What is the impact if controls are not working properly

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Clear Sky Aviation credits prepayments of air travel to a deferred revenue account until the travel service is provided, at which point it transfers the appropriate amount to sales revenue. A problem with its control system means that the proper allocation of revenue between sales revenue recorded in the profit and loss and the deferred revenue account balance in the balance sheet does not always occur. The auditor is considering conducting additional substantive testing to test whether the sales transactions have been properly classified.

Problem 1: What is the impact if controls are not working properly and deferred revenue is not correctly moved to sales revenue? Choose all that apply.

a) Liabilities may be understated
b) Assets may be overstated
c) Revenue may be understated
d) No impact on revenue or deferred revenue
e) Liabilities may be overstated
f) Liquidity ratios are negatively impacted

Reference no: EM132724906

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