Question

Except for two key differences, the transaction-related audit objectives are essentially the same for the processing of credit memos as they are for sales. Which of the following are the two key differences?

A) risk and emphasis on the completeness objective
B) materiality and emphasis on the accuracy objective
C) risk and emphasis on the classification objective
D) materiality and emphasis on the occurrence objective

Answer 1

The two main differences in audit objectives between sales and credit memos are the importance placed on materiality and the occurrence objective, with a stronger focus on verifying the validity of credit memos.

Step-by-step explanation:

The two key differences between the transaction-related audit objectives for sales and for credit memos are materiality and the emphasis on the occurrence objective. When dealing with credit memos, audit risk may be higher due to the potential for fraudulent activity or misstatements that result in unwarranted reductions in revenue. Therefore, auditors place a strong emphasis on the occurrence objective to verify that credit memos and related transactions actually occurred and are valid. In contrast, with sales transactions, auditors might place more emphasis on the completeness objective to ensure all sales that have occurred are recorded. It is also worth noting that materiality plays a role as erroneous credit memos can have a direct impact on the net income.