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Internal Control Revenue Cycle Lesson 1
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In this video, 3.06 – Internal Control – Revenue Cycle – Lesson 1, enjoy this warm-up to the revenue cycle as Roger Philipp, CPA, CGMA, reviews the audit steps for understanding internal control and shows where testing the controls in the revenue cycle fits into the bigger picture. • Step 1 is obtaining an understanding of the design of internal control. • Step 2 is documenting that understanding, using the mnemonic FIND – flowcharts, internal control questionnaires (ICQs), narratives or memos, and decision trees. Step 3 is assessing control risk and risk of material misstatement, and also deciding to which degree, if any, the auditor will rely on the client’s internal control. Step 4 is optional because it depends on whether the auditor chooses to rely on internal control. If so, the auditor performs tests of controls within the various operating cycles of the company, such as the revenue cycle. Step 5 reassesses risk of material misstatement after performing tests of controls, and step 6 documents conclusions regarding internal control. • Connect with us: • Website: https://accounting.uworld.com/cpa-rev... • Blog: https://accounting.uworld.com/blog/cp... • Twitter: / uworldrogercpa • Facebook: / uworldrogercpareview • Instagram: / uworldrogercpareview • Pinterest: / uworldrogercpareview • LinkedIn: / uworld-roger-cpa-review • Are you accounting faculty looking for FREE CPA Exam resources in the classroom? Visit our Professor Resource Center: https://accounting.uworld.com/cpa-rev... • Full Transcript: • All right, let's talk about a really important area called operating cycles. As we go through and we've talked about the understanding of internal control, again, quick review. Let me walk over here. Understanding of internal control. • We said, one, you need to understand the design. Then, two, you need to document the understanding. Three, you need to do assess your CR or your risk of material misstatement. At that point we assess do we intend to rely? If we say yes, then we go on to four, which is T of C, test of controls. That's where we're going to do our ARCs and our RIO. • At this point up here, we understand the design, document the understanding by doing FIND, remember, flowcharts, ICQs, narratives, decision tables, assess control, or assess CRR. Do we think we're going to rely? Yes. ARC, RIO, and then step five is reassess control risk, and then six is document the basis for conclusions. Those are the steps to understanding. You have to do these. If you're not going to rely, under non-public, document the basis, so just go to here. If it's public, you still have to do this, this and then do this. • Now, when we talk about operating cycles, they fit into two areas. One is up here in documentation, because what we're looking at is a flowchart of a cycle, a narrative of a cycle, ICQ of a cycle, decision table, decision tree of a cycle. If we're going to rely, what do we do? Test of controls of your cycles. • So we're going to test the operating cycles for ARC and RIO. That's where it fits in. So as we go through these cycles, we're going to talk about the revenue cycle, the expenditure spending cycle, the investment cycle, the personnel payroll cycle, conversion, and so on. All of that fits in right here in T of C, test of controls.
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