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SIr,
I am doing audit risk and response question –
Audit risk is – 1.Decresed of selling price significantly since september 2014.Risk of implementation id decresed selling price sharp on from september, and can cause material mistake on the financial statemnet because if the sales executive is selling on the previouse selling price to increase the sale then it could be a problem in overstatement of revenue.
Auditor response-Inspect a written letter from the finance departmnet to see if it is changed in september and inspect sample of sales invoices after september to verify the selling price used.Is this correct?
The risks are:
1 If selling prices have been reduced because goods would not sell at their previous selling price then inventory might be overvalued.
2 The sales executive might be selling at unauthorised prices to boost sales, perhaps to keep his/her job or earn a bigger bonus. There should be control over price reductions to prevent this.
I don’t see that there is a particular risk of overstating revenue. The selling price and hence revenue are what they are.
Thanks and for audit response can a auditor demands for written letter or an email when the rates are implemented for? or what could be the audit response?
Confirmation rrom management is a very weak form of evidence. Followed through logically the auditors could simply ask management for a letter saying the FS are OK and then not perform any other work. Obviously pointless.
The types of evidemce include
Examining sales figures for the items to see if sales have slowed.
Calculating inventory turnover to see if sales have slowed.
Looking at next year’s budget to see if the items in question are still expected to sell
Looking at board minutes to see discussions about sales and prices
Looking at authorisarions from the sales director about price drops.
Seeing if competitors had also dropped their prices (could indicate an industry-wide problem).
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