ACCA F8 - Audit and Assurance Revision Kit 2016

(b)
Procedures used to ensure the sales statistics may be relied upon
Perform a reconciliation of the sales figures in the sales statistics to the sales recorded in the
accounting system.
Inquire of management how they use the sales statistics, and whether they form the basis of
management decisions (if the statistics play an important part in decision making, management have
an incentive to ensure it is accurately compiled).
Top tips. Other valid procedures include:
Comparing trends in the current year with previous years to ensure they appear reasonable
Verifying customer codes on the customer master file are properly input to make sure the customer
type is properly identified.
Reviewing reports from sales staff to ensure information on university take-up of books is accurate.
(c)
Substantive tests to ensure the royalties charge is accurate and complete
Substantive test
Compare actual royalties with the budgeted
figures for royalties and investigate significant
differences by obtaining explanations from
management and obtaining corroborative
evidence.
Consider whether the royalties charge represents
a reasonable proportion of stated sales income
and obtain explanations from management if this
is not the case.
Select a sample of sales entries and verify
whether royalties had been correctly recorded in
respect of these sales (that is, if they are due, a
royalty charge is recorded at 10% of the sales
value).
Objective of test
To assure the auditor that actual royalties are in line
with management expectations, and there is a valid
reason for any variances.
To satisfy the auditor the royalties charge appears
reasonable when compared to stated sales income.
To provide the auditor with evidence on the
completeness and accuracy of the royalties charge, and
to confirm that royalties were due on despatches.
Top tips. You could have validly stated other procedures and related objectives, but only three of each was
required. Other procedures which could have been included are set out below.
Agree a sample of royalty payments to
supporting sales and despatch documentation,
ensuring that despatches are to
individuals/organisations attracting royalties.
Select sales for an appropriate number of days
before and after the year end and verify against
despatch notes.
Review the sales statistics to establish which
despatches attract royalties.
Using the sales data on monthly sales by
customer type, calculate expected level of
royalties paid by multiplying the sales by 10%.
Compare with actual royalties and investigate
significant differences by seeking explanations
from management and obtaining corroborative
evidence.
To prove that royalty payments have come from a sale
and despatch that royalties should have been paid on.
To check that the proper cut-off treatment has been
applied and only royalties on sales on or before the year
end are included.
To provide evidence the royalties charge was based on
reliable information (as proved in (b)).
To gain evidence over the completeness and accuracy of
royalties paid.
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