During the first-year audit of Omato Wholesale Stationery Ltd., you observe that commissions amount to almost 25 percent of total sales, which is somewhat higher than in previous years. Further investigation reveals that the industry typically has larger sales commissions than Omato and that there is significant variation in rates depending on the product sold.
At the time a sale is made, the salesperson records his or her commission rate and the total amount of the commissions on the office copy of the sales invoice. When sales are entered into the information system for the recording of sales, the debit to sales commission expense and credit to accrued sales commission are also recorded. As part of recording the sales and sales commission expense, the accounts receivable clerk verifi es the prices, quantities, commission rates, and all calculations on the sales invoices. Both the customer master file and the salesperson's commission master files are updated when the sale and sales commission are recorded. On the fi fteenth day after the end of the month, the salesperson is paid for the preceding month's sales commissions.
REQUIRED
a. What additional information do you require to complete the audit of sales commissions?
b. Develop an audit program, by assertion, to verify sales commission expense assuming that no audit tests have been conducted in any audit area to this point.
c. Develop an audit program, by assertion, to verify accrued sales commissions at the end of the year, assuming that the tests you designed in part (a) resulted in no significant misstatements.