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Transaction-Related Audit Objectives
Auditing internal controls are processes instituted by companies to assist them accomplish specific goals and objectives (The Institute of Internal Auditors, 2004). In addition, internal controls help in directing, monitoring as well as measuring organization's resources. Internal controls are vital since they help firms prevent and detect fraudulent activities thus protecting important resources; both physical and intangible. In most organizations, internal control objectives correlate to reliability of financial reporting, timely feedbacks on achievement of operational and strategic goals, and full compliance with stipulated laws and regulations.
At specific transaction levels, internal controls are actions taken to achieve a specific objective such as payments made to third parties for services rendered (Caplan, 1999). Moreover, the institution of internal control procedures reduces process variations, leading to more predictable outcomes. Business managements typically have three broad objectives in designing an effective internal control system. These controls include reliability of financial reporting, efficiency and effectiveness of operations as well as compliance with laws and regulations.
Sales Transaction-Related Audit Objective
Sales transactions related audit objectives ensures that reported sales are accurate, unusual transactions are properly reported and approved by the company. Besides, this audit objective aims at designing controls for sales if the present ones are ineffective (Rezaee, 2002).
In this case study, Lady's Fashion Fair's supervisor is the only person who approves all the firm's invoices. The accounts receivable clerk has no access to the company's cash as highlighted in the case. In addition, the company issues customers with monthly financial...
Besides, the supervisor has the sole authority to approve all the organization's credits.
The cash register for this organization is located at the front office of the store. The sales clerks do not handle any cash but they summarize daily sales; a determinant of their commissions. The clerks' daily summary is further compared to daily total sales the company records. In addition, the sales transactions are vital as they are used in updating perpetuals and monthly physical inventories are taken as well.
The company's owner is responsible for setting all the products prices. The supervisor rechecks all calculations to ensure they are correct. The accountant on the other hand reconciles the computer totals to sales staff summaries and the supervisor's sales summary. Moreover, the firm sends monthly fiscal statements for clients' reviews.
There is no classification for the sales objectives though the sales transactions are recorded daily by the firm. The business entity uses computers to update business records automatically. In line with this, monthly statements are issued to customers and the aged trial balance is compared to the general ledger.
Cash Receipts Transaction-Related Audit Objective
The company carries out cash receipts audit program to ensure that all cash receipts are promptly and accurately reported (Krishnani, 2005). This is initiated to reduce discrepancies regarding cash handling and reporting by employees.
From the case study, the firm's monthly bank reconciliation is prepared. The accounts receivables clerk in his capacity compares duplicate deposit slips from bank to sales and cash receipts journals.
The organization's cash register is used for cash sales only. The daily cash collected on receivables…
References
Biggs, S.F., & Mock, T.J. (1983). An Investigation of Auditor Decision Processes in the Evaluation of Internal Controls and Audit Scope Decisions. Journal of Accounting Research Vol. 21 No. 1, 234-255.
Caplan, D. (1999). Internal Controls and the Detection of Management Fraud. Journal of Accounting Research Vol. 37, No.1, 101-117.
Krishnani, J. (2005). Audit Committee Quality and Internal Control: An Empirical Analysis. The Accounting Review, 649-675.
Rezaee, Z. (2002). Financial Statement Fraud: Prevention and Detection. New York: Wiley.
The Institute of Internal Auditors. (2004, January). What is Internal Auditing? Retrieved October 25, 2012, from www.theiia.org: http://www.theiia.org/theiia/about-the-profession/internal-audit-faqs/?i=1077
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