The student should refer to Spicer and Pegler’s book for the details in the matter of internal check on sales that should be exercised and the extent to which checking of individual entries in the Sales Day Book can be dispensed with when it is proper and effective. The credit sales should be verified by reference to copies of invoices issued to customers and, in the process, attention should be paid to the following matters :
- that each item of sales relates to the period of account under audit;
- that the goods are those that are normally dealt in by the concern.
- that the sale price has been correctly arrived at and the copy of the requisition slip issued by the Sales Department and the copy of the Despatch Note showing the date and mode of despatch of goods are attached with the invoice.
- that the amount of the invoice has been adjusted in an appropriate account; and
- that the sale has been authorised by a responsible official and in token thereof he has initialled the invoice; also that any alteration in the invoice has been attested by the same person.
It should be generally verified that the sales have been made at a uniform rate, and on identical terms as regards payment of freight, sales-tax, packing, forwarding charges, etc. The additional charges recovered along with the sale price should be credited to separate accounts, appropriately headed, and not to the Sales Account. When a trade discount is allowed, the amount thereof should be deducted from the sale price. Where any special trade discount has been allowed, the reason thereof should be ascertained. The different types of sales should be classified under the following heads :
1. Sale of raw materials.
2. Sale of finished goods.
3. Sale of empties and other packing materials.
4. Sale of assets.
Small concerns generally do not have well organised Sales and Despatch Departments. In such cases, for verifying sales the auditor should trace a small proportion of sales invoice into the Stock Book, specially of goods sold at the beginning and at the close of the year. Such a step is essential for verifying that the sales of goods issued in the previous year or years have not been adjusted in the accounts of the year under audit, also that the goods sold during the year have not been erroneously included in the closing stock. This would also disclose any bogus sales debited to the accounts of fictitious customers for which payments have not been received. In the case of sales to directors as well as to associated concerns, it should also be verified that these have been made at market rates.
The sale of goods on hire-purchase basis of the goods sent out on sale or return basis or on consignment basis should be separately recorded. When credit sales are not adjusted in the accountsmat the time they are made but at the time the sale proceeds are collected, there can be no guarantee that any amount collected in such sales has not been misappropriated. The auditor should, therefore, draw the attention of the management to the risk involved in adopting such practice; also in such a case he should not certify the correctness of any amount outstanding for recovery shown in the Balance Sheet in the absence of confirmation of the balance by the customers. Clause (3) of Part II of Schedule VI to the Companies Act, 1956 requires that the total amount of sales for the year with a break-up for each class of goods dealt, in the related quantities, the selling agent’s commission, brokerage and discount on sales other than usual trade discounts and the commission, brokerage and discount on sales other than usual trade discounts and the commission of sole selling agents should be separately disclosed in the Profit and Loss Account. The auditor should see that a separate record in respect of these items has been maintained for purposes of disclosure.