Page 16 - eBook Audit Of Financial Statement Components

(a) To review the understanding of an entity as to whether

any changes to sales and receivables balances are to be

expected,

(b) To determine any fluctuations in the amount of sales and

receivables balance between current year and previous

year, and

(c) To determine ratios and trends for gross profit and

average collection period. An unusual change in gross

profit margin compared with previous year's figure
signifies possibilities of misstatements in recording sales.

An increase in average collection period shows more

allowance is required because the client is facing

problems in collecting receivables.

TEST OF DETAILS OF TRANSACTIONS

Test of transactions are used to corroborate test of details of

The tests of
balances. The tests of transactions are normally performed during
transactions
an interim audit and in the form of dual-purpose tests. For
serve to verify example, the cut-off test performed on sales is one of the tests of

the account detail of transactions. It serves to verify the account balance of

balance of sales at the end of the reporting period.
sales at the

• Vouching
end of the
Auditors vouch recorded account receivables to
reporting
supporting documents. Selected sample of debits in
period.
customers' accounts are vouched to sales invoices to

obtain appropriate audit evidence on the existence, right
and obligations and accuracy of sales and receivables.

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