Case 15-8e: Controlling Revenue Page 1 Case 15-8 Controlling Revenue An engageme

Question

Case 15-8e: Controlling Revenue Page 1 Case 15-8 Controlling Revenue An engagement team is planning the audit of Always Better Care Company (ABC or the Company" products related to personal health and well-being. The engagement team is performing an integrated audit for the year ended December 31, 2015, in accordance with the standards of the PCAOB. This is the first year the team will serve as the auditors of Company ), an SEC registrant that develops, manufactures, and sells a range of the Paragraph 28 of PCAOB Auditing Standard 2201, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements (PCAOB AS 2201) (formerly PCAOB Auditing Standard 5), states, "the auditor should identify significant accounts and disclosures and their relevant assertions." Accordingly, the engagement team has identified revenue as a significant account balance. In addition, paragraph.34 of PCAOB AS 2201 (formerly PCAOB AS 5) states: To further understand the likely sources of potential misstatements, and as a part of selecting the controls to test, the auditor should achieve the following objectives- Understand the flow of transactions related to the relevant assertions, including how these transactions are initiated, authorized, processed, and recorded; Verify that the auditor has identified the points within the company's processes at individually or in combination with other misstatements, would be material Identify the controls that management has implemented to address these potential which a misstatement-including a misstatement due to fraud could arise that, misstatements; and Identify the controls that management has implemented over the prevention or timely detection of unauthorized acquisition, use, or disposition, of the company's assets that could result in a material misstatement of the financial statements. summary, the objective of understanding probable sources of misstatement is three- 1. Understand the process. 2. Determine that the risks of material misstatement identified are complete and In fold: appropriate. 3. Identify and understand the controls that address the identified risks. Obtaining a robust understanding of the flow of transactions for significant accounts and disclosures is the foundation for (1) identifying the points at which a material mistutement can occur and (2) identifying the controls that mitigate those potential

Explanation / Answer

1) Points at which material misstatement could occur:

2) Controls to mitigate

Considering Information from the Client Acceptance and Retention Evaluation, Audit Planning Activities, Past Audits, and Other Engagements: The auditor should evaluate whether information obtained from the client acceptance and retention evaluation process or audit planning activities is relevant to identifying risks of material misstatement. In subsequent years, the auditor should incorporate knowledge obtained during past audits into the auditor's process for identifying risks of material misstatement, including when identifying significant ongoing matters that affect the risks of material misstatement or determining how changes in the company or its environment affect the risks of material misstatement

Performing Analytical Procedures: The auditor should perform analytical procedures that are designed to enhance the auditor's understanding of the client's business and the significant transactions and events that have occurred since the prior year end; and Identify areas that might represent specific risks relevant to the audit, including the existence of unusual transactions and events, and amounts, ratios, and trends that warrant investigation.

Inquiring of the Audit Committee, Management, and Others within the Company about the Risks of Material Misstatement:  he auditor should inquire of the audit committee, or equivalent (or its chair), management, the internal audit function, and others within the company who might reasonably be expected to have information that is important to the identification and assessment of risks of material misstatement.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.