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Mancosa Auditing 3A Practice Questions and answers
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Please note that this practice question pack is provided solely as supplementary learningmaterial, intended to assist students in practicing the application of theoretical concepts
discussed in the Module Guide and other learning materials to various practical contexts. The
suggested solutions are provided for this purpose only and should not be used for any other
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The questions and solutions in this pack are not official examination questions or solutions
provided by the educational institution or examination board. They are created independently
and do not necessarily reflect the views or opinions of the educational institution or examination
board.
In an examination scenario, students will need to tailor their answers to the specific scenario
presented, taking into account the mark allocation. Students are strongly advised to thoroughly
study all course materials and not to rely solely on this practice question pack for examination
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By using this practice question pack, you agree to these terms and understand that neither the
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Unit 1: Revenue and Receipts Cycle
Learning Outcomes
• Explain the accounting system for revenue and receipts
• Understand how the various control activities within the cycle operate to reduce the
risk of material misstatement and their direct effect on the substantive audit
procedures to be performed
• Demonstrate a comprehensive understanding of the specific processes involved
• Explain the various stages involved in the cycle
• Understand the different types of fraud that could occur in the cycle
• Design and implementation of substantive procedures to address risk of material
misstatements
Question 1 – General Knowledge Revenue and Receipts System
1
, Graded Questions on Auditing
You are an audit senior providing training on the revenue and receipts cycle, to first year trainee
accountants at the firm where you are employed. During the training session several questions
were posed to you and you also engaged in different discussions with some fo the trainees
during tea time.
You are required to:
Respond to the following matters which were raised as questions during the training sessions
and the tea-time discussions:
a) Briefly explain why selling goods for cash poses a business risk.
b) In practice, revenue and receipts systems in different businesses do not vary much and
is basically „one size fits all‟. True or false? Justify.
c) Briefly explain why selling goods on credit (that is sales charged to a customer account)
poses a business risk.
d) Explain what the purpose of the following documents are:
a. Customer oder;
b. Delivery note;
c. Back-order note;
d. Credit note; and
e. Goods Returned Voucher.
e) Briefly explain why a business would sequentially number their documents used in the
revenue and receipts cycle.
(Source: Graded Questions on Auditing, 2023, Q.8.1)
Suggested Solution
(a) Having cash in a business is a security risk. There is a potential for theft and physical
harm to employees who deal with cash.
(b) False. Revenue and receipts systems can vary considerably. A number of different
products and services can be provided by businesses, which means that there will be
plenty of variation in the systems that you will encounter in practice. Goods can be
sold over the counter, internet, phone etc. Some businesses sell physical goods, while
others provide services which may take a long time to complete (e.g. a membership
contract or construction contract).
(c) There is a risk that the customer will not pay and the business may suffer a loss as a
result.
2
, Graded Questions on Auditing
(d) (i) Customer order: external document sent by the customer which details the goods the
customer wishes to purchase.
(ii) Delivery note: records date, description and quantity of goods despatched to the
customer and is signed by the customer to acknowledge the receipt of the goods.
(iii) Back-order note: contains details of goods that could not be supplied when ordered by
a customer as there was no invertor available; reviewed to establish whether an order
has been placed with a supplier for the outstanding goods.
(iv) Credit note: an internal document sent to the customer to acknowledge that the
customer‟s account has been reduced (credited) for some reason other than for a
payment received, e.g. goods have been returned by the customer.
(v) Goods-returned voucher: document made out by the company itself that is used to
record the details of goods that have been returned by a customer.
(e) 1. To ensure that completeness testing can take place to identify missing documents;
2. To provide each document within a document type e.g. each invoice, with a unique
identity; and
3. To facilitate cross-referencing.
Question 2 – Stages of the sales cycle
Greenbox (Pty) Ltd is a large wholesaler of garden equipment. The company‟s revenue and
receipts cycle is well staffed and is divided into clearly defined functions, namely receiving of
orders, warehousing (picking, despatch, invoicing, recording of sales, mailroom and receipting/
cashier. It also has a „goods returned‟ function which handles the return of goods by customers
and a credit management section. The following control procedures take place in the day-to-day
running of the company.
Note: These procedures are in random order.
1. Jonny Greenfingers follows up on trade references supplied by prospective customers
seeking credit.
2. Carl Camelion checks the detail on all internal sales orders prepared by the six order
clerks.
3. Walter Weed, one of the warehouse clerks, makes out a back-order note for an items
which is ordered but is not „in stock‟.
4. The gate controller counts the number of boxes on the company‟s delivery truck and
agrees it to the delivery notes held by the driver.
5. Themba Treetops compares the goods to be delivered to the picking slip and delivery
note as they are packed into boxes for delivery.
3
, Graded Questions on Auditing
6. Harriet Hedge phones all debtors who have exceeded their credit terms every 48 hours
to establish when Greenbox (Pty) Ltd can expect payment.
7. When customers collect goods they have ordered, they sign a delivery note and retain a
copy.
8. Benji Berry checks the sequence of the invoices entered in the sales journal to identify
missing invoices.
9. Gustav Glass compares prices on the invoice to the official price list and reperforms the
VAT calculation.
10. Petrus Prunus regularly reviews bank deposits from customers made by EFT.
11. Lolly Lupin makes out credit notes for defective goods which are sold and returned by
customers. Before doing so, she obtains the authority of Petrus Prunus to issue a credit
note.
12. Daisy Dumisa goes through the „back orders‟ file weekly to ascertain the status of the
backorder.
13. Petrus Prunus reviews the general journal frequently and follows up on any journal
entries pertaining to debtors, such as bad debts written off.
14. Internal sales orders sent to the accounting department are filed in numerical sequence.
15. Themba Treetops goes through the day‟s picking slips at the end of each day to confirm
that they have all been acted upon.
You are required to:
Indicate the function under which each of the control procedures (1-15) is most likely to occur at
Greenbox (Pty) Ltd.
(Source: Graded Questions on Auditing, 2023, Q.8.2)
Suggested Solution
1. Credit management.
2. Order Department (receiving customer orders and sales authorisation).
3. Warehousing.
4. Despatch.
5. Despatch.
6. Credit management.
7. Despatch.
8. Recording of sales.
9. Invoicing.
10. Mailroom receipting/cashier.
4
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