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Hi sir, for june 2015 exam Qn 6a (i) my answers are slightly different from the answer key.
My answers are as follows:
Inspect credit notes issued after the year end, trace to GDN and invoice and ensure the sale has been reversed: verifies occurrence.
Select a sample of customer orders and agree these to the despatch notes and sales invoices through to inclusion in the sales day book : verifies completeness.
Will my answers be acceptable ?
I assume you mean 6 (a) (ii)
You are correct for orders going through to invoices and entries in the sales account.
On reflection the credit note test doesn’t make sense. The aim is to try to ensure that the pre-year-end sale is not a false sale that has been reversed after year end. Looking for credit notes that relate to pre-year end sales is a test of occurrence. Not sure it needs to be traced to despatch note.
Just to check with you sir, to verify the occurence of REVENUE.
One example of a substantive procedure could be to
” Review post year end credit notes, to identify if any pre year end sales should be removed ”
Correct ?
Dear Ken,
Can you please try to explain in an alternative way how we can verfiy the assertations, as I find this area extremely confusing.
I would be tempted to say Inspect credit notes issued after the year end, trace to GDN and invoice and ensure the sale has been reversed: verifies completeness – As the procedures taken show a complete transaction?
But also that Select a sample of customer orders and agree these to the despatch notes and sales invoices through to inclusion in the sales day book : verifies occurence – Because they evidence shows that this all occurred?
I really struggle with this, your assistance would be much appreciated.
Thanks
What you need to do is to ensure that the revenue figure in the FS is complete and that the revenue (sale) has occurred.
Taking your second example first, this will not verify occurrence of the revenue because you would expect orders to end up as a credit in the sales account. But how would you identify false credits in the sales account? The above test will not find sales for which there is no original documentation because you are going from documentation that is there. To have any hope of finding sales that have not occurred you would need to trace from items in the sales account and perhaps find that there was no original order or invoice to support that.
The credit note test it to see if false sales had been processed before year end only to be reversed after year end. Again this is a test of occurrence.
To test for completeness you would need to go from orders/despatch notes/invoices all the way through to credits on the sales account. If any orders/invoices sis not make it through to the sales account, then you have identified that the sales account does not hold all the sales.
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