Question

Assume the auditor plans to test controls over the shipment and recording of sales transactions. Identify the controls that the auditor would expect to find to achieve the objective that all transactions are recorded correctly, and in the correct period. For each control identified, indicate how the auditor would test whether the control operated effectively

Answer 1

To prevent any fictitious sales:

• Segregation of duties regarding order of entry, shipping process and billing function will make sure that no fictitious sales are been recorded.
• Auditor should ensure that whether proper segregation of duties has been made in order to test whether controls are operating effectively

To ensure that Proper recording of revenue when goods are shipped

• Maintain numerical sequence of sales invoices to ensure a proper recording of sales
• Match shipping document and sales invoice to ensure no goods are avoided from being recorded
• Sales invoice should be reconciled with saily sales report

To avoid recording of sales in wrong accounting period

• Shipping documents are to be forwarded to billing function daily.
• Daily billing of goods being shipped will help to record the sales in the correct accounting period.