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Understanding Revenue Recognition and Auditor Independence in Financial Reporting

This document explores the complexities of revenue recognition, emphasizing that receipt of cash does not equate to recognized revenue. It distinguishes between cost, price, and nuances in familial dependency regarding auditors’ family relationships. Further, it discusses what constitutes a covered member in audits, including specific roles and responsibilities of auditors like Joe, Pamela, and Steve. The narrative also highlights the significance of materiality in financial reporting, using Apple's market capitalization as a benchmark. An interactive approach challenges comprehension and retention of these concepts.

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Understanding Revenue Recognition and Auditor Independence in Financial Reporting

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Presentation Transcript

  1. Test 2

  2. When do we recognize revenue Receipt of Cash does not equal Revenue

  3. Cost is what we pay to purchase something Price is what we sell it for

  4. When I try to develop scenarios to see if you understand a concept, it is frustrating when you regurgitate what you memorized rather than answer the question

  5. Joe is a staff auditor whose mother lives in Joe’s home and relies heavily on Joe for financial support • Joes’ mother is immediate family if she is dependent upon Joe and a close relative if she is not dependent upon Joe

  6. Pamela is an AUDIT Manager • Pamela will be a covered member if she is on the engagement, in position to influence the engagement or provides more that 10 hours of non-audit services

  7. Steve is a partner in the engagement office • Steve will be a covered member if he is on the engagement, in a position to influence the engagement, provides more than 10 hours of non-audit services, or resides in the engagement office

  8. Less than a 5% interest in a company is not necessarily immaterial. Apple has a $478 billion market capitalization. 5% would be $23.9 billion. I hope you don’t think $20 billion is immaterial.

  9. What is a sales receipt ?

  10. Does the Sec Exchange Act of 1934 apply Is a different question than Would the auditor be held liable for negligence

  11. Vouching is a direction Extensive testing v. Limit our testing

  12. Did any of your answers make you feel stupid? • How do you think I felt as I was grading #29

  13. #8 +1 #14 +2 #19 +1 #27 throw out +5 #28 +1

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