Revenue Cycle

1) prepare a bridge working paper for the audit of Apollo Shoes as of December 31, 2007, listing the major errors that could occur in the purchasing system and to describe the test of controls procedures for auditing related purchasing controls to determine whether reliable control exists.

Strength level Control Activity Describe the audit implication of strengths and weaknesses of the control activities Describe specifically how you would test the control Compensating audit procedures

W Requisition authorization Only one level of authorization at department levels, no authorization matrix Observation Check past purchase levels for authorization levels

S Company's procurement department is centralized Centralized procurement dept. helps in implementing and monitoring the efficiency of controls Observation n/a

S Approved vendor list Approved vendor list minimizes phantom vendors Inquiry and observation Vendor review process and procedure for updating approved vendor list is to be checked

W Procurement catalogue Manual process, no electronic procurement process Inquiry and observation All vouchers and other like documents to be reviewed and verified against invoices and outgoing payments

W Stock levels Procurement doesnt check with warehouse for prior inventory Observation Cross check recent purchases against inventory

S Payment Controls in place with vp - finance authorizing payments Inquiry and observation Check past records to verify process is being followed

W Vendor due diligence Vendor audit, product quality audits not performed Inquiry Check with departments on quality of recent procurements

2) Complete the ICQ for Apollo. See if you need to add any more strengths and/or weaknesses that you find from the ICQ and narrative descriptions of the revenue cycle.

Internal Control Questionnaire—Sales Transaction Processing

Assertions and Questions Yes, No, N/A

Comments

Occurrence assertion:

1. Is the credit department independent of the sales department? No They are one in the same. They treat the credits like cash.

2. Are sales of the following types controlled by the same procedures described below? Sales to employees, COD sales, disposals of property, cash sales, and scrap sales. Yes All cash and credit sales are treated the same and follow the same routine.

3. Is access to sales invoice blanks restricted? No They have to go through several different departments.

4. Are pre-numbered bills of lading or other shipping documents prepared or completed in the shipping department? No