Accounts Receivable and Revenue

Authors

Keywords
independent financial audit, audit examination, confirmation of accounts receivable and revenue, audit evidence, audit procedures, audit quality, errors, fraud, efficiency

Summary
Revenues are the lifeblood of any organization. Without cash inflows, the entity may cease to exist. The sales account is closely tied to accounts receivables, therefore, evidence supporting accounts receivable tends to support sales. Accounts receivable is frequently the largest asset that a company has. If your company is subject to an annual audit, the auditors will review its accounts receivable and revenues in some detail to determine if they are fairly presented in the context of the financial statements as a whole.

Some companies manipulate their earning by inflating their period and receivables. When trade receivables increase, revenues increase. So, a company can increase its net income by recording nonexistent receivables.

In this article, we will answer questions such as:

Should auditor confirm receivables to obtain reliable evidence that they are fairly presented?

Why should we assume that revenues are overstated or understated and to apply professional skepticism?

JEL: 42
Pages: 27
Price: 2 Points

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