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As part of their duties, auditors are responsible for verifying the income of an entity to ensure that they are valid and appropriately recorded. To do this, auditors use various procedures, such as examining records and performing analytical procedures. However, the extent and timing of these procedures depend on the auditor's professional judgment, which takes into account the effectiveness of internal controls. It's important for the auditor to ensure that the entity recognizes income based on recognized accounting principles.
(a) Examination of Records: One of the primary techniques used by auditors to verify income is the examination of records and documents. Since most transactions are supported by documentary evidence, the auditor needs to examine a large number of documents during the audit process. Business enterprises have accounting systems in place that generate documentary evidence for each transaction. Therefore, the auditor should examine the relevant records to ensure the validity, accuracy, and other assertions regarding the income incurred by the entity. The extent of the examination will vary based on the auditor's evaluation of the effectiveness of the internal controls.
(b) Analytical Procedures: To verify income, auditors should also perform analytical procedures, which involve analysing significant ratios and trends. This includes investigating fluctuations and relationships that don't match other relevant information or deviate from predicted amounts. These procedures help the auditor to identify any anomalies or unusual patterns in the data and investigate further if necessary.
To ensure that no significant income is overlooked, auditors often use a checklist of items to verify. In this context, we have discussed a checklist for auditors to verify items of income.
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Reference:
This document is prepared with the help of
"Guidance Note on Audit of Revenue"
issued by ICAI
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