Revenue and expense requests generate the most follow-up emails of any section. The reason is usually format: the client sends a summary where the auditor needs a population, or a screenshot where the auditor needs a file. This guide sets out what to ask for, in what form, and why the auditor needs it. The other sections are in cash and receivables, inventory, fixed assets and leases and debt, equity and payroll.
Why populations matter
When an auditor tests revenue, the first decision is how to pick items. Audit evidence standards (AU-C 500, mirrored by ISA 500) describe three ways: examine all items, select specific items, or sample. Specific items, such as large or unusual ones, are chosen on judgment, and results from them cannot be projected to the rest of the population. Sampling can be projected, but only if the population the sample is drawn from is complete.
That is the reason for the tie-out on every file. ISA 500 states that information produced by the entity must be sufficiently complete and accurate to be used as evidence, and gives the example that testing a population of payments for authorization is less reliable if the population is not complete. A register that does not agree to the ledger is an incomplete population until someone explains the difference.
Revenue requests
- Revenue population. The full sales or invoice register for the year in Excel, with invoice number, date, customer, amount and revenue account. The total must agree to the trial balance.
- Contracts. Executed contracts and amendments for the largest customers and any non-standard terms, such as rebates, acceptance clauses or extended payment terms.
- Cutoff documents. Shipping or delivery records for the last ten days of the year and the first ten days of the next, with the invoice each relates to. See cutoff testing.
- Credits and returns. Credit memos issued after year end through the report date, with the original invoice.
- Deferred revenue roll-forward. Opening balance, billings, revenue recognized and ending balance, by contract.
- Estimates. Support for any estimate in revenue, such as percentage of completion inputs or returns reserves.
How the auditor then tests the sample is in revenue testing from contract to cash.
Expense requests
- Expense population. The general ledger detail for each expense account, in Excel, agreeing to the trial balance.
- Vendor files. For selected vendors: invoice, purchase order or contract, and proof of approval.
- Search for unrecorded liabilities. The check register and bank statements for the first month after year end, with invoices for amounts over a threshold agreed in advance. See search for unrecorded liabilities.
- Expense reports and card statements for officers and owners, with receipts and business purpose.
- Professional fees. Engagement letters for legal, consulting and tax advisers.
Format rules for the client
- Send Excel files, not PDFs of reports, so the auditor can sort and select.
- Name each file with the PBC reference number.
- Show a tie-out: the total of the file, the ledger balance and the difference.
- Send one scanned PDF per selected item, in the order requested.
- Run every report as of the same date and say which date it was.
Worked tie-out 1: the sales register
The sales register for the year has 1,842 invoices totaling $4,615,300. The trial balance shows revenue of $4,648,800. The client's tie-out lists:
- Register total: $4,615,300.
- Journal entries to revenue not in the register: $41,500 (two deferred revenue releases of $25,000 and $16,500).
- Credit memos recorded as contra-revenue entries: $8,000 (a negative entry).
- Expected ledger: $4,615,300 plus $41,500 minus $8,000, or $4,648,800. Difference to the trial balance: zero.
The auditor can now select samples from the register and separately examine the manual entries. Without the tie-out, the $33,500 gap between the register and the ledger would start a separate request.
Worked tie-out 2: deferred revenue
The deferred revenue schedule by contract shows:
- Opening balance: $120,000.
- Billings in advance during the year: $310,000.
- Revenue recognized from the balance: $285,000.
- Expected ending balance: $120,000 plus $310,000 minus $285,000, or $145,000.
The ledger shows $145,000, so the schedule ties. If the ledger had shown $140,000, the $5,000 difference goes on the schedule as an open item before the file is sent.
Worked tie-out 3: unrecorded liabilities
The client agrees a $5,000 threshold. The January check register has 14 payments above it. The client marks the service or delivery date on each invoice. Three need attention:
- $18,000 consulting invoice for work done in December: belongs in the old year.
- $7,500 rent for January: belongs in the new year.
- $12,000 equipment repair performed December 20 to 22: belongs in the old year.
If neither December item was accrued, expenses and payables are understated by $18,000 plus $12,000, or $30,000. The client books the accrual before sending the file, and the auditor tests the marking.
Common errors
- A register exported before the last invoices were posted.
- Revenue accounts in the register that do not match the chart of accounts used in the trial balance.
- Credit memos listed separately but never tied to the original invoice.
- Cutoff documents sent for the last day of the year only.
- Expense detail that omits manual journal entries.
Send the owner and officer expense items early. They are the items auditors read most closely, and missing receipts there take the longest to resolve.
Sources
- International Auditing and Assurance Standards Board, ISA 500 Audit Evidence (paragraphs 7 and 9, A49 and A52 to A55 on information produced by the entity and selecting items for testing; AU-C 500 is the US counterpart): https://www.ifac.org/_flysystem/azure-private/publications/files/A022%202013%20IAASB%20Handbook%20ISA%20500.pdf
- American Institute of CPAs, AICPA Professional Standards (AU-C 500 Audit Evidence, AU-C 530 Audit Sampling): https://www.aicpa-cima.com/resources/landing/aicpa-professional-standards
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AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error