SALES TRANSACTIONS
TESTS OF CONTROLS (IWORI)
Controls
1. Recording of sales is supported by
customer orders, sales orders
approved by the credit department,
and approved and executed
shipping documents.
2. A clerk independent of accounts
receivable prepares and mails
monthly statements to customers
for all trade accounts receivable and
follows up on any complaints.
4.Pre-numbered shipping documents
are accounted for to determine that
sales invoice is prepared for all
shipments.
5.Pre-numbered sales invoices are
accounted for to determine that all
sales are recorded.
6.Procedures to ensure timely
recording of sales and proper cut-off
are established.
6. Clerk checks sales order and sales
invoice for terms to determine that
transaction is a sale rather than a
consignment.
Potential
Misstatements
Sales that did not occur may be
recorded.
Errors in recording sales may not be
detected.
Goods may be shipped but not billed.
Unrecorded sales may exist.
Sales transactions may be recorded in
the wrong period.
Consignment transactions may be
recorded as sales.
Audit Procedures Test
of Controls
Examine approved customer order,
sales order, shipping document, and
copy of sales invoice for a sample of
entries in the sales journal.
Observe procedure and examine
follow-up files.
Observe procedure.
Examine copy of invoices for a sample
of shipping documents.
Observe procedure.
Examine entries for a sequence of
All sales transactions that occurred
sales invoices in sales journal.
Inquire how procedures are followed,
observe procedures being followed,
and inspect report on last shipments.
Observe procedure.
Sales recorded represent only sales
SUBSTANTIVE TESTS (VICTORIA)
ASSERTIONS Substantive test of transactions Substantive test of details of balances Analytical Procedures
Potential Substantive Audit Substantive Audit Analytical
Assertions Misstatements
Misstatements Procedures Procedures Procedures
Sales for which shipment of goods For a sample of entries in the sales Sales and accounts receivable are for 1. Confirm accounts receivable and Overstatement or 1. Compare the sales amount and
was not made and therefore did not journal, compare sales invoice copy, shipments made to customers. perform alternative procedures for understatement of sales gross profit percentage for product
Existence/ occur may be recorded. customer order, and sales invoice. confirmations not returned. lines by month and with those of
Occurrence previous years.
2. Perform analytical procedures to
test sales and accounts receivable. 2. Compare the gross profit with
industry data.
Recorded sales are for shipments
actually made to customers
Overstatement or 3. Compare sales returns and
understatement of sales returns allowances as a percentage of gross
and allowances sales with previous years’
percentage.
Goods may be shipped but not billed For a sample of shipping documents, Sales transactions that occurred and 3. Perform a test of sales cutoff.
and therefore not recorded. trace sales invoice and entry to ales existing accounts receivable are Overstatement or 4. Compare the AR turnover with the
journal and accounts receivable recorded. understatement of allowance for rate for previous years and with
subsidiary ledger.
Completeness uncollectible accounts industry data.
Perform cutoff tests. 5. Compare uncollectible accounts
expense as a percentage of sales with
the rate for previous years and with
industry data.
are recorded.
6. Compare the allowance accounts as
a percentage of AR with the %age for
previous years and with industry data.
7. Compute the percentage of AR by
age category and compare with
Goods shipped on consignment may From a sample of sales invoice, Accounts receivable are owned by the 4. Review minutes of BODs meetings, previous years’ data
Rights be recorded as sales. examine the customer order and client. inquire of client personnel, read
& obligations shipping document to determine contracts and agreements, and 8. Compare written-off accounts that
whether the transaction should have confirm with lender any indications are outstanding at the end of the
been recorded as a consignment that accounts have been assigned, previous year with the allowance for
transactions. transaction rather than as a sale. sold, or pledged. uncollectible accounts to evaluate the
adequacy of the previous allowance.
7. For all goods shipped, goods are
counted and descriptions and
quantities are compared to quantities
and descriptions on sales orders and
shipping documents prior to shipping.
8. Customer credit is approved by a
responsible official prior to
merchandise shipment.
More or fewer goods may have been
shipped than ordered. Customer
returns may occur.
Accounts receivable may be
uncollectible.
Observe procedure.
For a sample, examine signature on
documents evidencing performance.
Examine sales order for selected
transactions.
Sales and accounts receivable may be For sample entries in the sales journal,
misvalued. (a) Examine sales invoice, shipping
document, and customer order for
consistency of descriptions and
quantities; (b) Examine sales orders
for credit approval; and (c) check
prices and extensions.
Valuation/
Measurement Foot sales journal and general ledger
account.
Account receivable are properly 5. Verify the mathematical accuracy Errors in individual customers’ 9. Compare individual customer
valued. of the accounts receivable aging accounts receivable balances with balances of the
schedule and trace it to the previous year.
accounts receivable subsidiary
ledger.
6. Test the adequacy of the allowance
for uncollectible accounts.

9. Sales invoices are checked for
proper pricing, mathematical
accuracy, and terms.
Sales/accounts receivable may be
overstated or understated.
Inquire about the updating and use of Sales are correctly billed and
approved price lists. recorded.
For sample of invoices, examine
signature indicating performance of
task.

10. The accounts subsidiary ledger is Likelihood of errors in accounts Observe procedure.
balanced to the general ledger control receivable increases. Foot subsidiary ledger.
account regularly.

An independent review is made of
account coding for recorded sales.
Revenues may be misclassified.
Observe procedure.
For a sample of invoices, recheck
Presentation
account coding. & disclosure
Sales and accounts receivable are
recorded to result in presentation and
disclosure in accordance with PFRS.
Revenues may not be properly
classified.
For a sample of entries in the sales
journal, verify the accuracy of account
coding.
Sales and accounts receivable are
properly presented and disclosed in
accordance with PFRS.
7. Review the FS and perform
analytical procedures to determine
whether accounts are classified
and disclosed in accordance with
PFRS.