Design and perform tests of internal controls and

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Design and perform tests of internal controls and analyze the results of the  tests of controls o Sample of shipments traced to invoice Shipment approval  Daily reconciliation of shipments and invoices Test of prices Credit approval o Test computer log for access to the pricing tables o Invoices raced to general ledger noting proper recording o Mae inquiries and verify that there were no change in credit policies Perform substantive tests o Sales cutoff o A/R confirmations o Review the allowance for uncollectible accounts
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Auditing revenue and related accounts  15:19 Performing the integrated audit of the revenue cycle  Improper revenue recognition Recognition of revenue on shipments that never occurred Hidden” side letters” giving customers an irrevocable ( �� )  right  return the product Recording consignment ( )  sales as final sales Early recognition of sales that occurred after the end of the fiscal period Shipment of unfinished product Shipment of product before customers wanted or greed to delivery  Creation of fictitious invoices Shipment to customers that did not place an order Shipment of more product than the customer ordered Recording shipments to the company’s own warehouse as sales Shipping goods that had been returned and recording the reshipment as a  sale of new goods before issuing credit for the returned sale Criteria for revenue recognition  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 Collectability is reasonably assured Fraud risk factors -- Risk factors/motivation to enhance revenue External risk factors
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Auditing revenue and related accounts  15:19 o Analyst expectations. Stock price o Industry trends o Investigations. Government regulators such as the SEC Internal risk factors o Management compensation schemes, especially those that rely on  stock options and therefore current stock prices o Expiration of stock options. If stock options are expiring, there may be a  tendency to attempt to boost stock price before the option expires o Complex transactions o Aggressive accounting o Investigate unusual results Perform preliminary analytics Comparison of revenue trend with industry trend Compare cash flow from operations with net income Other analytics Ratio analysis: is useful in highlighting account balances that are out of  line or different from reasonable expectations Trend analysis: based on the assumption that current performance will 
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