Documenting an accounting process Learning objective

In order to identify when, where, and how potential misstatements can occur, an auditor must obtain an understanding of the entitys internal control structure. This understanding covers the internal controls at the entity level, as well as at the transaction level. Entity-level controls include areas such as management integrity, policies and procedures, and monitoring of control activities. Transaction-level controls are those performed during the processing of accounting transactions.

By documenting the flow of transactions in an accounting process, the auditor understands the stages where errors can occur. The entire process is reviewed, from the initiation of the transaction through to the recording in the general ledger (G/L). Often several accounting processes can be linked together into one seamless flow of transactions (see figure 4.1).

Figure 4.1 Flow of transactionsorder to payment

Required

Audit Manager Sharon Gallagher and Audit Senior Josh Thomas previously met with the Alpine Bags Ltd. Finance Director, Andrew Jones, to gain an understanding of the internal controls at the entity level. Based on their interview, they have assessed those controls as being effective. Therefore, at a high level, the company demonstrates an environment where potential misstatements are prevented or detected.

You have been assigned the task of documenting the understanding of the process for recording sales, accounts receivable, and cash receipts for wholesale customers. In your absence, Josh met with the Alpine Bags Ltd. Financial Controller, Debbie Smith, and received permission to tape the interview, which is provided as a transcript (see Appendix 3). Using this interview transcript, you are now asked to:

Prepare a flowchart or narrative documenting your understanding of the sales to cash receipts process for wholesale sales. Document your understanding in working paper A41 and A42 (if needed) below.

Identify any follow-up questions you would like to ask the client if aspects of the process are not adequately explained.

Notes:

- The follow-up questions could be addressed to Debbie Smith or any other employee you

deem appropriate.

- Any changes in temporary staff in warehousing has not impacted the design, including

responsibility by role, associated with key controls.

Alpine Bags Ltd.

December 31, 2023

Sales and cash receipts processdocumenting understanding of internal controls Purpose: To document the sales to cash receipts process for wholesale sales

Alpine Bags Ltd.

December 31, 2023

Sales and cash receipts processdocumenting understanding of internal controls

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