Revenue & Receipts Cycle SUBSTANTIVE PROCEDURES - Transactions & Events.
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Transcript of Revenue & Receipts Cycle SUBSTANTIVE PROCEDURES - Transactions & Events.
Revenue & Receipts Cycle
SUBSTANTIVE PROCEDURES - Transactions & Events
REFERENCES
LEARNING OUTCOMES
1. Understand the financial statement assertions that are applicable to transactions and events in the cycle.
2. Understand the important accounting aspects applicable to transactions and events in the cycle.
3. Describe the substantive audit procedures necessary to audit the transactions and events in the cycle.
• Occurrence• Accuracy• Completeness• Cut-off• Classification
Sales transactions
(movements in trade
receivables)
Receipt transactions
(movements in cash & bank
balances)
ASSERTIONS
• Occurrence• Accuracy• Completeness• Cut-off• Classification
RISKS
Sales / Receipt transactions:
Risk Assertion affected
Never approved ?
Recorded but not real ?
Real but not recorded ?
Incorrect amount ?
Incorrect period ?
Incorrect account ?
DATE DESCRIPTION REF DEBIT CREDIT BALANCE
SALES (A/C NO. 100)
01/02 BALANCE B/D R 256 000.8915/02 GENERAL JOURNAL 95/82 R 325.98 R 256 326.8721/02 GENERAL JOURNAL 95/82 R 1 290.87 R 257 617.74
24/02CASH RECEIPTS JNL - CASH SALE R 4 356.70 R 261 974.44
28/02CREDIT SALES FOR MONTH S.J R 31 850.67 R 230 123.77
DEBTORS (A/C NO. 700)
01/02 BALANCE B/D R 163 252.0615/02 GENERAL JOURNAL 95/82 R 371.62 R 162 880.4421/02 CREDIT NOTES 95/82 R 1 471.59 R 161 408.8528/02 CASH RECEIPTS JNL R 28 500.95 R 132 907.90
28/02CREDIT SALES FOR THE MONTH S.J. R 36 309.76 R 169 217.66
BANK (A/C NO. 720)
01/02 BALANCE B/D R 120 744.02
28/02CASH RECEIPTS FOR MONTH C.R.J R 32 857.65 R 153 601.67
GGENERAL LEDGER
S&D HARDWARE (PTY) LTDGENERAL LEDGER - 28 FEBRUARY 2009
Occur?Accurate?Sample
Complete? Can’t sample from here!
SALES JOURNAL OF S&D HARDWARE (PTY) LTDFor the month ended 28 February 2009
Date Description Ref. Amount VAT TOTAL
07/02 A Hill Inv 1001 R 5 200.64 R 728.09 R 5 928.7307/02 L Pather Inv 1002 R 7 010.72 R 981.50 R 7 992.2209/02 D Johns Inv 1003 R 4 324.78 R 605.47 R 4 930.2512/02 I Dlamini Inv 1004 R 3 241.90 R 453.87 R 3 695.7713/02 P Naidoo Inv 1005 R 2 342.90 R 328.01 R 2 670.9115/02 J Fatman Inv 1006 R 1 324.87 R 185.48 R 1 510.3517/02 G Lambert Inv 1007 R 875.78 R 122.61 R 998.3919/02 Y Katz Inv 1008 R 4 657.65 R 652.07 R 5 309.7219/02 S Jacobs Inv 1009 R 435.78 R 61.01 R 496.7925/02 V Johnson Inv 1010 R 2 435.65 R 340.99 R 2 776.64
R 31 850.67 R 4 459.10 R 36 309.77
FSALES JOURNAL
Sample
Cast?Accuracy
Cut Off
REG NO. 93/2699379
VAT REG NO. 4600103826
62 Henwood Rd
Durban
4000
Tel: 031 309 4302
INVOICE NO: 1001DATE: 07/02/2009
YOUR REF: ORDER NO 27903ORDER DATE: 27-01-2009PICKING SLIP NO: 95/19SALESMAN: W.SDATE REQUIRED: 09-02-2009ACC NO: 024-625
PROD CODE
UNIT PRICE TOTAL
7143 R 50.27 R 50.27AZ146 R 600.32 R 1 200.64P716 R 575.00 R 2 300.00P 147 R 9.31 R 27.94S 149 R 105.06 R 420.25BD 121 R 1 201.51 R 1 201.51
SUBTOTALVAT @ 14% R 728.09TOTAL
41
1243
250mm X 450mm chipboardBlack & Decker Drills2mx0.5m Oak DoorsBoxes brass screwsStainless steel tapsBlack & Decker sanding machine
QTY
No 7 Broadwood AcresPort Elizabeth6025Customer reference 27903
DESCRIPTION
R 5 928.70
R 5 200.61
EINVOICE
DELIVER TO:Andy HillType of goods
Occurrence
Cast?Accuracy
Prices to price listsAccuracy
Quantity to ?Accuracy
Date?Cut -0ff
Wha
t sol
d? G
oods
?
Cla
ssifi
catio
n
REG NO. 93/2699379
VAT REG NO. 4600103826
62 Henwood Rd
Durban
4000
Tel: 031 309 4302
DEL NOTE NO: 1001
YOUR REF: ORDER NO 27903ORDER DATE: 27-01-2009PICKING SLIP NO: 95/19SALESMAN: W.SDATE REQUIRED: 09-02-2009ACC NO: 024-625
PROD CODE
QTY
7143 1AZ146 2P716 4P 147 3S 149 4BD 121 1
GOODS RECEIVED IN ORDER BY: DATE:
250mm X 450mm chipboard
Black & Decker sanding machine
DESCRIPTION
Black & Decker Drills
DDELIVERY NOTE
No 7 Broadwood Acres
Customer reference 27903
Port Elizabeth6025
DELIVER TO:Andy Hill
2mx0.5m Oak DoorsBoxes brass screwsStainless steel taps
QuantityAccuracy
Delivered? Risks & rewards of ownership?Occurrence/ Cut Off
Com
plet
enes
s ?
REG NO. 93/2699379VAT REG NO. 460010382662 Henwood RdDurban4000Tel: 031 309 4302 Order number: No.95/218
QTY PROD CODE
PRICE
1 7143 R 50.272 AZ146 R 1 200.644 P716 R 2 300.003 P 147 R 27.944 S 149 R 420.251 BD 121 R 1 201.51
R 5 200.61R 728.09
R 5 928.70
B
INTERNAL SALES ORDER
VAT @ 14%TOTAL
2mx0.5m Oak Doors
Stainless steel tapsBlack & Decker sanding machine
Port Elizabeth6025Customer reference 27903
250mm X 450mm chipboard
DESCRIPTION
Black & Decker Drills
DELIVERY INSTRUCTIONS
DELIVER TO BUSINESS ON OR BEFORE 9 FEBRUARY 2009
Boxes brass screws
CUSTOMER:Andy HillNo 7 Broadwood Acres
SUBTOTAL
Date: 27/01/2009
Matches or agrees to approved customer order?Occurrence
SUBSTANTIVE PROCEDURES
- OCCURRENCE
Risk: Sales overstated -> exaggerated financial performance
Audit evidence: Proof that transaction actually took place - Supporting documents (ISO, DN, INV) - Approval for transaction - Customer acknowledgement - Subsequent receipt
Direction of testing: ?
Population for sample: ?
Audit procedures: ?
(Credit sales)
SUBSTANTIVE PROCEDURES
- ACCURACY
Risk: Sales over- or understated
Audit evidence: Proof that transaction recorded at correct quantity and correct price
- Amount in financial records = supp.doc. - Casts & Calculations - Tax calculations
Direction of testing: ?
Population for sample: ?
Audit procedures: ?
SUBSTANTIVE PROCEDURES
- CUT-OFF
Risk: Sales over- or understated
Audit evidence: Proof that transaction recorded in financial period to which it pertains
- Date of delivery goods/render service as per relevant supporting document (which?)
Audit procedures (example):
Delivery notesdated pre-year-end
Sale should be recorded in sales journal of period under audit
Delivery notesdated post year-end
Sale should be recorded in sales journal of next period
( = Represents sample selection)
SUBSTANTIVE PROCEDURES
- CLASSIFICATION
Risk: Sales over- or understated
Audit evidence: Sales transaction classified as such in the financial records
- From books of prime entry to ledgers - Sales account contain no non-revenue
transactions
Audit procedures: ?
15
SUBSTANTIVE PROCEDURES
- COMPLETENESS
Risk: Sales understated -> reduced taxable income
Audit evidence: Proof that all sales transactions that took place, have been recorded
in fin records - All transactions written up on supp doc. - All supp doc. recorded in fin records - Analytical procedures: results don’t point to
possible understatement
Direction of testing: ?
Population for sample: ?
Audit procedures: ?
SUBSTANTIVE PROCEDURES
- COMPLETENESS
Risk: Sales understated -> reduced taxable income
Analytical procedures:
Example 1: Prior year sales = R1.3 million Current year sales = R1.1 million
However, there were price increases and market share increased. Why the decrease in sales? = RISK of completeness of sales.
Analytical procedures
Sales returns as % of sales. Reasonable compared to prior year / auditor expectation? If much higher %: possible overstatement. If much lower % : possible understatement.
SALES RETURNS AND ALLOWANCES
SUBSTANTIVE PROCEDURES
- SALES RETURNS
= RISK
Occurrence: approval? Accuracy: recorded i.t.o. supp doc? Completeness: all recorded? Cut-off: If returns material, recorded in same period as the related sales.
Further substantive procedures
Thank you! Dankie! Enkosi Kakhulu!
END