Skip to content

CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

Auditor of Bharat Logistics Ltd notices that a large number of sales entries are recorded in the last two days of the financial year, and many of the related goods were despatched in the first week of the next year. Which procedure best addresses the risk identified?

The best response is sales cut-off testing, comparing invoices near year-end with despatch records and delivery dates to see if revenue was recognised in the correct period. The other procedures relate to payroll, bank balances or depreciation and do not address premature revenue recognition.

  1. APerform sales cut-off testing by comparing sales invoices around year-end with despatch records and goods delivery datesCorrect
  2. BIncrease the sample of payroll vouchers tested
  3. CConfirm the bank balances at year-end with the bank
  4. DReview the depreciation rates applied to vehicles

Explanation

Recording sales before goods are despatched indicates a risk of premature revenue recognition, which is a cut-off problem. Comparing invoices near the year-end with despatch and delivery records tests whether sales are in the correct period. The other procedures relate to different areas.

Did you get it right without looking?

One question tells you little. A timed set on Audit of Items of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Audit of Items of Financial StatementsFree diagnostic mock

More Audit of Items of Financial Statements questions