QUIZ /SEATWORK # 3

Auditing in CIS Environment (ACC 37)

(RMCI, 1st Semester, S/Y 2019-2020)

Chapter 7
Computer-Assisted Audit Tools and Techniques
1. Explain the importance of source documents and associated control techniques.

2. Give one example of an error that is detected by a check digit control.

3. What are the primary objectives of a batch control?

4. If all of the inputs have been validated before processing, then what purpose do run-to-run
controls serve?

5. What is the objective of a transaction log?

6. What is record interrogation? Give two examples.

Chapter 8
Data Structures and CAATTs for Data Extraction
1. What are the criteria that influence the selection of the data structure?

2. What are the advantages and disadvantages of using a sequential data structure? Give an example
of each.

3. Explain how a hashing structure works and why it is quicker than using an index. Give an example.
If it so much faster, why isn’t it used exclusively?

4. Distinguish between record sampling and monetary unit sampling (MUS).

5. Exposure Identification and Plan of Action

Two years ago an external auditing firm supervised the programming of embedded audit modules
for Previts Office Equipment Company. During the audit process this year, the external auditors
requested that a transaction log of all transactions be copied to the audit file. The external auditors
noticed large gaps in dates and times for transactions being copied to the audit file. When they
inquired about this, they were informed that increased processing of transactions had been
burdening the mainframe system and that operators frequently had to turn off the EAM to allow the
processing of important transactions in a timely fashion. In addition, much maintenance had been
performed during the past year on the application programs.

Page 1 of 4
 QUIZ /SEATWORK # 3
Auditing in CIS Environment (ACC 37)
(RMCI, 1st Semester, S/Y 2019-2020)

Required:
Outline any potential exposures and determine the courses of action the external auditors should
use to proceed.
Chapter 9
Auditing the Revenue Cycle
1. What document initiates the sales process?

2. Distinguish among a packing slip, a shipping notice, and a bill of lading.

3. What are three input controls?

4. What are the three rules that ensure that no single employee or department processes a
transaction in its entirety?

5. Distinguish among an edit run, sort run, and update run.

6. What are the advantages of real-time processing?

7. Why does billing receive a copy of the sales order when the order is approved but does not bill
until the goods are shipped?

8. How do tests of controls relate to substantive tests?

9. In a manual system, after which event in the sales process should the customer be billed?

10. What is a bill of lading?

11. What document initiates the billing process?

12. Where in the cash receipts process does supervision play an important role?

13. List the revenue cycle audit objectives derived from the “existence or occurrence” management
assertion.

14. List the revenue cycle audit objectives derived from the “completeness” management assertion.

15. List the revenue cycle audit objectives derived from the “accuracy” management assertion.

16. Distinguish among the sales, billing, and accounts receivable departments. Why can’t the sales
or accounts receivable departments prepare the bills?
Page 2 of 4
 QUIZ /SEATWORK # 3
Auditing in CIS Environment (ACC 37)
(RMCI, 1st Semester, S/Y 2019-2020)

17. How could an employee embezzle funds by issuing an unauthorized sales credit memo if the
appropriat

18.. Distinguish between positive and negative confirmations.

19. What is the purpose of analytical reviews in the audit of revenue cycle accounts?
20. What financial statement misrepresentations may result from an inconsistently applied credit
policy? Be specific.

21. What makes POS systems different from revenue cycles of manufacturing firms?

22. Is a POS system that uses bar coding and a laser light scanner foolproof against inaccurate
updates? Discuss.

23. Internal Controls was(CMA 688 5-2)

Jem Clothes, Inc., is a twenty-five-store chain, concentrated in the Northeast, that sells ready-to-
wear clothes for young men and women. Each store has a full-time manager and an assistant
manager, both of whom are paid a salary. The cashiers and sales personnel are typically young
people working part time who are paid an hourly wage plus a commission based on sales volume.
The Problem 6 flowchart presented in the text depicts the flow of a sales transaction through the
organization of a typical store. The company uses unsophisticated cash registers with four-part sales
invoices to record each transaction. These sales invoices are used regardless of the payment type
(cash, check, or bank card).
On the sales floor, the salesperson manually records his or her employee number and the
transaction (clothes, class, description, quantity, and unit price), totals the sales invoice, calculates
the discount when appropriate, calculates the sales tax, and prepares the grand total. The
salesperson then gives the sales invoice to the cashier, retaining one copy in the sales book.
The cashier reviews the invoice and inputs the sale. The cash register mechanically validates
the invoice by automatically assigning a consecutive number to the transaction. The cashier is also
responsible for getting credit approval on charge sales and approving sales paid by check. The
cashier gives one copy of the invoice to the customer and retains the second copy as a store copy
and the third for a bank card, if a deposit is needed. Returns are handled in exactly the reverse
manner, with the cashier issuing a return slip.
At the end of each day, the cashier sequentially orders the sales invoices and takes cash
register totals for cash, bank card, and check sales, and cash and bank card returns. These totals are
reconciled by the assistant manager to the cash register tapes, the total of the consecutively
numbered sales invoices, and the return slips. The assistant manager prepares a daily reconciliation
report for the store manager’s review.
Cash, check, and bank card sales are reviewed by the manager, who then prepares the daily
bank deposit (bank card sales invoices are included in the deposit). The manager makes the deposit

Page 3 of 4
 QUIZ /SEATWORK # 3
Auditing in CIS Environment (ACC 37)
(RMCI, 1st Semester, S/Y 2019-2020)

at the bank and files the validated deposit slip.

The cash register tapes, sales invoices, and return slips are then forwarded daily to the central
data processing department at corporate headquarters for processing. The data processing
department returns a weekly sales and commission activity report to the manager for review.

Required:
a. Identify six strengths in the Jem Clothes system for controlling sales transactions.
b. For each strength identified, explain what problem(s) Jem Clothes has avoided by
incorporating the strength in the system for controlling sales transactions.

24. Stewardship
Identify which department has stewardship over the following journals, ledgers, and files:
a. Customer open order file
b. Sales journal
c. Journal voucher file
d. Cash receipts journal
e. Inventory subsidiary ledger
f. AR subsidiary ledger
g. Sales history file
h. Shipping report file
i. Credit memo file
j. Sales order file
k. Closed sales order file

Response:
a. Sales
b. Billing
c. General ledger
d. Cash receipts
e. Warehouse/Inventory control
f. Accounts receivable
g. Sales
h. Shipping
i. Sales
j. Sales
k. Sales

Page 4 of 4