Auditing the Revenue Cycle
10 important questions on Auditing the Revenue Cycle
Steps sales process
1. Receive a customer purchase order
2. Check inventory stock status
3. Generate back order
4. Obtain credit approval
5. Prepare shipping and packing documents
6. Ship and verify shipment of goods
7. Prepare and send the invoice
8. Send monthly statement to customers
9. Receive payments
What's an important inherent risk related to revenue transactions?
What's the five-step process to recognize revenue?
1. Identify the control with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the deliverables
5. Recognize revenue when (or as) you satify performance obligations (by transferring the promised goods or services)
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What's the primary inherent risk associated with receivables?
Controls related to existence/occurrence
What are the steps in planning analytical procedures?
1. Identify suitable analytical procedures
2. Evaluate reliability of data used to develop expectations
3. Develop expectations
4. and 5. Define and identify significant unexpected differences
6. and 7. Investigate significant and unexpected differences and ensure proper documentation
What are the two potential outcomes of the tests of controls?
1. Control deficiencies: the auditor will assess those deficiencies to determine their severity. The auditor would then modify the preliminary control risk assessment and document the implecations of the control deficiencies.
2. No control deficiencies: the auditor will likely determine that the preliminary assisment of control risk as low is still appropriate.
Revenue: existence and valuation assertions
Revenue: completeness assertion
Revenue: cutoff issues
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