Quiz 10: Auditing the Revenue Process

Business

Revenue Recognition Accounting standards require that revenue must be realized or realizable and earned. Revenue is realized or realizable when the products, services or assets are sold in cash or credit, and cash is received or yet to be received from the customers. Revenue is earned when the products or assets that are sold or services that are provided have been delivered to or received by its ultimate customers.

Duties of credit function The duties of credit function for monitoring customer payments and handling bad debts are described below: • The credit function should prepare and review the aged trial balance. • He should request the customers for prompt payment. • He should prepare customer report for writing-off bad debts. This report is approved by an officer of the company who is not in charge of granting credit or payment collection.

Segregation of duties: Segregation of duties means involving more than one individual to a complete a specific task. This is an important task in the revenue processes because of the potential for fraud and theft involved.The audit procedures to be performed test the possibility of defalcation of cash are mentioned below: • Ensure that all the cash receipts are timely deposited at the bank by verifying the counterfoils of the bank. • Review whether the entries in the customers' accounts are approved by proper source documents. For system generated entries in customers' accounts, the auditor should consider verifying the system controls and reviewing the daily activity reports. • Ensure that the individuals involved in billing department do not have the access of the customer accounts and cash account. • Ensure that the cashier do not have the access of the customers' accounts.

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