Substantive Procedures for Revenue
Auditing Revenue Recognition
Revenue is often considered a significant fraud risk because management may have incentives to overstate sales. Auditors carefully test occurrence, accuracy, cutoff, and proper recognition.
- Trace sales entries to shipping documents.
- Review large year-end sales.
- Investigate unusual revenue fluctuations.
- Test credit memos issued after year-end.
Summary
Revenue audits focus on ensuring that recorded sales actually occurred and were recognized in the proper period.