Problem
Duke is seeking your advice on the selection of substantive procedures for the audit of his client, Kogan Ltd. Kogan Ltd is a specialist outdoor clothing and equipment retailer and has experienced reasonable growth over the past three years, although this growth has come substantially from the outdoor equipment section. Sales of camping and climbing equipment are up significantly so far this year in all stores. Early results from audit testing show that controls over the sales process are reasonably effective, resulting in a low to moderate control risk. Henry believes he will need to do some substantive testing of sales, but is unsure about which procedures would be most useful. He has access to the client's monthly sales budgets for the period and results for the eight months of the year to date. Kogan also has an online sales department company. Its business model allows customers order products online. In addition, it charges customers fees when a user joins premier account. The premier membership allows the users to enjoy free delivery for the first order, discount on every Tuesday, credit and promotions. Duke believes he will need to do some substantive testing of sales, but is unsure about which procedures would be most useful.
Task
1) Auditors often use client budgets for revenue and expenses as part of their substantive testing. Explain how and why this is done.
2) Explaining the substantive procedures for sales that you could choose from and which would be most useful in these circumstances.
3) What could Duke do to audit the revenue from online sales?