Assume that you have been assigned to the audit of Keystone after audit planning has occurred. Review the planning information on pages 240-247 and the audit plan for the accounts receiv- able and revenue (B-6 on pages 503504). The manager on the engagement has given you the task of reviewing the monthly revenue report on page 506 (B-11).
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Based on your review of there port, describe any unusual relationships that might indicate a risk of misstatement of revenues based on your knowledge of the company derived from a review of the information on page 502.
RA-12 KEYSTONE COMPUTERS & NETWORKS, INC. Relating Risks to further Audit Procedures 1231/05 SUL 11/28/15 502 Chapter Eleven Ref Description of Risk Significant Risk? Relevant Assertion(s) Summary of Audit Approach Ref Assessed Risks of Material Misstatement Combined Risk of Material Inherent Control Misstatement Item No. Audit Plan Step Revenue-Overall Risks Gross Receivables and Gross Revenue High Moderate Moderate Existence/ Occurrence/ Rights Completeness Cutoff Accuracy Moderate Moderate Moderate Low Moderate Moderate Moderate/Low Moderate Moderate Confirm receivables by PPS sample at 12/31/X5. Use generalized audit software to test client records. Perform extensive cutoff of sales. Perform substantive analytical procedures. B-6, Steps 1-7 B-6, Step 3 B-6, Step 12 B-6, Step 14 Existence/ Occurrence Moderate Moderate Moderate During the brainstorming session, staff members were informed of the need to increase their professional skepticism regarding any matters that would increase the amount of net income. Valuation High Moderate High In Process Revenue-Specifically Identified Risks Inherent Risk No Considerations Audited financial state- ments are required by Western Financial Ser- vices as a part of the company's line of credit agreement. Inherent Risk Yes Considerations KCN has engaged in a strategy to sell to customers with higher credit risk. Inherent Risk Considerations The officers of the com- pany receive significant bonuses based on quar- terly results. Yes High Moderate Moderate/High In Process Existence! Occurrence RA-12 KEYSTONE COMPUTERS & NETWORKS, INC. Relating Risks to further Audit Procedures 1231/05 SUL 11/28/15 502 Chapter Eleven Ref Description of Risk Significant Risk? Relevant Assertion(s) Summary of Audit Approach Ref Assessed Risks of Material Misstatement Combined Risk of Material Inherent Control Misstatement Item No. Audit Plan Step Revenue-Overall Risks Gross Receivables and Gross Revenue High Moderate Moderate Existence/ Occurrence/ Rights Completeness Cutoff Accuracy Moderate Moderate Moderate Low Moderate Moderate Moderate/Low Moderate Moderate Confirm receivables by PPS sample at 12/31/X5. Use generalized audit software to test client records. Perform extensive cutoff of sales. Perform substantive analytical procedures. B-6, Steps 1-7 B-6, Step 3 B-6, Step 12 B-6, Step 14 Existence/ Occurrence Moderate Moderate Moderate During the brainstorming session, staff members were informed of the need to increase their professional skepticism regarding any matters that would increase the amount of net income. Valuation High Moderate High In Process Revenue-Specifically Identified Risks Inherent Risk No Considerations Audited financial state- ments are required by Western Financial Ser- vices as a part of the company's line of credit agreement. Inherent Risk Yes Considerations KCN has engaged in a strategy to sell to customers with higher credit risk. Inherent Risk Considerations The officers of the com- pany receive significant bonuses based on quar- terly results. Yes High Moderate Moderate/High In Process Existence! Occurrence
