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Control Examples and Test

1. Recorded sales transactions must be authorized and actually occur. Examples of controls include requiring a valid customer order and shipping document for sales to be recorded, and approving credit before shipment. These controls could be tested by sampling recorded sales and tracing them back to source documents, and using audit software to match sales to electronic documents or orders. If the controls are not working, recorded sales may not have actually occurred. 2. Sales must be recorded in the correct accounting period. Controls include identifying unprocessed entered sales for exception reporting and review, and sending monthly statements. This could be tested through review of monitoring controls and nature of complaints received. If the controls are not working, sales may be recorded in the wrong period.

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Christine Joy Estropia
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38 views

Control Examples and Test

1. Recorded sales transactions must be authorized and actually occur. Examples of controls include requiring a valid customer order and shipping document for sales to be recorded, and approving credit before shipment. These controls could be tested by sampling recorded sales and tracing them back to source documents, and using audit software to match sales to electronic documents or orders. If the controls are not working, recorded sales may not have actually occurred. 2. Sales must be recorded in the correct accounting period. Controls include identifying unprocessed entered sales for exception reporting and review, and sending monthly statements. This could be tested through review of monitoring controls and nature of complaints received. If the controls are not working, sales may be recorded in the wrong period.

Uploaded by

Christine Joy Estropia
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Objective Examples of Controls How Control Would be Tested Implications if Control Not Working

1. Recorded a. (4) Sales recorded only with valid a. (7) Sample recorded sales a. (4) Recorded sales may not have
transactions customer order and shipping transactions and vouch back to occurred. Extend accounts
are authorized document. source documents. Use generalized receivable confirmation work and
and actually audit software to match sales with review of subsequent collections.
occurred. electronic shipping document or
customer order.
b. (1) Credit is approved before b. (2) Use ACL to determine each b. (5) Receivables may not be
shipment. customer’s balance and compare collectible. Expand confirmation
with its credit limit. work and review of subsequent
collections.
2. Sales are a. (9) Computer records sales upon a. (10) Review monitoring controls (e.g. a. (7) Company may have
recorded in entry of computer order and management’s review of unrecorded sales transactions.
correct shipping information. Transactions transactions entered into the system Discuss with management to
accounting entered, but not yet processed, are and not shipped and billed). determine if has plans to bill the
period. identified for an exception report sales.
and followed up.

b. (6) Monthly statements are sent to b. (5) Review nature of complaints b. (3) Sales may be recorded in the
customers. A group independent of received. Investigate to determine if wrong year. Expand sales cutoff
those recording the transactions there is a pattern. testing.
receives and follows up.
3. All sales are a. (3) Prenumbered shipping a. (9) Review reconciliations to a.-c. (8) Expand cutoff test at year-end
recorded. documents and invoices which are determine that control is working. to determine that all transactions
periodically accounted for. are recorded in the correct
period.
b. (8) Online input of transactions and b. (1) Use online computer techniques
independent logging. such as ITF to verify transaction
trails.
c. (10) Monitoring transactions are c. (3) Review management reports and
reviewed, compared with budgets evidence of actions taken.
and differences are investigated.
4. Sales are a. (5) Sales price comes from a. (4) Test access controls. Take a a. (2) Accounts receivables may be
accurately authorized sales price list sample of recorded sales invoices over- or understated due to
recorded. maintained on the computer. and trace price back to authorized pricing errors. Expand
list. confirmation and subsequent
collection procedures.
5. Sales are a. (7) Chart of accounts is up to date a. (6) Take a sample of transactions a. (1) Expand test of sales and
correctly and used. and trace to general ledger to see if receivable to determine that all
classified. properly classified. items represent bona fide
contracts and not consignment
sales or sale of operating assets.
b. (2) Computer program is tested b. (8) When testing general controls, b. (6) Expand confirmations to
before implementation. determine that controls over program customers.
changes are working.

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