Reference no: EM132924915

Question - You have been assigned to perform tests of controls on the sales system at EDB Ltd. as part of the December 31, 2020, audit. EDB is a wholesaler of bathroom supplies such as vanity units, toilets, taps,and sinks. During testing, you noted the following error: Invoice no. 59328 issued on July 18, 2020, matched the customer's order. However, the order was only partially filled because of a lack of inventory in the warehouse, meaning items that were never delivered were included in the invoice. The error was discovered when the customer phoned to complain about being overcharged.

What application control would have prevented or detected the error?

 i) Computer should be programmed to reject sales entries unless data is entered into all relevant fields.

ii) Invoices should be based on dispatch notes.

iii) Manual override by directors.

iv) Computer should be programmed to check invoice numbers.

v) Products should be automatically priced on entry of product codes.

What are the implications of this error?

i) Sales could be understated.

ii) Accounts receivable could be overstated.

iii) This error has no implications on the financial statements.

iv) Accounts receivable could be understated.

v) Inventory could be understated.

vi) Cost of sales could be overstated.