Traditional substantive audit methods often prove to be challenging when testing revenue. Sampling necessitates large testing volumes and substantive analytics is often impaired by an inability to define independent expectations and corroborate variances.
To aid fraud consideration and design the approach over the non-fraud risk of material misstatement auditors should segment the revenue balance into different revenue streams and differentiate between the fraud and misstatement risks.
Different revenue streams may have different recognition criteria, transaction profiles, fraud opportunities and potential methods of misstatement necessitating different audit approaches.
A more innovative audit approach incorporates data analytics which analyse 100% of revenue transactions. You can use such techniques to perform advanced risk assessment analytics to
reduce substantive procedures.
Alternatively, your work over other balances related to revenue can be leveraged to obtain a new form of substantive audit evidence and replace other testing. Such techniques allow auditors to focus on higher-risk transactions yielding a more robust, valuable and efficient audit approach.
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