An auditor is planning a substantive test of details of the occurrence assertion for Sales Revenue transactions. The audit client’s performance obligations are satisfied when the product is shipped to the customer. Which of the following procedures is likely most effective for this test?

Question

BlackTom AI · Accepted Answer

When planning substantive tests of details for the occurrence assertion in Sales Revenue, we want evidence that revenue actually occurred and corresponds to shipments made to customers.
Option 1: Start with the shipping documents and verify to the sales journal entries. This approach directly ties the shipment event (evidence of performance obligation satisfaction) to recorded revenue in the sales journal, supporting that revenue occurred and was recorded for the correct period and shipment. It creates an appropriate linkage between source documents (shipping documents) and the recording of revenue.
Option 2: Start with recorded cash receipts entries and verify to the sales journal entries. While cash receipts can support that cash was received, they are not the最 direct evidence of the occurrence of revenue. Some sales may be recorded but later reversed or uncollected, and this path could miss shipments not yet collected or misstate the timing. Therefore this is less effective for occurrence.
Option 3: Start with recorded sales revenue entries and verify to the shipping documents. This path starts with the already recorded revenue and then checks against shipping documents, which is problematic for occurrence testing because it risks starting with potentially misstated revenue and then trying to corroborate it, rather than independently verifying that revenue corresponds to actual shipments.
Option 4: Start with recorded sales revenue entries and verify to the cash receipts journal entries. This linkage checks that revenue has a matching cash receipt, which addresses occurrence only insofar as cash collection is concerned, but it does not directly confirm that the revenue was supported by the actual shipment of goods. It also may miss situations where revenue was recognized without shipment or where shipments occurred but cash is uncollected.
In summary, option 1 provides the most direct and effective audit trail for the occurrence of revenue by aligning shipment evidence with the sales recording, while the other options rely on downstream or less direct evidence and introduce greater risk of undiscovered misstatements.

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