Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 53

An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?

Answer options

• A. Trace a sample of shipping documents to related sales invoices to verify proper billing.
• B. Send accounts receivable balance confirmations to customers.
• C. Compare the division's sales and gross margins to those of the prior three-month period.
• D. Estimate the sales and cost of goods sold for the three-month period by using regression analysis.

Correct answer: B

Explanation

Sending accounts receivable balance confirmations to customers is the correct course of action as it directly verifies whether the reported sales have been recorded with actual customer transactions. The other options either focus on internal documentation that may not reveal fraud, compare past performance without confirming current transactions, or estimate figures rather than verifying actual sales.