Homework Answers
(Q) Explain why the audit of sales and receivables may present auditors with significant audit risk
(ans) The audit of revenue and receivables is of significant audit risk because :-
Most of the risks involving receivables and revenue include inherent risks and fraud risks.Examples are:
- Overstatement of revenue has been a factor in many instances of fraudulent financial reporting.
- Inability to collect receivables.
- Improper revenue recognition.
- Restrictions placed on sales by laws and regulations.
- Significant accounting estimates may be involved in the determination of the financial statement presentation of receivables and revenue.
- A decline in sales due to economic declines, product obsolescence, increased competition, or shifts in product or service demand
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