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1、uNature of the Revenue Cycle uInherent Risk Factors uAudit objectives uControl Activities uStandard Substantive Tests 普利卡管http:/ For a merchandising company, the classes of transactions in the revenue cycle include: 1. credit sales (sales made on accounts), 2. cash receipts (collections on accounts

2、and cash sales), and 3. sales adjustments (discounts, sales returns and allowances, and uncollectable accounts provisions and writeoffs). Consider: How Can Revenue be Manipulated? 1.Pressures to overstate revenues to achieve announced revenue or profitability targets. 2.Pressures to overstate cash a

3、nd gross receivables or understate the allowance for doubtful accounts for debt covenant working capital requirements. 3.Revenue recognition: ambiguous stds, estimates, complexity of the calculations, rights of return. 4.Receivables are factored with recourse: correct classification as a sale vs. a

4、borrowing. 5.Cash receipts susceptible to misappropriation. 6.Sales adjustments can conceal theft. 7.Classification of AR as current vs. non-current Understand the Clients Business and Industry 1. Develop an expectation of total revenues 2. Develop an expectation of gross margin 3. Develop an expect

5、ation of net receivables 4. Understanding industry accounting practices. Consideration of IC: Obtaining an Understanding and Assessing CR Control Environment Risk Assessment Information and Communication Initiate transactions Deliver (receive) goods or services Record Transactions Consideration Cont

6、rol Activities Monitoring Common Documents and Records Customer Order Sales Order Shipping Documents (Bill of Lading and Packing Slip) Sales Invoice Authorized Price List Sales Journal Customer Master File Accounts Receivable Master File Customer Monthly Statement System Flowchart Initiate Credit Sa

7、les System Flowchart Delivery of Credit Sales System Flowchart Recording Credit Sales Common Documents and Records Remittance advice Prelist Cash count sheets Daily cash summary Validated deposit slip Cash receipts journal Sales adjustment transactions involve the following: 1. Granting cash discoun

8、ts 2. Granting sales returns and allowances (credit memo) 3. Determining uncollectable accounts (write-off authorization memo) Important Concept: The sales that are most likely to represent potential misstatements are the uncollected sales. To design substantive tests for these accounts, the auditor

9、 must first determine the acceptable level of tests of details risk for each significant related objective. 1. Initial procedures 2. Analytical procedures 3. Tests of transactions a) Test details of sales transactions b) Cut-off testing Sales Cash Receipts Credit Memos 4. Tests of balances a) Confir

10、mations b) Estimates 5. Presentation and disclosure SubstantiveAccount Balance Audit Objectives CategoryTestEO4C4RO3VA#PD# Initial1. Obtain an understanding of 5 4,5 Procedures the business and industry and determine: a. The significance of revenues and accounts receivable to the entity. b. Key econ

11、omic drivers that influence the entitys sales, margins, and collections. c. Standard trade terms in the industry, including seasonal dating, collections period, etc. d. The extent of concentration of activity with customers. SubstantiveAccount Balance Audit Objectives CategoryTestEO4C4RO3VA#PD# Init

12、ial2. Perform initial procedures on 4,5 Procedures accounts receivable balance and records that will be subjected to further testing. a. Trace beginning balance for accounts receivable to prior years working papers. b. Review activity in general ledger account for accounts receivable and investigate

13、 entries that appear unusual in amount or source. c. Obtain accounts receivable trial balance and determine that it accurately represents the underlying accounting records by: Footing the trial balance and determining agreement with (1) the total of the subsidiary ledger or accounts receivable maste

14、r file, and (2) the general ledger balance. Testing agreement of customer and balances listed on the trial balance with those included in the subsidiary ledger or master file. SubstantiveAccount Balance Audit Objectives CategoryTestEO4C4RO3VA#PD# Analytical3. Perform analytical procedures: 4,5 Proce

15、dures a. Develop an expectation for accounts receivable using knowledge of the entitys business acitvity, market share, normal trade terms, and its history of accounts receivable turn days. b. Calculate ratios: Compare sales to the entitys capacity. Compare sales growth and receivalbes growth. Accou

16、nts receivable turn days. Uncollectable accounts expense to net credit sales. Uncollectable accounts expense to accounts receivable writeoffs. c. Analyze ratio results relative to expectations based on prior years, industry data, budgeted amounts, or other data. Audit RatioFormulaSignificance Sales

17、to CapacityNet Sales NonfinancialHelpful in assessing the Measure of Capacityreasonableness of total revenues. Market ShareClients Net Sales Net SalesHelpful in assessing the of Industryreasonableness of both total revenues and gross margins. Larger market share is often associated with larger gross

18、 margins. Sales to TotalSales Average Total AssetsThis ratio is useful for Assetsmanufacturing and other asset-based companies. Describes the relationship between assets and sales revenues. Accounts(Accounts Receivable n Ratios larger than 1.0 indicate ReceivableAccounts Receivable n-1) -that receiv

19、ables are growing Growth to Sales1) (Sales n Sales n-1) 1)faster than sales. Large ratios Growthmay indicate possible collection problems. Audit RatioFormulaSignificance AccountsAverage Accounts Receivable Useful in comparing with industry Receivable TurnSales x 365averages. Longer collection Dayspe

20、riods may indicate collection problems. Prior experience and current sales volumes may be useful in estimating current net receivables. UncollectableUncollectable AccountsUseful in evaluating the Accounts ExpenseExpense Net Salesreasonableness of uncollectable to Net Creditaccounts expense. Smaller

21、ratios Salesmay indicate an inadequate provision for uncollectable accounts. UncollectableUncollectable AccountsUseful in evaluating the Accounts ExpenseExpense Actual Accountsreasonableness of uncollectable to AccountsReceivable Writeoffsaccounts expense. Smaller ratios Receivablemay indicate an in

22、adequate Writeoffsprovision for uncollectable accounts. New ProductRevenues from New ProductsCompanies with a high proportion Revenues to TotalIntroduced During the Year of revenues from new products RevenuesTotal Revenuesmay earn a premium gross margin due to the ability to innovate. SubstantiveAcc

23、ount Balance Audit Objectives CategoryTestEO4C4RO3VA#PD# Tests of4. Vouch a sample of recorded 4 Details of sales and receivable Transactions transactions to supporting documentation. a. Vouch receivable debits to supporting sales invoices, shipping documents, and sales orders. b. Vouch receivable c

24、redits to remittance advises or sales adjustments, authorizations for sales returns and allowances or uncollectable account writeoffs. SubstantiveAccount Balance Audit Objectives CategoryTestEO4C4RO3VA#PD# Tests of5. Perform cutoff tests for sales Details of and sales returns. Transactions a. Select

25、 a sample of recorded sales transactions from several days before and after year-end and examine supporting sales invoices and shipping documents to determine sales were recorded in the proper period. b. Select sample of credit memos issued after year-end, examine supporting documentation such as da

26、ted receiving reports and determine that returns were recorded in the proper period. Also consider whether volume of sales returns after year-end suggest the possibility of unauthorized shipments before year-end. Objective: Ensuring recording of transactions in the correct period Types: 1.Sales 2.Cr

27、edit memos 3.Cash receipts SubstantiveAccount Balance Audit Objectives CategoryTestEO4C4RO3VA#PD# Tests of6. Perform cash receipts cutoff Details of tests. Transactions a. Observe that all cash received through the close of business on the last day of the fiscal year is included in cash on hand or d

28、eposits in transit and that no receipts of the subsequent period are included, or b. Review documentation such as daily cash summaries, duplicate deposit slips, and bank statements covering several days before and after year-end for proper cutoff. Substantive Account Balance Audit Objectives Categor

29、y Test EO4 C4 RO3 VA# PD# Tests of 7. Confirm accounts receivable. 4 Details of a. Determine the form, timing, Balances and extent of confirmation requests. b. Select and execute sample and investigate exceptions. c. For positive confirmation requests for which no reply was received, perform alterna

30、tive follow-up procedures: Vouch subsequent cash receipts identifiable with items comprising the account balance at the confirmation date to supporting documentation. Vouch items comprising the balance at the confirmation date to documentary support such as sales orders and shipping documents. Confi

31、rm Receivables Confirmation of accounts receivable involves direct written communication between individual customers and the auditor. This substantive test is used extensively by the auditor. Confirmation of receivables is a generally accepted auditing procedure which should be performed unless: 1.

32、 AR is immaterial to the financial statements. 2. The use of confirmations ineffective. 3. Inherent risk and control risk are low enough and analytical procedures expected to be effective enough to get audit risk to an acceptably low level. Forms of Confirmation There are 2 forms of confirmation req

33、uest: 1. the positive confirmation, which requires the debtor to respond whether or not the balance shown is correct, 2. the negative confirmation, which requires the debtor to respond only when the balance shown is incorrect. SubstantiveAccount Balance Audit Objectives CategoryTestEO4C4RO3VA#PD# Te

34、sts of8. Evaluate the adequacy of the 5 Details of allowance component for each Balances: aging category and in the Accounting aggregate. Estimates a. Foot and crossfoot the aged trial balance of receivables and agree the total to the general ledger. b. Test aging by vouching amounts in aging categories for sample of accounts