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In the bpp book it is given that
Sales based bonus scheme encouraging sales staff to maximise their current year bonus leads to increased risk of material misstatements due to sales cut off. Can u please explain this audit risk ? I do not understand how sales based bonus will lead to material misstatement due to sales cut off ?
And the audit response is increase sales cut offf testing and perform additional audit procedures on post year end cancellations to indentify cut off error
Can you please explain this ?Staff are incentivised to maximise sales. This could lead them to bring forward sales into the current period just to increase their bonus. It is, of course, not ethical that they do this, but sales staff might not have the same standards of ethics as we accountants 😉
One way to boost sales is to put through an order this year, then cancel it early in the following year. Sneaky.
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