9-55 LO 7 The following is a list of controls (numbered 1 through 7 below) typically implemented in the revenue cycle.
a. For each control identified, briefly indicate the financial mis- statement that could occur if the control is not implemented effectively.
b. Identify a test of control that the auditor can perform to determine the operating effectiveness of the control.
1. All transactions under $10,000 may be approved by the computer authorization program. The credit manager must approve all transactions over $10,000.
2. All invoices are priced according to the authorized price list maintained on the computer. Either the regional or divi- sional sales manager must approve any exceptions.
3. All shipping documents are prenumbered and periodically accounted for. Shipping document references are noted on all sales invoices.
4. Customer complaints regarding receipt of goods are routed to a customer service representative. Any discrepancies are imme- diately followed up to determine the cause of the discrepancy.
5. All merchandise returns must be received by the receiving department and recorded on prenumbered documents for receipts. A document is created for each item (or batches of like items). Returns are sent to quality control for testing, and a recommendation for ultimate disposition is made (scrap, rework and sell as a second, or close out as is), noted, and sent to accounting for proper inventorying.
6. The quantity of items invoiced is reconciled with the pack- ing document developed on receipt of the order and the shipping notice by a computer program as the goods are marked for shipment. If discrepancies appear, the shipping document prevails. A discrepancy report is prepared daily and sent to the warehouse manager for follow-up.
7. The company pays all freight charges, but the customer is charged a freight fee based on a minimum amount and a slid- ing scale as a percentage of the total invoice. The policy is documented, and the computer automatically adds the charge.