An auditor could use the procedures listed after the following lettered items to evaluate management’s assertions for the revenue process.
a. Identify the procedure as a test of controls or substantive test of transactions or balances and indicate the assertion it tests.
b. Describe how you would design a test to determine whether the control is effective or the account balance or transaction has been recorded correctly.
c. What misstatement is the client trying to prevent by using the control? What misstatement does the auditor attempt to prevent by using the substantive test?
(1) Trace a sample of shipping documents to sales invoices and sales journals to make sure that the shipment was billed.
(2) Examine a sample of sales invoices to determine whether each one has a shipping document attached.
(3) Trace a sample of debit entries in the accounts receivable subsidiary ledger to the sales journal to determine whether the date, customer name, and amount are the same.
(4) Perform cutoff tests by reviewing the shipping documents for five days before and five days after year-end to determine that the sales revenue was recorded in the correct time period.
(5) Review the allowance for doubtful accounts at year-end to determine that it is correctly stated.
(6) Confirm accounts receivable at year-end.