Chap004-LN

Chap004-LN - Chapter 04: Auditing the Revenue Business...

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Chapter 04: Auditing the Revenue Business Process CHAPTER 04: Auditing the Revenue Business Process After studying this chapter, you should be able to: 1. Describe the revenue business process. 2. Explain the transactions in the revenue process. 3. Understand an applicable financial reporting framework (GAAP) for recording and valuing the accounts in the revenue process. 4. Describe misstatements (errors and fraud) that could be expected in the revenue process. 5. Explain financial statement assertions for accounts in the revenue process. 6. Understand the relevant assertions for the revenue process. 7. Describe the methods the auditor uses to gather evidence for internal controls in the revenue process. 8. Understand the methods the auditor uses to gather evidence regarding the transactions in the revenue process including sales transactions recorded during the year and the accounts receivable balance at year-end. 9. Explain the disclosure requirements for accounts in the revenue business process. Chapter 4: Auditing the Revenue Business Process Chapter Highlights This chapter provides a description of the revenue business process first from the accounting perspective and then from the auditing perspective. The accounts and the accounting transactions are reviewed, as is the financial accounting framework for revenue recognition under U.S. GAAP and International Financial Reporting Standards (IFRS). Once the accounting for the revenue process is explored, management’s assertions for the financial statements are examined. After this analysis, potential misstatements in the revenue process are evaluated by the audit team. The relevant assertions identified for this process help to identify relevant tests of controls and substantive tests (with special focus on accounts receivable confirmations and the evaluation of the allowance for uncollectible accounts). The chapter then summarizes how the auditor determines whether the evidence collected is sufficient and appropriate to make an audit conclusion about the revenue process and then presents the disclosures for the financial statements. To better understand the accounting transactions for the revenue process, T-accounts and journal entries are used in the beginning of the chapter; while Exhibit 4-4, “Examples of Revenue or Accounts Receivable Fraud” provides an excellent reference about real-world examples of fraud. Exhibit 4-5 provides an example of an Internal Control Questionnaire and Exhibit 4-6 provides Financial Information for the BCS Example which continues throughout several chapters. (to illustrate other tests of controls and substantive tests). In addition, there are examples of Confirmation Letters in Exhibits 4-7 and 4-8 and actual financial statement disclosures in Exhibit 4-10. Chapter Outline
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Chap004-LN - Chapter 04: Auditing the Revenue Business...

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