Question 1

What are the typical activities that make up sales and customer service?

Accepted Answer

a. Marketing and brand awareness: Market research, advertising, telemarketing, special promotions, and brand development are ways in which a company tries to get its message to target customers.
b. Customer approval: Customer approval may be simple, as in obtaining a credit card authorization, or can be more complex, as when the company extends credit directly to the customer. Minimizing credit risks is an important objective of this activity.
c. Sales order entry: Once a customer is approved, the details of the transaction must be determined.
d. Inventory handling and shipping: Inventory is selected, packaged, and prepared for shipment. Items may be picked up by customers, or shipped by mail, parcel post, or company delivery vehicles.
e. Customer service order entry: In the case of services, schedules must be assigned and arrangements made for performance of the service
f. Customer service delivery: The timely provision of quality customer service can greatly influence customer satisfaction.
g. Sales recording: Once the goods have been delivered or the service provided, the sales should be recorded in the sales journal.
h. Pricing and billing: Appropriate prices and terms must be assigned to goods and services and communicated to customers. Invoices are typically followed with monthly statements.
i. Collection: Payments from customers are received in various forms, including cash, checks, gift certificates, credit memos, in-house credit, and payments from third parties (e.g., bank credit cards, PayPal).
j. Sales adjustments: Sales returns are the most common form of adjustment.
k. Account write-offs: In the event that a customer is unable to pay amounts owed, a process should exist to attempt collection and to authorize removal of receivables in the event that collection is impossible.

Question 2

Describe the objectives of the sales and customer service process.

Accepted Answer

To meet sales goals, the company designs the sales and customer process to carry out the company strategy. Objectives mostly address maximizing revenue by creating products and services that match price and quality to those demanded by customers, building a reputation for high quality or low prices, meeting or exceeding customer expectations, and delivering appropriate products or services on a timely basis. Failure to meet one or more of these objectives could result in increased risk for the organization, or even organizational failure.

Question 3

Describes the four basic categories of controls that might reduce risks related to sales and customer service?

Accepted Answer

a. Performance reviews or monitoring controls provide active monitoring of risk conditions and timely responses to increased risk, which are important for establishing control within a process. Within sales and customer service processes, the auditor should expect to see effective monitoring of competition, customer attributes, technological advances, operational effectiveness, and overall performance.
b. Segregation of duties will definitely be addressed by the auditor. Clearly, some duties within a process are likely to be incompatible, and failure to achieve adequate separation of these activities could create opportunities to commit fraud or allow processing errors to go undetected. For sales and customer service, we should see a number of duties separated such as credit approval and sales entry, inventory and shipping, billing, cash receipt handling and receivable posting, and data processing and transaction authorization.
c. Processing controls reflect a broad range of procedures including required authorizations, use of adequate documents and records, and independent verification of information. For example, appropriate authorization procedures should be specified for granting credit, setting prices, releasing shipments, and accepting sales returns. Appropriate documents should be used within the process such as order entry forms, shipping documents, invoices and remittance advices. In addition, some aspects of the process may be subject to independent verification including reviewing and comparing documents for discrepancies, checking batch and control totals, monitoring open transactions, and investigating customer complaints or discrepancies. These procedures may be directly relevant to the auditor's evaluation of internal control over financial reporting.
d. Physical controls limit access to tangible assets, cash, and accounting records in order to minimize risks arising from unauthorized decisions or actions. The receipt of cash is an area where physical control is particularly critical.

Question 4

What are confirmations? Why do auditors do confirmations? Distinguish between positive and negative confirmations? What is the authoritative guidance on confirmations?

Accepted Answer

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Question 5

Describe typical financial reporting controls that are of particular concern to most auditors with regard to the sales return processing portion of the sales and customer service process.

Accepted Answer

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Question 6

Describe typical financial reporting controls that are of particular concern to most auditors with regard to the sales process.

Accepted Answer

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Question 7

What people risks might arise in the sales and customer service process?

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Question 8

What is electronic data interchange (EDI)? What types of business use EDI?

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Question 9

Why is interviewing important to test of controls when the auditor is examining the sales and customer service process?

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Question 10

What is the accounting impact in the sales and customer service process of routine transactions, non-routine transactions and accounting estimates?

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Question 11

Describe typical financial reporting controls that are of particular concern to most auditors with regard to the cash receipts portion of the sales and customer service process.

Accepted Answer

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Question 12

What are the auditors' most critical concerns with regard to cash receipts?

Accepted Answer

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Question 13

Describe how an automotive manufacturer uses an EDI system.

Accepted Answer

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Question 14

What are tests of controls? What is the purpose of tests of controls? Which controls must be tested? Describe tests of controls that relate to sales and customer service.

Accepted Answer

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Question 15

Describe the cutoff tests the auditor will perform in an audit of the sales and customer service process in a wholesale operation.

Accepted Answer

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Question 16

What must the auditor consider in deciding which performance indicators to examine and evaluate?

Accepted Answer

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Question 17

Describe three types of indirect process risks in the sales and customer service process.

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Question 18

Which accounts are of most interest to the auditor in the sales and customer service process?

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Question 19

Why should the auditor examine performance indicators? What kinds of performance measures should the auditor address?

Accepted Answer

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Question 20

Describe two types of direct process risks in the sales and customer service process.

Accepted Answer

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Exam 11: Audit Testing for the Sales and Customer Service Process

What are the typical activities that make up sales and customer service?

Describe the objectives of the sales and customer service process.

Describes the four basic categories of controls that might reduce risks related to sales and customer service?

What are confirmations? Why do auditors do confirmations? Distinguish between positive and negative confirmations? What is the authoritative guidance on confirmations?

Describe typical financial reporting controls that are of particular concern to most auditors with regard to the sales return processing portion of the sales and customer service process.

Describe typical financial reporting controls that are of particular concern to most auditors with regard to the sales process.

What people risks might arise in the sales and customer service process?

What is electronic data interchange (EDI)? What types of business use EDI?

Why is interviewing important to test of controls when the auditor is examining the sales and customer service process?

What is the accounting impact in the sales and customer service process of routine transactions, non-routine transactions and accounting estimates?

Describe typical financial reporting controls that are of particular concern to most auditors with regard to the cash receipts portion of the sales and customer service process.

What are the auditors' most critical concerns with regard to cash receipts?

Describe how an automotive manufacturer uses an EDI system.

What are tests of controls? What is the purpose of tests of controls? Which controls must be tested? Describe tests of controls that relate to sales and customer service.

Describe the cutoff tests the auditor will perform in an audit of the sales and customer service process in a wholesale operation.

What must the auditor consider in deciding which performance indicators to examine and evaluate?

Describe three types of indirect process risks in the sales and customer service process.

Which accounts are of most interest to the auditor in the sales and customer service process?

Why should the auditor examine performance indicators? What kinds of performance measures should the auditor address?

Describe two types of direct process risks in the sales and customer service process.