Auditing Revenue process

The SEC in SAB No. 101 provides the following criteria for revenue recognition:

• Persuasive evidence of an arrangement exists.

• Delivery has occurred or services have been rendered.

• The seller’s price to the buyer is fixed or determinable.

• Collectibility is reasonably assured.

Type of Transaction Account Affected

Sales transactions Trade accounts receivable

Sales

Allowance for uncollectible accounts

Bad-debt expense

Cash receipts transactions Cash

Trade accounts receivable

Cash discounts

Sales return and allowance Sales returns

transactions Sales allowances

Trade accounts receivable

segregation of Duties Possible Errors or Fraud Resulting from

Conflicts of Duties
The credit function should be segregated If one individual has the ability to grant
from the billing function. credit to a customer and also has
responsibility for billing that customer, it is