The following are typical questions that might appear on an internal control questionnaire for accounts receivable:
1. Are sales invoices checked for proper pricing, terms, and clerical accuracy?
2. Are shipping documents prenumbered and all numbers accounted for?
3. Is customer credit approval obtained from the credit department prior to shipment of goods?
a. Describe the purpose of each of the above controls.
b. Describe the manner in which the operating effectiveness of each of the above procedures might be tested.
c. Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk (risk of material misstatement).