Question

(This question is from the Week 7 Tutorial)

Magi Chen is the managing director of Sun Construction Pty Ltd, a family owned business that provides construction services. As Magi is interested in purchasing some new construction equipment’s for her business, she has approached her local bank for finance. The bank has asked that Magi provide an audited financial statement to assist them in considering her loan application. Magi has approached your audit firm for this service and you have been allocated the task of auditing Sun Construction for the year ended 30 June 2019. You have undertaken a preliminary review of the business and determined that a substantive testing approach would be suitable and appropriate. You are currently preparing an audit program for the revenue cycle. The following information has been obtained from your review:

• Magi usually works 120 hours a fortnight. Part of this time is spent travelling between different clients and is not charged to the clients. The remaining time is charged at $60 per hour, regardless of the task undertaken.

• Customers typically pay Magi in cash for the work undertaken, except for a small number of regular small-business customers. Magi allows these customers to pay on account by bank transfer on a monthly basis.

• Magi supplies each cash customer with a written receipt, prepared manually from a receipt book purchased at the local news-agency. The book contains pre-numbered blank receipts, which are completed in duplicate.

Required:

For each of the assertions of occurrence, completeness and accuracy, identify a procedure(s) you

could use to audit Sun Construction's revenue.

(Word Limit: Minimum of 150 words. Maximum of 200 words)

Answer 1

Solution

Procedures that could be used for Audit Revenue in Sun Construction

Review the sales occurrence: This is performing by obtaining the sales transactions that recorded in the financial statements during the period as well as sales report that link to the financial statements. Then perform an audit sampling to total population of those sales transactions to review against quotation, sales orders, invoices, contracts and goods delivery noted. Ensure that the sampling items are represent the total population, otherwise the conclusion might go wrong.

Perform Sales Revenues: Analysis could help auditor to identify the unusual event or transactions related to sales. This analysis could help auditors to perform additional review if they found that the trend go in different direction.

Review the collectability: Sales increase is good but collectability of those sales amount is importance. Account receivable analysis should be performed, and credit policy should be review. Review the written off amount of account receivable during the year and then assess its reasonableness.

Review the sales recognition: Whether the recognition of sales during the period are respecting the IAS 18 or not. It is importance to assess that the future economic related to sales will be inflow into the company and the sales amount is measurable.