CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceMedium
An auditor is performing substantive procedures on the revenue cycle of a retail client. Which of the following audit procedures would provide the most reliable evidence regarding the occurrence assertion for sales transactions?
- AVouching recorded sales in the sales journal to shipping documents and customer orders.
- BComparing current year sales trends with prior year trends and industry data.
- CTracing shipping documents to sales invoices and the sales journal.
- DExamining sales invoices for evidence of customer approval and credit checks.
Show answer & explanationAnswer & explanation
Correct answer: A. Vouching recorded sales in the sales journal to shipping documents and customer orders.
Vouching from the sales journal (a recorded transaction) back to supporting documents (shipping documents and customer orders) provides evidence that the recorded sales actually occurred and are not fictitious.
Why the other options are wrong
- B. Comparing sales trends is an analytical procedure, which provides persuasive evidence but is generally less reliable for specific transaction occurrence than direct documentary evidence.
- C. Tracing from shipping documents to the sales journal tests completeness (all shipments recorded), not occurrence (recorded sales are valid).
- D. Examining approvals and credit checks provides evidence of authorization and accuracy, but not directly that the sale actually occurred.
Occurrence Assertion for Sales
The occurrence assertion for sales means that recorded sales transactions and events have actually occurred and pertain to the entity.
- Focuses on overstatement risk.
- Primary procedure: Vouching from records to source documents.
- Ensures transactions are valid and not fictitious.
Memory trick: Vouch OUT from the ledger to Prove it's REAL.