The following scenario relates to questions 1–5.
Porthos, a limited liability company, is a retailer of sports equipment, specialising in racquet sports such as tennis, squash and badminton. The company purchases equipment from a variety of different suppliers and then resells this online. Customers place their orders directly on the company website. The ordering/sales software automatically verifies the order details, customer address and credit card information prior to orders being verified and goods dispatched.
Once the order has been verified the system produces a pre-numbered picking note. The order is then picked in the warehouse and a goods dispatched note (GDN) is produced. A copy of this is scanned in to the system and a sequentially numbered invoice is automatically produced and sent to the customer.
You are the audit senior working on the audit of Porthos for the year ended 31 December 20X7.
As the sales system is highly automated the audit manager has decided that computer-assisted audit techniques (CAATs) should be used where possible in the audit of the sales account. You identified the key steps to be taken in planning the application of CAATs, as follows:
- Define the types of transactions to be tested
- Set the objective of the CAAT application
- Define the procedures to be performed on the data
- Determine the content and accessibility of the entity's files
The manager has also decided that test data would be used to test the input of details into the ordering system. You identified the following test data which could be used:
(i) Orders for unusually large quantities
(ii) Orders with fields left blank
(iii) Orders with invalid inventory codes
(iv) Orders with complete and valid details
In addition to the sales income generated from the sale of sports equipment Porthos earns a small amount of rental income by renting out surplus warehouse space to a local company. The rental agreement shows that the annual rent from 1 March 20X7 was $24,000, increased from $21,600 per annum.
Which of the following identifies the correct order in which the steps to be taken in planning the application of CAATs should be performed?