AUDITINGCHAPTER 10.ppt

GBW 8th ed. Ch. 10 AUDITINGCHAPTER 10 Sales Cash Receipts Transactions By David N. Ricchiute TOPICS Nature of revenue/receipt cycle Flow of information Auditor’s assessment of control risk Audit of internal* control for sales, cash receipts Computer auditing, sampling, tests of controls Assurance, consulting services NATURE OF REVENUE/RECEIPT CYCLE Goods, services sold to customers in exchange for future promises to pay Cash collected from customers REVENUE/RECEIPT CYCLEFlow of Information Customer order received Sales order prepared Price, quantity, goods, terms Shipping document Identifies goods shipped Contract between seller, carrier Sales invoice (bill) Customer remittance advice Returned with payment from customer SELLER’S DOCUMENTS Sales order Identifies goods ordered, price, quantity, terms, etc. Shipping document (bill of lading) Identifies good shipped Contract between seller carrier Sales invoice Formal notice to customer of amount payment terms Customer remittance advice Returned with payment CONTROLS FOR CREDIT SALES Multicopy, prenumbered sales order prepared Customer credit reviewed, approved Authorized copy sales order accompanies goods from Inventory Control to Shipping Goods received in Shipping compared with sales order; shipping document prepared Common carrier provides receipt for goods shipped Shipping document, approved sales order sent to billing for preparation of invoice, daily sales summaries Invoice copy sent to General Accounting for recording CASH COLLECTION Process Checks by mail listed, endorsed List copy to Accounts Receivable with remittance for posting List copy with checks to Cash Receipts Dept. for daily deposit Sales returns separate from cash collection Uncollected accounts Reviewed for credit limits, aged, written off as necessary INTERNAL CONTROL RISK Controls Risks ASSESSING CONTROL RISKObtain Understanding Review Sarbanes-Oxley Section 404 documentation for sales process Document the client’s sys