Continue in line with previous performance or

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continue in line with previous performance or industry trends unless  something unusual is happening in the company Reasonableness tests: based on simple premise: the auditor can gather a  great deal of information about the correctness of an account by examining  the relationship of the account to some underlying economic factor or  event  Linking internal controls and financial statement assertions Existence/occurrence: sales transactions should only be recorded when title  has passed and the company has received cash or a collectible receivables  Completeness: all valid sales transactions are recorded Use pre-numbered shipping documents and sales invoices and  subsequent accounting for all numbers Immediately online entry into the computer system and immediate  assignment of unique identification by the computer application
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Auditing revenue and related accounts  15:19 Reconciliation of shipping records with bill records Supervisory review Reconciliation of inventory with sales  Valuation: correct input of authorized prices and price changes Limit access to files Review printed list of price changes Valuation issues most often arise in connection with unusual or uncertain  sales terms Internal controls related to returns, allowances and warranties Importance of credit policies authorizing sales  A formal credit policy, which may be automated for most transactions but  requires special approval for large and/or unusually transactions A periodic review of the credit policy Continuous monitoring of receivables for evidence of increased risk Adequate segregation of duties in the credit department, with specific  authorization to write off receivables segregated from individuals who  handle cash transactions with the customer Documenting controls Internal controls can be documented in a flowchart, narrative, and /or  questionnaire   Design and perform tests of internal controls and analyze the results Inquiry: talk with the personnel who perform the control about the  procedures and processes involved in the reconciliation Observation: observe the entity personnel performing the reconciliation Examination: review the documentation supporting completion of the  reconciliation Reperformance: perform the reconciliation and agree to the reconciliation  completed by the entity personnel  Perform substantive tests in the revenue cycle
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Auditing revenue and related accounts  15:19 Substantive tests of revenue Existence / occurrence o The existence and valuation assertions are usually the most critical for  revenue accounts o
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