Revenue Cycle
1) prepare a bridge working paper for the audit of Apollo Shoes as of December 31, 2007, listing the major errors that could occur in the purchasing system and to describe the test of controls procedures for auditing related purchasing controls to determine whether reliable control exists.
Strength level
Control Activity
Describe the audit implication of strengths and weaknesses of the control activities
Describe specifically how you would test the control
Compensating audit procedures
Requisition authorization
Only one level of authorization at department levels, no authorization matrix
Observation
Check past purchase levels for authorization levels
Companys procurement department is centralized
Centralized procurement dept. helps in implementing and monitoring the efficiency of controls
Observation
Approved vendor list
Approved vendor list minimizes phantom vendors
Inquiry and observation
Vendor review process and procedure for updating approved vendor list is to be checked
Procurement catalogue
Manual process, no electronic procurement process
Inquiry and observation
All vouchers and other like documents to be reviewed and verified against invoices and outgoing payments
Stock levels
Procurement doesnt check with warehouse for prior inventory
Observation
Cross check recent purchases against inventory
Payment
Controls in place with vp – finance authorizing payments
Inquiry and observation
Check past records to verify process is being followed
Vendor due diligence
Vendor audit, product quality audits not performed
Inquiry
Check with departments on quality of recent procurements
2) Complete the ICQ for Apollo. See if you need to add any more strengths and/or weaknesses that you find from the ICQ and narrative descriptions of the revenue cycle.
Internal Control Questionnaire—Sales Transaction Processing
Assertions and Questions
Yes, No, N/A
Comments
Occurrence assertion:
Is the credit department independent of the sales department?
They are one in the same. They treat the credits like cash.
Are sales of the following types controlled by the same procedures described below? Sales to employees, COD sales, disposals of property, cash sales, and scrap sales.
All cash and credit sales are treated the same and follow the same routine.
Is access to sales invoice blanks restricted?
They have to go through several different departments.
Are pre-numbered bills of lading or other shipping documents prepared or completed in the shipping department?