Learning ObjectivesLO1 Describe the balance sheet account groups that the major revenue and expense accounts are associated with, as well as the substantive analytical procedures applied to audit revenues and expenses.LO2 Outline the overall analytical procedures to be performed at the final stage of the audit, including analysis of the income statement, cash flow statement, financial statement presentation, and disclosures.LO3 Explain the purpose of lawyers’ letters and how they are used at the completion stage of an audit to identify any contingencies and claims.

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Revenue and Expense Assertions1. Revenue accounts represent all the valid

transactions recorded correctly in the proper account, amount, and period.

2. The accounting for consignments and goods sold with rights of return is in conformity with accounting principles.

3. Expense accounts represent all the valid expense transactions recorded correctly in the proper account, amount, and period

4. Revenues, expenses, cost of goods sold, and extraordinary, unusual or infrequent transactions are adequately classified and disclosed.

LO1

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Audit of Revenue and ExpenseA number of the revenue and related topics were audited in whole or in part with other related account groups.

Working papers should show cross-reference indexing to the revenue and expense accounts in the trial balance.

Unaudited accounts will be evident.

LO1

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Revenue Accounts Audited in Other ProcessesRevenue and Related Topics Related Account Group

Sales and sales returns Receivables

Lease revenues Capital assets and receivables

Franchise revenue Receivables, intangibles

Dividends and interest Receivables, investments

Gain/loss on asset disposals Fixed assets, investments

Rental revenue Receivables and investments

Royalty and license revenue Receivables and investments

Long-term sales commitments Revenue and receivables

Product line reporting Revenue and receivables

Accounting policy disclosure Revenues and receivablesLO1

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Expense Accounts Audited in Other ProcessesExpense Related Account Group

Purchases, cost of goods Inventories

Inventory valuation losses Inventories

Warranty and guarantee expense

Inventories and liabilities

Royalty and license expense Inventories

Marketing and product R&D Investments and intangibles

Investment value losses Investments and intangibles

Rental property expenses Investments and intangibles

Amortization of intangibles Investments and intangibles

Bad debt expense Receivables LO1

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ExpensesSome minor expense accounts like office supplies or utilities will not be covered until the end of the audit.

Auditors usually apply analytical procedures to these accounts.

All miscellaneous accounts and clearing accounts with debit balances are analyzed.

Accounts with income tax implications are also analyzed carefully.

LO1

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