An auditor noted that client sales had increased 10 percent for the year. At the same time, cost of goods sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. The auditor is most likely concerned about:
A)unrecorded costs.
B)improper credit approvals.
C)improper sales cut-off.
D)fictitious sales.

Question

Quizplus · Accepted Answer

The auditor's concern about fictitious sales arises from the combination of increased sales, a significant decrease in the cost of goods sold percentage, and a smaller increase in accounts receivable. This scenario could indicate that sales are being recorded without actual shipment or delivery of goods, inflating revenue figures without a corresponding increase in receivables or cost of goods sold.

An Auditor Noted That Client Sales Had Increased 10 Percent