Revenue Recognition

Question 1

ISA 570

Revenue recognition

Likely to be overstated

Cut off problems

Recognised incorrectly

Answer 1

• recalculation of translation costs from invoices
• Written representation ascertaining as to the reasonableness of the translation costs used
• Test of controls of recording income/revenue transactions
• Compare revenue recognition policy to that of similar companies to ascertain appropriateness
• Inspect post year end credit notes to see if any related to the year under audit
• inspect post year management accounts
• vouch entries in account to invoices/contracts
• For contracts ascertain the basis for estimating the stage of completion and consider its appropriateness
• Recalculate revenue for contracts with respect to the stage of completion and the total contract value
• Analytical procedures including month by month comparisons
• Customer confirmation
• Review gross profit margins on an outlet by outlet basis to identify discrepancies