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Planning and Risk assessment
Kaplan. Veryan Co (51-55)Select whether the following statements are consistent or not consistent with the
movement in revenue.1.Cut-off of revenue is an audit risk — Consistent/ Not consistent
2.Completeness of revenue is an audit risk — Consistent/ Not consistent
3.Occurrence of revenue is an audit risk — Consistent/ Not consistent
Hello sir, if possible can you explain this question easy way? i can’t solve these types of questions
This is not a past exam Q and I do not have the scenario – which is where you would need to look to understand the scenario.
But to consider this type of Q more generally, you need to understand the assertions – please refer to Chapter 16 in our ntoes (it is less than 2 pages and really, really important to the AA exam).
Revenue is a TRANSACTION – so the relevant assertions are as listed in s.2 – these include 1. cut-off, 2. completeness and 3. occurrence.
Now suppose revenue appears to have increased by MORE than expected – i.e. risk is overstatement. That is consistent with risk of occurrence.
Now suppose revenue appears to have increased by LESS than expected – i.e. risk is understatement. That is consistent with risk of completeness.
Cut-off is a risk “either way” i.e. this year’s revenue recorded next year would be understatement this year, but next year’s revenue recorded this year would be overstatement – see s.5. of Chapter 20 in our notes for details.
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