Question 6 Donald Trump and Boris Johnson are discussing the audit program for the revenue account....

Question 6

Donald Trump and Boris Johnson are discussing the audit program for the revenue account. Donald and Boris disagree about whether they should use procedure A or B below to test the occurrence assertion for the revenue account:

A. Select a sample of sales from the sales journal and agree the details in the journal to the sales invoices, delivery dockets and customer orders.

B. Select a sample of sales invoices, delivery dockets and customer orders and agree the details to the details recorded in the sales journal.

Required

Which test provides evidence about the occurrence assertion? Why? Which assertion does the other test provide evidence about?

Expert Solution

The correct answer for the question is Option A - Select a sample of sales from the sales journal and agree the details in the journal to the sales invoices, delivery dockets and customer orders. The Occurence assertion tests whether the revenue recorded in the books actually exists. The accrual basis of accounting requires revenues to be recorded whenever they are earned. In order to ensure that the revenues reported by a company actually exist, we test the occurence assertion for sales/sales revenue. The auditor follows the practices of Tracing the revenue balance by selecting a sample of transactions recorded in the sales journal and tracing them from top to the sales invoices, delivery dockets and customer orders. When an auditor performs this test, he would be assured that the actual sales recorded in the do exist and the balance recorded presents a true and fair view of the Revenue accounts.

Option B is incorrect as this type of test is generally performed for the Completeness assertion. Under the completeness assertion, the auditor tries to ensure that all the transactions that have taken place have actually been recorded in the books of accounts. To achieve this the auditor selects a sample from the sales invoices, delivery dockets and customer orders to ensure that it is recorded in the books of accounts.

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ekkarill92 answered 2 years ago

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