In case of vouching the auditor is least likely to examine authorization by appropriate authority in case of –
Options:
| a) bad bads written off b) sales return c) purchase return d) discount allowed to customers as per organizational policy |
The Correct Answer Is:
d) discount allowed to customers as per organizational policy
Correct Answer Explanation (d) Discount allowed to customers as per organizational policy:
When it comes to vouching, the auditor’s primary concern is to verify that the transactions recorded in the books are legitimate and authorized. In the case of discounts allowed to customers as per organizational policy, these are typically authorized by management as part of the company’s sales strategy.
The authorization for these discounts would likely be in the form of a documented policy or guideline provided to the sales team. This policy would outline the conditions under which discounts can be offered to customers.
Therefore, the auditor would be least likely to examine authorization by appropriate authority in this case because it’s a standard practice within the company and would have been approved by management.
Why the other answers are not correct:
a) Bad debts written off:
When a company determines that a debt is uncollectible (i.e., a bad debt), it needs to write it off from its accounts. This action essentially acknowledges that the company is no longer expecting to receive payment from the debtor.
However, this decision to write off a bad debt requires careful consideration and authorization. It’s not something that can be done casually or at the discretion of individual employees. Instead, it typically requires approval from higher management or a designated authority within the company.
This is important because writing off bad debts directly impacts the company’s financial statements, and any such action should be properly documented and authorized.
b) Sales return:
When a customer returns a product to the company, it constitutes a sales return. This often happens for various reasons, such as product defects, dissatisfaction, or other legitimate grounds.
However, the acceptance of such returns needs to be in accordance with the company’s established policies. These policies are put in place to ensure that returns are handled consistently and fairly.
For example, there may be conditions under which a return is accepted, such as a time limit after purchase or the condition of the returned item. The auditor would want to review these policies and verify that the sales returns were made in compliance with them.
c) Purchase return:
When a company returns goods to a supplier, it’s considered a purchase return. Just like with sales returns, there are typically established procedures for handling these transactions.
These procedures are in place to ensure that the return is valid, and that it follows the terms and conditions agreed upon with the supplier. Again, the auditor would want to review these procedures and verify that the purchase returns were made in accordance with them.
In summary, the key factor in determining the correct answer lies in understanding which transaction is least likely to require specific authorization by appropriate authority.
Among the options provided, discount allowed to customers as per organizational policy is the one that is more of a standard operating procedure within a company, making it less likely to require explicit authorization for each instance.
Remember, auditors are primarily concerned with ensuring that financial transactions are properly recorded and comply with relevant accounting standards and company policies. They do this by examining supporting documentation and seeking evidence of authorization for various transactions.
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