What types of audit procedures could an external auditor perform that might help the auditor detect this fraudulent activity?

Question

What will be an ideal response?

Answer 1

Several possible audit procedures could be performed that might detect this fraudulent activity.
The mailing of confirmations to customers associated with the recorded transactions may identify
misstatements in the recorded receivable balances for the prematurely recorded revenue transactions.
Most likely, customers would indicate discrepancies in the recorded receivable balances due to the
overstated revenue transactions. Be sure to emphasize that they should select those customers for
confirmation from recorded receivable balances. Other audit procedures might include the selection
of transactions from the Sales Journal (or equivalent accounting record) and the examination of the
related documentation for those transactions, including the customer’s purchase order and the shipping
documentation. Well-designed analytical procedures might also highlight the potential for misstatement,
if the recorded amounts are not consistent with the auditor’s pre-determined expectations based on
prior year trends or other operating data. Finally, inquiry of key personnel involved in accounting,
shipping, and sales might reveal unusual activities.