In case of sales return the auditor should examine which documents?

 Options:

a) Credit notes, advice notes and inward return notes b) Debit notes, advice notes and inward return notes c) Purchase invoices, advice notes and inward return notes d) Credit notes, inspection report and inward return notes

The Correct Answer Is:

d) Credit notes, inspection report and inward return notes

Correct Answer Explanation: d) Credit notes, inspection report and inward return notes

In the case of sales returns, the auditor plays a crucial role in ensuring the accuracy and reliability of financial statements by examining pertinent documents. The correct answer, d) Credit notes, inspection report, and inward return notes, aligns with the necessary documentation that an auditor should review to validate the sales return process.

i. Credit Notes: These documents detail the specific items returned by the customer and the corresponding value. They serve as evidence that the company has acknowledged the return and intends to credit the customer’s account for the returned goods.

ii. Inspection Report: This report provides critical information regarding the condition of the returned items. It outlines any damages, discrepancies, or deviations from the original state of the goods. The auditor examines this report to assess whether the returned items match the condition stated in the report, ensuring the validity of the return.

iii. Inward Return Notes: These documents record the receipt of returned goods into the company’s inventory. They include details such as quantities, descriptions, and reasons for return. Auditors scrutinize inward return notes to confirm that the items listed match those on the credit notes and inspection reports, ensuring consistency across documentation.

Now, let’s delve into why the other options listed are not the correct choices:

a) Credit notes, advice notes, and inward return notes:

• Credit notes: While credit notes are essential in acknowledging the return and indicating the intention to credit the customer, they may not provide sufficient details about the returned items.
• Advice notes: These notes are often internal notifications and may lack the necessary specifics about the condition of the returned goods. They serve as communication within the company but may not fully document the external aspects of the return.
• Inward return notes: While inward return notes record the receipt of returned goods, they might not capture the details needed to ensure the accuracy of the return process, such as the condition of the items.

b) Debit notes, advice notes, and inward return notes:

• Debit notes: Debit notes indicate a reduction in the amount owed by the buyer to the seller and are typically used for adjustments in billing. However, they are not directly related to sales returns and may not provide information on the specific items being returned or their condition.
• Advice notes: As mentioned earlier, advice notes may not contain sufficient details about the returned goods, making them inadequate for a comprehensive audit of sales returns.
• Inward return notes: While inward return notes are relevant, they alone may not offer enough information about the returned items’ condition or alignment with the credit notes.

c) Purchase invoices, advice notes, and inward return notes:

• Purchase invoices: Purchase invoices detail the original purchase but do not necessarily provide information about returns. They lack the specifics needed to verify the accuracy of the return process.
• Advice notes: Internal communication notes may not contain the necessary external details about the condition of returned goods or quantities.
• Inward return notes: While inward return notes are essential, relying solely on them may not ensure a comprehensive audit, as they might lack information on the items’ condition or may not reconcile perfectly with the credit notes.

In summary, the critical elements for an auditor to examine in the context of sales returns are the credit notes (acknowledging the return), inspection reports (detailing the condition of returned items), and inward return notes (recording the receipt of returned goods).

These documents collectively provide the necessary information for a thorough and accurate audit of the sales return process.

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