Page 184 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes

Notes The auditor has to be more careful in the case of vouching sales, as documentary
evidence is not as conclusive as in case of purchase.

9.3.6 The Duties of an Auditor in connection with Credit Sales

1. He should see that the internal check system is efficient.
2. He should compare the data of the copy of the invoice with the data in the Sales Book.

3. He should see that the sales are not omitted from being entered in the Sales Book.
4. He should further see that the sale of an asset is not treated as ordinary sale, otherwise
profit will be inflated.
5. With the permission of the client, the auditor should send Statements of Account to the
customers to confirm the accuracy of the balance.
6. He should check the Sales Book for the last days or weeks of the financial period and the
Returns Inward Book for a few days or weeks after the close of the period in order to see
whether fictitious sales or returns had been recorded to inflate profits.
7. He should check the casts and cross casts of the Sales Book.

8. The cancelled invoice should be checked with the duplicate copy of the invoice.
9. Sales tax, insurance charges, etc, which are recoverable from the customers should be
debited to the customer’s account and credited to the appropriate accounts.
10. If there is a significant difference of trade discount allowed to two different sales, he
should inquire into the reason of such a distinction.

9.3.7 Sales Return

When the goods are returned from customers, being defective or on account of any other reason,
they should be entered by the gatekeeper in the register known as Gatekeeper’s Return Inward
Book and the Stock Register and also recorded to the Sales return book and credit note should be
issued and signed by the responsible official.

9.3.8 Goods sold on Sale or Return System

Until the customer approves of the goods they cannot be treated as sales. It may so happen that
on the date of the balance sheet, some of the goods might be with the customers who might not
have sent their approval. In such case, these goods cannot be treated as sales. The auditor should,
therefore, see that until the approval, such goods must be shown as ‘goods with customers’ and
deducted from sales of the current period and from the list of the debtors.
9.3.9 Goods sent on Consignment

When the goods are sent out to agents to be sold at the owner’s risk a separate book called
‘Consignments Outward Journal’ should be maintained if the number of such transactions is
large. This book should be vouched with the copies of the proforma invoice, correspondence,
account sale, and contracts with the consignees.

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