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.
ASSERTIONS
Sales
transactions
(movements in
trade
receivables)
•
•
•
•
•
Occurrence
Accuracy
Completeness
Cut-off
Classification
Receipt
transactions
(movements in
cash & bank
balances)
•
•
•
•
•
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
?
G
GENERAL LEDGER
S&D HARDWARE (PTY) LTD
GENERAL LEDGER - 28 FEBRUARY 2009
DATE
DESCRIPTION
REF
DEBIT
CREDIT
BALANCE
SALES (A/C NO. 100)
01/02
15/02
21/02
24/02
28/02
BALANCE B/D
GENERAL JOURNAL
GENERAL JOURNAL
CASH RECEIPTS JNL CASH SALE
CREDIT SALES FOR
MONTH
95/82
95/82
R 325.98
R 1 290.87
R 256 000.89
R 256 326.87
R 257 617.74
R 4 356.70
R 261 974.44
S.J
R 31 850.67
R 230 123.77
95/82
95/82
R 371.62
R 1 471.59
R 28 500.95
R 163 252.06
R 162 880.44
R 161 408.85
R 132 907.90
Complete?
Can’t
sample
from here!
DEBTORS (A/C NO. 700)
01/02
15/02
21/02
28/02
28/02
BALANCE B/D
GENERAL JOURNAL
CREDIT NOTES
CASH RECEIPTS JNL
CREDIT SALES FOR THE
MONTH
S.J.
R 36 309.76
R 169 217.66
BANK (A/C NO. 720)
01/02
28/02
BALANCE B/D
CASH RECEIPTS FOR
MONTH
R 120 744.02
C.R.J
R 32 857.65
R 153 601.67
Occur?
Accurate?
Sample
F
SALES JOURNAL
SALES JOURNAL OF S&D HARDWARE (PTY) LTD
For the month ended 28 February 2009
Date
Description
Ref.
07/02
07/02
09/02
12/02
13/02
15/02
17/02
19/02
19/02
25/02
A Hill
L Pather
D Johns
I Dlamini
P Naidoo
J Fatman
G Lambert
Y Katz
S Jacobs
V Johnson
Inv 1001
Inv 1002
Inv 1003
Inv 1004
Inv 1005
Inv 1006
Inv 1007
Inv 1008
Inv 1009
Inv 1010
Cut Off
Amount
VAT
TOTAL
R 5 200.64
R 7 010.72
R 4 324.78
R 3 241.90
R 2 342.90
R 1 324.87
R 875.78
R 4 657.65
R 435.78
R 2 435.65
R 31 850.67
R 728.09
R 981.50
R 605.47
R 453.87
R 328.01
R 185.48
R 122.61
R 652.07
R 61.01
R 340.99
R 4 459.10
R 5 928.73
R 7 992.22
R 4 930.25
R 3 695.77
R 2 670.91
R 1 510.35
R 998.39
R 5 309.72
R 496.79
R 2 776.64
R 36 309.77
Cast?
Accuracy
Sample
Date?
Cut -0ff
Prices to price lists
Accuracy
Quantity to ?
Accuracy
Cast?
Accuracy
Delivered? Risks &
rewards of ownership?
Occurrence/ Cut Off
Quantity
Accuracy
B
INTERNAL SALES ORDER
REG NO. 93/2699379
VAT REG NO. 4600103826
62 Henwood Rd
Durban
4000
Tel: 031 309 4302
Date:
27/01/2009
Order number: No.95/218
CUSTOMER:
Andy Hill
No 7 Broadwood Acres
Port Elizabeth
6025
Customer reference 27903
DELIVERY INSTRUCTIONS
DELIVER TO BUSINESS ON OR
BEFORE 9 FEBRUARY 2009
QTY
PROD
CODE
DESCRIPTION
1
2
4
3
4
1
7143
AZ146
P716
P 147
S 149
BD 121
250mm X 450mm chipboard
Black & Decker Drills
2mx0.5m Oak Doors
Boxes brass screws
Stainless steel taps
Black & Decker sanding machine
SUBTOTAL
VAT @ 14%
TOTAL
PRICE
R 50.27
R 1 200.64
R 2 300.00
R 27.94
R 420.25
R 1 201.51
R 5 200.61
R 728.09
R 5 928.70
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
(Credit sales)
- Supporting documents (ISO, DN, INV)
- Approval for transaction
- Customer acknowledgement
- Subsequent receipt
Direction of testing:
?
Population for sample:
Audit procedures:
?
?
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):
(
= Represents sample selection)
Delivery notes
dated pre-year-end
Sale should be recorded in
sales journal of period under audit
Delivery notes
dated post year-end
Sale should be recorded in
sales journal of next period
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:
?
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:
?
?
15
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.
SUBSTANTIVE PROCEDURES
- SALES RETURNS
SALES RETURNS AND ALLOWANCES
Analytical procedures
Sales returns as % of sales. Reasonable compared to prior year /
auditor expectation?
 If much higher %: possible overstatement.
= RISK
 If much lower % : possible understatement.
Further substantive procedures
 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.
END
Thank you!
Dankie!
Enkosi Kakhulu!