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.

• Occurrence• Accuracy• Completeness• Cut-off• Classification

Sales transactions

(movements in trade

receivables)

Receipt transactions

(movements in cash & bank

balances)

ASSERTIONS

• 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 ?

DATE DESCRIPTION REF DEBIT CREDIT BALANCE

SALES (A/C NO. 100)

01/02 BALANCE B/D R 256 000.8915/02 GENERAL JOURNAL 95/82 R 325.98 R 256 326.8721/02 GENERAL JOURNAL 95/82 R 1 290.87 R 257 617.74

24/02CASH RECEIPTS JNL - CASH SALE R 4 356.70 R 261 974.44

28/02CREDIT SALES FOR MONTH S.J R 31 850.67 R 230 123.77

DEBTORS (A/C NO. 700)

01/02 BALANCE B/D R 163 252.0615/02 GENERAL JOURNAL 95/82 R 371.62 R 162 880.4421/02 CREDIT NOTES 95/82 R 1 471.59 R 161 408.8528/02 CASH RECEIPTS JNL R 28 500.95 R 132 907.90

28/02CREDIT SALES FOR THE MONTH S.J. R 36 309.76 R 169 217.66

BANK (A/C NO. 720)

01/02 BALANCE B/D R 120 744.02

28/02CASH RECEIPTS FOR MONTH C.R.J R 32 857.65 R 153 601.67

GGENERAL LEDGER

S&D HARDWARE (PTY) LTDGENERAL LEDGER - 28 FEBRUARY 2009

Occur?Accurate?Sample

Complete? Can’t sample from here!

SALES JOURNAL OF S&D HARDWARE (PTY) LTDFor the month ended 28 February 2009

Date Description Ref. Amount VAT TOTAL

07/02 A Hill Inv 1001 R 5 200.64 R 728.09 R 5 928.7307/02 L Pather Inv 1002 R 7 010.72 R 981.50 R 7 992.2209/02 D Johns Inv 1003 R 4 324.78 R 605.47 R 4 930.2512/02 I Dlamini Inv 1004 R 3 241.90 R 453.87 R 3 695.7713/02 P Naidoo Inv 1005 R 2 342.90 R 328.01 R 2 670.9115/02 J Fatman Inv 1006 R 1 324.87 R 185.48 R 1 510.3517/02 G Lambert Inv 1007 R 875.78 R 122.61 R 998.3919/02 Y Katz Inv 1008 R 4 657.65 R 652.07 R 5 309.7219/02 S Jacobs Inv 1009 R 435.78 R 61.01 R 496.7925/02 V Johnson Inv 1010 R 2 435.65 R 340.99 R 2 776.64

R 31 850.67 R 4 459.10 R 36 309.77

FSALES JOURNAL

Sample

Cast?Accuracy

Cut Off

REG NO. 93/2699379

VAT REG NO. 4600103826

62 Henwood Rd

Durban

4000

Tel: 031 309 4302

INVOICE NO: 1001DATE: 07/02/2009

YOUR REF: ORDER NO 27903ORDER DATE: 27-01-2009PICKING SLIP NO: 95/19SALESMAN: W.SDATE REQUIRED: 09-02-2009ACC NO: 024-625

PROD CODE

UNIT PRICE TOTAL

7143 R 50.27 R 50.27AZ146 R 600.32 R 1 200.64P716 R 575.00 R 2 300.00P 147 R 9.31 R 27.94S 149 R 105.06 R 420.25BD 121 R 1 201.51 R 1 201.51

SUBTOTALVAT @ 14% R 728.09TOTAL

41

1243

250mm X 450mm chipboardBlack & Decker Drills2mx0.5m Oak DoorsBoxes brass screwsStainless steel tapsBlack & Decker sanding machine

QTY

No 7 Broadwood AcresPort Elizabeth6025Customer reference 27903

DESCRIPTION

R 5 928.70

R 5 200.61

EINVOICE

DELIVER TO:Andy HillType of goods

Occurrence

Cast?Accuracy

Prices to price listsAccuracy

Quantity to ?Accuracy

Date?Cut -0ff

Wha

t sol

d? G

oods

?

Cla

ssifi

catio

n

REG NO. 93/2699379

VAT REG NO. 4600103826

62 Henwood Rd

Durban

4000

Tel: 031 309 4302

DEL NOTE NO: 1001

YOUR REF: ORDER NO 27903ORDER DATE: 27-01-2009PICKING SLIP NO: 95/19SALESMAN: W.SDATE REQUIRED: 09-02-2009ACC NO: 024-625

PROD CODE

QTY

7143 1AZ146 2P716 4P 147 3S 149 4BD 121 1

GOODS RECEIVED IN ORDER BY: DATE:

250mm X 450mm chipboard

Black & Decker sanding machine

DESCRIPTION

Black & Decker Drills

DDELIVERY NOTE

No 7 Broadwood Acres

Customer reference 27903

Port Elizabeth6025

DELIVER TO:Andy Hill

2mx0.5m Oak DoorsBoxes brass screwsStainless steel taps

QuantityAccuracy

Delivered? Risks & rewards of ownership?Occurrence/ Cut Off

Com

plet

enes

s ?

REG NO. 93/2699379VAT REG NO. 460010382662 Henwood RdDurban4000Tel: 031 309 4302 Order number: No.95/218

QTY PROD CODE

PRICE

1 7143 R 50.272 AZ146 R 1 200.644 P716 R 2 300.003 P 147 R 27.944 S 149 R 420.251 BD 121 R 1 201.51

R 5 200.61R 728.09

R 5 928.70

B

INTERNAL SALES ORDER

VAT @ 14%TOTAL

2mx0.5m Oak Doors

Stainless steel tapsBlack & Decker sanding machine

Port Elizabeth6025Customer reference 27903

250mm X 450mm chipboard

DESCRIPTION

Black & Decker Drills

DELIVERY INSTRUCTIONS

DELIVER TO BUSINESS ON OR BEFORE 9 FEBRUARY 2009

Boxes brass screws

CUSTOMER:Andy HillNo 7 Broadwood Acres

SUBTOTAL

Date: 27/01/2009

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 - Supporting documents (ISO, DN, INV) - Approval for transaction - Customer acknowledgement - Subsequent receipt

Direction of testing: ?

Population for sample: ?

Audit procedures: ?

(Credit sales)

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):

Delivery notesdated pre-year-end

Sale should be recorded in sales journal of period under audit

Delivery notesdated post year-end

Sale should be recorded in sales journal of next period

( = Represents sample selection)

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: ?

15

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: ?

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.

Analytical procedures

Sales returns as % of sales. Reasonable compared to prior year / auditor expectation? If much higher %: possible overstatement. If much lower % : possible understatement.

SALES RETURNS AND ALLOWANCES

SUBSTANTIVE PROCEDURES

- SALES RETURNS

= RISK

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.

Further substantive procedures

Thank you! Dankie! Enkosi Kakhulu!

END