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

While auditing Kaveri Textiles Ltd, the auditor wants evidence that all goods shipped before the year-end have actually been recorded as sales in that year, and not left out. Which audit procedure is best suited to address this completeness assertion for sales?

The best procedure is to select goods despatch records near year-end and trace them to the sales ledger. Testing completeness requires going from source documents to the books, so unrecorded shipments are detected. Vouching ledger entries to documents tests occurrence, which addresses overstatement rather than omission.

  1. ASelect entries from the sales ledger and vouch them to dispatch records and invoices
  2. BSelect dispatch records (goods despatch notes) from the period near year-end and trace them to the sales ledger entriesCorrect
  3. CConfirm year-end trade receivable balances directly with customers
  4. DRecalculate the depreciation charged on the plant used in dispatch

Explanation

For completeness, the direction of testing runs from the source document (dispatch records) to the accounting record. Tracing dispatch notes to the sales ledger reveals shipped goods not recorded. Option A tests occurrence (overstatement), the opposite direction, so it would not detect omitted sales.

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