Audit and Assurance Practice Exam

What is the best audit procedure to identify fictitious sales if the auditor suspects fictitious entries?

1. Select a sample of recorded sales invoices and trace to shipping documents.

2. Review the sales ledger for unusual transaction patterns.

3. Analyze the company's historical sales trends.

4. Conduct interviews with sales staff regarding policies.

The correct answer is: Select a sample of recorded sales invoices and trace to shipping documents.

The most effective audit procedure for identifying fictitious sales is to select a sample of recorded sales invoices and trace them to shipping documents. This technique directly ties the recorded sales to tangible evidence — the shipping documents — providing a clear verification of whether the sales transactions actually occurred. Tracing recorded sales invoices to shipping documents helps auditors confirm that goods were indeed shipped to the customer and that the invoices correspond to real transactions. Fictitious sales often lack corresponding shipping records, as they are created without any legitimate underlying transactions. Therefore, this procedure effectively uncovers discrepancies that may indicate fraudulent entries. While reviewing the sales ledger for unusual transaction patterns could provide insights into potential anomalies or irregularities, it does not necessarily confirm whether the sales recorded truly correspond to real transactions or not. Analyzing historical sales trends might help identify patterns, but again, it doesn't substantiate the legitimacy of individual sales entries. Conducting interviews with sales staff regarding policies offers contextual understanding but does not provide concrete evidence related to specific transactions. Thus, tracing recorded sales to shipping documents stands out as the most direct and reliable audit procedure for verifying the authenticity of sales and detecting any fictitious entries.