Inventory: Auditing and Instructor Resource Manual

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Planning and Performing audit Procedures in the Revenue and Expenditure Cycles an audit Simulation
C A S eS INC LU De D IN T h IS Se CTION

10

10.1 Southeast Shoe Distributor, Inc.
Identification of Tests of Controls for the Revenue Cycle (Sales and Cash Receipts) Identification of Substantive Tests for the Revenue Cycle (Sales and Cash Receipts)

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299 309 319 333 347

10.2 Southeast Shoe Distributor, Inc. 10.3 Southeast Shoe Distributor, Inc. 10.4 Southeast Shoe Distributor, Inc. 10.5 Southeast Shoe Distributor, Inc.

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Selection of Audit Tests and Risk Assessment for the Revenue Cycle (Sales and Cash Receipts) . . . . . . . . . . . . . .

Performance of Tests of Transactions for the Expenditure Cycle (Acquisitions and Cash Disbursements) . . . . . . . . . . . . . .

Performance of Tests of Balances for the Expenditure Cycle (Acquisitions and Cash Disbursements)

INStRUCtoR RESoURCE MaNUal — Do Not CoPy oR REDIStRIbUtE

Solutions to the cases in this section are still being updated and will be posted by August 31.

INStRUCtoR RESoURCE MaNUal — Do Not CoPy oR REDIStRIbUtE

Southeast Shoe Distributor, Inc.

C aS E

10.1

Identification of tests of Controls for the Revenue Cycle (Sales and Cash Receipts) Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt INS TR UC T IONAL O b je C T Ive S [1] [2] [3]

[4]

To illustrate the purpose for obtaining an understanding of an entity’s internal controls. To highlight documents and records commonly used with sales and cash receipts transactions. To provide hands-on experience with identifying control activities related to sales and cash receipts transactions. To provide hands-on experience with designing tests of controls related to sales and cash receipts transactions.

[5] [6] [7] [8]

To illustrate the linkage of entity control activities to audit firm tests of controls. To illustrate the linkage of entity control activities to management assertions. To illustrate the linkage of tests of controls to management assertions. To provide hands-on experience with audit documentation.

KEY FACTS
ƒƒ Southeast Shoe Distributor, Inc. (SSD) is a closely owned company founded ten years ago. ƒƒ SSD purchases and sells designer label and name brand men, women, and children shoes to 123 retail stores located in small to medium size communities. ƒƒ SSD has one warehouse located in Atlanta, Georgia. ƒƒ Net sales last year were $7,311,214 and sales generally are the strongest in the second and fourth calendar year quarters. ƒƒ SSD is required to have an audit of its financial statements to fulfill requirements of its loan agreements. ƒƒ The audit manager, Susan Mansfield, reviewed SSD’s control environment, risk assessment policies, and assessed them as strong. ƒƒ A staff auditor, Bill Zander, reviewed SSD’s information system and control activities and documented his understanding in the flowcharts provided. ƒƒ The audit manager, Susan Mansfield, has decided not to document nor perform tests of controls related to SSD’s sales returns and allowances and write-offs of customer accounts as they are not material. ƒƒ Documents and records used with respect to sales transactions are Customer Order, Sales Invoice, Bill of Lading, Monthly Customer Statement, Standardized Price File, Standardized Chart of Accounts, Sales Register, Accounts Receivable Master File, and General Ledger. ƒƒ Documents and records used with respect to cash receipt transactions are Customer Check, Sales Invoice (Remittance Advice), Deposit Slip, Cash Receipt Summary, Bank Statement, Standardized Chart of Accounts, Cash Receipts Journal, Accounts Receivable Master File, and General Ledger. The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young...
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