Healthy doses of skepticism and due care can help uncover schemes to inflate sales.
By JOHN F. MONHEMIUS, CPA AND KEVIN P. DURKIN, CPA
DECEMBER 2009
Following an initial customer confirmation request with no response, a first-year auditor mails a second and third request, all under the supervision of the auditor-in-charge assigned to the account. Field work begins on the audit, but there is still no response from the customer. Another auditor scanning the cash journal from the beginning of the year through the current date notes that all outstanding invoices have subsequently been paid from this customer during this period. Customer check copies are provided, and remittances indicate that payment has been received in settlement of all outstanding invoices at fiscal year-end for this customer. But has the existence of accounts receivable from this customer at fiscal year-end really been established?
Fraudsters have been creating increasingly complex and sophisticated schemes designed to rely on potential weaknesses in the execution of audit procedures surrounding key assertions such as existence. A financial statement auditor can use his or her professional judgment while carrying out audit procedures to detect such a scheme.
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