Accsys Technologies Plc - Wood Production and Sale Assignment

Accsys Technologies Plc - Wood Production and Sale - Assignment Example The revenue cycle of an entity is an inherent risk, and auditors are required to assess this by performing the necessary tests to determine whether it is free of error of fraud. This inherent audit risk is related to the cutoff for some sales. It also stems from the management pressure to misstate revenues. It is, therefore, critical that auditors use the necessary tests of control and substantive procedures to give an assurance that revenues have been correctly recorded. The issues in revenue recognition start from the consignment sales refund and return rights, round-trip sales, gross sales as well as bill and hold transactions. The management overstates revenues so as to indicate that the company is performing well, thus encouraging investors and impressing the top level management. There are also cases where, human error causes the risk of revenue audit during the revenue recording where wrong amounts are recorded, or the recording is done at the wrong time. According to Colby (2012), financial statement fraud through revenues takes different forms among the timing differences and fictitious revenues. Through fictitious revenues, the concerned parties record sales that never occurred. They achieve this by manipulating or creating transactions that enhance an entity’s reported earnings. Revenues are typically fabricated through the creation of fake customers and sales. There are instances where the artificial sales involve legitimate customers through the creation of phoney invoices or price or quantity increases. The audit procedures that an auditor develops in relation to revenue auditing and the a ssessment of their outcome calls for an understanding of how the organisation operates as well as its environment. Through the timing differences, financial statement fraud arises because revenues and/or expenses are recorded in the improper period. The revenues are recognised early before it is earned leading to an immediate increase in the entity's income using legitimate sales as opposed to cases of phoney sales.