Question

In the audit of Atwater Corporation (Atwater) for the financial year ended 30 June 2019, the auditor has chosen a list of transactions and would like to check these recorded transactions against supporting documents (i.e. invoices/shipping documents).

The result is presented in columns (4) and (5) in the Table below (all amounts are in $).

Date	Invoice #	Account	Amount on	Amount on
			sales journal	invoice
(1)	(2)	(3)	(4)	(5)
Sep. 1	13236	Blackburn	7,500	7,500
Dec. 2	15326	Charcoal	21,550	21,550
Jan. 9	15768	Forest Hill	8,460	8,460
Mar. 15	17524	Opportunity Shop	32,500	32,500
Apr. 25	18014	Brothers	35,000	35,000
Apr. 28	18015	Melbourne Co.	6,000	6,000
June. 20	19000	Holmesglen	6,600	6,600 (*)
June. 30	19001	Chadstone	65,000	65,000

Additional information:

- The auditor satisfy with all the invoices checked, except for the invoice issued to Holmesglen – see (*) below

- (*): When checking the invoice of this transaction, both the dates of the invoice as well as of shipping document were 31 July 2019.

Required:

(a)         State the audit objective (or assertion) that the auditor would like to confirm for the sales account based on his audit procedure.                                              

(b)         Some people think that the audit procedure performed by the auditor is a test of control. Present your idea and argument to support your answer. (Limit your answer to 25 words.           

Answer 1

a. Assertions are representations made by the management during preparation and presentation of financial statements. In the given situation, the auditor has obtained sales invoices with an objective to verify them with the supporting documents. This is done to test the assertion of occurrence. The assertion of occurrence states that the transactions which are recorded in financial statements have occurred. It implies that no fictitious transactions are recorded in books. The auditor is testing the assertion of Occurrence while verifying the sales account with supporting documents.

b. Control is a measure implemented by the entity to mitigate the risk of fraud or error. In recording the sales transactions, risk would be recording fictitious sales, recording incorrect amounts, etc. Entity can implement controls to ensure that the sales are recorded with supporting documents, and there is a secondary check on entries recorded. A system control can be installed to ensure that a sales entry is recorded only after the attachments of supporting documents are uploaded.

In the given case, the test is on assertion, not on the control. Having supporting documents is not a control. A maker-checker control, where checker verifies the supporting documents is a control. Hence, the auditor is testing only occurrence and not it is not a test of control.