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CMA Intermediate · Corporate Accounting and Auditing · Audit of Various Items of Financial Statements

While auditing revenue of a manufacturing company, an auditor wants assurance that sales recorded in the books actually took place. Which direction of testing best addresses this assertion?

Vouching from the sales ledger back to invoices and dispatch documents tests occurrence of revenue. This checks that recorded sales really happened. The reverse direction, from dispatch records to the ledger, tests completeness, meaning that no genuine sales were left unrecorded.

  1. AFrom dispatch records (goods dispatch notes) to the sales ledger
  2. BFrom the sales ledger back to supporting dispatch documents and invoicesCorrect
  3. CFrom the trial balance to the closing stock register
  4. DFrom the bank statement to the creditors ledger

Explanation

Occurrence tests whether recorded sales are genuine, so the auditor starts from the sales ledger and vouches back to invoices, orders and dispatch evidence. Testing from dispatch records to the ledger addresses completeness (unrecorded sales), which is a different assertion.

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