SUBSTANTIVE AUDIT OF

REVENUE AND EXPENSES

 AUDIT OBJECTIVES
The objectives (assertions) in the audit of revenue and expenses are:
1. To determine whether all (completeness) revenues and expenses
(rights and obligations) applicable to the audit period
(occurrence) have been recognized and are matched properly
(allocation) in accordance with generally accepted accounting
principles.
2. To determine whether all material unusual and infrequent items
are segregated properly in the income statement (presentation).
3. To determine whether the revenues and expenses are classified
properly and consistently (presentation).
4. To determine whether disclosures concerning revenue and
expense are adequate and in accordance with generally accepted
accounting principles (disclosure).
AUDITOR’S APPROACH IN THE EXAMINATION OF
REVENUES AND EXPENSES
• Detailed audit of revenue and expense accounts is seldom for audit
engagements. The reason is that the auditor may substantiate the
balances in a number of these accounts as a by-product of the substantive
audit work for the related asset and liability accounts. Examples are:
ASSET OR LIABILITY ACCOUNTS INCOME STATEMENT ACCOUNTS
Cash Sales, Sales Discount / Interest
Income / Expenses
Accounts Receivable Sales, Sales Returns, Bad Debts
Expense, Interest Income
Notes Receivable Interest Income
Marketable Securities and other Dividend / Interest Income, Gain
investments (loss) on sale of marketable
securities, Unrealized Loss (Gain)
on Marketable Securities
Inventories Purchases and Cost of Sales
Property and Equipment Depreciation Expense, Repairs and
Maintenance, Gain (loss) on sale of
equipment
Prepaid Expenses, Deferred Charges Rent Expense, Insurance Expense and
other related expenses
Intangibles Amortization, Royalties Expense
Accounts Payable Purchases, Purchase Returns, Purchase
Discount
Accrued Payables Wages Expense, Commission Expense,
Taxes
Notes Payable Interest Expense
Mortgage / Bond Payable Interest Expense

Although formal tests of the balances in the revenue and expense accounts
are frequently not necessary at year-end, the auditor however needs to
supplement the evidence obtained in the foregoing tests with the following
procedures:
1. Analytical review of operations
2. Account analysis
The above procedures are also appropriate for other expenses not verified in
the audit balance sheet accounts.
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