ABC is a company that purchases ski equipment from a European manufacturer and then sells the equipment to stores in eastern Canada. The company’s records include pre-numbered shipping and purchasing invoices, a sales journal, a purchases journal, and sub-ledgers for both payables and receivables. 

All customers have a predetermined credit limit that is noted in their fi les. If a customer’s order exceeds the authorized credit limit, the credit manager must approve the sale; otherwise, the sales clerk enters and approves the order for processing. Access to the company’s order-entry system requires a password so that all entries can be tracked. Approved orders are received in the warehouse by one of the shipping supervisors, who assigns each order to one of the 10 shipping clerks. The shipping clerk then selects the merchandise and packages it for shipping. The clerk also prepares the shipping order, which is checked by the shipping supervisor before the merchandise is loaded into a delivery truck. The shipping supervisor enters the shipments at the end of each day so that the sales department can track the orders in case of customer queries. The accounting department receives a report each day of goods shipped and purchased goods received. 

Required

For each of the following questions, specify which audit procedure you intend to use, such as tracing, vouching, observing, scanning, and so on. 

(a) Identify three controls over the payables cycle for ABC. For each control, determine a test of the control the auditor could perform. 

(b) Identify three controls over the receivable cycle for ABC. For each control, determine a test of the control the auditor could perform.