CRITERIA FOR REVENUE RECOGNITION
• As per SEC (SAB 101/104) following criteria should be met in applying the concept
• Persuasive evidence of an arrangement exists
• Delivery has occurred or services have been rendered
• Takes title of ownership
• Assumes risks and rewards of ownership
• The seller’s price to the buyer is fixed or determinable
• Collectibility is reasonably assured
REVENUE - SUBSTANTIVE ANALYTICAL
PROCEDURES
• Perform reasonableness test or regression analysis
• If expectations
• Differ significantly - Follow up with sufficient appropriate tests of details
• Typically consisting of selecting a sample of sales transactions and vouching to appropriate source documents • Do not differ significantly - Reduce tests of details
REVENUE - CUTOFF ISSUES
• Additional audit attention given to sales transactions recorded before and after year end
• Whether a recorded revenue transaction actually occurred before end of accounting period
SALES CUTOFF TESTWORK
• Consists of obtaining the sales journals for the months of
December (current year audit) and January (next year); presuming calendar year-end.
• Select a random sample of sales transactions from each sales journal • Focusing on the sales made on the last 15 days of the current year and the first 15 days of next year
• Tie sales to detail (Order, Shipment, and Shipping terms)
•
Ch 12 WK4~Discussion Starter 1 posted by KIMBERLY JORDAN at Jun 15, 2015, 5:12 PM Last updated Jun 15, 2015, 5:12 PM What are some of the different types of sampling methods that are available to the auditor? How does the auditor decide which method to use? How will the different methods affect the audit? Auditors can select statistical or nonstatistical methods of sampling, or a combination of the two. The choice of the method used is based on the auditor’s professional judgement, the method…
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