Revenue involves significant risks that warrant special consideration during audits.
The Financial Accounting Standards Board (“FASB”) has issued a new standard – “Revenue from Contracts with Customers”, that replaces most industry-specific revenue recognition requirements in U.S. GAAP. A new principles-based, five-step revenue recognition model now applies. New disclosures of qualitative and quantitative information, significant judgments, and changes in judgments are also required.
New systems, processes, and controls may be needed. Poor design or implementation may pose heightened risks of material misstatement, including those due to fraud.
Recognize details of revenue transactions with customers that require special attention or revision in the recognition process
Determine appropriate areas where revenue transactions present the highest risk for material misstatements in the financial statements
Identify approaches to perform appropriate audit procedures of the revenue recognition process including testing of individual transactions
Analysis of requirements for revenue recognition under ASC 606
Discussion of the requirements for auditing revenue transactions
Analysis of internal control and fraud risk aspects
Identification of high-risk areas of revenue recognition
Suggested procedures for identified risks