Documente Academic
Documente Profesional
Documente Cultură
:
Identification of Tests of Controls
for the Revenue Cycle
(Sales and Cash Receipts)
LEARNING OBJECTIVES
After completing and discussing this assignment you should be able to
Recognize common documents and records used to record transactions in the
revenue cycle
Recognize common control activities used to process transactions in the revenue
cycle
Identify client control activities that reduce the likelihood of material
misstatements
Link client control activities to management assertions
Identify tests of controls for each control activity identified
INTRODUCTION
Southeast Shoe Distributor (SSD) is a closely-owned business that was founded
10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and
sells men's, women's, and children's shoes to retail shoe stores located in small to midsize
communities. The company's basic strategy is to obtain a broad selection of designerlabel and name-brand merchandise at low prices and resell the merchandise to small, onelocation, retail stores that have difficulty obtaining reasonable quantities of designer and
name-brand merchandise. The company is able to keep the cost of merchandise low by
(1) selectively purchasing large blocks of production overruns, overorders, mid- and lateseason deliveries, and previous season's stock from manufacturers and other retailers at
significant discounts, (2) sourcing in-season name-brand and branded designer
merchandise directly from factories in Brazil, Italy, and Spain, and (3) negotiating
favorable prices with manufacturers by ordering merchandise during off-peak production
periods and taking delivery at one central warehouse.
During the year, the company purchased merchandise from more than 50
domestic and international vendors, independent resellers, manufacturers, and other
retailers that frequently have excess inventory. Designer and name-brand footwear sold
by the company during the year include the following: Amalfi, Clarks, Dexter, Fila,
Florsheim, Naturalizer, and Rockport. At the current time, SSD has one warehouse
located in Atlanta, Georgia. Last year, SSD had 123 retail shoe store customers and had
net sales of $7,311,214. Sales are strongest in the second and fourth calendar-year
quarters, with the first calendar-year quarter substantially weaker than the rest.
BACKGROUND INFORMATION ABOUT THE AUDIT
This case was prepared by Frank A. Buckless, Ph.D. and Mark S. Beasley, Ph.D. of North Carolina
State University and Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young
University, as a basis for class discussion. It is not intended to illustrate either effective or ineffective
handling of an administrative situation.
Copyright 2000 by Prentice-Hall, Inc. ISBN 0-13-016948-X.
Reference: R 1-1
Prepared by: BZ
Date: 6/12/OX
Reviewed by:
Initial
Date
W/P Ref.
BZ
6/12/OX
N/A
BZ
6/12/OX
N/A
BZ
6/12/OX
N/A
BZ
6/12/OX
R30-1 to
R30-4
R31
R32
R40-1
R40-2
R33
Reference:
R 30-1
Prepared by:
BZ
Date:
6/12/OX
Reviewed by:
Office Manager
Reference:
R 30-2
Prepared by:
BZ
Date:
6/12/OX
Reviewed by:
Accounting Clerk
Reference: R30-3
Prepared by: BZ
Date:
6/12/OX
Reviewed by:
Accounting Clerk
Reference: R 30-4
Prepared by: BZ
Date:
6/12/OX
Reviewed by:
Reference:R 33
Prepared by:
BZ
Date:
6/12/OX
Reviewed by:
Legend:
RCReportable Condition (Yes or No)
MWMaterial Weakness (Yes or No)
Client Personnel
Discussed With
RC
MW
No
No