What you will be able to do
- Reconcile reported revenue, corrected recognition, recurring activity and cash collections.
- Calculate cohort retention without contaminating the denominator with new customers.
- Design evidence tests that distinguish commercial risk from proven accounting error.
Before you begin: Basic revenue, receivables and percentage calculations.
Build four distinct revenue views
Four numbers can all be different without any contradiction. Reported revenue is the starting claim. Correctly recognised revenue reflects the appropriate treatment of actual contractual delivery. A recurring analytical base removes activities you do not expect to repeat under an explicit definition. Customer collections measure cash received, including amounts earned in earlier periods. Ask which question each number answers before comparing them. A signed order may support future demand but does not automatically establish current earned revenue. Equally, receiving an advance does not prove that a service has already been delivered. Build a dictionary that specifies period, currency, tax treatment and inclusion rules for each view. Most avoidable disputes begin with those definitions being left implicit.
Correct recognition before judging recurrence
Our hypothetical review identifies six hundred thousand cedis recorded in the wrong period and a separate four hundred thousand that must be reversed. Corrected recognised revenue is therefore eleven million. Within that corrected amount, one million comes from a valid one-off project. Excluding it produces a ten-million recurring analytical base. Notice the two bridges. The first corrects recognition; the second changes the lens for forecasting. The one-off project remains valid recognised revenue, and removing it does not create an accounting correction. State the evidence supporting its non-recurrence and check whether similar projects regularly replace one another. A business built on successive projects may have repeatable commercial activity even when individual contracts are not recurring subscriptions.
Bridge earned revenue to customer cash
Assume the eleven million corrected revenue consists entirely of credit sales and uses the same scope as receivables. Opening receivables are one point two million and closing receivables two million. With no other movements, collections equal opening receivables plus credit revenue minus closing receivables, giving ten point two million. The assumption matters. Taxes, foreign exchange, write-offs, reclassifications, unbilled balances or factoring can require separate bridge lines. Do not insert a balancing plug and call it cash. Reconcile the inferred collection amount to matched bank receipts and investigate differences. This exercise tests consistency among records; it does not prove every sale was genuine or every remaining debtor will pay. Those claims require their own evidence and review.
Explain the finding, evidence and decision consequence
Build the conclusion around the decision, not around a catalogue of documents reviewed. Present the reported-to-corrected revenue bridge, then the separate recurring-base bridge. Show gross and net retention for consistent cohorts, highlight concentration, and reconcile collections with clearly stated limitations. For each material finding, explain the amount, mechanism, evidence and commercial consequence. An unresolved customer renewal may affect a forecast scenario; a confirmed cutoff error affects historical recognition. They need different responses. Identify the professional responsible for technical sign-off and retain the actual review status rather than implying approval. Attach owners and deadlines to outstanding evidence requests. A concise conditional conclusion is more useful than a confident headline that hides an unfinished investigation inside an appendix.
Apply the method
Work through each task before opening the model answer. Compare your reasoning with the review criteria. Written answers stay on this page and clear when you leave or reload it.
Applied task 1
Show model answer and review criteria
Recognition: 12.0−0.6−0.4=11.0m. Recurring analytical base: 11.0−1.0=10.0m. Opening cohort monthly GRR=85%, NRR=105%; closing monthly run-rate including new customers=135,000. Annualising that snapshot does not reconstruct annual earned revenue.
- Two separate bridges with no double counting
- Correct opening-cohort retention denominators
- Explicit period and run-rate versus earned-revenue distinction
Applied task 2
Show model answer and review criteria
Compare contractual terms and sales timing; review due-date ageing and disputes; match subsequent bank receipts to invoices. Reconcile taxes, currency, write-offs and other movements before relying on the 10.2m clean bridge. Subsequent payment supports collection but does not independently prove correct original-period recognition.
- At least three explanations linked to specific tests
- Cash allocation and bridge-scope controls
- Explicit distinction between signal, confirmed error and unresolved exposure
Method references
- IFRS Foundation — IFRS 15 overview
Revenue recognition based on delivery of promised goods or services; the clinic’s recurring-revenue adjustments are separate original analytical examples.
- US SEC — Beginners’ Guide to Financial Statements
Distinction between income, balance-sheet receivables and cash flows; original worked reconciliation and diligence procedures.