xxvl Contents

Nonstatistical Sampling for Tests of Account Balances 384

Identifying Individually Significant ltems 384
Determining the Sample Size 385
Selecting Sample ltems 385
Calculating the Sample Results 386
An Example of Nonstatistical Sampling 387
The Rise and Fall of Statistical Audit Sampling 388

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Disadvantages 392
Applying Classical Variables Sampling 392
Key Terms 397
Review Questions 398
Multiple-ChoiceQuestions 398
Problems 400
Discussion Cases 404

PART V AUDITING BUSINESS PROCESSES 407

10 Auditing the Revenue Process 408
RevenueRecognition 411
Overview of the Revenue Process 412
Types of Ti'ansactions and Financial Statentent Accounts Affected 413
Types of Doctutrcnts and Records 416
, The Maior Functions 420
Key Segregotion of Duties 422
Inherent Risk Assessment 423
Industry-Related Factors 423
The Complexitlt and Contentiousness of Revenue Recognition Issues 424
The Difficulty of Auditing Transactions and Account Balances 424
Misstatements Detected in Prior Audits 424
Control Risk Assessment 424
Understanding and Documenting Internal Control 425
Planning and Performing Tbsts of Controls 426
Setting and Documenting the Control Risk 427
Control Procedures and Tests of Controls-Revenue Transactions 427
Occurrence of Revenue Transactions 429
Completeness of Revenue kansactions 430
Authorization of Revenue Transactions 431
Accuracy of Revenue Transactions 431
Cutoff of Revenue Transactions 431
Classification of Revenue Tronsactions 432
Control Procedures and Tests of Controls-Cash Receipts Tiansactions 432