Question

1. Revenues and their interpretation with focus on:

• definition of revenues in accountancy, difference between the terms revenues and earnings
• forms of revenues and their classification in a contemporary modification of accountancy, related problems
• time differentiation of revenues, its purpose and forms
• change in stocks state of self-production and its place in revenues

2. External and internal audit focused on:

• purpose of external audit, its importance and audit fields
• purpose of internal audit, its importance and ways of its involvement in a company structure
• relation of internal audit and controlling, internal audit and a company control department - internal audit output

3. Final accounts audit focused on:

• purpose and goal of final accounts audit, its methods
• obligation of final accounts audit
• basic procedures of an auditor, their content and information sources
• results of final accounts audit, their importance for further company development - legislation of an auditor profession

Answer 1

1. Revenue:- Revenue is the value of all sales of goods and services recognized by a company in an ordinary course of its business during a period. This term is elaborate as it includes all the inflowd to the business in the course of its ordinary course of its business. Thus sale of capital asets cannot be termed as revenue. Also, any inflows/income generted from anciliiary/auxilliary activities during the course of business would also ammount to revenue. For example:- Sale of scrap papers.

Difference Between Revenue and Earnings

The key difference between Revenue and Earnings is that revenue refers to the amount generated by any business entity by selling their goods or by providing their services during the normal course of its operations before deducting the expenses, whereas, the earnings refers to the earnings generated by any business entity after deducting the cost and expenses incurred during the period.

Revenue is also synonymous with income, which is what a firm generates from their daily business activities. In the most simplistic terms revenue is the income generated from a business when a service or a product is provided to a consumer.

Earnings, on the other hand, are the inflow of money after all the expenses i.e. profit from a business in their daily operations. So one can say earnings are income net of expenses in general terms.

Forms of Revenue:- In simple terms revenue can be classified into Operating Revenue and Non operating revenue. While the income generated in ordinary course of ones business ( Eg:- Sales revenue, professional fees etc) is called the Operating revenue, whereas any income derived from any ancilliary activity not being in normal course of ones business ( Eg:- Interest Revenue, Dividend revenue, Rental reciepts etc).

Revenue recognition and its types:- Revenues are generally recognised on accrual basis. Revenue recognition is a generally accepted accounting principle (GAAP) that identifies the specific conditions in which revenue is recognized and determines how to account for it. Typically, revenue is recognized when a critical event has occurred, and the amount is easily measurable to the company. In other words, The revenue recognition principle using accrual accounting requires that revenues are recognized when realized and earned–not when cash is received. Other than accrual method, one may face a cash system of revenue recognition (when actuualy the proceeds are recieved) and Deferred Revenue, which means revenue which is stored as asset and will be recognised as an income at some future date.

2. External Audit Vs Internal Audit:- While an External Audit is performed by an outside organization an independent person and there is less conflict of interest , an Internal Audit examines the effeciency and effectiviness of organization's internal controls. Internal auditors work for the organization generally as an internal employee.

Purpose/Objective of these audits:- Purpose of an external audit is to review the company accounts to show that they are accurate and complete. Sometimes the organization may hire an external auditor for investigating for fraud. Tax Audit , Company Audit, Government Audit come in this category.

Purpose of internal audit is eavaluating the day to day activities on a periodic basis ( say concurrent basis) to find if there are any loopholes in the companys internal controls system. It aims at Quality control, efficiency and effectiveness.

As internal Auditors are involved in continous quality assurance they work closely with the managemnet to frame new policies and implement new/ corrective controlls. This also enables them play a vital role in decision making.

3. Final Accounts Audit:- Audit of final accounts is the examination of the records of assets and liabilities of an enterprise to ascertain an auditor's opinion.

Auditors' Responsibilities in audit of Financila statements.

The auditor's responsibility is to express an opinion on whether management has fairly presented the information in the financial statements. To do so, the auditorcollects evidence to obtain reasonable assurance that the accounts are free of material misstatement.

Procedure of Audit:-

1. Audit Planning:- Designing overall audit strategy.

2. Obtain an Understanding of the Client and Its Environment [Including Internal Control]:- Understanding the controls put up in the clients accounting and operating system.

3. Assess Risks of Misstatement and Design Further Audit Procedures:- On the basis of study of internal controls analysis of any possibility of willfull misstement or any wrong doings on part of client.

4.Perform Tests of Controls:- Performance of actual audit procedures like Test checks, surprise checks etc.

5.Perform Substantive Procedures—General:- This includes doing analytical procedures and other substantive tests like Tests of details of account balances, transactions and disclosures.

6.Complete the Audit:-Final decisions are made as to required financial statement disclosures and as to the appropriate audit report.

7.Audit Report. :- Audit report expressing an independent opinion with or without qualifications.

Lastly, audit financial statements is essential for the trustworthiness of your company. It will help track and solve any internal issues, and will help convey greater reliability to investors, shareholders, banks and tax officials.This will increase the confidence of stakeholders in the enterpirse.