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hello and welcome to the channel in today's video we are going to be looking at how to audit revenue and i'm going to be focusing on retail revenue okay so we're going to be looking at the audit working paper for retail revenue so here we have our working paper and here we have the company name you're going to put the company you're working on and then the line of financial statement line item you're testing so here we are focusing on retail revenue but before we go um into the main testing i'm just going to say some things about auditing revenue so when we audit revenue revenue is usually assumed to be high risk we assume revenue to be higher risk because of the probability for management to commit fraud relating to revenue so when you look at our working paper you can see our samples we have a lot of samples right here so we have about 50 samples okay normally when you're testing some um other areas you don't have as much samples as we do here and again like i said it's because revenue is considered to be high risk okay and also just so you know that this um walking paper is um just for like when you're testing retail revenue so your working paper is going to change depending on the type of revenue you're testing so if you're testing revenue for hospitality industry your working paper will be laid out in a different way so if you are testing revenue for like mining and exploration or a company in the cannabis industry this is not going to be the working paper you're going to use okay so this working paper will be for when you're testing um a company that's in the retail industry so uh what is the purpose um the purpose is to determine if the accuracy and the currents of the sales revenue amounts are appropriate so that's what we're trying to test what are the procedures we're going to obtain a listing so you're going to get a listing of revenue for the gl from your client okay because that is where we are going to get our samples from and what are you going to do next you're going to agree sales tax on the invoice okay so that means you're going to also get invoices from the client i am going to agree the sales tax sales tax on the invoice to what is recorded by the client in the gl and then you are going to identify any significant items in the gl okay and this has some other procedures we are going to perform we are going to trace um we are going to trace each sample item so each items that we've selected in our sample we are going to trace them to the invoice compared to the amount date we are going to see that right now and then you are also going to um agree to independent sources okay we are going to see that and then lastly you are going to trace to the um to cash received or to the bank statement so now let's just look at one of the sample okay like i said we have about 50 samples but i'm just going to walk you through the first sample so um the first sample we selected we got this from the glue so you can see this is from the gl the client is going to provide you with the gl so the gl number is four zero four five and then this client um they are into the sale of and sanitizers okay so uh we put the that is the gl account name and then we'll pick the date from the gl and then the transaction type from the gl that says invoice and then you pick um the number okay that'll be like the journal entry number and then you pick the the name that you can see on the geo so yeah it says lizzy children's hospital okay so and then you also put the description whatever description you can see on the gl you pick that information so all the things we are picking here and then you also pick the amount per the gl so you can see we are going to separate it so all the information right here the information we picked from the gl so once you are done with that the next thing you're going to get you're going to request the invoice so for this particular gl you're going to ask the client can you please provide me with the invoice you know for this sample so when you get the invoice what do you do so now you are trying to agree the information you have um by the gl to what we have on the sales invoice so now we are going to put this invoice number right here and then you're going to look on the invoice and you're going to pick the invoice date and also you're going to pick the invoice description okay so just remember that whatever you see on the invoice should be similar to what you have on the gl so if you are noticing any difference between the invoice and the gl you need to make an inquiry with the client to understand the reason for the difference so you're also going to put the amount per the invoice what does the amount say on the invoice okay inclusive of tax you're gonna put that and then how many units was sold ing to the invoice you're gonna take the number of units that was sold and then the price per unit so this one's in green they are like your own work has the auditor okay like when you're performing recalculation okay or when you're trying to calculate the difference between two numbers that shows this is the work you as the auditor you're performing so this can be in any color you want so now we're going to recalculate the amount okay so what should the actual amount be so if the number of units sold is um 1200 and then the price per unit is 15 dollars so expect um the total amount per invoice to be these times these times the sales tax okay so you can see we're going to multiply um the sales tax is five percent so we're going to multiply so we assume the recalculated amount should be d so now we're going to calculate our difference is there any difference between the amount recalculated and then the amount but invoice you can see there is no difference okay the amount is the same so now once you're done with that the next thing you want to do you're going to calculate the sales the sales tax by invoice okay so this is what we see for the invoice you're going to put it down and they are going to look in the gl what is the sales tax you can see in the gl and then you're also going to re um recalculate your own amount so what should the sales tax actually be okay so you're going to recalculate here more you can see my formula right here and then once you're done recalculating you're going to check the difference so between what you've recalculated and what was recorded in the gl is there any difference there is no difference remember if there's any material difference you have to inquire with the client to understand the reason for the difference okay so now we're going to move on you can see the procedure i'm performing for the revenue because revenue is a very high risk area so we have to do all these procedures okay that is how we can actually gain assurance that our revenue is correct so the next we are going to we are going to look at the amounts per the invoice okay excluding tax okay excluding tax because this is what should be in the gl remember the client is not supposed to include um the tags in the sales gl so now we are going to look what is the difference between this amount and the amount in the gl so this is 16 560. so let's go and look at what the client have on their gl 16 560 so it's the same there's no difference okay so that is what we want again there's no difference but if there was any difference you can put a note to explain the reason for the difference so once that is done the next thing we are going to agree to independent source document okay and your source document can be different so it can be um purchase order it can be maybe a telephone call was made with the customer but in this particular case the source document was email okay and so we had to tell the client to send us a copy of the email because the customer requested for this and sanitize us through an email so we requested the email from the from our client and our client provided us with the email so that is our source document type and they are going to put um the reference number because it's just an email we are going to use the date of the email if it was a purchase order you are going to use the no um the number pad the purchase order okay so we're going to look in that email was the sales approved by the customer if yes you put yes if no you put no and then if no you have to discuss with the client and then how much was you know what was the total or the amount per the email so when i looked at the email this was the total amount that was in the email the customer sent so now we're going to calculate the is there any difference between what is in the email that the customer sent and what we have in the invoice so there's no difference so this is the amount per the email and then when we go to the invoice right here this is the amount per the invoice 18 900 okay so can you see the step it's it's the it's a very long step with um auditing revenue okay so the next thing we are going to do we are also going to look at um the shipping document okay because this item was shipped to the customer and in this process we are trying to look at cut-off okay we are trying to perform cut-off testing so we are going to look at the shipping document reference this is the reference number so we also got this document from the client you are going to get the gl from the client you are going to get the invoice from the client you are going to get um the source document uh independent source document from the client and then when we looked at it this was the number and then from that source document we looked at when the the date when the goods were delivered okay and what is the purpose of this we are trying to calculate um to determine if the cut off is correct okay because remember if the shipping term is free on board destination that means our client cannot record revenue until the goods are delivered to the client so here it says where goods delivered or services rendered in the correct period okay you're going to determine that by the date so in this case we said yes and here we have another question says is the revenue um appropriately recognized we also said yes it's been properly recognized okay so and then if you have any notes you're going to put that here okay and then the next thing you're going to do so that's the last thing we do you can see it's a very long process for just one sample okay and remember we have 50 samples so you have to perform this procedure for each sample so you're going to trace to the bank you want to see when the customer made the payment so this was the date the payment was made and this is the name of the bank lizi bank and then the badge amount okay because remember when the customer makes sales for each day they are going to deposit the total amount okay so the total amount of sales they made for that particular day was 25 000 but out of this 25 000 just 18 900 relates to this particular sample that we are um testing okay so um was there any difference between the amount paid okay and then the amount per invoice there's no difference so this is the amount the client paid 18 900 and if you go back to our invoice this was the same amount and then now the last things we are going to trace to the account receivable listing in this case we are going to put not applicable because since the customer paid before year end we don't expect this amount to be in account receivable so that is why we have not applicable but assuming the client paid after year end then would expect to see this amount in account receivable so this is how you audit um revenue for retail um for companies that are into retail um activities so you agree to payments details you agree to independent source documents you have to get this source document from the client and then you add grades to maybe purchase order or email that was sent by the customer and then you agree to the invoices you also perform your recalculation and then you all um the beginning of the testing is that you get your information from the general ledger so this is for retail revenue so thank you for watching the video today i'll see you in my next video and bye