Question

use indications to fill in all yellow blanks

Each of the following exercises reuires you to think about how data behave when a misstatement condition exists, and how ratios the are based on those data bahave. Do they increase, decrease, or remain unchanged. These are, of course, idealized situations, but the need to think about data bahavior always faces an auditor To simplify consideration of the effects of the following conditions, assume that each is a no-growth situation (unless stated otherwise). That is, in the absence of imisstatment none of the accounts or transaction streams is increasing or decreasing. In a real situation you would need to consider whether that is a reasonable assumption and, if needed adjust for it. . P USE THESE INDICATORS Recorded amount appears to be high Recorded amount appears to be low Recorded amount appears to be reasonable 2 P Ratio appears to be high Ratio appears to be low Ratio appears to be reasonable

Answer 1

due to incorrect recording of sale. the revenue of current year will be higher than actual
if such extra sale is recorded as credit sale, accounts receivable will be also higher than actual
in case extra sale is shown as cash sale then cash reciepts will also be on higher side than actual
returns and allowance- if an assumtion on credit sale for possible sale return is prepared than it will be also higher ,otherwise no impact.

Rev cos Sale Revenue Cost of sale Account Receivable Are Cash Reciept CR - Cappear high I il Revenue Considered is cooh sole Retum & callowance RA -) [ Reasonable Ratio ↑ [high Î [recorded amount appears high] - [ Reasonable] [not affected by Revenue] î [ abbean high] [ of credit sale,] Reasonable Revler Revlcos RAIREV î (high I [ low - [ Reasonable] REVIARE