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. Suppose that this accounting manager wanted sales to appear lower in order to reduce tax expenses. What kinds of evidence will your audit look for in this case?

Answer 1

The sales may be suppressed by accounting manager to show a lower taxable income in order to reduce a tax liability. Manipulating sales/ turnover are illicit and illegal sources of income, thus it is important that auditor should check thoroughly and search for evidences:

--Credit sales should be compare with certain details in the invoices such as the demand, the name, the amount, etc. with those provided in the Sales Book

--Cancelled invoices needs to be checked with the duplicate copy of the invoice.

--In order to confirm the accuracy of debtor balance, the auditor may send Statements of Accounts to the customers and take a confirmation

--Sales are not omitted from being recorded in the Sales Book.

--Asset sale is not considered as ordinary sale

--Check the entries from the Sales Returns Book to the Sales Returns Accounts and Customer Ledger. The goods, which are returned by the customers, are included in the closing stock at market price or cost price whichever less is.