An internal auditor is investigating the performance of a division with an unusually large increase in...

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Accounting

An internal auditor is investigating the performance of adivision with an unusually large increase in sales, gross margin,and profit.
Assume that the analysis shows unusually high sales and grossmargin during the months of November and December and the internalauditor wishes to investigate further. Which of the followingengagement procedures will be most effective in analyzing whetherfraudulent sales may have been recorded?

A.   Take a sample of shipping documents and compare themwith the related sales invoices, noting that all items wereproperly billed.
B.   Confirm accounts receivable with largecustomers.
C.   Perform an analytical review comparing sales andgross margin with the previous 10 months and the first month of thefollowing year.
D.   Use regression analysis techniques for the first 10months to estimate the sales and cost of goods sold for the last 2months.

Answer & Explanation Solved by verified expert

4.4 Ratings (893 Votes)

High Sales and gross margin in November and December may be due to 1 Fictitous Sales 2Sales of January included in December 3High gross margin because of not recording purchases 4 Incorrect recording of See Answer

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Transcribed Image Text

An internal auditor is investigating the performance of adivision with an unusually large increase in sales, gross margin,and profit.Assume that the analysis shows unusually high sales and grossmargin during the months of November and December and the internalauditor wishes to investigate further. Which of the followingengagement procedures will be most effective in analyzing whetherfraudulent sales may have been recorded?A. Take a sample of shipping documents and compare themwith the related sales invoices, noting that all items wereproperly billed.B. Confirm accounts receivable with largecustomers.C. Perform an analytical review comparing sales andgross margin with the previous 10 months and the first month of thefollowing year.D. Use regression analysis techniques for the first 10months to estimate the sales and cost of goods sold for the last 2months.