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Substantive Procedures for the Revenue and Collection Cycle [Video]

Substantive Procedures for the Revenue and Collection Cycle

After the auditor has set the achieved level of control risk and determined the risk of material misstatement, the auditor can adjust detection risk.

The auditor can decrease detection risk by increasing the nature, timing, and extent of the substantive procedures to be performed. The purpose of the substantive procedures is to substantiate financial statement accounts and disclosures. The more substantive procedures an auditor performs, the better the auditor’s chances of detecting material misstatements.

There are two types of substantive procedures: analytical procedures and tests of details.

Analytical procedures substantiate accounts or disclosures by comparing recorded amounts (or ratios derived from recorded amounts) with the auditor’s independent estimates for those amounts. The auditor arrives at independent estimates by examining relationships between accounts (both financial and nonfinancial) to see if they are plausible. As part of this process, the auditor would:
• Compare financial information to information from comparable prior periods
• Compare financial information to budgeted information
• Examine relationships between related accounts during the period
• Compare financial information to the industry average
• Compare financial information with nonfinancial information

Analytical procedures are an important part of the audit because they are generally cheaper and less labor-intensive to perform than tests of details.

There are two types of tests of details: tests of transactions and tests of account balances.

Tests of transactions are designed to detect fraud or errors in individual transactions. An example would be vouching a sample of sales transactions back to the respective sales invoices, shipping documents, and customer orders to verify occurrence.

Tests of account balances, on the other hand, verify the ending balances of accounts. An example would be evaluating the adequacy of the allowance for doubtful accounts to determine whether the ending balance for accounts receivable is fairly stated.

Confirmation (a tests of account balances) is typically an important part of auditing the revenue and collection cycle. Confirmation refers to a process in which the auditor obtains evidence from direct communication with a third party about a management assertion.

With respect to receivables, confirmation involves the auditor asking customers about amounts they purportedly owe to the client. In short, the client is claiming that customers have promised to pay a certain amount of money, and the auditor is trying to ascertain whether this is true

There are two types of confirmation requests. A positive confirmation asks the customer to respond whether or not the balance is correct. A negative confirmation asks the customer to respond only if the balance is incorrect.

0:00 Introduction
0:30 Inverse relationship between RMM and detection risk
0:51 Types of substantive procedures
0:57 Analytical procedures
2:27 Tests of details
3:18 The confirmation process
3:45 Types of confirmations
4:44 Confirmation exceptions
5:08 Timing of confirmations
5:58 Alternative procedures
6:37 When not to confirm
7:48 Tolerable misstatement
8:10 Examining disclosures

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Resources for Accountants

Inspiring Short Stories | The Angry Father [Video]

The Angry Father. Inspiring short stories. Motivational & inspirational video. Best short inspirational videos. Inspirational quotes about life and love. The motivational stories and famous anecdotes presented in this video are excerpts from our book: Top 100 motivational stories: the best inspirational short stories and anecdotes of all time. Get the book here: https://www.bizmove.com/inspiration/m9b.htm

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Resources for Accountants

Accounting Made Simple: For Small & Businesses - 4 Books in 1 Audiobook [Video]

Link to this audiobookhttps://audiobookspodcast.com/p/B08L41LZGKAccounting Made Simple: For Small & Businesses - 4 Books in 1 Audiobook free preview is an Business & Careers,Business Development & Entrepreneurship audiobook write by Gregory OlsonAre you about to start a business, but you don't know what structure to use and what your tax duties will be once you’ve started? Or are you a good entrepreneur in your sector but you’re still struggling to understand tax logics and feel you could do much more to guarantee tax savings for your company? Taxation plays an increasingly strategic role nowadays. The success or failure of many businesses, in various sectors, is no longer only linked to the goods of the business initiative, but also closely to the tax planning. Particularly in the start-up phase, being aware of the tax logics will allow you to take a proactive role in managing the same crop at your CPA. The collaboration between professional and knowledgeable entrepreneur can be considered a real corporate asset that can lead to various advantages not only in terms of tax savings. In any case, whether you find yourself in any of these two scenarios, this priceless bundle of four books contains all you need to learn about structures, taxes, and all the tax duties that you will have to deal with, explained from the point of view of a non-accountant. It’s been developed with the intention of coping with complex and challenging issues in a very simple way that help small businessmen and individuals who want to start a business and to learn more about the right company structure they can follow, payroll, accounting, and other such issues. This is by far the ultimate beginner’s guide for entrepreneurs who want to learn how financial statements and generally accepted accounting principles work. This bundle includes four fundamental books on accounting that every entrepreneur should keep on hand. Let’s have a quick look to each of them. Here are just some of the topics that are discussed in How to Start a Small Business in #2020: The Ultimate Beginner’s Guide for Entrepreneurs: A clear, step-by-step guide on how to start a company - from business plan to marketing, scaling, and funding strategies Tools for developing a work plan and the key guidelines of business finance Association and LLC basics Info on trademarks and advertising Helpful strategies for workforce resource planning, subcontracting, and recruiting And much more! In Accounting Made Simple: The Ultimate Beginner's Guide for Entrepreneurs, you will learn: The basics of income statements and how they work Four reasons a cash flow statement is important Six steps of accounting transaction analysis Key differences between assets and liabilities All about financial ratio analysis In the third book, Accounting Principles Made Simple: The Ultimate Beginner’s Guide for Entrepreneurs, you will learn: How to take control of your company’s account All about the accounting cycle and how to close the books What GAAP is, why it was formed, and benefits that it provides And much more! And finally, in the guidebook covering the Limited Liability Company (LLC): An introduction to what LLC actually means and reviewing whether LLC is right for you The advantages and disadvantages associated with LLC Easy steps toward starting your own LLC and LLC state-specific guidelines to follow The accounting and taxes involved in this industry Reviewing whether LLC is right for you And so much more! Among all forms of companies, starting an LLC is easier, with fewer complexities, paperwork, and costs. This form of company comes with a lot of operational ease with less record keeping and compliance issues. LLCs also provide a lot of freedom in management as there is no requirement of having a board of directors, annual meetings, or maintaining strict record books. These features reduce unnecessary hassles and help save a lot of time and effort. So what are you waiting for? Start building the steps toward success today; buy this audiobook now!©2020 Gregory Olson (P)2020 Gregory Olson