Class Test 6

Question 1

What are ICO’s for receiving and processing of orders function

Answer 1

• Orders are received from valid customers and are complete and accurate
• All orders received from customers are processed

Question 2

What are ICO’s for granting credit to customers function

Answer 2

• Sales transactions are made to creditworthy customers
• Credit is granted according to the Co policy

Question 3

What are ICO’s for shipping products and services function

Answer 3

• Deliveries to customers are authorised and accurate
• Deliveries through access points are valid

Question 4

What are ICO’s for recording of sales function

Answer 4

• All sales are invoiced accurately
• All sales are accurately recorded

Question 5

What are ICO’s for receipts of payments function

Answer 5

• Debtors pmts are collected timely
• Debtors pmts are recorded accurately

Question 6

What are ICO’s for good received function

Answer 6

• Only valid return of goods from customers are accepted
• All returned goods are recorded accurately

Question 7

What are ICO’s for bad debts function

Answer 7

• Only authorised bad debts are written off according to Co policy

Question 8

What are risk and ctrls of the receiving and processing of orders function

Answer 8

• Risk
  > Fictitious customers plade orders (invalid orders)
  > Goods not available/in-store
  > Sales order received are not processed
• Ctrls
  > Approved customer list maintained
  > Verbal confirmation of order details captured by sales clerk
  > Sales clerk confrims availability of goods before proceeding to prepare sales order

Question 9

What are risk and ctrls of the granting credit to customers function

Answer 9

-Risk
> Products sold to customers who are not creditworthy
> Sales made to existing customers that exceeded their credit limit

Question 10

What are risk and ctrls of the shipping the products/services function

Answer 10

• Risk
  > Incorrect product types and quantities shipped/delivered
  > Theft of inventory
• Ctrls
  > Delivery note details matched w/ sales order by warehouse manager before shipping them
  > Security guard to check and match quantities of goods dispatched w/ details of approved delivery not

Question 11

What are risk and ctrls of the recording of sales function

Answer 11

• Risk
  > Invoices/transactions recorded incorrectly
  > Goods sold are not recorded in records
  > Dispute over invoice by customers
• Ctrls
  > Customer must sign DN as proof of delivery
  > Pre-numbering of all sales docs
  > Dbrs clerk must match internal sales order w/ DN before preparing invoice

Question 12

What are risk and ctrls of the receipt of payments function

Answer 12

• Risk
  > Outstanding balances of dr’s are not collected
  > Dr’s pmt are allocated to the incorrect account
• Ctrls
  > Monthly statements are prepared and sent to customers timely+
  > Regular dr’s age analysis must be done

Question 13

What are risk and ctrls of the goods returned function

Answer 13

• Risk
  > Unauthorised and invalid goods returned are accepted
  > Credit note issued for goods returned, but goods are not received @ warehouse
• Ctrls
  > A policy exists that explains the conditions and procedures for goods returned
  > Pre-numbered CN are prepared for all goods returned
  > Copy of CN accompanies goods returned to the warehouse

Question 14

What are risk and ctrls of the bad debts function

Answer 14

• Risk
  > Unauthorised bad debts are written off
• Ctrls
  > A policy exists that explains the conditions and procedures for writing off bad debts
  > A senior personnel must e delegated the responsibility for approval of bad debts according to the Co policy

Question 15

What is the control effectiveness formt

Answer 15

Headings:
Risk&raquo_space; Ctrl&raquo_space; Control effectiveness Test

Under CET: Format
How
- Observe
- Inspect
- Assess
- Select
- Enquire
What + detail
Why (ICO)
- To test/asses/determine…
- NEVER “TO ENSURE”

Question 16

An internal auditor traces copies of sales invoices to shipping documents to
determine that:
- A. customer shipments were billed.
- B. sales that are billed were also shipped.
- C. shipments to customers were also recorded as receivables.
- D. the subsidiary accounts receivable ledger was updated.

Answer 16

B

Question 17

Which of the following audit procedures would an auditor most likely perform to
test controls relating to management’s assertion concerning the completeness
of sales transactions?
- A. Verify that extensions and footings on the entity’s sales invoices and
monthly customer statements have been recomputed.
- B. Inspect the entity’s reports of pre-numbered shipping documents that
have not been recorded in the sales journal.
- C. Compare the invoiced prices on pre-numbered sales invoices to the
entity’s authorised price list.
- D. Inquire about the entity’s credit granting policies and the consistent
application of credit checks.

Answer 17

B

Question 18

To determine whether credit controls are inconsistently applied, preventing
valid sales to creditworthy customers, the internal auditor should:
- A. confirm current accounts receivable.
- B. trace postings on the accounts receivable ledger.
- C. analyse collection rates and credit histories.
- D. compare credit histories for those receiving credit and for those denied
credit.

Answer 18

D

Question 19

Shipping documents should be traced to and compared with sales records or
invoices to:
-A. determine whether payments are properly applied to customer accounts.
- B. assure that shipments are billed to customers.
- C. determine whether unit prices billed are in accordance with sales
contracts.
- D. ascertain whether all sales are supported by shipping documents.

Answer 19

B

Question 20

Vouching entails verifying recorded amounts by examining the underlying
documents from the _______________ documents to the _______________
documents.
- A. final; original.
- B. final; previous.
- C. original; final.
- D. original; subsequent.

Answer 20

B

Question 21

What are the headings when completing an engagement finding

Answer 21

1. Criteria
   - What SHOULD be in place?
2. Condition
   - What IS in place? / What was discovered?/ Usually a weakness in process (lack of or inadequate controls)
3. Cause
   - What is the reason for the deviation?
4. Effect
   - What is the IMPACT of the deviation?
5. Significance rating
   - How do you evaluate the findings?
6. Recommendation
   - What is the recommendation that addresses the CAUSE?

Question 22

What are the 3 audit engagements

Answer 22

• Financial engagements
• Operational engagements
• Compliance engagements