Refer to exhibit 9.6 Identify planning analytical procedures that can help auditors identify areas of potential material misstatements in the revenue cycle.

Exhibit 9.6

Ratios Auditors Use in Planning Analytical Procedures in the Revenue Cycle

Gross margin analysis

Turnover of receivables (ratio of credit sales to average net receivables) or the number of days sales in accounts receivable

Average receivables balance per customer

Receivables as a percentage of current assets and/or total assets

Aging of receivables

Allowance for uncollectible accounts as a percentage of accounts receivable

Bad debt expense as a percentage of net credit sales

Sales in the last month (or quarter) to total sales

Sales discounts to credit sales

Returns and allowances as a percentage of sales

Some basic trend analyses in planning analytical procedures include:

Monthly sales analysis compared with past years and budgets

Identification of spikes in sales at the end of quarters or the end of the year

Trends in discounts allowed to customers that exceed both past experience and the industry average