Question

Why should auditors assume revenue is misstated? What type of misstatement is typical for revenue? Under what circumstances my revenue be misstated in an atypical manner?

Answer 1

Answer:

The auditors ought to expect revenue is misstated,here below are following focuses,

• In which auditors has extremely enormous risk of material misstatement or error, Presumption of revenue recognition as an extortion or fraud risk.
• Basically the customer who prepare fiscal statements will perceive the revenue despite the fact that the sum in actual not received and services are not done, i.e improper method for perceiving or recognizing the income or revenue.
• In the event that the customer who accept their target sales are not reached, at that point he may generate fictitious sales for arriving at the objective or target, inappropriate way i.e deceitful method for perceiving the revenue, some of the time fictitious cash sales they inappropriately recognize the revenue, auditor should be attentive to  prevent fraud risk.
• They moves the income or revenue for later period, i.e inappropriate method for deciding for perceiving the revenue i.e now and then untimely perceive and a few times moving the revenue recognition.
• Income might be exaggerated by doing the over the methods for recording the sales, here auditors requires to make rebuttable presumption that inappropriate revenue recognition is a risk of material misstatement of the fiscal statements because of extortion or fraud.

Here auditors need to follow revenue risk by assertion that may require unique focus when planning the audit.

• Presence or event of exchange or transaction.
• completeness  of the exchange
• Rights and obligations
• valuation i.e for complex exchanges require high level of judgment
• Accuracy
• Cut off is significant for perceiving the revenue has a place in right period as opposed to moving the revenue to the later periods.
• Here the auditors should considers the quantitative and qualitative factors for assessing the danger of material misstatement in regarding with recognition of revenue.