The Auditor Has Determined That a Key Control in the Audit

question 4

Multiple Choice

The auditor has determined that a key control in the audit of the sales and collection cycle is that recorded sales are supported by authorized shipping documents and approved customer orders. What typical test of controls should be used in this situation?

• A) Examine a sample of duplicate sales invoices to determine that each one is supported by an authorized shipping document and approved customer order.
• B) Observe whether shipping documents are forwarded daily to billing and observe when they are billed.
• C) Examine a sample of sales invoices and agree prices to the authorized computer price list.
• D) Use audit software to trace postings from the batch of sales transactions to the subsidiary and general ledgers.

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Definitions:

Segmented Information

Financial information that is broken down into segments, such as geographic regions, product lines, or business units, within a company's financial statements.

Operating Units

Divisions or branches within a larger enterprise, each handling operations semi-independently but under the governance of the enterprise.

Chief Operating Decision-maker

An individual or group within an organization responsible for making strategic decisions affecting the company's financial performance and operations.

Profit/Loss

The financial result of an entity's operating and non-operating activities over a specific period, indicating net earnings or losses.