Testing Sales Flashcards
What are some examples of ways in which companies misstate revenue?
Recording sales in wrong period.
Improper bill-and-hold sales.
Failure to record sales returns.
Improper application of percentage-of-completion.
Using side agreements to alter terms of sale.
Recording fictitious sales.
In most situations, are auditors more worried about existence (occurrence) or completeness when testing a client’s revenue?
Existence (occurrence) because, in most situations, clients are more likely to inflate revenues and profits.
What audit procedures are commonly used to test the existence (occurrence) of a client’s sales revenue?
Select a sample of transactions from the sales journal. Examine the sales invoice and other supporting documents.
What audit procedures are commonly used to test the completeness of a client’s sales revenue?
Select a sample of shipping documents. Trace transactions to the sales journal.
What audit procedures are commonly used to test the valuation (accuracy) of a client’s sales revenue?
Select a sample of sales invoices. Test the prices, quantities and extensions by reference to supporting documents.
What audit procedures are commonly used to test the rights and obligations of a client’s sales revenue?
Determine whether revenue recognition policies conform with GAAP.
Look for unusual terms or conditions of sales transactions.
Consider confirming transactions with customers.
What audit procedures are commonly used to test the presentation and disclosure of a client’s sales transactions?
Ensure revenue recognition policies are disclosed.
Ensure sales to related parties are disclosed.
Ensure intercompany sales are eliminated.
What analytical procedures might an auditor use to evaluate a client’s revenue?
Compare recorded sales to prior periods.
Compare gross profit margin to prior periods.
Use operating data to estimate revenue.
