Auditing The Revenue/Receipt Cycle

• The Revenue Receipt Cycle consist of two Business Activities Namely:

• 1.) Selling of Goods to Customers or Rendering Services to Clients- The process include a.)
Accepting Customer Order, b.) Approving the customer sales order, c.) Releasing the Goods from
the Warehouse Based on approved Sales order d.) Shipping The Goods to Custromer, and e.)
Billing the customer for the Goods sold or ship to them
• 2.) Collection of Payments from these customers/clients- this Involves collection of Accounts
Receivable from customers/clients after Allowing sales discount, sales return and Allowances if
any
• As Independent CPA, The Study and Evaluation of Internal Control and Test of Control focus on
Selected Activities of the For going processes to Determine the control risk present in
Determining the extent of Substantive testing of Accounts Balances and classes of Transaction to
be perform later
Substantive Testing for Revenue Receipt
Cycle
• The revenue receipt cycle affects the following accounts in Financial statement
• B/S Accounts I/S Accounts
• a) Accounts Receivable b) Sales
• C) Allowance for Badets d) Sales Return and Allowances
• f.) Cash e.) Sales Discount
• Based on the above accounts, the independent CPA formulates audit objectives and audit
procedure to examine the appropriateness and validity of account balances and transaction of
the for going
•
Examining the accounts receivable
• The objective in testing the accounts receivable are to prove the validity and existence of claims
against the customer as of given date. The accounts receivable in the balance sheet must
represent valid claims of the company to the customer and must only reported at net realizable
value thus, allowance for badets is normally provided
• The Audit procedures normally Include confirmation of account balances to the customer to
determine its existence, analysis of selected accounts by examining transaction through botching
of ledger posting to supporting documents such as approve sales order, shipping receipt sales in
voices the auditor may test the aging of accounts receivable to test the propriety of allowance for
badets provided in the books. Other audit procedure may be perform as the auditor may deem
necessary
Auditing The Sales and Other Related
Accounts
• The objectives in examining the sales account are determining that all valid and completed Sales
were only recorded in the books for the year valid sales are normally recorded when title to the
goods passes to the customer when the goods were ship and accepted by the customer and the
company have no other obligation other than collecting payment from customer. Thus sales on
consignment basis consignees, sales under customer approval and advance recording of sale not
yet delivered to customer should not be included in the sales account for the period
• The Audit procedures includes examining several sales transaction evidenced by shipping records
one week before year and one week after year end to determine that proper sales cut off is
observed other procedure to satisfied the audit objectives the auditor may perform.
Audit Documentation
• The Application of various audit procedures to satisfy the audit objectives must be documented in
the auditors working papers. These include the following
• A.) Proposed auditor’s adjusting entries- these include audit adjustment proposed by the auditor
to be recorded by the client to bring the account balances classes of transaction to appropriate
amounts.
• B.) Working papers for various accounts examine- these include analysis and Audit procedure
performed with the checking of accounts indicated by appropriate ticmarks
• C.) Audit Conclusion- the working papers must include the auditor’s conclusion arrived at the
examination of accounts in the revenue receipt cycles these include whether the Financial
Statement Accounts are Fairly presented or not accordance with PFRS/IFRS accordingly
• D.) Auditors Signature- the working papers must include the signature of the auditor who
performed the examination and the auditor-incharge who review the working papers of the
auditor