What it is
Revenue and receivables are usually the largest and riskiest part of a private company audit. AU-C 240 has the auditor presume a fraud risk in revenue recognition. If the auditor concludes the presumption does not apply, the reasons must be documented, so this program leads with that risk.
It covers contract and performance obligation analysis under ASC 606, controls, confirmations, cutoff and the credit loss allowance under ASC 326. Tailor it to the entity’s revenue streams and delete steps that do not apply.
When to use it
- Planning the revenue and receivables section of an audit.
- When the entity has multiple revenue streams, long-term contracts, rebates, returns or bill-and-hold arrangements.
- To document the response to the presumed fraud risk in revenue recognition.
What’s inside
- Revenue streams, ASC 606 five-step analysis and the fraud risk presumption
- Controls over order-to-cash and tests of controls where relied on
- Analytical procedures, confirmations, alternative procedures and cutoff
- Substantive testing of revenue transactions, returns, credit memos and contract balances
- Allowance for credit losses (ASC 326), related party and disclosure checks
Standard cited
This template follows AU-C 330 / AU-C 240 / ASC 606. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 330 explained, AU-C 240 explained.
Questions
Can the presumption of fraud risk in revenue be rebutted?
AU-C 240 allows it where the auditor concludes that fraud risk in revenue recognition is not present, for example a single, simple, non-judgmental revenue stream. The conclusion and the reasons must be documented in the file.
Are receivable confirmations required?
AU-C 330 requires the auditor to consider whether external confirmation procedures should be performed as substantive procedures. Confirming receivables is common practice, but it is a judgment tied to risk and the alternatives available. If you decide not to confirm, document the reason. Where management asks you not to confirm, AU-C 505 sets out what you must do.
How does the allowance work under ASC 326?
Management estimates expected credit losses over the life of the receivables, considering historical experience, current conditions and reasonable and supportable forecasts. The auditor evaluates the method, the data and the judgments under AU-C 540.
Related templates
- Accounts Receivable Confirmation Letter (Positive)
- Confirmation Control Log (AU-C 505)
- Audit Risk Assessment Worksheet (SAS 145)
Last updated 11/04/2026. All free templates.