Question

What audit program-or audit steps can the auditor take to ensure that the proper amount of revenue is recognized in the income statements? -Discuss

Answer 1

The audit steps that an auditor can take to ensure that the proper revenue amount is recognized in the income statements are as follows:

1) Statement Calculations: The initial step in auditing financial statements is the verification of the summary computations. An auditor may start with the income section, and can check that the total revenue amount matches to the sum of the income lines

2) Income Details: The second step is to review the detail that contributes to the figures. An auditor for each revenue account may pull summary transaction reports from the general ledger. To check accuracy the auditor should review the overall data on the summary reports and make a comparison of the transactions in the ledger to the hard copy files, such as invoices or check stubs which support the journal entries, for confirming that they were posted accurately.

3) Expense Review: Pull ledger reports of the transactions in the expense accounts. Review the transaction detail reports for each expense account to confirm that the expense totals on the income statement report are accurate compared to the ledger activity. Check the dates of the expenditure, and manually verify the computations by adding them up to ensure that the recorded totals are accurate.

4) Paper Audit Sampling: When the auditor completes a full audit of the income statement, he can select some transactions from each relevant account, such as a few payments issued from each expense account and a few credits posted to each revenue account. Verify the computations of the invoices or the payment vouchers, and check that the entries in the system match the documentation