I. Fiction of sales or accounts receivable
In order to increase net income and achieve other purposes such as share allotment or dividend distribution, the management authorities may exaggerate sales revenue by creating false sales business. The fiction of sales revenue has an important impact on customers' assets, profits and losses. Because of the possibility of fraud, auditors should evaluate the audit risk of sales, find out the environment where management is likely to have major misstatements, and adopt audit procedures to find these problems. Auditors should at least perform the following audit procedures: review the accounting records of large or abnormal transactions, especially the recently recorded transactions; Identify related parties and determine whether there is any significant transaction with public related parties; Conduct an analytical review to determine changes in income or gross profit, and determine whether there are abnormal fluctuations in the level of change or trading activities. When management is involved in fraud, analytical review can play an important role in finding anomalies. (
Two. Revenue recognition advance payment
Auditors should be alert to the possibility of confirming income in advance, which often happens when customers confirm income before selling. For example, when the goods have been sent, invoices and bills have been delivered to the seller, and part of the payment has been received, the current income will be confirmed in advance without the buyer and the seller reaching an agreement on quality compensation; The enterprise shall confirm the current income in advance when the sold goods have been sent, invoices and bills have been delivered to the seller, and part of the payment has been received, but the installation obligation has not been fulfilled; When the payment is made by installment; According to the payment date agreed in the contract, the income cannot be recognized by stages; But it will be confirmed in advance. Unreasonable estimation of the completion degree of labor and construction contracts leads to excessive recognition of current income; If the labor cost that has occurred cannot be compensated or cannot be compensated at all, the income should still be recognized according to the labor cost that has occurred.
Other customer management authorities may artificially create conditions for revenue recognition according to the requirements of accounting standards, thus recognizing revenue. If accounting estimates are used, the construction contract completion percentage method and the labor contract progress method are accounting estimates to confirm sales. However, the use of these two methods must meet certain conditions. First of all, the process of earning must be largely completed; Secondly, it must be realized reasonably; Third, revenue and related costs must be measured reliably. Whether these conditions meet or not requires a lot of audit judgment, and customers often submit favorable evidence to auditors and conceal unfavorable evidence.
Third, the existence of related party transactions
The existence of related party transactions makes it very easy for listed companies to sell with their own holding companies (or potential controlling shareholders). For example, the products produced by the company can be sold to the holding company, but in fact the holding company has not resold them; R&D expenses can be transferred to related parties by selling competitive projects to related parties; The company can greatly increase its earnings per share by selling patents that claim to be valuable to the "shell" company. Because this patent was obtained through internal development of the company, its value is difficult to judge. The source of funds of "shell" company is obtained through the company's guarantee of loans, and flows to the company through purchase to complete its transactions. Most listed companies in China are reformed from state-owned enterprises, and there are countless related relationships and related transactions among listed companies, holding companies and their subsidiaries. It is an indisputable fact in the industry to use related party transactions to adjust the performance of listed companies.
There are many forms of related party transaction income, most of which are manifested as the transaction price deviating from the market price, incomplete procedures when confirming the transaction, no or only a small amount of cash flow, or even if there is cash flow, it will be transferred through some channels, and there are many non-core one-time transactions. Even though related party transactions can improve customers' performance, in the long run, they can't improve customers' image. Related party transactions usually make the legal form deviate from the economic essence. In this case, the auditor should give priority to the economic essence. In the above example, the legal form is that the company sells patents and generates profits, but the economic essence is that the "shell" company lends money to the bank, but it has no resources to repay the loan. Because of this possibility, auditors must review related party transactions, especially the situation that the analytical review shows a substantial increase in profit level, carefully review the authenticity, legality and rationality of the transactions, and express them in the audit report or notes to accounting statements.
It can be seen that in the income cycle audit, the effect of analytical review is obvious, which is helpful for auditors to find the signal that there may be fraud or abnormal fluctuation of misstatement risk. In the income cycle, there is a certain expected relationship between the data. Various accounting data of income can be compared with accounting information such as asset account balance (such as accounts receivable), sales payment cycle, production cost and other non-accounting information of enterprises and industries, and satisfactory analysis results can be obtained. Under normal circumstances, the income fraud of enterprises can be manifested through this analysis program, but at the same time, auditors need to maintain a reasonable and cautious attitude in the analysis process, make reasonable predictions on the analyzed data and explain the abnormal changes, so as to find problems, and then conduct detailed tests and evidence collection, thus reducing the audit risk to an acceptable level. Therefore, in the income cycle, auditors should be cautious and skeptical, pay attention to the economic essence of transactions or events, evaluate customers' accounting estimates, and use analytical review to obtain audit evidence for evaluation, so as to reduce the audit risk to an acceptable level.