Answer

Question a

How may a computerized audit program be used by Hastings to perform substantive test of Rosco's sales records in their machine readable form?

Auditors use computerized audit program to test sales records in the following ways ;

• Missing sequence identification ; during the audit assignment , the auditor uses the computerized audit programs to detect any missing sequence in the sales invoices from the computerized accounting system and records . The missing invoices could signal out unrecorded sales revenue.

• Performing statistical sales analysis ; The auditor conducts analysis over different time periods using the computerized audit programs in order to identify any unusual trends in sales and seek for the relevant and proper explanations from the management regarding the unusual trends

• Duplicate transaction identification.; During the audit of the sales in a computerized accounting environment ,the auditor uses the computerized audit programs to identify any duplicate sales invoices or journal which may overstate sales revenue.

• Stratified sampling of sales ; Stratified sampling is a method of sampling from a population which can be partitioned into sub populations. Auditor uses the computerized audit programs to perform a stratified sampling on sales before finally selecting a final test sample of the sales.

Question b

After having performed these tests with the assistance of the computer, what other auditing procedures should Hastings perform in order to complete the examination of Rosco's sales records?

Additional audit procedures

• The auditor should select a sample of trade customer orders placed and agree these to the dispatch notes and sales invoices and accounting for in the sales ledger to ensure completeness of sales revenue.

• The auditor should select a sample of credit notes raised, trace through to the original invoice and ensure invoice correctly removed from sales to avoid any overstatements in revenue recorded.

• The auditor should select a sample of dispatch notes both before and after year end and then follow these through to sales invoices in the correct accounting period to ensure that cut-off has been correctly applied. Cut off implies that sales are recorded in the corresponding accounting period when they are made.

• The auditor should compare the overall level of revenue against prior years and budget and investigate any significant fluctuations in sales revenue to get the required explanations.

• The auditor should select a sample of sales invoices and agree the sales prices back to the contracted rates to ensure the accuracy of invoices and hence sales accuracy.