Sep 16

Please can make separate about different questions on different topics.

Q16 (d) Revenue substantive procedure:
This links to s.4 of Chapter 20 and s.2 of Chapter 13. When goods have gone out they will not be inventory but should be included in revenue and receivables. A sales order is not have a double entry – it is the invoice that is recorded (“posted”) – Dr Receivable/Cr Revenue. It is assumed knowledge of FA (F3) that revenue is recognised when the “performance obligation” has been met – for the sale of goods – this is when the goods are transferred to the customer. For a retailer, “at the point of sale” coincides with the invoice (i.e. recording in the till receipt). Even if a company physically raised invoices days after goods have been despatched – the date of sale is when they are no longer in inventory. (The asset of inventory can’t just “disappear” and not be replaced with another asset.)

Q18(b) auditor response:
It’s referring to the judgements mentioned in the associated risk – capitalisation policy, provision and allowance (i.e. anything that could significantly affect the bonus).

Q18 (a) Benefits of audit planning:
See s.3 of Chapter 23 – using the work of an expert has to be planned for – it isn’t just a random decision during the course of an audit.

Q6
See Chapter 26. The FS on which the auditor’s report is issued don’t exist, in law, until they are authorised by the directors. The auditor’s objective – of expressing an opinion – is satisfied when the auditor’s report is issued. If, for any reason, financial statements have to be amended after issue with the auditor’s report, they will have to authorised (again) and the auditor’s report signed (again).

Q13
You should regard a financial controller of a listed company as someone senior who would have input into and influence in the preparation of the financial statements – hence a self-interest threat.

Please don’t use the quote function in the tutor forums – it is unnecessary and makes long posts even more unmanageable (I have edited to remove).

I was illustrating a point about revenue recognition. The principle of revenue recognition is that when the seller has performed its obligations under the sales contract – that is the point at which it recognises revenue. So the goods have to have been despatched to the customer (unless the customer has specifically asked for the goods to be held on to).

Please read s.4 of Chapter 20. To test cut-off you take a sample of goods despatched from either side of the year end and agree that the matching sales invoice has been recorded in the correct accounting period. Taking your question “how if the sale invoice is raised after the year end but the goods depatch is related to the sales before the year end? how to account the revenue?” – this is a cut-off error – so it would have to be corrected Dr Receivable/Cr Revenue.