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REVENUE CYCLE
MANAGEMENT
ASSERTIONS AND
REVENUE CYCLE
AUDIT OBJECTIVES
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EXISTENCE /
OCCURRENCE
○ VERIFY AR balance represents
amounts actually owed as of
Balance Sheet date
○ Establish sales represents goods
shipped and/or services
rendered during period of
financials
3
COMPLETENESS
○ Determine all amounts owed
organization are included in
AR
○ VERIFY shipped goods, services
rendered, and/or returns and
allowances for period are
included in financials
4
ACCURACY
○ VERIFY revenue transactions are
accurately computed, based on
correct prices and quantities
○ Ensure AR subsidiary ledger,
sales invoice file, remittance file
are mathematically correct ..
And agree with GL accounts
5
RIGHTS &
OBLIGATIONS
○ Determine organization
has legal right to AR
○ VERIFY accounts sold or
factored have been
removed from AR
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VALUATION or ALLOCATION
○ Determine AR balance
stated in net realizable value
○ Establish allocation for
uncollectible accounts is
appropriate
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PRESENTATION and
DISCLOSURE
○ VERIFY AR and revenues
for period are properly
described and classified
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REVENUE CYCLE
AUDIT OBJECTIVES,
CONTROLS, AND
TEST OF CONTROLS
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A. INPUT CONTROLS
-Designed to ensure that
transactions are valid,
accurate, and complete.
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A. INPUT CONTROLS
Input controls related to revenue cycle
operations:
✢ Credit Authorization Procedures
– only customer transactions that
meet the organization’s credit
standards are valid and should be
processed further
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A. INPUT CONTROLS
✢ Testing Credit Procedures
○ Determine that effective
procedures exists
○ Creating dummy accounts –
Test data or Integrated Test
Facility (ITF)
○ Performing substantive tests of
details
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A. INPUT CONTROLS
✢ Data Validation Controls – to detect
transcription errors in transaction
data before they are processed
✢ Testing Validation Controls
○ Testing the data editing controls
○ Reviewing error listings and
error logs
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A. INPUT CONTROLS
✢ Batch Controls – to manage high
volumes of transaction data through a
system
✢ Testing Batch Controls
○ Reviewing transmittal records of
batches processed
○ Reconciling transaction listings,
error logs, and logs of
resubmitted records
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B. PROCESS CONTROLS
- are computerized procedures for file updating
and restricting access to data.
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E. OUTPUT CONTROLS
Examples of Audit Trail Output Controls:
✢ A/R Change Report
✢ Transaction Logs
✢ Transaction Listings
✢ Log of Automatic Transactions
✢ Unique Transaction Identifiers
✢ Error Listing
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Substantive Tests of
Revenue Cycle
Accounts
Determine the nature,
timing, and extent of
substantive tests using the
auditor’s assessment of
inherent risk, unmitigated
control risk, materiality
considerations, and the need
to conduct the audit in an
efficient manner.
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✢ What are some
substantive tests of
revenue?
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What are some substantive
tests of revenue?
Occurrence Completeness Accuracy
Have the Have all Have
transactions transactions been transactions
occurred and recorded? been
pertain to the accurately
entity? recorded?
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What are some substantive
tests of revenue?
Cutoff Classification
Have transactions been Have transactions been
recorded in the correct recorded in the proper
accounting period? accounts?
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Substantive Tests of Revenue for
Occurrence, Accuracy, and
Valuation
✢ Vouch recorded sales transaction back to
customer order and shipping document
✢ Compare quantities billed and shipped
with customer order
✢ Special care should be given to sales
recorded at the end of the year
✢ Scan sales journal for duplicate entries
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Substantive Tests of Revenue
Cutoff Tests
✢ Can be performed for sales, sales returns,
cash receipts
✢ Provides evidence whether transactions
are recorded in the proper period
✢ Cutoff period is usually several days
before and after balance sheet date
✢ Extent of cutoff tests depends on
effectiveness of client controls
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UNDERSTANDING THE DATA
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2.REVIEW SALES INVOICE AND
SHIPPING LOG FILES FOR MISSING
AND DUPLICATE ITEMS
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✢ this may be evidence of over- or understated sales
and accounts receivable
✢ ACL is capable of testing a designated field for out-
of-sequence records, gaps in sequence numbers,
and duplicates for the entire file
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3.REVIEW LINE ITEM AND
INVENTORY FILE FOR SALES
PROCESS ACCURACY
✢ -pricing inconsistency in such setting may indicate a
computer program error or the use of obsolete
pricing data
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TESTING FOR
UNMATCHED RECORDS
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✢ 1. Value of the Item Number is incorrect and does not
match the Inventory record
✢ 2. Presence of Inventory records in the unmatched file
means that there is no corresponding records in the
Line Item file
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Testing the Existence
Assertions
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Confirmation of Accounts Receivables
✢ Auditors should request confirmations of accounts
receivable except in the following three situations:
✢ (1) accounts receivable are immaterial;
✢ (2) based on a review of internal controls, the auditor
has assessed control risk to be low; or
✢ (3) the confirmation process will be ineffective.
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Confirmation
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2. Prepare confirmation requests
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2 Types of Confirmation Request
Positive Negative
-addressed to a customer -addressed to the customer
requesting that it send and requests a response
directly to the auditor only if the customer
confirmation of whether the disagrees with the stated
balance stated on the amount on the confirmation
confirmation request is request.
correct or incorrect.
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3. Evaluate and control the
responses
When a response is received from a confirmation
request indicating disagreement with the amount owed, the
auditor should investigate the reason the disagreement. If
there are a number of disagreements or the disagreements
appear to be significant, the auditor should reconsider the
original assessment of the level of inherent and control risk.
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Testing the
Allocation/Valuation
Assertion
✢ Auditor’s objective:
to corroborate or refute that accounts receivable are stated
at net realizable value
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THANK YOU!
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REPORTERS:
• Cabrera, Ma. Elenita B., Cabrera, Gilbert Anthony B., Applied Auditing
• http://www.auditcorner.com/2015/05/information-system-audit-revenue-
cycle.html?m=1
• http://www.cengage.com/accounting/book_content/0324375581_rittenberg/Final_
PPts/6thRittenbergCh11a.ppt
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