Audit problem

1 certified public accountants conducted the inspection and verification procedures of tangible assets during the preliminary examination in mid-July, 2006, and reached the conclusion that "Longpan Apartment is expected to be completely completed by the end of 2006 10, and Yuexiu Garden will occupy 95% by the end of 2006". These evidences show that Company A delivered two properties, Longpan Apartment and Yuexiu Garden, to the buyer before February 3, 20061day, thus conforming to the revenue recognition policy at the end of 2006. In July 2006, during the first trial, the house sales contract was randomly selected. The evidence also shows that Longpan Apartment and Yuexiu Garden will be delivered to the buyer before February 3, 20061day, which has met the revenue recognition policy at the end of 2006. The sales subsidiary ledger information obtained by certified public accountants in the final audit and provided by the sales department is obviously contradictory to the real estate income confirmation of the financial department. The CPA did not further investigate this difference.

2 The certified public accountant checked the tangible assets during the pre-trial and made a judgment that the house is expected to be handed over at the end of the year, but this does not necessarily mean that the company conforms to the revenue recognition policy in 2006. Therefore, it is necessary for certified public accountants to consider the reasons that may delay the recognition of income, including but not limited to:

(1) Is the construction party responsible for the slow progress of the project?

(2) Whether there are quality problems in the project that need to be repaired again.

(3) whether it violates the relevant requirements of government departments and is forced to stop work.

(4) Whether the quality of the house does not conform to the stipulations of the house sales contract, which leads to the buyer's refusal to accept the house.

(5) Whether there are any major litigation matters.

(6) Is there any compensation paid to the buyers for the delay in delivery due to the failure to deliver the house within the time limit agreed in the contract?

3 CPA found that the sales subsidiary ledger information provided by the business department was obviously contrary to the real estate income confirmation of the financial department. It is necessary for certified public accountants to obtain management's explanation and evaluation of contradictory information, including but not limited to:

(1) What information is the sales ledger based on?

(2) Whether the sales ledger information itself is wrong.

(3) Whether the business department and the finance department regularly check the relevant information.

(4) Whether the buyers have actually moved in. If you have checked in, what are the reasons for not confirming the income of the property? On the other hand, if you have not checked in, what is the reason why the sales ledger shows that you have checked in?

4. The procedures for mid-term inspection of tangible assets can provide audit evidence for the existence of products under construction at the mid-term point, but through the inspection of the quantity and status of real estate under construction at the end of the period (project progress, project quality, and whether it is occupied by the buyer), audit evidence can be further provided in the following aspects:

(1) Determination of rights and obligations of inventory and valuation (for example, these properties may have been completed and handed over to buyers; There may also be serious engineering quality problems or multiple lawsuits, which require provision for impairment, but assets may be seriously overvalued)

(2) Identification of the occurrence and end of income (for example, these properties may have been completed and delivered to buyers, but the income has not been confirmed, and the income will be seriously underestimated; It may not be actual sales, but it is falsely counted as sales revenue to a certain subject)

(3) Classification identification of inventory presentation (if the work-in-process reflected in the book has been completed, it should be changed from work-in-process to finished goods, or even no longer listed as inventory).

In this case, because the certified public accountant has noticed that the unconfirmed income of the real estate is seriously inconsistent with the situation learned in the pre-trial and involves a large amount, the supervision procedure of in-process product inventory at the end of the period should not be omitted.

Certified public accountants shall not refuse to obtain vital audit evidence on the grounds that the cost of obtaining relevant audit evidence is high (for example, the geographical location of two properties is remote) or it is difficult (the human resources are tight at the end of the audit).

5. If Longpan Apartment and Yuexiu Garden have been confirmed as sales revenue in 2007 after the balance sheet date and before the audit report date, we may consider checking the relevant revenue confirmation records and vouchers of these two properties, including but not limited to:

(1) project acceptance date

(2) The date of confirmation of the buyer's occupancy.

(3) Date when the property management fee starts to be collected

(4) Did Company A pay the compensation for delayed delivery?

The acquisition of these evidences is helpful to evaluate whether the above-mentioned real estate income recognition timing is appropriate.