Audit Purchases to Check Revenue

BY GARY M. BARNBAUM

I just took your test, “What Is Your Fraud IQ?,” (Dec. 07, page 56). I received a score of 90%.
 
However, I do want to take issue with the wording in one of the questions. In 10(a), you described “Cost of Goods Sold” as an account. Technically, that’s not ­accurate. Cost of goods sold is a subtotal made up of a number of accounts, including the account “purchases.” (Although, oftentimes, cost of goods sold is reflected as one number on a published condensed financial statement.)
 
Therefore, one way to validate fictitious revenues (and also unrecorded revenues) is to audit purchases. This type of so-called “backward auditing” is not only commonly used for the purpose of validating sales, it is commonly used by government agencies for the same purpose, especially with sales tax audits.
 
Gary M. Barnbaum, CPA
Woodland Hills, Calif.

SPONSORED REPORT

Revenue recognition: A complex effort

Implementing the new standard requires careful judgment. Learn how to make significant accounting judgments and document them and collaborate with peers for consistent application.

TECHNOLOGY Q&A

How to create maps in Excel 2016

Microsoft Excel 2016 has two new mapping capabilities. J. Carlton Collins, CPA, demonstrates how to make masterful 2D and 3D maps in Excel 2016.

QUIZ

News quiz: Economy and health care changes top CPAs’ list

CPA decision-makers’ economic outlook and the House Republicans’ proposed tax changes as part of replacing the Patient Protection and Affordable Care Act received attention recently. See how much you know with this short quiz.