Audit Program Design Part II

Audit Program Design Part II
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Designing tests of controls, substantive tests of transactions and analytical procedures
When designing tests of controls, substantive tests of transactions and analytical procedures it is necessary to first understand the business risks and internal control system (Puncel, 2008). This enables the auditor to set tolerable misstatements as well as assess control risk in the three cycles. The transactions related to accounts in the sales and collection cycle, payroll and personnel cycle and acquisition and payment cycle should be recorded in the right period
Sales and collection cycle
In utilizing the tests of controls and substantive tests on the sales and collection cycle, there audit should focus on completeness, timing, classification, accuracy, posting and summarization
Test of control
Through examining sales invoice, customer orders, and monthly statements, the auditor will verify existence of transactions In order to verify that accuracy, classification of transactions and completeness, and the tests of control will focus on shipping documents and compare with monthly statements. In order to verify timing and posting, the test of control will focus on timing for documents related to shipping, while the master file will be examined and compared with monthly statements to verify summarization of accounts receivables.
Substantive tests
In verifying existence, the substantive tests will involve checking sales invoice and comparing with monthly statements. This will also include checking the master file to detect whether there are unusual sales transactions, while comparing supporting documents with entries in the sales journal. To verify completeness and accuracy, the substantive tests will focus on comparing shipping documents and sales entries in the sales journal, while checking sales invoice duplicates to verify proper account classification. Tracing sales transactions in both the sales invoices and sales journal with details in the master file will verify accuracy of posting and timing, and the auditor should also cross check sales details in the general ledger with that in the sales journal.
Analytical procedures
This will involve checking for any unusual sales transactions, while comparing the figures for accounts receivables with the previous years. Additionally, there is a need to compute the gross margin and compare with the current year’s ratio and review sales to chec...