Transaction cycles Transaction cycle consists of transactions that occur consisting of the cycle of steps that complete the

exchange of assets or services between parties. Identifying Transaction Cycle is an important part of obtaining understanding of the clients internal control because it helps the auditor gain adequate understanding of the flow of transactions and it better evaluate the impact of internal control on financial statements.

Revenue Cycle Audit Steps A. Use the understanding of the client and its environment to consider inherent risks, including fraud risks, related to receivables and revenue. B. Obtain an understanding of internal control over receivables and revenue. C. Assess the risks of material misstatement and design further audit procedures. D. Perform further audit procedurestests of controls. E. Perform further audit proceduressubstantive procedures for receivables and revenue. Test of Controls and Substantive Tests

Transaction Objective

Test of Control

Substantive Tests

Computer-assisted auditing techniques Occurrence (CAATs) Examine Sales Invoice packets for supporting documentation Account for sequence of shipping documents Completeness Observe and review evidence for document control CAATs Accuracy Confirm agreement between supporting documentation sources

Review sequence of sales invoices Review journal for unusual transactions Vouch from the sales journal to the supporting documents

Trace from the shipping documents to the sales journal

Recalculate prices and extensions on sales invoice Trace a few transactions from inception to completion

Account for sequence of Cutoff supporting documents. Confirm period reviews of open files

Analyze Sales Invoices and Shipping Documents close to year end to confirm appropriate recording Trace transactions from Sales

Classification

CAATs

Invoice to the Sales Journal, verifying appropriate classification

Analytical Procedures and Substantive Tests

Transaction Objective

Analytical Procedures

Substantive Tests

Existence Completeness

Compare gross margins w/ prior years Consider monthly sales over time Compare A/R turnover w/prior years

Review subsidiary ledger for unusual amounts Confirm receivables Alternative procedures

Trace from the A/R master to the aging schedule

Review BOD minutes for A/R pledging or factoring

Rights & Obligations

N/A

Review material sales contracts for terms and conditions

Inquire of management

Compare bad debts to prior years Compare allowance account Inquire as to likelihood of collection for older accounts Assess appropriateness based on independent estimates and other knowledge obtained regarding collection

Valuation & Allocation

to prior years Compare A/R turnover w/ prior years Compare amounts in aging categories w/ prior years