I have a question about audit method on sales/purchase of a typical trading company.?

Question

In order for an auditor to express his opinion on the sales figures of a typical trading company, normally a few type audit tests will be need to carry out for supporting the validity and whether it is in accordance with acceptable accounting practice.

The standard audit method/test for this normally will be sales system and cut off test.

However, I recently heard about an audit method called matching test.

Can anyone able to describe the procedures and its significant compared with the conventional method.

Thank You.

Answer 1

You can only perform a matching test if the goods can be identified, e.g. you don't carry inventory, and only source for the goods once you have the sales order. In that scenario, every sale or shipment you make can be matched to a specific purchase order. This scenario is conducive to carrying out matching tests. Decide on your sample size, then document the sales and matched purchases on a spreadsheet and calculate the gross profit earned on each deal. Average out the gross profit and apply it to the whole year's sales and purchases and see if the profit reported is reasonable or not.