Documentos de Académico
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List the Financial Transactions Processing Cycles
▧ Revenue
▧ Acquisition and payment of goods and
services
▧ Payroll
▧ Financing: debt and equity
▧ Cash and short-term investments
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Steps in the Revenue Process
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Steps in the Revenue Process
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Steps in the Revenue Process
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Steps in the Revenue Process
3. Confirming orders
• Customer verification of sales order accuracy
• Items
• Quantities
• Price
• Confirm shipping date
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Steps in the Revenue Process
4. Executing orders
• Assembling goods for shipment
• Picking list (sales order)
• Verify items picked and update inventory
• Move items to shipping dock
• Ship ordered goods
■ Packing slip (sales order)
■ Verify items packed (agree picking & sales order)
■ Shipping report and bill of lading
• Prenumbered and controlled
■ Periodic reports on Open Shipments
• Separation of Warehousing & Shipping
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Steps in the Revenue Process
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Business Risk and Business Environment
Revenue recognition
SAS 99 - Consideration of Fraud in a Financial
Statement Audit
Auditor should presume risk of material misstatement
due to fraud related to revenue recognition
Research shows over half of frauds involve
overstating revenues
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Improper Revenue Recognition Schemes
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Improper Revenue Recognition Schemes
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Inherent Risks
1. General incentive to overstate revenues and
receivables
2. High volume of transactions
3. Efforts to increase customer value, may
increase accounting complexity:
• Bundled services
• Rights of return
• Financing options
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AUDIT OBJECTIVES
Occurrence: Recorded sales represent goods
shipped during the period.
Completeness: All sales made during the
period were recorded.
Accuracy: All sales are accurately valued using
GAAP and correctly journalized, summarized,
and posted.
Cutoff: All sales have been recorded in the
correct accounting period.
Classification: All sales have been recorded in
the proper accounts.
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AUDIT OBJECTIVES
Existence: Accounts receivable represents
amounts owed by customers on the balance
sheet date.
Rights & Obligations: Accounts receivable at
the balance sheet date represents legal
claims of the entity on customers for
payment.
Valuation & Allocation: Accounts receivable
represent gross claims on customers at the
balance sheet date, and agrees with the sum
of the accounts receivable subsidiary ledger.
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CONTROLD RELATED
TO THE REVENUE
CYCLE
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Although the auditor must understand all
components of internal controls,
particular attention is paid to significant
control procedures and monitoring
controls
The auditor obtains an understanding of
the controls by
Walk-through of the processing of
transactions
Inquiry
Observation
Review of client documentation
It is critical this understanding be
documented in the work papers
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Monitoring Controls
Designed to signal failures in
transaction processing, and determine
if timely, corrective action is taken
Monitoring controls applicable to
revenue transactions include:
Compare sales and cost of good sold
with budgeted amounts
Exception reports generated to
identify unusual transactions
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Monitoring Controls
Internal audit of revenue cycle controls
Computer reconciliation of
transactions entered with transactions
processed
Monitoring of accounts receivable for
quality
Independent follow-up on customer
complaints
Audits of sales tax collections
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INPUT CONTROLS
Purpose
Ensure creditworthiness of customers
Control techniques vary considerably
between batch systems and real-time
systems
Credit authorization procedures
Credit worthiness of customer
Batch and manual systems use credit dept.
Real-time systems use programmed decision
rules
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INPUT CONTROLS
Testing credit procedures
Verify effective procedures exist
Verify information is adequately
communicated
Verify effectiveness of programmed decision
rules (test data, ITF)
Verify that authority for making credit
decisions is limited to authorized credit
personnel/procedures
Perform Substantive Tests of Detail
Review credit policy periodically and revise as
necessary
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INPUT CONTROLS
Data Validation Controls
To detect transcription errors in data as
it is processed
Batch: after shipment of goods
•Error logs
•Error correction computer processes
•Transaction resubmission procedures
Real-Time: Errors handled as they occur
Missing data checks – presence of
blank fields
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INPUT CONTROLS
Numeric-Alphabetic data checks – correct
form of data
Limit checks – value does not exceed max
for the field
Range checks – data is within upper and
lower limits
Validity checks – compare actual values
against known acceptable values
Check digit – identify keystroke errors by
testing internal validity
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INPUT CONTROLS
Batch controls
Manage high volumes of similar transactions
Purpose: Reconcile output produced by
system with the original input
Controls continue through all computer (data)
processes
Batch transmittal sheet:
Unique batch number
Batch date
Transaction code
Record count
Batch control total (amount)
Hast totals (e.g., account numbers)
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INPUT CONTROLS
Testing data validation controls
Failures of batch controls indicates data errors
Involves reviewing transmittal records of
batches processed and reconcile them to the
batch control log (batch transmittal sheet)
Examine out-of-balance conditions and other
errors to determine cause of error
Review and reconcile transaction listings,
error logs, etc.
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PROCESS CONTROLS
Computerized procedures for file
updating
Restricting access to data
Techniques:
File update controls -- Run-to-run batch
control data to monitor data processing steps
Transaction code controls – to process
different transactions using different
programming logic (e.g., transaction types)
Sequence check controls – sequential files,
proper sorting of transaction files required
Testing file update controls – results in errors
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PROCESS CONTROLS
Testing data that contains errors
(incorrect transaction codes, out of
sequence)
Can be performed in ITF or test data
CAATTs requires careful planning
Single audit procedure can be devised
that performs all tests in one operation.
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ACCESS CONTROLS
Prevent and detect unauthorized and illegal access
to firm’s systems and/or assets
Warehouse security
Depositing cash daily
Use safe deposit box, night box, lock cash drawers and
safes
Accounting records
Removal of an account from books
Unauthorized shipments of goods using blank sales orders
Removal of cash, covered by adjustments to cash account
Theft of products/inventory, covered by adjustments to
inventory or cash accounts
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ACCESS CONTROLS
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PHYSICAL CONTROLS
Segregation of duties
Rule 1: Transaction authorization
separate from transaction processing
Rule 2: Asset custody separate from
record-keeping tasks
Rule 3: Organization structured such
that fraud requires collusion between two
or more people
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PHYSICAL CONTROLS
Supervision
Necessary for employees who perform
incompatible functions
Compensates for inherent exposure
from incompatible functions
Can be supplement when duties are
properly segregated
Prevention vs. detection of fraud and
crime is objective: supervision can be
effective preventive control
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PHYSICAL CONTROLS
Independent verification
Review the work of others at critical
points in business processes
Purpose: Identify errors or possible
fraud
Examples:
Shipping dept. verifies goods sent from
warehouse dept. are correct in type and quantity
Billing dept. reconciles shipping notice with
sales notice to ensure customers billed correctly
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PHYSICAL CONTROLS
Testing physical controls
Review organizational structure for
incompatible tasks
Tasks normally segregated in manual
systems get consolidated in DP systems.
Duties of design, maintenance, and
operations for computers need to be
separated
Programmers should not be responsible for
subsequent program changes.
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OUTPUT CONTROLS
PURPOSE: Information is not lost, misdirected,
or corrupted; that the system output processes
function properly
Controls are designed to identify potential
problems
Reconciling GL to subsidiary ledgers
Maintenance of the audit trail – that is the primary way to
trace the source of detected errors
Details of transactions processed at intermediate points
AR change report
Transaction logs: permanent record of valid transactions
Transaction listings – successfully posted transactions
Log of automatic transactions
Unique transaction identifiers
Error listings
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OUTPUT CONTROLS
Testing output controls
Reviewing summary reports for
accuracy, completeness,timeliness, and
relevance for decisions
Trace sample transactions through audit
trails; including transaction listings, error
logs, and logs of resubmitted records
ACL is very helpful in this process
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SUBSTANTIVE TESTS
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SUBSTANTIVE TESTS
Concern: Overstatement or understatement of revenues?
Focus on large and unusual transactions, especially near
period-end
Recognizing revenues from sales that did not occur
Recognizing revenues BEFORE they are realized
Failing to recognize cutoff points
Underestimating allowance for doubtful accounts
Shipping unsolicited products to customers, subsequently
returned
Billings customers for products held by seller
Tests of controls and substantive tests
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SUBSTANTIVE TESTS FOR OCCURRENCE,
ACCURACY AND VALUATION
Vouch recorded sales transaction back to
customer order and shipping document
▧ Compare quantities billed and shipped with
customer order
▧ Special care should be given to sales recorded
at the end of the year
▧ Scan sales journal for duplicate entries
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SUBSTANTIVE TESTS FOR CUTOFF
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SUBSTANTIVE TESTS FOR CUTOFF
▧ Sales cutoff
○ Auditor selects sample of sales recorded
during cutoff period and vouches back to
sales invoice and shipping documents to
determine whether sales are recorded in
proper period
○ Cutoff tests assertions of existence and
completeness
○ Auditor may also examine terms of sales
contracts
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SUBSTANTIVE TESTS FOR CUTOFF
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SUBSTANTIVE TESTS FOR COMPLETENESS
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SUBSTANTIVE TESTS OF ACCOUNTS
Valuation
RECEIVABLE
○ Are sales and receivables initially recorded at their
correct amount?
○ Will client collect full amount of recorded
receivables?
Rights and Obligations
○ Contingent liabilities associated with factor or sales
arrangements
○ Discounted receivables
Presentation and Disclosure
○ Pledged, discounted, assigned, or related party
receivables
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SUBSTANTIVE TESTS OF ACCOUNTS
RECEIVABLE
▧ Obtain and evaluate aging of accounts
receivable
▧ Confirm receivables with customers
▧ Perform cutoff tests
▧ Review subsequent collections of receivables
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Thanks!
Any questions?
GROUP 1
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