Question

In: Accounting

Hale Nelson, CPA, is engaged to audit the financial statements of Hollis Manufacturing, Inc. Hollis engages...

Hale Nelson, CPA, is engaged to audit the financial statements of Hollis Manufacturing, Inc. Hollis engages in very complex sales agreements that create issues with respect to revenue recognition. As a result, Nelson has identified revenue recognition as an audit area of signifi-cant risk that requires special audit consideration.a. Describe the implications of Nelson’s identification of revenue recognition as an area of significant risk. b. Describe how Nelson might decide to react to the significant risk related to revenue recognition.

Solutions

Expert Solution

Answer:-

a) :- Describe the implications of Nelson’s identification of revenue recognition as an area of significant risk.

At the point when reviewers recognize an income acknowledgment as a territory of noteworthy hazard that requires exceptional review thought, they ought to :

  • Assess the structure of related controls and establish that they have been executed legitimately .
  • Not depend solely on diagnostic methods to report the hazard .
  • Not depend on the proof found from going before reviews concerning the working adequacy of the related inward controls.

b ) :- Describe how Nelson might decide to react to the significant risk related to revenue recognition

A few models that Nelson may respond to this huge hazard identified with income acknowledgment are the accompanying .

  • affirm, he term of offers contract with chosen clients.
  • Examine and audit the higher example of offers contracts.
  • Perform broadened request with deals staff in regards to the agreement terms.

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