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
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.