262. Analysis of Internal Control StrengthsCSF-1Peach Blossom Cologne Company Credit Sales System Internal Control Strengths StrengthSegregation of Functions1. Segregation among sales, stores, shipping, and accounts receivable. Authorization2. Credit sales are approved before shipment. 3. Sales orders are approved. 4. Credit memos are approved. Input Controls5. Invoices are prenumbered and controlled. 6. Shipping documents are prenumbered. 7. Credit memos are prenumbered and controlled. Processing Controls8. Accounts are aged periodically. 9. A record of accounts previously written off is maintained. 10. Customer subsidiary ledgers are reconciled with the control account. Possible Test of ControlObserve; trace a credit sales transaction through the system (walk-through). Examine credit manager's initials on sales invoice listing. Examine sales manager's initials on sales invoice listing. Examine initials on credit memos. Account for numerical sequence. Account for numerical sequence. Account for numerical sequence. Examine aging of accounts. Examine list of accounts. Determine effectiveness of follow-up collection procedures and trace recording of collection into records. Examine computer generated balancing report.
Apple Blossom Cologne Company Audit Program for Accounts Receivable and Bad Debts AP - 1 W/P Ref Initials Existence/Occurrence 1. Obtain or prepare an aged trial balance of accounts receivable as of year-end. 2. Trace individual account balances to accounts receivable subsidiary ledger 3. Request positive confirmations for all accounts with balances over $5,000; request negative confirmations for all other accounts (W-4; W-6). 4. Investigate all confirmations returned undelivered by the post office. 5. Investigate all exceptions reported on confirmations. 6. If no reply is received on positive confirmations send second requests. Consider using alternative procedures to determine existence of account. Completeness 7. Examine the sales register and shipping records for a few days before and after the balance sheet date to determine proper sales cutoff. Rights and Obligations 8. Investigate accounts previously written off (W-2).