Question Tag: Sales Testing

a) Oxtom Plc, is a publisher and producer of books of poetry. The company has been listed on the Ghana Stock Exchange. Also, it has been a client of your firm of Chartered Accountants for a number of years. The manager in charge of the audit prior to the commencement of the work, has been discussing the audit plan with the audit team, of which you are a member. The audit manager informed the team, among other things, that there has been a growing interest in poetry generally and that the company has acquired a reputation for publishing poets who are still relatively unknown.

During your audit you observed the following:

• Contracts with the poets state that they are given a royalty of 10% on sales. Free copies of the books are provided to the poets and to some organizations such as copyright libraries and to others, such as reviewers and university lecturers. No royalties are paid on free copies.
• The computerised customer master file contains a code indicating whether a dispatch is to earn a royalty for the author. This code is shown on the sales invoice and dispatch note when they are prepared.
• A computerised royalty file is held, all entries therein bearing the invoice number and date.
• The company keeps detailed statistics of sales made, including trends of monthly sales by type of customer, and colleges where its books are recommended as part of course material.
• Bookshops have the right to return books which are not selling well, however, 10% of these are slightly damaged when returned. The company keeps similar records of returns as it does for sales.

Required:
i) Describe TWO (2) procedures you will perform to ensure that the sales kept by the company may be relied upon. (4 marks)
ii) Describe THREE (3) substantive tests you should perform to ensure that the royalties charged are accurate and complete, stating the objective of each test. (6 marks)