Question

14-26 (Objective 14-3) The following are selected transaction-related audit objectives and audit procedures for sales transactions:

Transaction-Related Audit Objectives

1. Recorded sales exist.

2. Existing sales are recorded.

3. Sales transactions are correctly included in the accounts receivable master file and are correctly summarized.

Procedures

1. Trace a sample of shipping documents to related duplicate sales invoices and the sales journal to make sure that the shipment was billed.

2. Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached.

3. Examine the sales journal for a sample of sales transactions to determine whether each one has a posting reference in the margin indicating that it has been automatically compared by the computer with the accounts receivable master file for customer name, date, and amount.

4. Examine a sample of shipping documents to determine whether each one has a duplicate sales invoice number printed on the bottom left corner.

5. Trace a sample of debit entries in the accounts receivable master file to the sales journal to determine whether the date, customer name, and amount are the same.

6. Vouch a sample of duplicate sales invoices to related shipping documents filed in the shipping department to make sure that a shipment was made.

Required

a. For each objective, identify at least one specific misstatement that could occur.

b. Describe the differences between the purposes of the first and second objectives.

c. For each audit procedure, identify it as a test of control or substantive test of transactions. (There are three of each.)

d. For each objective, identify one test of control and one substantive test of transactions.

e. For each test of control, state the internal control that is being tested. Also, identify or describe a misstatement that the client is trying to prevent by use of the control.

Answer 1

a.1. One specific misstatement that could occur for Recorded sales exist is that there might be sales recorded in the journals for which no sale is actually made.

2. One specific misstatement that could occur for existing sales are recorded is the sale invoice amount may be overvalued or undervalued for purposely or mistakenly.

3.One specific misstatement that could occur for Sales transactions are correctly included in the accounts receivable master file and are correctly summarized is including sale transaction to non existant customers.

b. Recorded sale exist means those sale which have alreday occured and recorded in the journals or books,it is checked to verify the existance of the account receiveable and the sale made.

Existing sales are recorded ia an ongoing process, it checks the recording of the sale simulatneously with the occurance of the sale. In other words it checks for the completeness of the sale.

c.

Test of Control	Substantive test of transaction
Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached.	Trace a sample of shipping documents to related duplicate sales invoices and the sales journal to make sure that the shipment was billed.
Examine the sales journal for a sample of sales transactions to determine whether each one has a posting reference in the margin indicating that it has been automatically compared by the computer with the accounts receivable master file for customer name, date, and amount.	Trace a sample of debit entries in the accounts receivable master file to the sales journal to determine whether the date, customer name, and amount are the same.
Examine a sample of shipping documents to determine whether each one has a duplicate sales invoice number printed on the bottom left corner.	Vouch a sample of duplicate sales invoices to related shipping documents filed in the shipping department to make sure that a shipment was made.

d.

Objective	Test of Control	substantive test of transaction
Recorded sales exist	Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached.	Vouch a sample of duplicate sales invoices to related shipping documents filed in the shipping department to make sure that a shipment was made.
Existing sales are recorded	Examine a sample of shipping documents to determine whether each one has a duplicate sales invoice number printed on the bottom left corner.	Trace a sample of shipping documents to related duplicate sales invoices and the sales journal to make sure that the shipment was billed.
Sales transactions are correctly included in the accounts receivable master file and are correctly summarized.	Examine the sales journal for a sample of sales transactions to determine whether each one has a posting reference in the margin indicating that it has been automatically compared by the computer with the accounts receivable master file for customer name, date, and amount.	Trace a sample of debit entries in the accounts receivable master file to the sales journal to determine whether the date, customer name, and amount are the same.

As per the HOMEWORKLIB RULES ive answered first 4 questions.