Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

If an auditor's goal is to detect a possible understatement of sales, which documents should they trace transactions from?

1. Cash receipts journal to sales journal

2. Sales journal to cash receipts journal

3. Sales invoices to shipping documents

4. Shipping documents to sales invoices

The correct answer is: Shipping documents to sales invoices

When an auditor is focused on detecting a possible understatement of sales, tracing transactions from shipping documents to sales invoices is particularly effective. Shipping documents serve as evidence that a product has been shipped to a customer and indicates that a sale has occurred. These documents typically show the details of the goods sent, the shipment date, and the recipient. By tracing from the shipping documents to the sales invoices, the auditor can verify that all shipped goods have been properly recorded as sales in the company's financial records. This approach helps ensure that no sales have been unintentionally omitted or understated, which is crucial for accurate financial reporting. If shipped goods do not have corresponding sales invoices, it could indicate that sales are not being fully recorded. The other options do not directly address the assertion of completeness of sales. For instance, tracing from cash receipts journal to the sales journal might help with confirming cash collection but does not provide insight into whether all sales that should have been recorded actually were. Similarly, tracing from the sales journal to the cash receipts journal or from sales invoices to shipping documents would not effectively identify potential understatements of sales as directly as the correct choice does.