SAB 101 Revenue Recognition Criteria? (4 )
Persuasive evidence of an arrangement exists
delivery has occurred or services have been rendered
seller’s price to the buy is fixed/ determinable
collectability is reasonably assure
fraud risks in rev. recognition
- side agreements
- channel stuffing
- related party transactions
- bill and hold sales
channel stuffing?
“trade loading” when suppliers induce distrubtors to buy substantially more than they can promptly sell
bill and hold sales
sales where the customer agrees to purchase the goods but the seller retains phys. possession until the customer requests shipments– does not qualify as a sale because delivery has not occurred
3 types of trnsaction typically processed through the revenue process
- sale of goods or rendering of a service for cash or credit
- receipt of cash from the customer in payment for the goods or services
- return of goods by the customer for credit or cash
Acct’s affected in SALES transactions
- Trade A/R
- Sales
- Allowance for uncoll. accounts.
- Bad Debt Expense
Accts affected in CR Transactions
- Cash
- Trade A/r
- Cash Discounts
Accts affected in Sales RETURNS and Allowances
- sales returns
- sales allowances
- trade A/R
Open Order Report
– report of all customer orders for which processing has NOT been completed
Remittance Advice
- authorizes the write-off of an uncollectible A/R. Final authorization is generally received from the treasurer
inherent risk assessment (4 risk factors)
- industry-related
- complexity and contentiousness fo revenue recogntion issues
- difficulty of auditing transactions/ acct. balances
- misstatements deteced in prior audits
control risk assessment (3 steps)
- understand and coument revenue process based on a reliance strategy
- plan and perform tests of controls on revenue transactions
- set and document the control risk for the revenue process
auditor activities to document internal control?? (4)
- procedure manuals
- narrative descriptions
- internal control questionaires
- flow charts
6 ASSERTIONS!! (OCAACC)
Occurence
Completeness
Authorization
Accuracy
Cutoff
Classification
key segregations
credit & billing
shipping & billing
A/R and G/L
CR and A/R
