.
Senior as per inquiry of the
auditors.

Occurrence To determine that all sales are   All sales are properly valued
authorized and actually Inquiry and are recorded in
occurred. Vouching from source accordance with PAS/PFRS.
documents to General Ledger
 SGV Co.
Conclusion
• Based on the documents given and the facts gathered through the
audit procedures performed, the three-way match as a control over
accounts receivable and sales of G2B Company is operating
effectively. This is due to the fact that all the management assertions
and identified risks for both accounts (accounts receivable and sales)
have been properly addressed.
• Moreover, the discrepancies found (where the delivery notes of SM
and Cake and Coffees do not agree with the Sales order) do not actually
render the control ineffective. The discrepancies found are normal in
every business. They occur when the inventories are out-of-stock or
have insufficient quantity.
 SGV Co.
Recommendation
Since the control is operating effectively, the
auditors recommend it to be maintained.
However, the auditors suggest that the three way
matching be done in a computerized manner
rather than doing it manually.
 SGV Co.

Thank you!
SGV Co.