TRANSACTIONS

1
 KEY TRANSACTIONS
• Sales
• Purchases and expenses
• Payroll

2
 SALES CYCLE
Inherent risks
• Relationship between sales and
performance
• Internal supporting documentation
• Cash sales

3
WELSH SLATE

4
 AUDIT OBJECTIVES
• Test sales for understatement

• Test debtors for overstatement

5
 TRANSACTION TESTS
• Select a sample of despatches
• Agree to valid despatch note
• Agree to a valid invoice
• Trace invoice to sales day book
• Agree postings to general ledger

6
 OTHER TESTS OF DETAIL
• Returns in

• Cut off

7
 SALES ANALYTICAL REVIEW
• Review gross profit margin
• Review sales day book
• Sales analysis
• Review level of credit notes
• Reconcile stock, sales and purchases
• Review stock counts

8
 PURCHASES CYCLE
Inherent risk:

• Attractive target for fraud

– By employees
– By third parties

• Manipulation of profit

9
Paul Hopes – defrauded Toys R Us

10
 AUDIT OBJECTIVES
• Test purchases for overstatement

• Test creditors for understatement

11
 TRANSACTION TEST
• Agree purchases to general ledger
• Agree posting to purchase day book
• Check casts in purchase day book
• Select a sample of invoices from purchase
day book
• Agree sample to:
– Invoice
– Goods received note
– Purchase order
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 OTHER TESTS OF DETAIL
• Returns out
• Cut off

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 PURCHASES ANALYTICAL
REVIEW
• Review gross profit margins
• Review purchase day books
• Review purchase ledger
• Compare balances to prior years & budget
• Review stock counts
• Calculate expected purchases

14
 PAYROLL
Inherent risks
• Ghost employees and overpayments
• Errors in tax and national insurance

Audit objectives
• No related population
• Higher risk of overstatement
• Need to check all aspects
15
 COMPLETENESS OF PAYROLL
Perform starters and leavers test:
• Identification of relevant employees
• Check relevant date
• Determine policy
• Check payrolls

16
 TEST OF DETAILS
• Agree nominal ledger to payroll
• Check casts
• For a sample of employees check:
– Salary to contract
– Tax code to HMRC notification
– Hours to timesheets/clock cards
– Reperform calculations
• Agree payments to HMCR
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PAYROLL ANALYTICAL REVIEW
• Monthly analysis of gross pay, PAYE, NI
etc.
• Calculate expected costs based on last
year
• Compare ratio of commissions to sales

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 DIRECTORS EMOLUMENTS
• Review service contracts and board
minutes
• Agree salary to payroll or fee notes
• Check calculations of bonuses and
benefits in kind
– Agree to invoices
– Tax returns
• Compare to previous year
• Ensure properly disclosed
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