Page 9 - eBook Audit Of Financial Statement Components
P. 9
CHAPTER 1: AUDITING PROCEDURES ON
REVENUE
Income is defined in the FRS 118 as increases in economic benefits
during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in
increases in equity, other than those relating to contributions
from equity participants. Income encompasses both revenue and
gains.
The primary issue in accounting for revenue is determining when
to recognise revenue. Revenue is recognised when it is probable
that future economic benefits will flow to the entity and these
benefits can be measured reliably.
“Revenue is recognised when it is probable that future economic benefits will flow
to the entity and these benefits can be measured reliably.”
Auditors should understand the process of revenue recognition
when they audit the revenue and receivables. The revenue
Revenue is
income that recognition process is included in the revenue cycle. The
arises during information flows in the cycle through numerous accounts such
ordinary
activities of an as:
entity and is
referred to by i. Sales;
a variety of ii. Cash receipts;
different
names iii. Accounts receivable; and
including: iv. Sales returns and allowances.
• sales,
• fees, The revenue cycle process includes receiving orders from
• interest,
• dividends customers, which involves documentation to support the
• royalties.
transactions such as customer orders, sales orders and shipping
documents.
2
