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Hello
In Dec 14 (hummingbird) and September 16 (heraklion) question there was a question that describe substantive procedures for revenue.
Will writing below 3 substantive procedures be valid and correct because these 3 are NOT mentioned in examiners answer (Dec 14 & September 16)
1) Ask for a sample of invoices to see whether revenue occurred or not
2) Compare GDN’s with invoices to ensure completeness
3) Cast the total of revenue to ensure accuracy1 Almost OK, but needs to be more precise. You are trying to verify the occurence of revenue that appears in the FS, so the test is something like:
For a sample of credit entries in the revenue account, trace back to the supporting invoices, despatch notes and customer orders.
2 Completeness of what. Again, you need to be more precise like: For a sample of despatch notes trace to the related invoices to verify that despatches have been invoiced and that revenue is complete.
3 What figures are you adding up? It is unusual to go to every accounting in the nominal ledger and add each up to find the balance. If the TB balances the accounts will probably add up. If, however, there were several revenue accounts for different categories of sales and these are presented as a single figure in the FS it would be important to verify that the sum of teh revenue accounts is equal to the FS figure.
Your points aren’t bad in principle, but as I said you have to be as precise and detailed as you can be. Pretend you are explaining to a 16 year old trainee in their first week of employment. Would what you said in 1 – 3 above be enough to let them do the work or would they need more guidance?
3) So point num 3 should be written as Cast the total of revenue to ensure accuracy and agree to income statement?
2) So point num 2 should be written as For a sample of GDN trace to the related invoices to verify that despatches have been invoiced and that revenue is complete?
1) So point num 1 should be written as For a sample of credit entries in the revenue account, trace back to the supporting invoices, despatch notes and customer orders?
4) And would this be correct that Select a sample of GDN’s pre year end and ensure whether these are recorded as revenue or not to verify cutoff?
1 – 3 You are really just repeating what I’ve said so what’s the point in asking? This is another example of your pointless following up. GROW UP AND STOP IT.
4 Again, not precise enough. Pre-year end GDNs should be in revenue; after-year-end should not be. Your 16 year old assistant would not have been able to carry out your instructions.
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