How to test the accuracy assertion for revenue or sales transactions?
The accuracy assertion addresses whether the transaction was recorded at the correct amount. The most common way to test accuracy for revenue or sales transaction is to obtain the invoice that was sent to the customer and compare or agree the two pieces of information.
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How to test the cutoff assertion for revenue?
The primary concern for cutoff with revenue is that revenue transactions are recorded in the proper period. The audit team should typically focus on the few days before and after the cut-off date (i.e. December 31st for a calendar year reporting period). As the audit team, you would request a detailed listing of all transactions […]
How to test the occurrence assertion for revenue?
The primary concern regarding revenue is that the company is overstating revenue because why would a company understate revenue? Therefore, the audit team needs to test the occurrence/existence assertion to assess whether all of the sales recorded actually exist. The types of tests that can be performed will vary by company, but the audit team […]
Why would you send confirmations to customers?
An audit team would send confirmations to customers to test the existence/occurrence assertion and the accuracy/valuation assertion. There are different types of confirmations, but generally this helps the audit team confirm that the transaction is not fictitious and that the transactions is recorded at the correct amount. For example, an audit team might send confirmations […]