All Tunes Satellite Radio (ATS) provides a subscription service to satellite radio channels. Customers can pay for a subscription on monthly basis, or pay for a year in advance and receive a 15% discount. Approximately 53% of customers pay in advance. When ATS receives payment in advance, a deferred revenue account (Unearned Revenue) is credited. At the end of each month as the satellite radio service is provided to customers, ATS makes an adjusting entry to recognize subscription revenue. If controls over the recording of deferred revenue or the subsequent adjusting entry are not functioning properly, then revenue transactions will not be properly classified.

Required

Analyze how the balance sheet and income statement may be at risk of material misstatement if controls over the proper allocation of revenue are not functioning properly.