Learn about Revenue cutoff testing and how you can benefit from it.
How does this add value to your audit?
Using the Filter Builder on the Data table dashboard, transactions can be filtered for across a number of different data points in addition to the account (i.e., revenue). So in testing the cutoff of revenue around year-end, you can filter for any revenue transactions which are:
- Within a certain number of days from balance sheet date; and/or
- Trigger certain control points (i.e., Flow Analysis); and/or
- Above a certain monetary threshold (i.e., Filter all revenue posted towards the end of the period, that is above materiality, to ensure Revenue Recognition criteria is met, and revenue is recorded in the right period)
Create a holistic testing strategy
Combining the results of a transaction-level review as described above together with in-app visualizations of revenue account trends over time and key ratios over time, you are able to get a more holistic picture of revenue transactions around year-end to help inform your testing strategy.
Use case example
When focusing on revenue cut off testing, there is one critical auto procedure that can be streamlined using MindBridge AI, which is revenue cut off testing around year-end. In this example, starting on the Data Table tab, a filter for Revenue transactions and any transactions that were posted to the month of December; 30 days before the balance sheet date of December 31st, is being applied.
With the filter applied, we are able to see all transactions that have posted to the month of December and impact the revenue account. By interacting with the data, the information could be sorted by risk. Additional columns can be added to the table, such as monetary value.
By switching the data to entries view, a better understanding of debit versus credit and how that impacts revenue can be revealed.
Depending on your audit methodology, there is an option to sample directly from this subset of transactions. In this example, there's a particular interest in whether any of these transactions also triggered the rare flow control point. A final condition is being added to the filter builder.
We are left with two entries that have occurred in the 30 days before year-end, have impacted revenue and also impact the rare flows control point. These will be added to the audit plan for further investigation.