Kế toán, kiểm toán - Chapter 07: Revenue and collection cycle

Auditing & Assurance Services, 6eChapter 07 Revenue and Collection Cycle“What at first was plunder assumed the softer name of revenue.” Thomas Paine7-*Learning ObjectivesDiscuss inherent risks related to the revenue and collection cycle with a focus on improper revenue recognitionDescribe the revenue and collection cycle, including typical source documents and control procedures.Give examples of tests of controls over customer credit approval, delivery, and accounts receivable accounting7-*Learning Objectives (continued)Give examples of substantive procedures in the revenue and collection cycle and relate them to assertions about account balances at the end of the period.Describe some common errors and frauds in the revenue and collection cycle, and design some audit and investigation procedures for detecting them.7-*Inherent RisksImproper Revenue RecognitionCut-offBill and HoldChannel StuffingReturns and AllowancesCollectibility of Receivables7-*Revenue RecognitionMust be (1) realized or realizable and (2) earned SEC guidance (SAB 104)Persuasive evidence of an arrangement exists,Delivery has occurred or services have been rendered, The seller's price to the buyer is fixed or determinable, and Collectibility is reasonably assured 7-*REVENUE AND COLLECTION CYCLE:Key Control ProceduresSEPARATION OF DUTIESSeparate functions for recording, authorization, custodyAUTHORIZATION OF TRANSACTIONSWrite-offs EDI transactionsCredit checks prior to approval of salePricingACCESS TO ASSETSShipping department Lock box accountADEQUATE DOCUMENTS AND RECORDSPre-numbered sales orders, shipping documents (bills of lading), sales invoicesRemittance adviceINDEPENDENT CHECKS ON PERFORMANCEA/R subsidiary ledger to general ledgerMonthly statement to customer7-*Audit Evidence in Management Reports and Data FilesPending order master fileCredit check/approval filesPrice list master fileSales detail file (sales journal)Sales analysis reportAccounts receivable aged trial balanceCash receipts listingCustomer Statements7-*Other ControlsNo sales order without customer order.Credit approval.Restricted access to inventory.Restricted access to terminals and invoices.All documentation in order to record sales.Proper dating.Invoices compared to BOLs and orders.Pending order files reviewed.7-*AUDITING ACCOUNTS RECEIVABLETest Accounts Receivable Aged Trial Balance (Exhibit 7.8)Confirm balances.Perform analytical proceduresTest sales cut-off7-*USING CONFIRMATIONS Primarily for verifying EXISTENCE.Factors likely to affect the reliability of confirmations Previous audit experienceIntended recipient of the confirmationType of information being confirmedThe auditor may confirm entire BALANCES or individual TRANSACTIONS.Type of confirmation being sent7-*TYPES OF CONFIRMATIONSPositive Confirmations small number of accounts are involvedlarge number of errors are anticipatedNegative Confirmations the combined assessed level of inherent and control risk is lowa large number of small balances is involved the auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration.Blank Confirmations should be used if the recipient is likely to return a positive confirmation without verifying the accuracy of the information.7-*CONFIRMATION CONSIDERATIONSAll confirmations returned by the post office as non-deliverable must be investigatedResponses to positive and blank confirmations provide more reliable evidence than negative non-responses.Recipients of accounts receivable confirmations might not report understatements.Auditors must have heightened professional skepticism for electronic responses (fax or e-mail).Verify that the response came from an appropriate person at the employer7-*CONFIRMATION CONSIDERATIONS (Continued)Non-response to Positive/blank confirmation requestsFollow up with second and sometimes third requests.A lower than expected response rate could be indicative of fictitious customer accounts.Alternative procedures. Non-response to negative confirmation requestsOnly limited evidence concerning financial statement assertions.Alternative procedures are not necessary for unreturned negative confirmation requests.Follow-up on all exceptions7-*ALTERNATIVE PROCEDURESVouch subsequent cash collections usually sufficient evidence of existence, valuation.Examine shipping documents Especially BOL (third-party evidence)Examine client-generated supporting documentation, such as invoices.Depends on internal controlsInspect correspondence files7-*UNCOLLECTIBLE ACCOUNTSInspect customer files for collectibilityRecalculate ALLOWANCE and BAD DEBT EXPENSEVerify reasonableness of ALLOWANCE and BAD DEBT EXPENSEInspect documentation for appropriateness of accounts written offInspect documentation for additional collection proceduresInspect documentation for appropriate authorization.7-*ANALYTICAL PROCEDURESSales RevenueComparisons with previous periodsComparisons with industryAllowance for Doubtful Accts, Bad Debt ExpenseBad Debt Expense as a percentage of SalesAllowance for Doubtful Accounts as a percentage of Gross ReceivablesAccounts ReceivableDays Sales in Accounts ReceivableAccounts Receivable Turnover7-*SALES CUTOFF PROCEDURESUsed to verify whether Sales/Revenues recorded in the CORRECT ACCOUNTING PERIOD.Holding the books openExamine SALES INVOICES and SHIPPING DOCUMENTS shortly prior to and after year-end.Examine returns after year-end.7-*