Develop a proposed strategy for auditing the occurrence assertion for sales transactions. Describe whether there is a sufficient paper-based audit trail to audit that assertion without relying on IT audit specialists to test electronic only processes.

Question

What will be an ideal response?

Answer 1

Auditing standards note that the occurrence assertion about classes of transactions relates to whether
recorded transactions have occurred during a given period and pertain to the entity. Thus, when
gathering evidence about the occurrence of sales transactions, the auditor is trying to determine
whether recorded sales transactions represents valid exchanges of goods or services with customers
who have provided cash or a promise to pay cash in the future.
The audit trail described in the solution to question 1 is sufficient to audit the occurrence
assertion for sales transactions without requiring the services of IT audit specialists to audit electronic
only processes. The auditor is able to trace amounts recorded in the consolidated sales General Ledger
account back to cash and credit card deposits on file by date at each store.
To test the occurrence assertion for sales, an auditor could select postings in the General
Ledger and trace those back to randomly selected Daily Sales Reports at selected stores. For each
day selected, the auditor could verify that the recorded totals for cash, debit, and credit card sales
is supported by the email deposit confirmation received daily from the local bank at the respective
store for each day selected. One way the auditor might chose to test this assertion is by relying on the
client’s internal control. Recall that an independent person in accounting verifies that the sum of the
cash, debit, and credit card slip totals reconcile to the email bank deposit confirmation, after taking
into consideration the $200 that the cashier leaves in the cash drawers each night. To test this control,
the auditor could verify that the total of cash, debit, and credit card sales selected by the auditor from
the Daily Sales Reports is supported by an already client-matched Daily Deposit Sheet and validated
deposit confirmation.
Alternatively, the auditor may test the occurrence assertion by performing substantive tests of
transactions. In that case, the auditor would verify all recorded cash, debit, and credit card totals on
the Daily Sales Report reconcile to the validated deposit confirmation or monthly bank statement.
Vouching the recorded sales totals to validated deposit slips or bank statements provides
persuasive evidence that recorded sales represent valid exchanges of goods with customers for cash
or approved credit charges. It would be difficult to record fictitious sales, given that each sale must be
validated by actual cash received or by an authorized bank debit transaction or VISA or MasterCard
credit slip. It would not be necessary to trace recorded transactions back to individual customer
transaction records, which are only in electronic form.