The risk associated with client revenues is that they are overstated. Which of the following are...

The risk associated with client revenues is that they are overstated. Which of the following are true with respect to the risk of overstatement of revenues (select all that apply)

A) An effective internal control that management may implement is using bills of lading to ensure that sales occurring after year end are appropriately excluded at period end.

B) Auditors can effectively determine whether a particular sale is valid by using analytical review for revenue to test for the assertion of occurrence.

C) Auditors can either perform test of details or substantive analytical review or a combination of both in testing the assertion of occurrence for revenues.

D) Management uses analytical review as an internal control to test for the occurrence of revenue in addition to looking at invoices, bills of lading and other shipping documents as their internal control.

Solutions

Expert Solution

Option A- An effective internal control that management may implement is using bills of lading to ensure that sales occurring after year end are appropriately excluded at period end.

The above statement is true. Any export of goods made after year end date as per bill of lading shall be excluded in order to avoid overstatement of revenues.

Option B- Auditors can effectively determine whether a particular sale is valid by using analytical review for revenue to test for the assertion of occurrence.

The above statement is false. Analytical review generally verifies the total sales as a whole and may not test the validity of a particular sale.

Option C- Auditors can either perform test of details or substantive analytical review or a combination of both in testing the assertion of occurrence for revenues.

The above statement is True.

Option D- Management uses analytical review as an internal control to test for the occurrence of revenue in addition to looking at invoices, bills of lading and other shipping documents as their internal control.

The above statement is false. Analytical review is a method of substantive audit procedure or test of details. It shall not be used as an internal control verification tool.

Hence, The answer is Option A and Option C.

ekkarill92 answered 1 year ago

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