Auditing Special Purpose Frameworks: Auditing Revenues—Part 2
For any figure disclosed and classified in financial statements, the auditors are required to assess the reasonableness and appropriateness of related assertions. This article focuses on the matters relating to audit of revenue and queries which auditors come across during their performance of audit procedures.
Revenue, being one of the highly material figure of the financial statements, need to be audited carefully. Some questionsthat the auditors should ask are as follows:
o Have the sales and other income actually taken place in the year under audit and have the sales been made to the customers who actually exist? This will provide evidence against the occurrence of the sale. Also the assertions of cut-off and existence will be ensured.
- Have all the revenues been recorded in the financial statements? This would ensure completeness, i.e., all the transactions of revenue that should have been recorded, have actually been recorded.
- To look for the evidence against cut-off assertion, the auditor need to establish whether the revenue has been recorded in the correct accounting period.
- Whether all the income and revenues are being correctly classified and all the relevant disclosures are incorporated?This will ensure presentation and disclosure assertion.
- Are the revenues being valued correctly i.e. whether the transactions are based on market terms? This will ensure valuation assertion.
The auditing standards require auditors to obtain sufficient evidence to assess the related assertions. They also state that for some assertions, like completeness for revenue, additional audit procedures may be required other than tests of balances.
Nature, Timing and Extent of Audit Procedures
The assessed risk of material misstatement in the financial statements effects audit procedures designed to detect the material misstatement, whether individual or in aggregation. Audit standards require procedures to be performed to assess the risk but risk assessment procedures are not sufficient to enable the auditor to provide audit opinion. These procedures should be combined with other audit procedures to provide sufficient evidence to form an opinion.
- Deloitte Replaces PwC as Lloyds Bank New External Auditor
- Oman Regulator Suspends KPMG from Beginning New Audits for a Year
- Redrow Appoints KPMG as its New Statutory Auditor
- Air Partner Replaces Deloitte with PwC as its New External Auditors
- European Auditors Publish their Work Plan for 2019
- ACCA Signs MOU with the Chamber of Auditors of Republic of Kazakhstan
- BDO is Set to Replace PwC as JKX Oil & Gas New External Auditor