Chapter 13 Auditing the Revenue Cycle.docx

Chapter 13 Auditing the Revenue Cycle.docx

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Chapter13AuditingtheRevenueCycle

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13

AuditingtheRevenueCycle

13.1TypicalTransactionsandControls   

（a）SalesofGoodsandServices,   

    （i）ReceivingandRecordingCustomers'Orders,   

    （ii）AuthorizingCreditTermsandShipments,   

    （iii）ConfirmingOrders,   

    （iv）ExecutingShippingOrders,   

    （v）RecordingShipmentsandBillingCustomers,   

    （vi）VariationsinTypicalSalesTransactions,   

（b）PaymentsReceivedforGoodsandServices,   

    （i）ReceivingtheCashandDepositingItintheBank,   

    （ii）ComparingAmountsRemittedwithRecordedAmounts,   

    （iii）AuthorizingDiscountsandAllowances,   

    （iv）RecordingCashReceipts,Discounts,andAllowances,   

（c）GoodsReturnedbyandClaimsReceivedfromCustomers,   

    （i）ReceivingandAcceptingGoodsorClaims,   

    （ii）PreparingReceivingReports,   

    （iii）ReviewingClaims,   

    （iv）AuthorizingCredits,   

    （v）PreparingandMailingCreditMemos,   

    （vi）RecordingReturnsandClaims,   

（d）MonitoringControls,   

13.2DeterminingtheAuditStrategy   

（a）DevelopingtheUnderstandingofControls,   

（b）AuditStrategyDecisions-AnIllustration,   

（c）TestsofControlstoSupportaLowControlRiskAssessment,   

Theauditofaccountsintherevenuecycle（e.g.,sales,salesreturnsandallowances,servicerevenue,accountsreceivableandrelatedallowanceaccounts,deferredrevenues,andcash）usuallyconsistsofacombinationofsubstantivetestsandtestsofcontrolstosupportanassessmentofcontrolriskthatisbelowthemaximumoratlow.Rarelywouldtheauditofrevenuecycleaccountsconsistsolelyofsubstantivetests-inmostentities,revenuetransactionsaresufficientlynumerousthatmanagementinstallsthenecessarycontrolsandtheauditorfindsitefficienttotestthemasabasisforrestrictingsubstantivetests.

Thischaptercoverstheprocessbywhichtheauditordeterminesthestrategyforauditingtherevenuecycle.Itdescribestypicalrevenuetransactions,theaccountingsystemsforprocessingthem,andthemonitoringandcontrolactivitiesappliedtothetransactions.Italsodiscussestheconditionsunderwhichtheauditorwillbeabletoarriveatapreliminaryassessmentofcontrolriskthatisbelowthemaximumoratlowandthecontrolsthatordinarilyshouldbetestedundervariouscontrolriskassessments.Chapter18describesthenature,timing,andextentofsubstantivetestsofrevenuecycleaccountsthatwouldbeappropriateunderthealternativeriskassessmentsofmaximum,belowthemaximum,andlow.

Revenuetransactionsthatarecompletedwithinarelativelyshorttime-whensale,deliveryofproductorrenderingofservice,andcollectionoccurwithinafewweeksormonthsofeachother-arethemostcommonrevenuetransactionsandarethesubjectofthischapterandChapter18.Thefocusofbothchaptersisonrevenuesgeneratedbyanentity'sprincipaloperations.Ancillaryrevenues,suchasdividends,interest,andrent,arediscussedinChapters21and22.Chapter18alsodiscussessubstantivetestsforseveralspecifictypesofrevenuetransactionsthatvariousentitiesmayconfront.

13.1TypicalTransactionsandControls

Therevenuecycleinmostentitiescanbedividedintothreetypicalclassesoftransactions:

∙Salesofgoodsandservices

∙Paymentsreceivedforgoodsandservices

∙Goodsreturnedbyandclaimsreceivedfromcustomers

（a）SalesofGoodsandServices

Theprocessofsellinggoodsandservicesgenerallyincludesthefollowingactivities:

∙Receivingandrecordingcustomers'orders

∙Authorizingcredittermsandshipments

∙Confirmingorders

∙Executingshippingordersforgoodsorworkordersfortheperformanceofservices

∙Recordingtheshipmentsorservicesperformed

Inconsideringtheaccountingsystemthatprocessesrevenuetransactionsandthemonitoringandcontrolactivitiesappliedtothem,theauditorisinterestedmainlyincontrolstoensurethatallsalestransactionsthatactuallyoccurredareauthorizedandarerecordedaccurately;thatis,thattheentity'scontrolsachievethesevencontrolobjectivesdescribedinChapters9and11.Thosecontrolobjectivesarecloselyrelatedtotheauditobjectivesofcompleteness,accuracy,andexistence/occurrenceofrevenuecycleaccounts,particularlysalesandaccountsreceivable.Othercontrols,whilenotdirectlyrelatedtothoseauditobjectives,alsomaybeofinteresttotheauditor.Forexample,thefactthatcreditchecksareperformedmayprovideevidencetheauditorcanusetoevaluatewhethertheallowanceforuncollectibleaccountsisadequate,whichaffectsthevaluationauditobjectiveforaccounts