Audit procedure is one of the most importance thing that
auditors need to make sure that they are well and correctly prepare
and tailor to minimize audit works and risks. Revenues are one of
the sensitive areas that auditors need to place their great
attention on. This is because it is mater so much on the users of
financial statements. Revenues are also the sensitive areas where
the risks of manipulation, risks or errors are likely to happen on
most of entity.
Financial
Assertion Related to Revenues:-
The following are the key financial statements assertion related
to revenues:
- Completeness: This assertion concern the completeness of
recording in the financial statements. The incomplete record of
revenues might be happen because of many difference reasons
including entity’s process and procedure could not capture all the
revenues, errors and sometime fraud.
- Cut off: cut off assertion concerning that revenues are
recording in the different period that they are belonging to. This
could cause the understated and overstate of revenues that being
show in the income statement.
- Occurrence: Auditor should consider assess the whether the
revenues recorded in the period were really occurred. There is a
risks that revenues recorded might not occurred.
- Right and Obligation: Right and obligation is very importance
and it is concerning about entity right and obligation over the
goods that sold to customers. This is link to the risks and reward
then auditors performing cut off testing.
Common Risks
Related to Revenues:-
- Factitious sales amount at end of or during the year that
recording in the financial statements to reach to certain amount
that could let top management to get certain reward like bonus or
incentive.
- Factitious of sales amount might also committed by sales team
or sales manager to get bonus as well inventive like top
management.
- Goods or services that sold are not collectable. These might be
the poor customer’s creditability assessment that perform by sales
managers or the poor internal control over sales process.
- Fraud over cash collection from selling of goods or
services.
Audit
Procedures:-
- 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. For example,
comparing the sales trend again the goods of goods sold or
inventories. This analysis could help auditors to perform
additional review if they found that the trend go in different
direction. There are many different method to perform an analysis
over the revenues that auditors could use such as seasonal sales
revenues, trend analysis of revenues compare with related
non-financial data.
- Review the sales price authorization. The fraud over this area
is likely to happen. Of cause management is the one who handle to
manage and make sure that fraud risk is protected and minimize.
But, auditor should also review the control over this area. Focus
on unauthorized sales, and unauthorized sales commission that link
to performance inventive of sales team and sales manager.
- 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.
- Review the completeness of revenues recording in the financial
statements. Revenues might be understated if they are under
recording.