assurance services and the integrity of financial reporting

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Modern Auditing:Assurance Services and the Integrity

of Financial Reporting, 8th Edition

William C. BoyntonCalifornia Polytechnic State

University at San Luis Obispo

Raymond N. JohnsonPortland State University

Chapter 14 – Auditing the Revenue Cycle



DOSEN PENG MPU

PENGAUDITAN IIProf. Dr. Arsono Laksmana, SE., Ak. (-PJMK-)

Drs. Hendarjatno, M.Si., Ak.

Drs. Agus Widodo M., M.Si., Ak.Drs. Hanny Wurangian, M.Si., Ak.

Dra. Iswajuni, M.Si., Ak.

Dra. Yustrida Bernawati, M.Si., Ak.

Devi Sulistyo Kalanjati, SE., M.Sc., M.Acc., Ak.

Habiburrochman, SE., M.Si., Ak.



Chapter Overview



The Revenue Cycle



Develop Audit Objectives



Inherent Risk, Including the Risk

of Fraud

• Management Misstatement of Revenue

– Overstate revenues

– Overstate cash and gross receivables

– Understate allowance for doubtful accounts

• Other Misstatement Factors

– Opportunities for error

– Timing

– Misclassification

– Adjustment transactions



Analytical Procedures



Consideration of Internal Control

Components

• Control Environment

• Risk Assessment

• Information and Communication

• Monitoring

• Initial Assessments of Control Risk



Study Break

1. The revenue cycle includes all of

the following transactions, except:

A. Credit Sales

B. Cash Receipt

C. Inventory Purchase

D. Sales Returns and Allowances

C. Inventory Purchase



Study Break

2. This internal control component should

provide management with feedback as

to whether internal controls pertaining

to revenue cycle transactions andbalances are operating as intended.

A. Monitoring

B. Initial Assessments of Control Risk

C. Information and Communication

D. Control Environment

A. Monitoring



Control Activities for Credit

Sales Transactions

• Credit Sales Orders

– Over-the-Counter

– Mail Order

– Internet

•

Computerized Accounting System – General Controls

– Application Controls



Common Documents and

Records

• Customer Order

• Sales Order

• Shipping Document – Bill of Lading

– Packing Slip

• Sales Invoice

• Authorized Price List



Function and Control Activities

• Authorizing Sales

– Accepting Customer Orders

– Approving Credit

• Delivery of Goods and Services

– Filling Sales Orders

– Shipping Sales Orders

• Recording Sales



System Flowchart – Credit Sales



Study Break

3. This document is a journal listing

of the completed sales

transactions.

A. Sales invoice

B. Sales transactions files

C. Authorized price list

D. Sales journal

D. Sales journal



Study Break

4. This document shows thedescription, quantity, and otherdata pertaining to a customer

order.A. Customer order

B. Sales order

C. Shipping document

D. Sales invoice

B. Sales order



Cash Receipts Transactions –

Common Documents and Records

• Remittance Advice

• Prelist

• Cash Count Sheets

• Daily Cash Summary

•

Validated Deposit Slip

• Cash Receipts Transactions File

• Cash Receipts Journal



Cash Receipts Transactions -

Functions

• Receiving Cash Receipts

– Over-the-Counter Receipts

– Mail Receipts

• Depositing Cash in Bank

– Deposited intact daily

• Recording the Receipts



Sales Adjustment Transactions –

Common Documents and Records

• Sales return authorization

• Authorization for accounts receivable write-off

• Receiving report

• Credit memo

• Journal entry

• Cash Receipts journal



Sales Adjustment Functions and

Controls

• Granting Cash Discounts

• Granting Sales Returns and Allowances

• Determining Uncollectible Accounts

• Other Controls

• Tests of Controls



Study Break

5. This cash receipts transactiondocument is a listing of cashreceipts received through the

mail.A. Remittance advice

B. Prelist

C. Daily cash summary

D. Validated deposit slip

B. Prelist



Study Break

6. All of the following are sales

adjustment functions, except:

A. Granting cash discounts

B. Determining uncollectible accounts

C. Recording the cash receipts

D. Granting sales returns and allowances

C. Recording the cash receipts



Substantive Tests of Accounts

Receivable

• Determining Detection Risk for Tests of

Details

– Existence and Occurrence

– Completeness

– Rights and Obligations

– Valuation and Allocation

– Presentation and Disclosure



Designing Substantive Tests

• Initial Procedures

• Analytical Procedures




• Tests of Details of Transactions – Vouch Revenue Transactions

– Trace Revenue Transactions

– Perform Cutoff Tests• Sales Cutoff Tests

• Sales Return Cutoff Tests

– Perform Cash Receipts Cutoff Test




• Tests of Details of Balances – Confirm Receivables

– Forms of Confirmation• Positive Confirmation

• Negative Confirmation

– Timing and Extent of Requests

– Controlling the Requests




• Tests of Details of Balances

– Disposition of Exceptions

– Alternative Procedures for Dealing

with Nonresponses

– Summarizing and Evaluating Results

– Applicability to Assertions




• Tests of Details of Accounting

Estimates

– Allowance for Doubtful Accounts

– Aged Trial Balance

• Tests of Details of Disclosures



Study Break

7. This type of confirmation requires

a debtor to respond only when the

amount shown is incorrect.

A. Positive Confirmation

B. Negative Confirmation

C. Avoidance

D. Existence

B. Negative Confirmation



Study Break

8. This cutoff test is designed to obtain

reasonable assurance that cash receipts

are recorded in the accounting period

in which received.A. Sales cutoff test

B. Sales return cutoff test

C. Vouching revenue transactions

D. Cash receipts cutoff test

D. Cash receipts cutoff test