What are the duties of an auditor in connection with credit sales?

Ans.

THE DUTIES OF AN AUDITOR IN CONNECTION WITH CREDIT SALES

(1) He should see that the internal check system is efficient. If it is not so, he should disown his responsibility. If it is efficient, he should apply a few ‘test checks”.

(2) He should compare the data of the copy of the invoice with the data in the Sales Book.

(3) He should see that the sales are not omitted from being entered in the Sales Book. If it is done, it is possible that when the customer sends cash or cheque in payment of the goods sold, such an amount may be misappropriated. The fraud will not be detected because no entry was made when the goods were sold and, therefore, if no entry is made when the payment is received, it will not affect the accounts at all whereas cash has been misappropriated. Fraud can be detected in such a case when comparison is made with original records, e.g., Copies of Invoices, Order Received Book, Goods Outward Book, Gatekeeper’s Outward Book. Delivery Note duly signed by the purchaser, receipts issued by the transport company or the railways.

(4) He should further see that the sale of an asset is not treated as ordinary sale, otherwise profit will be inflated. If an old asset has been sold, purchaser’s account should be debited and particular asset account should be credited.

(5) With the permission of the client, the auditor should send Statements of Account to the customers to confirm the accuracy of the balance. This method will prove the accuracy of the credit sales as well as the receipts from debtors and is very effective to check frauds.

(6) He should check the Sales Book for the last days or weeks of the financial period and the Returns Inward Book for a few days or weeks after the close of the period in order to see whether fictitious sales or returns had been recorded to inflate profits.

(7) He should check the casts and cross casts of the Sales Book.

(8) The cancelled invoices should be checked with the duplicate copy of the invoice.

(9) Sales tax, insurance charges, etc., which are recoverable from the customers should be debited to the customer’s account and credited to the appropriate accounts.

(10) Sales to allied or sister concerns should be carefully examined as they may be fictitious entries with a view to inflate profits.

(11) If there is a significant difference of trade discount allowed to two different purchasers, he should inquire into the reason of such a distinction.