Basic
What does P&L stand for?
Profit and Loss
True or False: Revenue inflation is a low-risk area.
False (it's the highest risk area)
Name one way auditors check numbers (comparing to last year, budget, etc.)
Analytical Procedures
What's the first thing auditors look at for revenue?
Sales contracts and agreements
Name one thing a P&L shows.
Revenues, costs, expenses, or net profit/loss (any is correct)
What's the #1 most common misstatement?
Revenue Overstatement (85%)
What do auditors check around year-end?
Cut-off (making sure transactions are in the right period)
Where do auditors trace expenses back to?
Supporting invoices, receipts, or source documents
Gross Profit = Revenue minus what?
Cost of Goods Sold (COGS)
Name one "red flag" for auditors.
Revenue inflation, expense manipulation, related party transactions, unusual fluctuations, cut-off errors, or improper reserves
What's the difference between vouching and testing?
Vouching checks if recorded transactions actually happened (existence). Completeness testing checks if everything that happened got recorded.
What do auditors check about payroll?
Authorized rates and headcount
What comes after Operating Income (EBIT)?
Non-Operating Items, Interest, and Taxes
Why are related parties a red flag?
They may not be at "arm's length" and can be used to shift profits or hide losses
What does "cut-off" mean?
Ensuring revenues and expenses are recorded in the correct accounting period
What's a "side agreement" risk?
Secret deals that change the terms of a sale (can inflate revenue)
Name two of the six audit objectives.
Accuracy, Completeness, Occurrence, Classification, Cut-off, Presentation (any two)
What percentage shows revenue overstatement?
85%
What's analytical procedures? Give an example.
Comparing current year figures to prior periods, budgets, or industry benchmarks to spot unusual fluctuations
What standard do auditors check for revenue timing?
ASC 606 / IFRS 15