Required

a) Identify THREE internal controls in the above flow. (3 marks)

b) For each internal control identified in (b) above, identify one assertion that the internal control supports. (3 marks)

c) For each internal control identified in (b) above, describe an audit procedure that you could use to test the control and explain the reason for each test. (6 marks)

Question 5 You have obtained the following extract of the flow for the revenue and receivables business process for your audit client, King Pharmaceutical Company, a drug manufacturer 1. An incoming customer purchase order is received in the order department by a clerk who prepares a prenumbered sales order form. The sales order form includes the pertinent information, such as the customer's name, address, quantity and items ordered. After the sales order form has been prepared, the customer purchase order is attached to it. 2. The sales order form is then passed to the credit department for credit approval. Rough estimates of the values of the orders are made in the credit department for those accounts on which credit limits 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 and the unit price and adds the extended amounts for the total value of the invoice. The billing clerk determines the unit price for the item from a list of billing prices. The invoice has multiple copies which 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 copies 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 transaction 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 hard copy of the records. 7. Periodically, an internal auditor traces a sample of orders all the way through the system to the journals and ledgers, testing both the procedures and dollar amounts. The procedures include comparing control totals with output, recalculating invoices and re- footing journals, and tracing totals to the subledger and general ledger. 8. The CFO reviews the financial statements to ensure sales are appropriately aggregated and the disclosure notes related to sales are complete and accurate. You have obtained the following extract of the flow for the menu and mobiles business process for your adit client, King Pharmaceutical Company, a druga 1. An incoming customer purchase order is received in the order department bydel who prepares aprenumbered sales order form. The sales de form includes the pertinent information, such as the customer's name, address, quantity and items endered After the sales order form has been prepared, the customer purchase order is attached to it 2. The sales order form is the passed to the credit department for credit approval Rough estimates of the values of the orders are made in the credit department for those accounts on which credit limits are imposed. After investigation, appeal of emita noted on the form 1 Next, the sales order form is passed to the billing department, where a clerk computer to generate the customer's voice. It matically multiplies the number of tenis and the price and add the extended amounts for the sta alue of the invoice. The billing clerk determines the unit price for the items from a list of billig prices. The invoice has multiple copies which are designated as follow Customer's copy Sales department copy. For information purposes e File copy d Shopping department copy, which serves as a shipping onder Bills of lading are also prepared as carbon copies of the invoicing procedure 4. The shipping department copy of the invoice and the bill of lading the sent to the shipping department. After the order has been shipped copies of the bill of lading are tumed to the willing department. The shipping department copy of the invoice is fill in the shipping department 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 hiller lading, together with the sales order form, is the attached to the invoice File copy filed in invoice numerical ordet. 6. As the computer generates involves it also store the transaction in an electronic file that is used to update the accounting records daily. A summary report is generated all jumals and ledgers are printed for a han copy of the records 7. Periodically, an internal auditor traces a sample of orders all the way through the system to the journals and lodgers, testing both the procedures and mounts. The procedures include comparing control totals withoutput, recalculating mis and te footing journals, and tracing totals to the shlodger and general ledger The CFO review the financial statements to ensure sales are propriately created and the disclosure notes related to sales are complete and securate GCC DO NOT WRITE OR TYPE ON THE BACK OF THE SHEET USE ONESIE ONLY THOS we Sed new Se Where ER BIER ention paper who Dwew 2012 Required a) Identify THREE internal controls in the above flow Omar b) For each internal control identified in (b) bove, identify one sertion that the item cool supports mark c) For each internal control identified in (b) above, describe andit procedure that you could use to test the control and explain the reason for cachet. mark