Forum - Uts

AUDITING THE REVENUE CYCLE
Cycles contain activities that are designed to:
1. develop, purchase, produce, sell & distribute our clients’ products / services;
2. record information (including accounting information); and
3. ensure compliance with laws & regulations
Why Do We Focus on Cycles?
1. Linked areas = linked controls and linked risks

2. Efficient approach; and
3. Improve auditors' understanding on client's business
Understanding the Entity and Its Environment
1. Develop an expectation concerning total revenues and gross margin based on general
economy, competitive environment, and market position;
2. Identify and understand difficult revenue recognition issues:
a. Long-term construction/contracts
b. Bundled services/revenues
c. Potential for unearned revenue and collection difficulties
Definisi Pendapatan (PSAK 23 - 2014)
Arus masuk bruto dari manfaat ekonomik yang timbul dari aktivitas normal entitas selama suatu
periode jika arus masuk tersebut mengakibatkan kenaikan ekuitas yang tidak berasal dari kontribusi
penanam modal.
Major Processes in the Sales & Collections Cycle:
1. Sale of goods and services [revenue];

2. Payments received for goods and services [collection]; and
3. Goods returned by and claims received from customers [returns]
Steps in the Revenue Process:
1. Receiving customer orders;

2. Authorizing credit terms and shipment;
3. Confirming orders;
4. Executing orders; and
5. Recording the shipments or services performed
AUDITING CASH AND MARKETABLE SECURITIES
Major types of cash accounts:
1. General checking accounts

2. Cash management accounts
3. Imprest payroll accounts
4. Petty cash accounts
5. Marketable security accounts: A security that is readily marketable and held by a company
as an investment
Focus on Fraud – Common Fraud Schemes Relating to Cash:
1. Lapping: Employee steals a payment from one customer, and covers it up by using payments
from another customer to disguise the theft
2. Skimming: Type of fraud that occurs when an employee makes a sale but does not record it,
and steals the cash.
Documenting Controls
Documenting auditor’s understanding of internal controls for:
- Integrated audits (financial statements – compliance – internal control)

- Financial statement only audits
A questionnaire often used to guide auditors in documenting understanding of internal controls
Performing planning Analytical Procedures
1. Helps identify areas of potential misstatements when planning the audit

2. Cash is examined in relation to:
a. Operational data
b. Budgetary forecasts
3. Requires awareness of importance of cash balances to debt covenants
4. Review Exhibit 10.4 for relevant trend analyses to use.
Performing Planning - Analytical Procedures
Relationships indicating heightened risk of fraud in cash:
- Consistent profits over several years, but cash flows are declining
- Unexpected reductions in accounts receivable collections, or timeliness of collections
- Unexpected declines in petty cash account
Responding to Identified Risks of Material Misstatement
1. Audit procedures are proportional to assessed risks

- Areas of higher risk receive more audit attention and effort
2. Developing audit approach that contains:
- Tests of controls (if applicable)
- Substantive procedures, including analytical procedures
3. Audit programs are customized based on assessment of risk of material misstatement
AUDITING INVENTORY, GOODS & SERVICES AND ACCOUNT P
Persediaan adalah aset:
tersedia untuk dijual dalam kegiatan usaha biasa; dalam proses produksi untuk penjualan tersebut;
atau dalam bentuk bahan atau perlengkapan untuk digunakan dalam proses produksi atau
pemberian jasa.
(PSAK 14 (2009) - Persediaan
Requires information about:

Inherent risks at the:
Financial statement level
Account and assertion levels
Fraud risks including feedback from audit team brainstorming sessions
Strengths and weaknesses in internal control

Results from planning analytical procedures
Inventory is a complex accounting and auditing area

It is usually material, complex, and subject to manipulation
Large number of inventory-related frauds have been perpetrated
Requires exercise of high levels of professional skepticism by the auditor
Frauds in this cycle involve overstatement of inventory or assets and understatement of expenses
Theft of inventory by the employee
Inventory shrinkage: Reduction in inventory presumed to be due to physical loss or theft
Employee schemes involving fictitious vendors as means to transfer payments to themselves
A need to understand the controls that the client designs and implements to address the inherent
and fraud risks of material misstatement
For gaining an overall understanding of internal controls, auditor considers entity-wide controls and
transaction controls at the account and assertion levels
Such understanding is normally gained by means of a walkthrough of the process, inquiry,
observation, and review of the client’s documentation
All purchases are authorized
Existence of timely, accurate, and complete recording of inventory transactions
Receipt of inventory is properly accounted for and independently tested to verify quality in
adherence to company standards
Cost accounting system is up-to-date

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AUDITING THE REVENUE CYCLE

Cycles contain activities that are designed to:

Why Do We Focus on Cycles?

1. Linked areas = linked controls and linked risks

Understanding the Entity and Its Environment

Definisi Pendapatan (PSAK 23 - 2014)

Major Processes in the Sales & Collections Cycle:

1. Sale of goods and services [revenue];

Steps in the Revenue Process:

1. Receiving customer orders;

AUDITING CASH AND MARKETABLE SECURITIES

Major types of cash accounts:

1. General checking accounts

Focus on Fraud – Common Fraud Schemes Relating to Cash:

Documenting auditor’s understanding of internal controls for:

- Integrated audits (financial statements – compliance – internal control)

A questionnaire often used to guide auditors in documenting understanding of internal controls

Performing planning Analytical Procedures

1. Helps identify areas of potential misstatements when planning the audit

Performing Planning - Analytical Procedures

Relationships indicating heightened risk of fraud in cash:

Responding to Identified Risks of Material Misstatement

1. Audit procedures are proportional to assessed risks

Persediaan adalah aset:

(PSAK 14 (2009) - Persediaan

Requires information about:

Fraud risks including feedback from audit team brainstorming sessions

Strengths and weaknesses in internal control

Inventory is a complex accounting and auditing area

Large number of inventory-related frauds have been perpetrated

Requires exercise of high levels of professional skepticism by the auditor

Theft of inventory by the employee

Inventory shrinkage: Reduction in inventory presumed to be due to physical loss or theft

Employee schemes involving fictitious vendors as means to transfer payments to themselves

All purchases are authorized

Existence of timely, accurate, and complete recording of inventory transactions

Cost accounting system is up-to-date

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