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Bradmark Comprehensive Case

Chapter 9 Revenue Cycle


Questions
Read the Bradmark Case located in the Bradmark Case Description folder and answer the following
questions:
1) From the case description and the associated flowcharts, assess Bradmarks internal controls over its
revenue cycle procedures.
2) Using the case description, the flowchart, the file structures, and the selected financial data below,
specify an audit objective (that can be achieved using ACL) for each management assertion presented
in the matrix below. For each audit objective, briefly describe the ACL test procedure. As an example,
the first row in the matrix has been completed for you.
Selected Bradmark Financial Data
Sales

5,379,996.96

Accounts Receivable
Allowance for Doubtful Accounts (.02 x Sales)
Net Accounts Receivable

Management
Assertion

4,752,257.70
107,600

Audit Objective

Existence or
Occurrence

Verify that the AR


represents actually
owed to Bradmark

Completeness

Determine that A/R


represent all amounts
owed by organization
for purchases of goods
and services as of the
balance sheet date.

4,644,657.70

Audit Procedures to
be Performed Using
ACL
Use ACL to prepare
confirmation letters
for customers
Review sales invoices
for unusual trends and
exceptions
Review Sales Invoice
and Shipping Log
Files For Missing and
Duplicate Items

Ensure that shipped


goods, services
rendered, and/or
returns and allowances Review Line Item and
for period are included Inventory Files for

Management
Assertion

Audit Objective

in financials

Valuation or
Allocation

Determine AR
balance stated in net
realizable value
Establish allocation
for uncollectible
accounts is appropriate

Accuracy

Ensure that revenue


transactions are
accurately computed,
based on correct prices
amd quantities.

Audit Procedures to
be Performed Using
ACL
Sales Price Accuracy
To determined what
are the unrecorded
assets (AR)
Corroborate or refute
AR is stated at
reasonable Net
Realizable Value
(Aging A/R)

Review sales invoices


for unusual trends and
exceptions
Review Sales Invoice
and Shipping Log
Files For Missing and
Duplicate Items

Ensure AR subsidiary
ledger, sales invoice
file, remittance file are
mathematically correct Review Line Item and
And agree with GL
Inventory Files for
accounts
Sales Price Accuracy

To answer parts 3 and 4 requires that you install ACL Desktop Edition (full educational version) on
your computer. To do so follow the instruction on the CD that came with the textbook. The ACL
Project and ACL files used in the Bradmark case are located in the Bradmark Data Folder on the
website. Download these files to your computer and click on the Bradmark 04 ACL icon. ACL will
automatically open the case.

3) Perform the ACL tests outlined in step 2 above. Hand in a report describing the audit tests and your
conclusions about the results of the test. To document your findings include in your report ACL
printouts showing details of test results and the command log.
4) Using the matrix format below, identify an operational (business) concern related to the revenue
procedures. Briefly describe the audit objective and ACL procedures to answer this concern. Perform
the ACL test and prepare a report with your conclusions. Document your report with ACL printouts
showing details of test results and the command log.

Other Operational
Concerns
- Focus
on large and
unusual
transactions,
especial
ly near periodend
- Recognizing
revenues from sales
that did not occur
- Recognizing
revenues BEFORE
they are realized
- Failing to recognize
cutoff points
- Underestimating
allowance for doubtful
accounts
- Shipping unsolicited
products to customers,
subsequently returned
- Billings customers
for products held by
seller

Audit Objective

Audit Procedures to
be Performed Using
ACL