Question

Suppose that the accounting manager of a firm you are auditing is suspected of manipulating sales and collection transactions to make earnings and receivable payments look higher than they are. What kinds of evidence will your audit look for?

Answer 1

Solution :

In this problem, there is a suspect that accounting manager is involved in manipulating sales and collection transaction to make earnings and receivable payments look higher than the are. It means accounting manager is involved in overstatement of sales and receivables to show higher earnings. Now we have to look for following audit evidence to find out the manipulation:

1. We will collect sales invoices for higher value transaction and will check whether same is available with the firm or not. There may be possibility of fake sale recorded directly in books.

2. If sales invoices are available, then we will check that customer name and address is properly available on invoice and sales tax liability is discharged. Sales invoice is signed by customer and authorized person of the firm.

3. We will obtain debtor confirmation for account balances. If bogus sales is recorded in books that can be figured out if mismatch found balance of debtor as per books and written confirmation from debtors.

4. We can verify physical inventory of the firm. If bogus sales was recorded then physical inventory will be higher than book inventory.

5. We can ask for receipt voucher, if cash collection from customer is recorded in books.