Online sales records auditing to comply with TSA 500

In the digital age, online sales transactions had become a crucial part of almost every type of business. However, from an accountant’s perspective, they should adhere to revenue recognition standards and auditors should follow auditing standard TSA 500: Audit Evidence to audit these transactions. This ensured that the information presented in the financial statements was fairly accurate in all material respects, in accordance with the relevant financial reporting standards.

Auditing standard TSA 500: Audit Evidence, required the auditors to gather sufficient and appropriate evidence to support an opinion on the financial statements. The evidence had to be of high quality in terms of relevance and reliability to each audit objective.

When sales were conducted through online channels such as e-commerce platforms, social commerce or the company’s website, the auditors had to consider the nature of the sales transaction which might differ from traditional sales methods.

Key evidence of online sales included:

1. Order information which consisted of details obtained from various sources such as marketplaces (e.g., Shopee, Lazada, TikTok) or business’s website (which might include order number, date and time, product, selling price and buyer).

2. Proof of payment such as electronic receipts, payment reports from payment gateways and bank transfer slips.

3. Proof of delivery such as tracking numbers from shipping providers and confirmation of receipt from customers.

Nature of online selling:

1. Diverse sales channels such as Marketplace, Website, Social Media Commerce and Live Commerce.

2. Multiple payment methods such as bank transfers, credit cards, e-wallets and cash on delivery (COD).

3. Various promotions and discounts such as store discount codes, platform coupons, flash sales and cashback.

4. Standardized return or exchange system on marketplaces.

Methods for Auditing Online Sales

1. Understanding the Online Sales Process (Understanding of client’s business)

• Understand the business processes, such as revenue types and distribution channels.

• Study the online sales process (walkthrough) from customer order placement and payment to product delivery and accounting entries.

• Evaluate internal controls (Internal Control Evaluation), such as order approval and matching sales reports with payments, etc.

2. Test of Control

• Verify that order information, invoices and shipping documents matched accounting records for completeness, accuracy and actual incurred.
• Verify that sales transactions had been approved by authorized person as defined in the company’s policy.
• Verify that sales prices and discounts or promotions were correctly pre-set in the system and unable to be modified by general staff.
• Verify product delivery by matching order information with tracking numbers and checking status in the shipping system or proof of receipt from the customer to ensure that product delivery actually incurred.
• Verify payment receipts by conducting daily reconciliations between sales report in the system and the amount deposited into the bank account to ensure that the business received full and correct amount of sales revenue.
• Verify in case of cash-on-delivery (COD) whether the company had procedures to verify the transfer of funds by the freight forwarding company to ensure that the money collected from customers by the shipping provider was received by the business in full and correctly without any loss in the payment collection process.

3. Substantive Tests

• Analyze sales by sales channel and compare with the previous year.
• Review vouching such as order lists from the platform, payment gateway reports, tracking numbers with shipping status, return reports, etc.
• Review shipping reports from shipping service providers.
• Conduct reconciliation tests between sales in the system, payments and accounting entries.
• Conduct cut-off tests to verify correct revenue recording for the specified period.

Issues that auditors had to pay special attention to:

• Sales transactions incurred through multiple channels and involve a large volume of items but low bill values, increasing the risk that the business might not be recording sales completely.

• Sales falsification such as recording sales for items not actually delivered or recording canceled or returned orders as revenue.

• Sales that actually incurred but the money did not enter the business’s account. It might be due to employees receiving payments directly but not forwarding, COD payments being lost between the shipping company and the business or sales being deducted with additional fees/discounts that the business had not verified, etc.

• Online sales promotions and discounts were complex which might lead to inaccurate calculations of net sales or incorrect accounting entries.

Auditing online sales transactions required verifying and considering the reliability of the system and the data obtained in accordance with auditing standards TSA 500. If the auditors understood and followed these guidelines, it would ensure that the company’s financial reporting was transparent, accurate and consistent with the financial reporting standards.

Author: Ms. Muttaneeya Namyai

Dharmniti Auditing Co.,Ltd.

Source: 1. TSA 500: Audit Evidence, from the Federation of Accounting Professions under the Royal Patronage.

2. 4 Techniques to become a huge success selling online! Even new online sellers can do it easily. from https://www.makewebeasy.com/.

3. Internal controls related to sale of goods and trade receivable transactions of the business. from https://www.live-platforms.com/th/education/article/304-internal-control-account-receivable-selling.

4. 4 Techniques for managing accounting systems for online stores from https://www.peakaccount.com/blog/business/e-commerce/online-shop-acc-management-techniques.

5. Overview of the Audit Process from https://www.tfac.or.th/upload/9414/EQVA6TY45y.pdf.