chapter 12

Question 1

Five-step model of revenue recognition

Answer 1

1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the performance obligation
5. Recognize revenue when each performance obligation is satisfied

Question 2

Why do auditors determine the cost-benefit of testing controls?

Answer 2

will the substantive tests that need to be performed be reduced enough to justify the cost for performing tests of controls?

Question 3

What are the different types of confirmations that can be sent out?

Answer 3

1. Positive
   - requesting the debtor to confirm if the balance is correct
   -can be a blank confirmation where the debtor fills in what the balance is
2. Negative
   - debtor only responds if the amount is incorrect
   - cheaper