Question
Your audit firm has been assigned to perform a financial statement audit of the CSL Software Resources Limited for the year ended 30 June 2021.
Your audit firm has been assigned to perform a financial statement audit of the CSL Software Resources Limited for the year ended 30 June 2021. The CSL is a privately held corporation that develops and sells customised software (computer processing system) to its local and overseas clients. The software is sold under one-to-three years contracts that provide for a fixed price for licensing, delivery, setup of the systems, and technical support for the life of the contract.
This is the first time your firm is auditing the CSLs financial statement. Assume that you are in-charge of revenue cycle of the audit; and your initial review of the CSL accounting policy reveals that premature revenue recognition is a risk that must be addressed during the audit.
Required:
- Identify the key assertion(s) at risk in relation to the clients revenue account balances. Design audit procedure(s) you would perform to gather sufficient appropriate audit evidence for the key assertion(s) you identified.
- Assume that you discovered some unusually large number of sales transactions that were recorded just before the end of the fiscal year by the CSL Software Resources Limited.
- Why would you, as an auditor, give importance to these types of unusual large transactions during the audit?
- What audit procedure you will apply to investigate these transactions?
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