Professional Documents
Culture Documents
INCOME STATEMENT
GROUP 9
Topics to Be Covered
• Definition of income statements
• Documents needed
• Audit cycle for income statement
• The Audit of Financial Statement Assertions
• Audit test and substantive test
• Summary
• Questions
Type of Document Function
Statement of Income It report the company’s revenues, expenses, gains and losses for a
period of time such as a year or semi annually.
Statement of Comprehensive Income This financial statement begins with the bottom line of the income
statement and then lists the items considered to be other
comprehensive income. Some of these items involve currency
translation, hedging, and pensions.
Balance Sheet This report shows the financial position of a business as of the
report date. The information is aggregated into the general
classifications of assets, liabilities, and equity. This is a key
document, and so is included in most issuance of the financial
statements.
Statement of Cash Flow This report reveals the cash inflows and outflows experienced by an
organization during the reporting period. These cash flows are
broken down into three classifications, which are operating
activities, investing activities, and financing activities.
Statement of Changes in Equity This financial statement is often presented as the statement of
shareholders' equity, statement of equity and statement of changes
in stockholders' equity. It reports all of the changes in
stockholders' equity which occurred during the accounting period.
AUDIT PROCEDURE FOR INCOME
STATEMENT
AUDIT OF REVENUE
EXPENSES AUDIT
COST OF INTEREST
GOODS EXPENSE
SOLD
AUDIT
OPERATING
EXPENSES
AUDIT OF EXPENSES
Determine the amount of inventory sold
COST OF
GOODS SOLD Determine the cost of the inventory sold on a unit basis
Test of
detail
Substantive Test for Income Statement
Example
-Compare income
statement information
with prior period
information, budget,
forecast, data from
Procedures similar program or Definition
1. Understand the agency and organizational unit -Consist of the
obtain information necessary to
plan the nature, timing and extend comparison of data
of audit procedure from different sources to
2. Obtain the evidence related to determine if reported
account balances and classes of
transaction
information looks odd or
3. Final review of financial wrong.
information tested
Analytical
test
Example of analytical test for income
statement
Answer :
The two ratio that are at the greater risk of mistatement are
account receivable turnover, gross margin and allowance for
doubtful debt
Example of analytical test for income
statement
• Account receivable decrease from 7.4 to 6.0. This shows that the
company are slow at collecting money. This indicates that
something may going on there. Therefore this part require
auditor to do more detailed investigation.
• The company slow collecting money may be caused by
collection problem by its customer
• The company may re-evaluate the credit policies to ensure
timely receivable collection from its customer to solve this
problem.
Example of analytical test for income
statement