Sales Order & Credit Management Quiz

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Questions and Answers

What is the primary objective of the control effectiveness tests conducted on sales orders?

To assess the volume of sales orders processed

To evaluate that all sales orders are authorized (correct)

To analyze the profit margins of sales orders

To verify the accuracy of customer information

Which of the following findings indicates a failure in the authorization process?

Sales order SO456 is authorized

Sales order SO157 is authorized

Sales order SO321 is unauthorized (correct)

All sales orders are processed correctly

In the context of risk control in ordering, which step is crucial for minimizing unauthorized orders?

Allowing customers to place orders without confirmation

Implementing a verification system for order authorization (correct)

Monitoring only cash sales for irregularities

Increasing the number of sales personnel

What could be a potential effect of unauthorized sales orders on a business?

Legal implications due to fraudulent activity Signup and view all the answers

What is typically a condition that leads to unauthorized sales orders?

Insufficient oversight in the sales process Signup and view all the answers

What is one common method to evaluate the control effectiveness of the sales order process?

Inspecting a sample of sales orders for authorization Signup and view all the answers

Which of the following practices can improve the credit granting process in terms of sales orders?

Performing credit checks on customers before granting credit Signup and view all the answers

What is the primary purpose of preparing pre-numbered sales orders?

To prevent unauthorized alterations Signup and view all the answers

Which control action is designed to reduce the risk of incorrect sales orders?

Confirming customer information with the sales clerk Signup and view all the answers

Which is a control effectiveness test related to verifying order accuracy?

Obtaining a price list to confirm authorizations Signup and view all the answers

How does confirming order details with a customer relate to risk control?

It identifies and rectifies potential errors before orders are processed. Signup and view all the answers

What is a primary risk when sales orders are not accurately authorized?

Higher likelihood of financial fraud Signup and view all the answers

Which action does not contribute to the control effectiveness test for the ordering function?

Collecting customer feedback on order process Signup and view all the answers

What is the significance of an authorized price list in the sales order process?

It prevents unauthorized pricing and discounts. Signup and view all the answers

What type of testing is involved in observing customer information confirmation by the sales clerk?

Control effectiveness testing Signup and view all the answers

What is one of the actions that can reduce the risk of granting credit to uncreditworthy customers?

Perform credit checks with external bureaus Signup and view all the answers

What method does an auditor use to test the effectiveness of the credit granting process?

Inspect samples of completed credit applications Signup and view all the answers

Which control is used to ensure incorrect sales orders are minimized?

Confirmation of order details with the customer Signup and view all the answers

How can an auditor verify the segregation of duties in the credit control function?

By observing the credit granting process Signup and view all the answers

What is a potential risk in the ordering function related to order details?

Incomplete or incorrect order details Signup and view all the answers

Which control effectiveness test would be sufficient in validating the sales order process?

Observing the confirmation of customer information Signup and view all the answers

What is the purpose of using an authorized price list in the ordering function?

To avoid pricing errors in sales orders Signup and view all the answers

What is a control that can be implemented to address the risk of granting credit to new debtors?

Completing credit application forms Signup and view all the answers

Study Notes

Sales Order Authorisation

A sample of 10 sales orders were inspected to determine if they were authorised by the sales manager
6 out of 10 sales orders were authorised
4 out of 10 sales orders were not authorised

Credit Granting Function

The credit controller function must be separated from the sales order function to ensure that the credit granting process is valid
New debtors should complete a credit application form which should include supporting documents such as a copy of ID and payslip to ensure that the credit granting process is valid
Credit checks should be performed with external credit bureaus to ensure that the credit granting process is valid

Ordering Function

Sales orders should be confirmed with customers to ensure that they are complete, accurate, and valid
A price list should be used to ensure that all prices are accurate and authorised by a sales manager
Sales orders should be pre-numbered and authorised

Control Effectiveness Tests

Control effectiveness tests are performed to evaluate the effectiveness of controls in place
They help auditors to identify and assess risks
The auditor should observe whether customer information is confirmed by the sales clerk to test that sales orders are complete, accurate, and valid
The auditor should obtain a price list and confirm that all prices are authorised by a sales manager (or designated individual) to test that sales orders are accurate
The auditor should observe the segregation of duties between the credit control function and the sales order function to test that the credit granting process is valid
The auditor should obtain a list of new debtors applicants and inspect a sample of completed applications (with supporting docs eg copy of ID, payslip) to test that credit granting process is valid
The auditor should obtain a list of new debtors applicants and inspect a sample of application forms for details that credit check with external credit bureau was performed to test that credit granting process is valid

Risk

Unauthorised sales orders can occur if there are no proper controls in place
Credit can be granted to unworthy customers if the credit granting process is not properly controlled

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Description

This quiz covers essential concepts surrounding sales order authorisation and credit granting functions. Participants will assess the importance of proper authorisation and separation of duties in the sales and credit processes. Additionally, the quiz highlights best practices for ensuring the validity and accuracy of sales orders.