Question

For each of the following potential misstatements, provide one potential audit test that could be used to detect the misstatement.

•     Sales included in the journals for which there was no shipment

•     Sale recorded more than once

•     Shipments made to nonexistent customers and recorded as sales

Answer 1

First let us see what are the business functions asscosiated with the sales:

The four business functions that result in sales transactions, and related documents and records, are:
a)Processing customer orders. Key documents include customer order and sales order
b)Granting credit. Customer order or sales order
c)Shipping goods. Shipping document (bill of lading)
d)Billing customers and recording sales. Sales invoice, sales transaction file, sales journal or listing, accounts receivable master file, accounts receivable trial balance, and monthly statements

Ques 1:
Sales included in the journals for which there was no shipment:
When sales is made and shipping needs to be done there must be bill of lading and other supporting documents which are needed to be deposited at the custom departments , so that those can be processed and until the custom officer signs those documents these goods cannot be shipped
so if there are bogus sales recorded Vouch selected entries in the sales journal to related copies of shipping and other supporting documents.

Ques 2:
Sale recorded more than once
For this check the sales bill/invoice file because these are required to be numbered with unique codes . in case there are sales bills which are same numbered , check cancelleation documents relating to the sale made else these are to be reported to the management that duplicate sales are being recorded

Ques 3:
Shipments made to nonexistent customers and recorded as sales.
This can be checked through doing a desktop search (google search) , plus there are other ways like checking that the customer is registered for sales tax so from the sales tax number you can check if it exists or not also you can Trace customer information on sales invoices to the customer master file