Clear Sky Aviation credits prepayments of air travel to a deferred revenue account until the travel service is provided, at which point it transfers the appropriate amount to sales revenue. A problem with its control system means that the proper
Clear Sky Aviation credits prepayments of air travel to a deferred revenue account until the travel service is provided, at which point it transfers the appropriate amount to sales revenue. A problem with its control system means that the proper allocation of revenue between sales revenue recorded in the profit and loss and the deferred revenue account balance in the balance sheet does not always occur. The auditor is considering conducting additional substantive testing to test whether the sales transactions have been properly classified.
Required
Describe how the balance sheet and income statement may be at risk of material misstatement if the controls regarding the proper allocation of revenue are not functioning properly
Balance SheetBalance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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The journal entry which transfers amounts from the deferred revenue account to the re…View the full answer
Auditing A Practical Approach
ISBN: 978-1118849415
2nd Canadian edition
Authors: Fiona Campbell, Robyn Moroney, Jane Hamilton, Valerie Warren
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