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As an auditor, how to verify or ensure that Deferred Revenue is not understated?
Is there a cut off test to be performed on Deferred Revenue and how does it go? Or is the recalculation of Deferred Revenue (rental contracts) enough to assure me that it is fairly stated?
I presume that pre-numbered and dated contracts are available for inspection by the auditor. The details from those contracts should be examined and the calculation of deferred revenue re-performed (the client should already have done the calculation so the auditor needs to confirm accuracy of calculation and completeness of recording all deferred revenue from all these pre-numbered and dated contracts)
Will that do?
Thanks Mr Mike, all clear, I have seen your response long time back but forgot to respond.
A pharmaceutical company that is in the business of developing, testing, getting government health approval and licenses to manufacture and market new drugs?
If that’s the type of pharmaceutical company that you had in mind … I would have thought that deferred expenses would more likely be the problem. The only problem of revenue recognition that I foresee is whether the “revenue of the future is likely going to cover the extent of the expenses capitalised today”
What type of pharmaceutical company did you have in mind?
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