Question

For a broad audit plan on Loblaws Companies Limited, what are the inherent risks, transaction cycles, and specific audit procedures that they should use for Revenue/Revenue Recognition?

Answer 1

Inherent Risks

1) Nature of accounting; The preparation of financial statements involves judgments and subjective decisions made by management in the preparation and presentation of financial statements like provisions or fair values of assets etc..,

2)Nature of Auditing; In some situations, there may be some practical or legal constraint on the auditors ability to obtain audit evidence

3)Time and Cost considerations; Need for auditor to form an opinion on the financial statements within a reasonable time cost and large volume  of transactions make him to resorts for test checking

4) Inherent Limitation of Internal controls;The extent of audit procedures to be performed depends on the effectiveness of internal controls but such controls also suffering from their own limitations such as collusion among employees, abuse of authority etc.,

procedures for revenue recognition

1.check whether the accrued income is properly accounted for

2.ensure the goods that have moved out the factory are duly invoiced and charged on the customers

3.reconcile the quantity of raw material consumed with the quantities of finished goods manufactured and compare the rate of wastage with that in the earlier period

4.compare the income accounts of the current period with the previous period and see their variations