While verifying the consignment sales, you have to ascertain that credit has been taken only for the profit on the goods sold through the consignee before the year end. Assets remain with consignee shall be shown at cost. Verify credits in the Consignment Account with the help of the Account Sales received from the consignee. The gross sale proceeds should be credited to the Consignment account and debited to the consignee’s account. Verify the terms of agreement between the consignor and the consignee to check the commission and other expenses debited to the Consignment Account and credited to the Consignee’s A/c. The Account Sales also must be correspondingly checked.

Ensure that the inventory lying with the consignee at the end should be taken in the balance sheet at cost on a consistent basis and credited to the Consignment A/c to arrive at the result of the consignment transactions. Obtain confirmation of the balance in the account of the consignee from the consignee. Sometimes, the goods are consigned not at cost but at an inflated price. The auditor should see that the necessary adjustments to remove the loading are made at the end of the year.

Ensure that the goods consigned are not treated as ordinary sales. In cases it is so, the auditor should see that necessary adjustments are made at the year-end in respect of the unsold goods, commission and the expense incurred by consignee. The consignee should not be shown as a trade receivable for unsold goods and in valuation of inventory, these goods should be included in inventory at cost worked out on a consistent basis.