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There is a small trading company where for the sales transactions executed, no goods delivery notes have been issued while only a few customers will issue purchase orders to the company.
Therefore, to test for the completeness of sales transactions, we can neither start with GDNs nor customers’ orders because they are either absent or incomplete.
IN such a case, what audit tests shall be carried out to test for completeness of income? My answer is: I will select samples from the sales invoices to verify the transactions. As selecting samples from sales invoices is not a good starting point to test for the completeness of sales, I will also perform that for the purchase transactions selected for verification, I trace the selected purchases to the corresponding sales transactions. In addition, I will review the bank statements and check that the material income receipts go with sales invoices issued.
And I correct in performing the tests? If not, what additional audits tests shall be performed to test for the completeness of income?
It’s quite difficult in this situation as you can never be sure income is complete. If purchases and sales were on-to-one the you could trace from purchases to sales, but that situation is unusual. Instead, you would have to make some use of analytical reviews: if tou know the cost of sales you should be able to estimate the sales by mark-up/GP%
The bank account test would be useful provided you are confident that all sales are on credit. If there were cash sales you have little evidence that all sales are being accounted for. That’s why in retail shops, till rolls are so important.
HTH
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