ACCT3002 Chap.8 Sampling and Sales Cycle Testing
Sampling and Sales Cycle Testing
The sales and collections cycle applies planning, assertions, controls and evidence to a concrete transaction stream. Source orders and dispatch records move through invoices and the sales journal into receivables, cash and disclosures. Completeness traces forward from what should have been recorded, while existence vouches recorded balances backward.
Sampling risk comes from a sample that is not representative; non-sampling risk comes from choosing or performing the wrong work. Increasing sample size cannot repair an irrelevant direction.
What this chapter covers
- 01
Sales cycle flow
- 02
Population definition
- 03
Sampling risk
- 04
Non-sampling risk
- 05
Completeness tracing
- 06
Existence vouching
Worked example · free
Test wholesale sales in two directions
- 2Select dispatch notes across year end and trace them forward for completeness.
- 1Investigate missing numbers and verify invoice and journal period.
- 2Select recorded receivables and vouch them to confirmations, orders, dispatch and subsequent cash.
- 1Reperform prices and quantities to add accuracy evidence.
Key terms
- Sampling risk
- Sampling risk is the possibility that a sample conclusion differs from the conclusion obtained from the whole population.
- Non-sampling risk
- Non-sampling risk arises from unsuitable procedures, performance errors or incorrect interpretation rather than sample selection.
- Source document
- A source document is original evidence that initiates or supports a transaction before it reaches the accounting records.
- Sales cycle
- The sales cycle links orders, dispatch, invoicing, recording, receivables, collection and related financial-statement presentation.
Sampling and Sales Cycle Testing FAQ
Why is convenience sampling weak?
Easy-to-locate items may not represent the population or the risky period. Define the relevant population and choose a defensible selection method, while separately targeting unusual, material or high-risk items when judgement demands focused work.
Can one sample test completeness and existence?
A procedure may provide several kinds of evidence, but the starting population still limits what it can reveal. A ledger sample cannot contain omitted transactions. Use an external source population for completeness and recorded items for existence.
Does matching an invoice to the journal prove accuracy?
It proves agreement between two records, but both may share the same error. Reperform quantities, approved prices, tax and totals, and agree terms to orders and dispatch evidence. Accuracy normally needs more than matching identifiers.
How should I design a sample before choosing its size?
Define the audit objective, assertion, population, period and sampling unit. Reconcile the population to the accounting records and decide whether individually significant or unusual items should be tested separately. Choose a selection method that provides a defensible opportunity for relevant items to be included; convenience selections from one easy period are unlikely to represent year-end or systematic risk.
Specify what constitutes an exception and what evidence will distinguish a genuine deviation from a documentation issue. After testing, investigate causes, project misstatements where appropriate and consider sampling risk. Increasing size can reduce the risk that a representative sample is misleading, but it cannot repair an incomplete population, a biased selection method or a procedure that targets the wrong assertion.
How do completeness and existence differ through the sales cycle?
Completeness begins with evidence that sales activity should have entered the records. Select customer orders, dispatch notes or observed shipments, examine sequence gaps and trace forward to invoices, the sales journal and receivables in the correct period. Existence begins with amounts already recorded.
Select journal entries or receivable balances and vouch backward to authorised orders, dispatch or delivery evidence, external confirmation and subsequent receipts. Add recalculation of quantity, price, tax and terms for accuracy, and examine records immediately before and after year end for cut-off. The two directions may use some of the same documents, but they do not provide the same assurance.
State the starting population so the examiner can see which omission or overstatement the work can detect.
What should I write before evaluating a sample result?
Restate the population, sampling unit, selection method and definition of an exception. Confirm that the tested items came from the complete relevant population and separate individually selected high-risk items from the representative portion. Investigate the cause of each deviation before projection, because a systematic processing failure has a different implication from an isolated documentation issue.
Finally distinguish sampling risk from non-sampling error: more selections do not repair the wrong direction or procedure.
Exam move
Draw the sales cycle from order to cash and label the document created at every stage. Practise moving forward and backward through the chain while naming the assertion. For sampling questions, define the population, unit, selection method and exception before discussing size. Keep sampling risk separate from performing the wrong test, because more items do not solve non-sampling risk.
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