Question

Required initormation Potential Misstatements in the Revenue Cycle Read the overview below and complete the activities that follow. The revenue cycle is a major cycle for most companies. Accounts receivable, revenue, and other accounts are tested through this cycle. Often there are misstatements found, including errors and/or fraud by the client.

CONCEPT REVIEW: It is important in testing any cycle, especially revenue, to realize that misstatements will occur and to try to distinguish between errors and fraud

1. Many instances of misstatement are based on the inappropriate recognition of __________
2. One way to avoid misstatement of revenue is to ensure the client has proper ________
3. Revenues are deemed to be earned when the company has ____________what it must do to fulfill its obligation
4.Side ___________ can substantially alter the terms of a sale.
5. __________ needs to be assured in order to recognize revenue.

1.controls,errorsmisstatementrevenuerisk2. cutoff policiesinsurance policiesliability policiesrisk policiessecurity policies3. accomplishedanticipatedauditedconsidereddiscovered4. agreementsauditscompaniesinventoriespolicies5. collectabilitycompletionconfirmationinventoryshipping

Answer 1

• Many instances of misstatement are based on the inappropriate recognition of controls, errors,misstatement,revenue and risk.

• One way to avoid misstatement of revenue is to ensure the client has proper cutoff policies,insurance policies,liability policies,risk policies and security policies.

• Revenues are deemed to be earned when the company has accomplished,anticipated,audited,considered and discovered what it must do to fulfil its obligation.

• Side agreements,audits,companies,inventories and policies can substantially alter the terms of a sale.

• Collectability,completion,confirmation,inventory and shipping needs to be assured in order to recognize revenue.