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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 dispatched before the year end have been billed in the same year, so that revenue is not understated. Which procedure best addresses this completeness assertion?

The best procedure is to select goods dispatch records around the year end and trace them to sales invoices and the sales register. This tests from source document to accounting record, which addresses completeness. Vouching from the register to dispatch records tests occurrence and cannot reveal unbilled dispatches.

  1. ASelect sales invoices from the sales register and vouch them to dispatch records
  2. BSelect dispatch records (goods dispatch notes) near the year end and trace them to sales invoices and the sales registerCorrect
  3. CConfirm closing trade receivable balances directly with customers
  4. DRecompute the total of the sales ledger and agree it to the trial balance

Explanation

Completeness requires testing from the source document to the accounting record. Tracing dispatch notes to invoices and the sales register shows that shipped goods were billed. Option A tests the opposite direction (occurrence/overstatement), so it would not detect unrecorded sales.

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