Concept explainers
Introduction: The revenue process includes receipt of order from client, approval of credit, determining whether stock is available, shipment of goods to customer, bill generation, collection of cash and recognition and recording the effect of the process on affected accounts such as
To choose: Whether the statement is true or false.
Answer to Problem 1TFQ
The above statement is False.
Explanation of Solution
This statement is false. Every client has different revenue process and sometimes, one client may have more than revenue process.
For example, a sale transaction for an item in the departmental store is different from sale transactions in the construction business. Similarly, there is a difference between an internet sale and retail sale. The sale of a construction item will involve an account receivable or loan. Sometimes, sales transactions will involve long term contractual arrangements that affect when and how revenue will be recorded.
Hence, we see that every client has a different revenue process and sometimes, one client may have more than one revenue process.
REVENUE PROCESS
1) Receipt of the purchase order from a customer
2) Checking the availability of inventory in stock
3) Generation of back order
4) Obtain formal credit approval
5) Preparation of shipping and packaging
6) Shipping and verification of shipment of goods
7) Preparation of invoice and then sending the same to clients
8) Sending monthly statements to customers
9) Receipt of payments
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Chapter 9 Solutions
ACP AUDITING - RISK BASED APPROACH
- Provide two inherent risk factors in the revenue cycle and identify the accounts that are likely to be overstated or understated and explain why.arrow_forwardWhich is not a Risk Assessment Procedure? a. Ratio Analysis b. Observation of Activities c. Account Receivable confirmations d. Inspection of Documents e. Inquiry of Internal Auditorsarrow_forwardAn audit trail is a step-by-step record by which accounting data can be traced to its source. Therefore, Vouching is used primarily to test which of the following assertions about classes of transaction? Select one: a.Accuracy. b.Completeness. c. Cut-off d. Occurrencearrow_forward
- At which points in the revenue cycle are independent verification controls necessary?arrow_forwardWhen processing controls within the accounting information system may not leave visible evidence that could be inspected by audit teams, the teams shoulda. Make corroborative inquiries.b. Observe the separation of duties of personnel.c. Review transactions submitted for processing and compare them to related output.d. Review the run manual.arrow_forwardWhen auditing accounts receivables, auditors are usually especially concerned about the: a. Completeness and cut-off objectives. b. Existence and completeness objectives. c. Existence, realisable-value and accuracy objectives. d. Posting and summarisation objective.arrow_forward
- Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for purchases is most at risk. Occurrence Accuracy Completeness Classificationarrow_forwardList the transaction-related audit objectives for the audit of salestransactions. For each objective, state one internal control that the client can use toreduce the likelihood of misstatementsarrow_forwardYour audit client is under intense pressure to meet an earnings target. Which transaction assertion for purchases is most at risk.arrow_forward
- Your view of what the companies’ auditors would need to consider in the effective audit of its primary revenues. For example, what would you do to audit the revenue streams? How would you verify that they are correctly stated in the financial statements without material error? Identify no more than three audit procedures around revenue recognition for the company you selected.arrow_forwardDefine and give examples of off-balance-sheet information. Why should auditors be concerned with such items?arrow_forwardWhat is the purpose of analytical reviews in the audit of revenue cycle accounts? Please give an example.arrow_forward
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