Control Potential Misstatements Audit Procedures

Test of Controls
Only the sales department  Excessive credit limit Examine sales order for
employees can enter or change may be entered selected transactions, check if
a credit limit  Accounts Receivable the customers in the sample
may be uncollectible sales orders do not exceed
their credit limit
The financial controller  Fictitious customers  Examine selected
individually approves each may be entered into sales orders confirm
customer, granting or denying the system whether the customers
credit limit changes  Unauthorized enter exist; and
evidencing his review by sign and/or changes to  check if they didn’t
off on the report. credit limit of exceed their credit
customers may take limit.
place
 Accounts Receivable
may be uncollectible
Application System Sales/accounts receivable may  Inquire about the
automatically matches the be overstated or understated updating and use of
types of products to the unit the pricing database.
prices in the pricing database  Examine a sample of
invoices whether the
price, given the
invoice date, matches
the price in the pricing
database, on the same
date.
The data in the Pricing Excessive or relatively lower  Acquire a report of all
database can only be prices may be charged to the changes in the
changed by the head of the customers. pricing database for
sales department the period.
 Check if the system
generates a report
whenever changes are
made
System does not allow price Unauthorized large discounts  Examine a sample of
overrides, i.e., the price data may be given or items with sales invoice and
field cannot be changed discounts may be sold at full compare them with
price. Employees may void the the pricing database.
original transaction then  Match accounts
replace a transaction applying receivable subsidiary
the proper prices. ledger with sales
invoice

Only the sales department employees can enter or change a credit limit
The financial controller individually approves each customer, granting or denying credit
limit changes evidencing his review by sign off on the report
(Control 2).
(Control 1)

Application System automatically matches the types of products to the unit prices in the
pricing database
(Control 3).

The data in the Pricing database can only be changed by the head of the sales department
(Control 19).

System does not allow price overrides, i.e., the price data field cannot be changed
(Control 4).

After all required data have been entered, the Sales Application System automatically
calculates the overall value of the order and undertakes the following automatic checks
with the Customer database
(Control 5):
Customer’s order is within the credit limit 

Customer is not flagged with a “Delivery Stop” (Bad customers get flagged
with this attribute) 


Application System on a daily basis and investigates any significant differences

(Control 7).

On a monthly basis the head of the sales department reviews sales and margins by
product for unusual developments
(Control 20).

The warehouse keeper (different from employee who has collected the goods) reconciles
the goods at the loading bay with the Picking Lists
(Control 8)

The Warehouse Application System automatically prints the system date on the GDN.
The system date cannot be changed
(Control 9).

At the time when the GDN is generated in the Warehouse Application System the Sales
Application System automatically creates a draft invoice based on the GDN data and
automatically assigns an invoice number

(Control 10).
The Sales Application System assigns each invoice number only once
(Control 11).

The Security guard documents the inspection of the truck by signing the GDN. The
signed GDNs are sent to the accounting department on a daily basis (Control 13).

On a monthly basis the Warehouse people count the goods they have on stock and
reconcile those counts with the accounting records within 10 days
(Control 21).

The accounting department releases a final invoice after they have reconciled the receipt
of the GDNs from the Warehouse and the Security gate with the purchase order and the
invoice
(Control 14).

On a monthly basis the accounting department reconciles a report from the Sales
Application System that highlights all orders confirmed for which no invoices have been
issued and all shipments for which no invoices have been issued
(Control 15).

(Control 17) On a monthly basis the accounting clerk reviews the AR sub-ledger
reconciliation to the general ledger and investigates any significant differences (Control
18). 


The disclosures to be presented in the financial statements are compared to a disclosure

checklist and reviewed and approved by the finance director
(Control 22).