1 AUDITING AUDITING SALES SALES Prof. Dr Safdar A. Butt Prof. Dr Safdar A. Butt
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AUDITINGAUDITINGSALESSALES
Prof. Dr Safdar A. ButtProf. Dr Safdar A. Butt
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Scope of Trading ActivitiesScope of Trading Activities PurchasesPurchases
Trade creditorsTrade creditors Purchases Returns, or Returns Purchases Returns, or Returns
OutwardsOutwards SalesSales
Trade debtorsTrade debtors Sales Returns, or Returns InwardsSales Returns, or Returns Inwards
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Sales:Sales:Internal Control ObjectivesInternal Control Objectives
All orders are promptly acted upon.All orders are promptly acted upon. Credit sales are made only to approved Credit sales are made only to approved
customers.customers. Prompt and correct issue of invoices:Prompt and correct issue of invoices:
Correct prices / agreed discount ratesCorrect prices / agreed discount rates Claims for delivery, pricing or discount Claims for delivery, pricing or discount
errors are investigated /attended to.errors are investigated /attended to. Prompt collection of receivablesPrompt collection of receivables
Due provisions for bad debts where neededDue provisions for bad debts where needed
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Internal Control Measures:Internal Control Measures:Receipt of orders & DispatchesReceipt of orders & Dispatches
Register for orders received.Register for orders received. Credit Control Procedure:Credit Control Procedure:
List of approved customers with discount List of approved customers with discount and credit limits.and credit limits.
Upto date record of receivablesUpto date record of receivables Approval of orders before being passed Approval of orders before being passed
on to stores for delivery.on to stores for delivery. Regular review of outstanding orders.Regular review of outstanding orders.
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Internal Control Measures:Internal Control Measures:Sales InvoicingSales Invoicing
Approved price listApproved price list Approved discount list Approved discount list
By product, area or clientsBy product, area or clients Prompt issue of invoices:Prompt issue of invoices:
With computers, goods delivery note and With computers, goods delivery note and invoice can be issued simultaneously.invoice can be issued simultaneously.
Pre-printed and pre-numbered invoices.Pre-printed and pre-numbered invoices. Where possible, one person prepares Where possible, one person prepares
and another checks invoice before issue.and another checks invoice before issue.
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Internal Control Measures:Internal Control Measures:Accounting for SalesAccounting for Sales
Sales Day BookSales Day Book Debtors LedgerDebtors Ledger Where possible, on line up-dating should Where possible, on line up-dating should
be done; otherwise daily postings be done; otherwise daily postings If sales ledger is not up-to-date, credit If sales ledger is not up-to-date, credit
control cannot work.control cannot work. Regular Issue of monthly statements.Regular Issue of monthly statements. Responsibility for follow up on collection.Responsibility for follow up on collection.
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Internal Control Measures:Internal Control Measures:Other Sales Related IssuesOther Sales Related Issues
Formal procedure for all activities Formal procedure for all activities relating to sales and sales returns.relating to sales and sales returns.
Goods received back from customersGoods received back from customers InspectionInspection Issue of Goods Returns Note / ClaimIssue of Goods Returns Note / Claim Proper authorization for issue of Credit Proper authorization for issue of Credit
NoteNote Segregation of duties / internal checkSegregation of duties / internal check
Credit ControlCredit Control Who should be given credit?Who should be given credit? How much? (limits)How much? (limits) On what conditions or security?On what conditions or security? Follow up process:Follow up process:
Sending statementsSending statements Stopping further suppliesStopping further supplies Legal actionLegal action Responsibility for each actionResponsibility for each action
Writing off bad debtsWriting off bad debts8
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Internal Control QuestionnairesInternal Control Questionnaires Receipt of ordersReceipt of orders Dispatch of goodsDispatch of goods InvoicesInvoices Return of goods by clientsReturn of goods by clients Accounting for salesAccounting for sales
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Auditing Sales 1Auditing Sales 1 Vouching invoices on test check basis:Vouching invoices on test check basis:
Arithmetical accuracyArithmetical accuracy Cross reference to price list, discount list, Cross reference to price list, discount list,
customers’ order, delivery note, etccustomers’ order, delivery note, etc Authority for supply and creditAuthority for supply and credit Cross reference to sales day book, stores Cross reference to sales day book, stores
records.records. Trace entries in sales day book to sales Trace entries in sales day book to sales
ledgerledger
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Auditing Sales 2Auditing Sales 2 Check the arithmetical accuracy of Check the arithmetical accuracy of
sales day book, sales ledger.sales day book, sales ledger. Verify that goods were actually Verify that goods were actually
shipped out in respect of invoices shipped out in respect of invoices issued towards the end of the year.issued towards the end of the year.
Verify numerical sequence of invoices Verify numerical sequence of invoices and good dispatch notes, etc., and good dispatch notes, etc., investigating any missing numbers.investigating any missing numbers.
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Auditing Sales Returns 1Auditing Sales Returns 1 Vouch credit notes on test check basis:Vouch credit notes on test check basis:
Arithmetical accuracyArithmetical accuracy Cross reference to original invoice, price list, good Cross reference to original invoice, price list, good
returned/received note, stores records, etcreturned/received note, stores records, etc Authority / approval for issueAuthority / approval for issue Verify that the same prices and discount rates have Verify that the same prices and discount rates have
been applied to credit note as were to the invoice.been applied to credit note as were to the invoice. Cross reference to sales return book, stores records.Cross reference to sales return book, stores records. Trace entries in sales return book to sales ledgerTrace entries in sales return book to sales ledger
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Auditing Sales Returns 2Auditing Sales Returns 2 Check the arithmetical accuracy of Check the arithmetical accuracy of
sales return book.sales return book. Verify that all goods returned in the Verify that all goods returned in the
last few days of the year are covered last few days of the year are covered by credit notes.by credit notes.
Verify numerical sequence of credit Verify numerical sequence of credit notes and good returned notes, notes and good returned notes, investigating any missing numbers.investigating any missing numbers.
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Auditing Trade Debtors 1Auditing Trade Debtors 1 Get a schedule of trade debtors andGet a schedule of trade debtors and
Check its arithmetical accuracyCheck its arithmetical accuracy Verify individual balances from ledgerVerify individual balances from ledger
Audit in depth selected debtors’ Audit in depth selected debtors’ accounts.accounts. Trace entries to all related recordsTrace entries to all related records Direct confirmation of balance through Direct confirmation of balance through
circularizationcircularization
Circularization of DebtorsCircularization of Debtors Auditor asks the client to write a letter to Auditor asks the client to write a letter to
all or selected debtors.all or selected debtors. Auditor posts the letter himself.Auditor posts the letter himself. Replies to the auditor: pre-paid postage Replies to the auditor: pre-paid postage
reply envelopes to be provided.reply envelopes to be provided. Positive Confirmation (must reply)Positive Confirmation (must reply) Negative Confirmation (reply only if Negative Confirmation (reply only if
disagree)disagree)
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Auditing Trade Debtors 2Auditing Trade Debtors 2 Check the list of customers with Check the list of customers with
approved credit terms and prices.approved credit terms and prices. Check the Aging Schedule of Debtors Check the Aging Schedule of Debtors
and inquire about long outstanding and inquire about long outstanding debtors.debtors.
Verify the basis of computing Verify the basis of computing provisions for bad debts.provisions for bad debts.
Re-compute provisions for bad debts.Re-compute provisions for bad debts.
Provision for Bad DebtsProvision for Bad Debts Write Off (not provisioning)Write Off (not provisioning) Specific Provisioning based on age of Specific Provisioning based on age of
outstanding amounts.outstanding amounts. General Provisioning based on General Provisioning based on
experience as a % of all debtors.experience as a % of all debtors. Combination of the two bases.Combination of the two bases.
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Thank youThank you
Dr Safdar A ButtDr Safdar A Butt