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Audit Planning Insights: Managing Risks in Revenue Collection Cycle for Cable Co, Inc.

In this audit planning session for Cable Co., Inc., we focus on critical risks associated with the revenue collection cycle. Key concerns include the lack of segregation of duties, where one individual handles orders, account setups, billings, and cash receipts, increasing the risk of fraud. We will employ analytical procedures and test the details of account balances to ensure the assertions of validity, completeness, and accurate recording for cash receipts and accounts receivable. Additionally, we address the use of service bureaus for payroll, the importance of capitalizing construction costs, and the need for communication with predecessor auditors regarding internal controls and management integrity.

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Audit Planning Insights: Managing Risks in Revenue Collection Cycle for Cable Co, Inc.

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Presentation Transcript

  1. 15 min Cable Co, Inc planning the audit part three

  2. RISK RISK RISK controls - Revenue Collection cycle • no segregation of duties • same person • takes the orders • sets up the accounts • sends out the bills • takes in the cash

  3. Analytics & tests of details substantive approach analytical procedures test of details (of account balances)

  4. analytical approach # of cable customers X monthly fee

  5. Cash Receipts = Accounts receivable @ 1/1/07 + Sales - Accounts receivable @ 12/31/07

  6. assertions validity completeness accurate recording I thinks these are Cooper’s terms for: existence / occurrence completeness valuation

  7. Change => risk • started using a service bureau for payroll • SA 70 report on the service provider • construction - make sure they capitalized: • labor • materials • interest • overhead and make sure depreciation is started on time

  8. communication with predecessor auditorrequired by GAAS • integrity of management • Fraud, illegal acts • Internal control related matters • disagreements about accounting principles or auditing procedures • reason for the change in auditors

  9. Bill talked with Jeff Lyons@ Baker and Lyons • no disagreements over accounting issues principles • you’ve already gone over last year’s workpapers

  10. analytics & tests of details • substantive tests • analytical procedures • test of details (of account balances)

  11. RISK RISK RISK rebuilds are the major focus

  12. management letter accumulate ideas to improve the client’s operations a way to add value to the audit

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