NAMES REGISTRATION NO

Zulqarnain L1F19BSAF0130

Ahsan javed L1F19BSAF0108

Muneeb ayaz L1F19BSAF0112

Usman dawood L1F19BSAF0105

Hamza akbar L1S18BSAF0107

Case study 1
An SEC-registered pharmaceutical public company and large accelerated filer having an
increase in revenue from approximately $150 million to $177 million in current year. As
compared to previous years in which the revenue was increasing 3 to 4 percent annually but
this year the revenue has jumped by 18 percent. As we can easily observe that there is a huge
jump in revenue this year from previous years.

Required:

Explain what revenue specific audit procedures the auditor would have to apply to verify the
assertions of accuracy, occurrence and cut-off regarding this case?

Revenue Analytical Procedures:

The auditor would perform analytical procedures to evaluate the reasonableness and
consistency of the revenue increase. They would compare the current year's revenue increase
to industry trends, economic indicators, and the company's historical data.

Revenue Confirmation:

The auditor may send confirmation requests to a sample of customers, particularly

those with large sales transactions. By independently verifying the sales and amounts with the
customers, the auditor can gain assurance about the validity and accuracy of the reported
revenue.

Revenue Cut-off Testing:

The auditor would examine the company's revenue cut-off procedures to ensure that
revenue is recognized in the correct accounting period.

Inspection of Supporting Documentation:

The auditor would review supporting documents such as sales invoices, shipping
documents, and customer orders to ensure that revenue is supported by valid sales
transactions. They would also assess the consistency and completeness of the documentation.
 Case study 2
XYZ Corporation is a multinational manufacturing company with operations in various
countries. The company generates significant revenue through the sale of its products to
customers across different industries. Due to the complexity and materiality of revenue
transactions, the external audit team has designed specific audit procedures to ensure the
accuracy and reliability of XYZ Corporation's revenue recognition process.

The primary objective of the audit team is to assess whether XYZ Corporation's revenue
recognition policies and procedures comply with the applicable accounting standards and
regulations.

Required:

• Explain what revenue related audit procedures the auditor have to apply in this
regard?

• Risk Assessment: The audit team performs a detailed risk assessment to identify
potential risks associated with revenue recognition. They analyse the company's
revenue streams, including product lines, customer contracts, and geographical
regions.

• Revenue Sampling: The auditors select a sample of revenue transactions to verify the
accuracy and completeness of recorded revenues. They may employ statistical
sampling techniques to ensure the sample is representative of the entire population.
The sample may include different types of revenue transactions, such as sales orders,
contracts, and invoices.

• Contract Evaluation: The audit team evaluates a sample of customer contracts to

assess whether the terms and conditions align with the company's revenue recognition
policies and accounting standards.

• Revenue Recognition Assessment: The auditors review the company's revenue

recognition policies and compare them to the actual revenue recognition practices.
They evaluate the appropriateness of revenue recognition criteria, such as the transfer
of control, collectability, and identification of performance obligations. The team also
 examines the company's use of estimates and assesses the reasonableness of
significant accounting judgments made in the revenue recognition process.

• Internal Controls Evaluation: The auditors assess the effectiveness of internal

controls over revenue recognition. They evaluate the design and implementation of
control activities, such as segregation of duties, authorization procedures, and
monitoring mechanisms. The team also tests the operating effectiveness of selected
controls to ensure they are functioning as intended.

• Disclosure Review: The auditors review the company's financial statement

disclosures related to revenue recognition. They assess the adequacy and clarity of
disclosures regarding revenue recognition policies, significant accounting judgments,
and any material uncertainties or contingent liabilities associated with revenue
recognition.

Case Study 3
ABC Manufacturing is a medium-sized manufacturing company that produces and sells
consumer electronics. The company operates in a highly competitive market and relies
heavily on its revenue from product sales to drive profitability. The financial statements are
prepared in accordance with generally accepted accounting principles (GAAP).

The objective of the audit is to obtain audit evidence about whether the revenue recognition
of ABC Manufacturing is in accordance with GAAP and to detect any material misstatements
or irregularities in revenue-related accounts.

Required:

What revenue related audit procedures have to be applied here?

• Understanding the Company's Revenue Recognition Policies: The auditor begins

by gaining an understanding of ABC Manufacturing's revenue recognition policies.
This includes reviewing the company's accounting policies, management's
representations, and relevant contractual agreements. The auditor also assesses the
company's internal controls related to revenue recognition.
• Testing the Effectiveness of Internal Controls: To ensure the effectiveness of
internal controls, the auditor performs tests of controls. This involves selecting a
sample of sales transactions and tracing them through the revenue recognition process
to verify whether the company's internal controls are operating effectively.

• Analytical Procedures: The auditor performs analytical procedures to assess the

reasonableness of revenue. This involves comparing current year revenue figures with
prior years, industry benchmarks, and expectations based on the company's budget or
forecasts. Any significant fluctuations or deviations are investigated further.

• Confirmation of Accounts Receivable: The auditor sends confirmation requests to a

sample of ABC Manufacturing's customers to independently verify the existence,
accuracy, and completeness of accounts receivable balances. This helps confirm that
the reported revenue is supported by actual sales transactions.

• Cut-off Testing: To ensure that revenue is recorded in the correct accounting period,
the auditor performs cut-off testing. This involves examining a sample of sales
transactions occurring near the end of the reporting period to verify if they are
recorded in the correct period.

• Review of Sales Contracts and Invoices: The auditor examines a sample of sales
contracts and invoices to verify the completeness, accuracy, and authorization of
revenue recognition. They also assess whether the terms and conditions of the
contracts align with the revenue recognition policies.

• Disclosure and Presentation: The auditor reviews the company's financial statement
disclosures related to revenue recognition, ensuring that they comply with the
applicable accounting standards. This includes assessing the clarity and completeness
of the revenue-related disclosures.