Auditing and Assurance Services 1st Edition by Iris Stuart

Exercise 28

Time Warner
Time Warner inflated its revenue in 2000 and 2001 by entering into "round-trip" transactions with customers with which it had business relationships. Time Warner provided customers with funds to pay for online advertising. The customers entered into an agreement with Time Warner to purchase online advertising from it in an amount equal to the payment from Time Warner. Time Warner recognized revenue for the amounts received based on these "advertising agreements."
a. Is this type of misstatement difficult to prevent or detect by internal controls Why Explain your answer.
b. Describe a substantive test that the auditor might use to uncover misstatement involving round-trip transactions between the audit client and their customers.