Describe substantive procedures the auditor should perform to obtain

sufficient and appropriate audit evidence in relation to:-

- Revenue/sales
- Purchases

Revenue/Sales

Substantive Procedures – 14 1 By:- Haris Hanif

Answer:-
– Obtain the sample of customers’ P.O.s and sent invoices to verify that
sales transactions were genuinely occurred in the period.

– Perform analytical procedures by comparing the overall level of revenue

against prior years and budget and investigate any significant
fluctuations.

– Calculate the gross margin for Company and compare this to the prior
year and investigate any significant fluctuations.

– Perform proof in total by multiplying the average units sold with the
average selling price and compare with the reported sales figure and
investigate the significant variations.

– Select a sample of sales invoices for larger customers and recalculate the
discounts allowed to ensure that these are accurate and agree the cash
discounts given as expense in the income statement.

– Recalculate for a sample of invoices that the sales tax has been correctly
applied to the sales invoice as per the current sales tax % and ensure
that sales amount is net off sales tax.

– Select a sample of customer orders and agree these to the despatch

notes and sales invoices through to inclusion in the sales ledger, trial
balance to ensure completeness of revenue.

– Select a sample of despatch notes both pre and post the year end, follow
these through to sales invoices in the correct accounting period to
ensure that cut-off has been correctly applied.

– For any sales return, select a sample of credit notes issued after the year
end and follow through to sales invoice to ensure the returns were
recorded in the proper period.

Substantive Procedures – 14 2 By:- Haris Hanif

Purchases

Substantive Procedures – 14 3 By:- Haris Hanif

Answer:-
- Compare the total purchases with the past years and with budget and
investigate the significant variations.

- Calculate the gross margin and compare with the past years and
investigate the significant variations.

- Perform proof in total by multiplying the average purchases and average

purchase price and compare with the reported figure of purchases and
investigate the significant variations.

- For any cash discounts received like on larger purchase, recalculate it

and agree it as other income.

- Obtain the P.O.s sent and GRNs for the evidence of goods received and
agree in the ledger, trial balance and draft financial statements to
ensure completeness of records.

- For any amounts paid during the year, agree the amounts paid in the
bank statement/cash book.

– Select a sample of GRNs both pre and post the year end, follow these
through to purchase orders in the correct accounting period to ensure
that cut-off has been correctly applied.

– For any purchase return, select a sample of debit notes sent and credit
notes received after the year end and follow through to purchase
invoice to ensure the returns were recorded in the proper period.

Substantive Procedures – 14 4 By:- Haris Hanif