Controlling Revenue Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Controlling Revenue case solution

An engagement group is preparing the audit of Always Better Care Business (ABC or the "Business"), an SEC registrant that establishes, makes, and offers a variety of items related to individual health and wellness. Appropriately, the engagement group has actually recognized revenue as a considerable account balance.

In addition, paragraph.34 of PCAOB AS 2201 (previously PCAOB AS 5) states:

To even more comprehend the most likely sources of prospective misstatements, and as a part of picking the controls to test, the auditor needs to attain the following goals-. Understand the circulation of deals associated with the pertinent assertions, consisting of how these deals are started, licensed, processed, and tape-recorded Confirm that the auditor has actually recognized the points within the business's procedures at which a misstatement-- consisting of a misstatement due to scams-- might occur that, separately or in mix with other misstatements, would be product Determine the controls that management has actually carried out to attend to these prospective misstatements; and. Recognize the controls that management has actually executed over the avoidance or prompt detection of unapproved acquisition, usage, or personality, of the business's properties that might lead to a product misstatement of the monetary declarations.

In summary, the goal of comprehending possible sources of misstatement is threefold:

Comprehend the procedure.
Figure out that the threats of product misstatement recognized are suitable and total.
Determine and comprehend the controls that deal with the determined dangers.

Getting a robust understanding of the circulation of deals for substantial accounts and disclosures is the structure for (1) determining the points at which a product misstatement can happen and (2) determining the controls that reduce those prospective misstatements. Process circulation diagrams are a tool we can utilize to portray the procedure to start, license, record, report, and procedure deals; the points within the procedure at which misstatements might take place; and control activities that are developed to avoid or find such misstatements, consisting of supplying higher openness to partition of tasks. For this excerpt, just 2 of the 5 sub-processes are consisted of: (1) order processing and (2) shipping and invoicing (sales returns, payment processing, and tracking of accounts receivables have actually been omitted).

Telephone orders are directed to a main call number and an offered CSA takes the order details. If credit is extended, a credit expert develops a brand-new consumer account in the consumer master file and demands that a CSA procedure the order. Sales orders are set up with the following obligatory fields: sales order type (e.g., a rush order or a stock order), order source (e.g., fax, mail, email, phone), sales company, ship-to and sold-to account numbers, product amounts, product numbers, and purchase order number. If the hold can not be fixed, the credit expert will alert the client of the order cancellation, therefore ending the order-entry procedure. All processed orders need to be evaluated and authorized by a client service supervisor prior to they are sent for shipping and invoicing. If mistakes are found, they are solved by the CSAs and the order is resubmitted through the procedure.

Delivering and Invoicing.

After a sales order is authorized, the information is moved immediately from the order entry system to the shipping and invoicing modules in SAP. Outbound stock list amounts are inhabited methodically based on details specified in the authorized sales orders. After the order is prepared for delivery, the shipping workers prepare an expense of lading consisting of the provider details utilizing a pre-numbered expense of lading kind. Deliveries of items to consumers are logged; this is finished by utilizing carbon copies of the prenumbered expense of lading files and by hand going into details from the expense of lading file in a spreadsheet that is kept by delivering clerks. Another copy is forwarded to delivering information entry workers who verify the order as delivered, hence finishing the shipping procedure within the system.