- This topic has 3 replies, 2 voices, and was last updated 5 years ago by
.
- Posts
Hello Sir,
“A number of candidates provided example procedures which were not relevant when testing revenue,
but instead focused on receivables or purchases. This can only be due to a failure to read the question requirement properly. In addition many procedures were vague or incomplete, such as agreeing goods despatch notes to sales invoices but not then agreeing the invoices to the sales day book.”The revenue is only recognised when the sales invoice input to the sales day books or recognised when the Goods delivered(raised GDNs)?Why the GDn need to agree to the sales day book mentioned above by examiner?
Thank you.
What you are auditing is the financial statements. Taking revenue as just one of the classes of transactions in the financial statements – the auditor must test the relevant financial statements, for example:
Occurrence: Did the sales that have been recorded occur? (i.e. they are bona fide so revenue is not overstated)
Completeness: Have all sales been recorded? (i.e. revenue is not understated)
(For other assertions see page 81 of the notes)
To test for completeness you need to ask yourself – what is that “triggers” a sale? Let’s say it is the physical dispatch of goods. You then need to consider how that flows to the financial statements:
GDN >>> Invoice >>> SDB >>> Ledger a/cs >>> Financial statementsThe examiner is not saying that GDNs need to be agreed to the SDB but that having traced GDNs to invoices, the invoices must then be traced to the SDB – then the total of the SDB to the relevant ledger a/cs – and then agreed to the total in the financial statements.
Thank you for your explanation and now I understand it.
If the goods dispatched by the company and not yet issue the invoice at the year end, then the sales figure will be recognised as accrued revenue as well as the receivables?
if the question test for the revenue transaction, can it included for auditing the accrual revenue?is it separate for auditing?
Thank you.
I’m really pleased to see that you have linked this to the cut-off assertion.
In this situation, revenue will be accrued with an entry:
Dr Accrued income (this asset will be added to trade receivables in SoFP)
Cr RevenueWhen the invoices are raised after the y/e, the entries will be:
Dr Trade receivables (amounts now invoiced to customers)
Cr Accrued income
(It can’t be credited to revenue again because revenue has already been recognised in the previous year)I wouldn’t expect accrued income to be examined directly but it would be worth a mark as a procedure in testing sales cut-off to agree the amounts of any invoices raised after the y/e in respect of goods despatched before the y/e to the schedule of accrued income.
Accrued income arises relatively rarely because systems are usually set up to raise invoices promptly (because the company wants to receive income asap).
(Accrued expenses are much more common – see the mention of the “Goods received – not invoiced” accrual on page 89 of the notes.)
- You must be logged in to reply to this topic.