Page 183 - CA Inter Audit PARAM

CA Ravi Taori
QNO— Analytical Procedures for Sales New Course – (SM25)
AIFS.45.58 Bhaskar CNO -AIFS-P3.020
An auditor of a company is focusing upon revenues of a company. In this regard, besides performing
usual detailed checking of sales, he wants to perform substantive analytical procedures in respect of
sales. Discuss how he can perform such procedures.
Answer Substantive analytical procedure will consist of sales trend analysis, comparison with previous accounting
period, category wise sales, any analysis the auditor may find relevant and most important of all building
a sales expectation and compare that with the client's sales records. The auditor will need to know the
sales prices of the products or services over the year, monthly average sales price per product or service,
discount policy.

Example
For a manufacturing company, if the average sales price of product X is' 10 and l,S00 units were sold in that
month, the auditors expected sales will be '15,000. The auditor should compare this figure with the client’s
data and see what they have recorded against Product X. the auditor should consider discussing any
variances (see if there were discounts or sales were wrongly booked in the system) between this
expectation and client’s records, the auditor will have to also identify and understand how the entity
accounts for their sales discounts and sloes return in the system and how those affect the gross sales.

P&L (Recognition of Different Items of Other Old Course -- (N20E)
QNO
Income)
AIFS.45.60
Bhaskar CNO - AIFS-P3.040
As a Statutory Auditor of the company list out audit procedure required to be undertaken for the
recognition of following other income:
i. Interest income from fixed deposit
ii. Dividend income
iii. Gain/(loss) on sale of investment in mutual funds.
Answer Statutory auditor would perform the following audit procedure for recognition of different items given
in the question:
(1) Interest income on fixed deposits is recognized on a time proportion basis taking into account the
amount outstanding and the applicable interest rate.

(2) Dividends are recognised in the statement of profit and loss only when:
(i) the entity’s right to receive payment of the dividend is established;
(ii) it is probable that the economic benefits associated with the dividend will flow to the entity;
and
(iii) the amount of the dividend can be measured reliably.

(3) Gain/(loss) on sale of investment in mutual funds is recorded as other income on transfer of title from
the entity and is determined as the difference between the redemption price and carrying value of the
investments.

P&L-Audit procedure- to obtain evidence regarding overall Old Course -- (M19E/N19E/M23R)
QNO reasonableness of purchase quantity and price. – New Course—(M24E)
AIFS.47
Bhaskar CNO - AIFS-P3.060
Discuss the audit procedure to be considered by an auditor while performing analytical procedure to
obtain audit evidence as to overall reasonableness of purchase quantity and price.
OR
While auditing purchases which types of analytical procedures will be performed by the auditor to obtain
audit evidence as to overall reasonableness of purchase quantity and price

OR
XY and Associates are auditors of PQR Ltd., which provides electrical components on project basis. The
purchases are huge and the auditor wants to make sure that all the purchases made during the period are
recorded and there is no understatement or overstatement. For this purpose the audit team have
performed procedures like cut-off tests, correct treatment of goods in transit, obtaining written

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