TUGAS KELOMPOK

AUDITING II

Kelompok 4

- Amel
- Galuh Nur Fajar
- Winda Arung Surya (16110107152)
- Yashinta Widyastuti
CASE

14-33 (Objective 14-4)

The Meyers Pharmaceutical Company, a drug manufacturer, has

the following internal controls for billing and recording accounts receivable:

1. An incoming customer’s purchase order is received in the order department

by a clerk who prepares a prenumbered company sales order form on which
is inserted the pertinent information, such as the customer’s name and
address, customer’s account number, quantity, and items ordered. After the
sales order form has been prepared, the customer’s purchase order is
attached to it.
2. The sales order form is then passed to the credit department for credit
approval. Rough approximations of the billing values of the orders are made
in the credit department for those accounts on which credit limitations are
imposed. After investigation, approval of credit is noted on the form.
3. Next, the sales order form is passed to the billing department, where a
clerk uses a computer to generate the customer’s invoice. It automatically
multiplies the number of items times the unit price and adds the extended
amounts for the total amount of the invoice. The billing clerk determines
the unit prices for the items from a list of billing prices.The invoice copies
are designated as follows:
(a) Customer’s copy.
(b) Sales department copy, for information purposes.
(c) File copy.
(d) Shipping department copy, which serves as a shipping order.
Bills of lading are also prepared as carbon copy by-products of the
invoicing procedure.
4. The shipping department copy of the invoice and the bills of lading are then
sent to the shipping department. After the order has been shipped, copies
of the bill of lading are returned to the billing department. The shipping
department copy of the invoice is filed in the shipping department.
5. In the billing department, one copy of the bill of lading is attached to the
customer’s copy of the invoice and both are mailed to the customer. The
other copy of the bill of lading, together with the sales order form, is then
attached to the invoice file copy and filed in invoice numerical order.
6. As the computer generates invoices, it also stores the transactions in an
electronic file that is used to update the accounting records daily. A
summary report is generated and all journals and ledgers are printed for a
hardcopy of the records.
 7. Periodically, an internal auditor traces a sample of sales orders all the way
through the system to the journals and ledgers, testing both the procedures
and dollar amounts.

REQUIRED :
The procedures include comparing control totals with output, recalculating
invoices and refooting journals, and tracing totals to the master file and general
ledger.
A. Flowchart the billing function as a means of understanding the system.
B. List the internal controls over sales for each of the six transaction-related
audit objectives.
C. For each control, list a useful test of control to verify the effectiveness of
the control.
D. For each transaction-related audit objective for sales, list appropriate
substantive tests of transactions audit procedures, considering internal
controls.
E. Combine the audit procedures from parts c. and d. into an efficient audit
program for sales.
ANSWER

A. Flowchart the billing function as a means of understanding the system.

SUMMARY OF FLOWCHART

1. Order department receives customer’s purchase order. Then, prepare pre-

numbered sales order form (inserted the pertinent information).
2. Sales order form passed to credit department for credit approval.
3. Billing dept clerk entered data into computer to generate customer’s
invoice. The billing clerk determines the unit prices for the items from a list
of billing prices.
4. The billing is done on pre-numbered, continuous, carbon-interleaved forms
having the following designations :
(a) Customer’s copy
(b) Sales department copy, for information purpose
(c) File copy
(d) Shipping department copy, which serve as the shipping order. Bill of
lading are also prepared as carbon copy-products of the invoicing
procedure.
5. Sales invoices and bill of lading are then sent to the shipping department.
6. After the order has been shipped, copies of bill of lading are returned to the
billing department. Then the invoice is filed in shipping department.
7. 1 copy of bill of lading is attached customer invoice to be mail to customer.
Another copy attached with sales order form and then filed in invoice
numerical order.
8. The computer generates invoices and store the transaction on disk that will
update the computerized accounting records which is run daily. Then, it
generates summary report and prepare the hardcopy output of all journals
and ledgers.
B. List the internal controls over sales for each of the six transaction-related
audit objectives.

The Six Transaction-Related Audit

Internal Control
Objectives

1) Recorded sales occurred - Bill of lading and sales order

The auditors is concerned with the form are attached to invoice.

possibility of three types of Sales are initiated by sales order

misstatement; sales being form from customer.

included in the journals for which - Credit is approved by credit

no shipment was made, sales department by comparison to
recorded more than once and authorized credit limit before
shipment being made to shipment of merchandise is
nonexistence customers and authorized.
recorded as sales.

2) Existing sales transaction - Bill of lading and invoices are

In many audits, no substantive test pre-numbered and prepared

of transactions are made for the before merchandise is shipped.

completeness objectives on the

grounds that overstatements of
assets and income are a greater
concern in the audit of sales
transactions than their
understatements.

3) Sales are accurately recorded - Control totals are prepared and

The accurate recording of sales checked by computer.

transactions concerns shipping the

amount of goods ordered,
accurately billing for the amount
of goods shipped and accurately
 recording the amount billed in the
accounting record.

4) Recorded sales are properly - None

classified

Charging the correct general

ledger account is less of a problem
in sale than in some other
transaction cycles, but it is still of
some concern.

5) Sales are recorded on the correct - None

dates

Sales should be billed and

recorded as soon after shipment
takes place as possible to prevent
the unintentional omission of
transactions from the record and
to make sure that sales are
recorded in the proper period.

6) Sales transaction are correctly - Sales transactions are recorded

included in the master file and in sales, accounts receivable,
correctly summarized cost of sales, and relieved from

The proper inclusion of all sale the perpetual inventory.

transaction in the accounts

receivable master file is essential
because the accuracy of these
records affect the client’s ability
to collect outstanding receivables.
C. For each control, list a useful test of control to verify the effectiveness of
the control.

The Six Transaction-Related Audit

Test Of Control
Objectives

1) Recorded sales occurred - Examine sales invoice for

supporting bill of lading and
customer order form

- Examine sales order form for

evidence of credit approval.
Review client's credit approval
system for effectiveness.

2) Existing sales transaction - Account for numerical sequences

of bills of lading and sales
invoices and determine that all
have been recorded.

3) Sales are accurately recorded - Examine computer edit reports to

detect the errors and disposition.

4) Recorded sales are properly - Not applicable.

classified

5) Sales are recorded on the correct - Not applicable.

dates

6) Sales transaction are correctly

included in the master file and
- Trace sales transactions to sales
correctly summarized
journal.

D. For each transaction-related audit objective for sales, list appropriate

substantive tests of transactions audit procedures, considering internal
controls.
TRANSACTION-RELATED AUDIT
OBJECTIVE
1) recorded sales are for
shipments actually made to
existing customers .
(existence/occurrence)
2) existing sales transaction
are recorded.
(completeness)
3) recorded sales are for the
amount of goods shipped
and are correctly billed &
recorded.
(accuracy)
4) recorded sales transaction
are properly classified.
(classification)
5) sales are recorded on the
correct dates.
(timing)
SUBSTANTIVE TESTS OF TRANSACTIONS
- Select sample of sales from sales
journal
- Trace sales journal entries to supporting
documents & examine customer’s
purchase order, sales order form & bill
of lading to make sure that the goods
were ordered and shipped.
- Trace selected shipping documents to
the sales journal to be sure that each
one is included.
- Perform analytical tests to assess the
accounts and other relevant information
are consistent.
- Trace entries in sales journal to sales
invoice to compare sales price to price
list to make sure that the total sales are
correctly billed.
- Examine customer correspondence
indicating pricing disputes.
- Trace details on sales invoices to
shipping documents, sales order
&customer order to make sure that the
amount of goods shipped are correctly
recorded.
- examine sales documents to determine
that sales transactions are properly
classified.
- Examine duplicate sales invoice for
proper account classification.
- Compare date of recording of sale in
sales journal with sales invoice as well
as bill of lading to determine that sales
are recorded on a timely basis.
 - Compare sales month to month and
investigate any significant fluctuations.

6) sales transactions are - Trace selected sales invoice to the

properly included in the account receivable master file and test
master file and are correctly for amount, date and invoice number.
summarized.
- Foot and cross-foot the sales journal
(posting and
summarization) and trace totals to the general ledger.
E. Combine the audit procedures from parts c. and d. into an efficient audit
program for sales.

THE MEYERS PHARMACEUTICAL COMPANY

AUDIT PROGRAM FOR TESTS OF CONTROL AND SUBSTANTIVE TESTS OF
TRANSACTIONS AUDIT PROCEDURE FOR SALES

1- Obtain the sales journal for the year.

2- Foot and cross-foot the sales journal including trace and reconcile the totals
to the general ledger balance.
3- Select a sample of sales invoice from the sales journal :
a) Check the customer's purchase order, sales order form, and bill of lading
are available.
b) Compare the quantity, sales price, customer name, and date of
shipment to sales journal. Obtain explanations of any differences.
c) Check the sales order form to make sure that it is granted for credit
approval.
d) Compare sales price with price list to examine the approved price list.
e) Test clerical accuracy of sales invoices.
f) Examine that sales transaction are properly classified.
4- Select a sample of bill of lading :
a) Trace them to the sales journal to check for the record of shipments.
b) Compare the dates in the bill of lading to the sales journal to determine
the transactions were recorded accurately.
5- Prepare the schedule of sales, cost of sales and gross margin percentage,
showing comparison between recent years. Compare the sales months to
months or to prior years and obtain explanation if any significant fluctuation
occurred.