Export and import of sales and purchase

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ashique

ashique (Querist)
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24 January 2015 how to audit export sale and import purchase ? and the major points must be considered during the audit

Kumar

Kumar (Expert)
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24 January 2015 Both should be recognized when risks and rewards are transferred, in line with incoterms.

Asha Kanta Sharma

Asha Kanta Sharma

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24 July 2024 Auditing export sales and import purchases involves thorough verification and validation of transactions to ensure compliance with regulatory requirements and accuracy of financial reporting. Here are the major points to consider during the audit of export sales and import purchases:

### Export Sales Audit:

1. **Documentation Review:**
- Verify export invoices, shipping documents (like bill of lading, airway bill), customs declarations (shipping bills), export contracts, and related correspondence.
- Ensure all documentation complies with regulatory requirements and accurately reflects the terms of the sale.

2. **Export Compliance:**
- Confirm that export transactions comply with export control regulations, including licensing requirements, sanctions, and restrictions on certain products or destinations.
- Review export pricing to ensure consistency with applicable pricing policies and regulations.

3. **Revenue Recognition:**
- Ensure revenue from export sales is recognized in accordance with accounting standards (e.g., IFRS, GAAP).
- Verify completeness and accuracy of revenue recorded, considering discounts, rebates, and incentives.

4. **Foreign Exchange and Hedging:**
- Verify foreign exchange transactions related to export sales and ensure compliance with foreign exchange regulations.
- Review any hedging activities related to currency risk management and ensure proper accounting treatment.

5. **Export Incentives and Subsidies:**
- Evaluate eligibility for export incentives (e.g., Duty Drawback, Export Promotion Capital Goods Scheme) and subsidies.
- Verify proper accounting and disclosure of incentives received.

6. **Credit and Risk Management:**
- Assess credit policies and procedures for export customers, including creditworthiness assessment and management of credit risks.
- Review provisions for bad debts related to export sales.

7. **Logistics and Shipping Costs:**
- Audit shipping costs, freight charges, and related expenses to ensure they are properly recorded and supported by documentation.
- Confirm consistency between invoice amounts and actual shipping costs incurred.

### Import Purchases Audit:

1. **Documentation Review:**
- Verify import invoices, purchase orders, bills of entry, customs clearance documents, and related correspondence.
- Ensure all documentation complies with regulatory requirements and accurately reflects the terms of the purchase.

2. **Import Compliance:**
- Confirm that import transactions comply with import regulations, including customs duties, taxes, and import restrictions.
- Review classification and valuation of imported goods for tariff and customs duty purposes.

3. **Cost of Goods Sold (COGS):**
- Verify the accuracy of COGS calculation for imported goods, including valuation of inventory, freight-in, customs duties, and other import-related costs.
- Ensure consistency in COGS computation methods and adherence to accounting standards.

4. **Customs Duty and GST/VAT:**
- Audit customs duty payments and ensure compliance with customs valuation rules.
- Verify the correct application of GST/VAT on imported goods and related expenses.

5. **Inventory and Stock Valuation:**
- Evaluate inventory valuation methods used for imported goods and ensure consistency with accounting policies.
- Confirm the completeness and accuracy of inventory records, including reconciliation with physical stock counts.

6. **Foreign Exchange Transactions:**
- Verify foreign exchange transactions related to import purchases and ensure compliance with foreign exchange regulations.
- Review any hedging activities related to currency risk management and their accounting treatment.

7. **Vendor Management:**
- Assess procurement processes, vendor selection criteria, and vendor performance management.
- Review controls over vendor payments and ensure adherence to procurement policies.

8. **Compliance and Reporting:**
- Verify compliance with tax reporting requirements for import transactions, including VAT/GST reporting and customs duty declarations.
- Ensure proper disclosure of import-related liabilities, provisions, and contingent liabilities in financial statements.

### Additional Considerations:

- **Audit Trail and Documentation:** Maintain a clear audit trail with documented evidence supporting audit findings and conclusions.
- **Internal Controls:** Evaluate the effectiveness of internal controls over export and import processes, including segregation of duties, authorization procedures, and monitoring mechanisms.
- **Regulatory Changes:** Stay updated with changes in export-import regulations and ensure audit procedures reflect current regulatory requirements.

By focusing on these key areas during the audit of export sales and import purchases, auditors can ensure the accuracy of financial reporting, compliance with regulatory requirements, and effective risk management in international trade transactions.

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