Question

Revenue Process Misstatements

The revenue cycle requires regular review. Identify at least two (2) types of misstatements found in the revenue process. Next, identify a sound, timely internal control to detect and correct this misstatement.

Answer 1

Revenue Process Misstatements

in accounting revenue is the income that a business has from its normal activities,usually from sale of goods and services to customers.an auditor must do proper audit procedure to ensure revenue is properly accounted.let,s discuss two common types of misstatement found in revenue.

1)price authorization

price authorization can be a major problem.the misstatement over this area is likely to happen.management is the one who is responsible for setting price and manage this.but this area is sensitive and can have some trouble here.

2)Revenue recording process

the financial accountant in the firm might find difficult to record this properly and put proper disclosure.revenue deals with operating and non-operating activity.operating activity are basically the primary activity of the business which bring profit to the organisation.non-operating activities are revenues from side activities,and the financial accountant might have difficulties to understand this properly and might need professional help

Detect and control

Review the sales occurrence and price:this is performing by obtaining the sales transactions that recorded in the financial statements during the period as well as sales report that link to the financial statements.then perform an audit sample to total population of those sales transaction to review against price,sales order,quotation.auditor should also review the control over price area.

review the completeness of revenues recording in the financial statements.revenue might be understated if they are under recording.proper check on the disclosure area is also important to ensure the completeness of the statement.the user of the financial statement is required to understand the disclosure properly and the values in the statement.