Question

In: Accounting

AP9.2 James and Katie will be auditing the revenue account for their retail client, Go Big...

AP9.2 James and Katie will be auditing the revenue account for their retail client, Go Big Tires. They disagree about how to test the occurrence assertion for the revenue account. James thinks they should use Procedure A, while Katie thinks Procedure B is appropriate.

A. Select a sample of sales from the sales journal and agree the details in the journal to the invoices sent to customers, shipping documents, and customer orders.

B. Select a sample of invoices sent to customers, shipping documents, and customer orders and agree to the details recorded in the sales journal.

Required

Who do you agree with, James or Katie, and why? Which assertion does the other procedure provide evidence about?

Solutions

Expert Solution

Solution:

To test the occurrence assertion for the revenue account :
Auditor should consider and assess whether the revenues recorded in the period were really occurred. There is a risks that revenues recorded might not occurred.
Hence , Procedure A of James is appropriate and it should be followed by an Auditor .
That is (i.e),
Select a sample of sales from the sales journal and agree the details in the journal to the invoices sent to customers, shipping documents, and customer orders.
From this procedure , an auditor can understand whether that revenue recorded in the period where really occurred or not.
Whereas, the Procedure B of Katie
(i.e. Select a sample of invoices sent to customers, shipping documents, and customer orders and agree to the details recorded in the sales journal.)
is used to test the completeness assertion of the revenue account.

Completeness Assertion:
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.


Key financial statements assertion related to revenues are:
1.Completeness
2.Cut off
3.Occurrence
4.Right and Obligation


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