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Auditing and Assurance Services

The following are selected transaction-related audit objectives and audit procedures for sales transactions:

Transaction-Related Audit 0bjectives
1. Recorded sales exist.
2. Existing sales are recorded.
3. Sales transactions are properly included in the accounts receivable master file and are correctly summarized.

Procedures
1. Trace a sample of shipping documents to related duplicate sales invoices and the sales journal to make sure that the shipment was billed.
2. Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached.
3. Examine the sales journal for a sample of sales transactions to determine whether each one has a time mark in the margin indicating that it has been compared with the accounts receivable master file for customer name, data, and amount.
4. Examine a sample of shipping documents to determine whether each one has a duplicate sales invoice number written on the bottom left corner.
5. Trace a sample of debit entries in the accounts receivable master file to the sales journal to determine whether the date, customer name, and amount are the same.
6. Trace a sample of duplicate sales invoices to related shipping documents filed in the shipping department to make sure that a shipment was made.

Problem
a) For each objective, identify at least one specific misstatement that could occur.
b) Describe the differences between the purposes of the first and second objectives.
c) For each audit procedure, identify it as a test of control or substantive test of transactions. (there are three of each)
d) For each objective, identify one test of control and one substatntive test of transactions
e) For each test of control, state the internal control that is being tested. Also, identify or describe a misstatement that the client is trying to prevent by use of the control.

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a) For each objective, identify at least one specific misstatement that could occur.
Misstatements:
Recorded sales exist: One sale is recorded twice in the sales book;
Existing sales are recorded: Of three sales made during a day only two are recorded;
Sales transactions are properly included in the accounts receivable master file and are correctly summarized: Two sales transactions are not included in the accounts receivable master file.
During summary, some transactions were not included.
b) Describe the differences between the purposes of the first and second objectives.
? The first objective is to ensure that only those sales that are made are recorded, the second objective is to ensure that all existent sales are recorded.
? The first objective makes sure that bogus sales are not recorded whereas the second objective ensures that some actual sales are not omitted from the records.
? The first objective makes sure that the recorded sales are genuine but the second ensures that every sale that has been made is recorded in the books.
c) For each audit procedure, identify it as a test of control or substantive test of transactions. (there are three of each)
Test of control:
1. Examine the sales ...

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