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REVENUE- AND RECEIPTS CYCLE UNIT 4, Dean Fensham Auditing 31 Unit 4 …
REVENUE- AND RECEIPTS CYCLE
UNIT 4
Credit sales
Control objectives and internal controls
Occurrence/ Validity:
Entries in sales journal supported by:
a) ISO;
b) Delivery note;
c) Invoice
Authorisation:
Credit limits determined for credit clients after creditworthiness check.
Non credit worthy = No credit
ISO made out on receiving order and authorisation from credit manager.
Sales manager authorises credit daily by signature.
Completeness:
ISO created per client order and is:
a. Numerical;
b. Specifies quantity;
c. States prices as per official price list.
After sales authorisation, DN prepared:
a. Sequentially numbered;
b. Specifies quantity;
c. Signed by client as proof of receipt;
d. Recorded in register to match with invoice later
When DN signed - Issue numerical invoice and mark off register.
Unmatched DN followed up.
Numerical list DN and invoices produced often and senior employee follows up.
Gate control agree with DN.
Accuracy:
Quantities on invoice obtained from DN.
Prices on invoice obtained from price list.
Calculations reviewed by independent party.
Recording:
Sales journal recorded from invoices.
Sales journal posted to:
a) individual debtor account in debtor ledger;
b) Total sales to debtor control account and sales account in general ledger.
Debtor control account reconciled monthly with debtor ledger.
Classification:
External and internal sales classified clearly and distuingished by coded number, recorded separately on documents.
Cut off:
Invoices made out from DN i.r.o date of delivery.
Protocol:
1.
a) Order received, ISO generated;
b) Two types of credit customers - New and Old
New: fill out application; background check for creditworthiness; establish credit limit; capture info on permanent master file; change details only by authorised credit manager.
Old: Present client ID or account number; credit limit checked for limits.
2.
a) Responsible picker chooses goods using signed picking slip;
b) After picking generate DN;
c) Good out of stock to be identified and create back order note (send to customer)
d) After picking and DN generated goods are packed, labeled and on route to be delivered
e) Gate control for delivery includes guards counting goods and agree with DN quantities. Guards to sign.
3.
a) DN signed by customer handed to accounts dept. to be matched with ISO. Only after information confirmed, invoice generated.
b) Quantities on invoice obtained = DN
c) Prices on invoice obtained = Official price list
d) Calculations reviewed by independent party.
4.
a) Record invoice correctly against correct debtor.
b) Compare invoice and DN for: Quantity, Description and Prices
c) Follow up on invoice numbers if missing or duplicate.
d) Post invoices to sales journal, to debtors ledger, to general ledger.
e) Independent person to send out monthly statements to customers.
5.
a) Maintain and monitor effective credit application process.
b) Identify debtors to be handed over to lawyers.
Ordering function:
Dispatch function;
Invoice function;
Revenue recording function;
Credit management function.
Receipts from debtors
Control objectives and internal controls
Occurrence/ validity:
Payments on debtor accounts supported by:
a) Sequentially numbered receipt;
b) Cash receipt summary;
c) Deposit slip.
Authorisation:
Settlement discounts granted according to policies.
Management monitors discounts and returns.
Completeness:
Numeric recipts issued as money received.
Daily cash receipt summary prepared, balanced with cash and independently reviewed.
Debtors control account kept and frequently reconciled with debtor ledger
Accuracy:
Discounts granted and independently reviewed.
Calculations independently reviewed.
Recording and Classification:
Payments allocated to debtors account and accounting period according to payment advice.
Debtors statement sent out often and differences and errors on statements independently followed up immediately.
Cut off:
Payments and discounts recorded on date of receipt.
1.
a) Segregation of duties is important for receipt and recording of money.
b) Different cash forms should be kept and stored separately.
c) Proper stationary control over numerical records, kept under lock and recorded and signed for in register.
d) Money should be safeguarded by keeping in locked vault, and banked a.s.a.p (next day or twice per day).
e) Post dated cheques recorded in register and strictly controlled.
f) Keep adequate insurance against theft and fraud.
2.
a) Cashiers must balance cash daily, compare with source documents and record on cash receipt summary.
Needs to be signed by cashier, independently reviewed by senior employee and counts of money done in presence of cashier. Cashier to sign as backing money.
b) Compare cash with supporting documents.
Cashier pays in shortages.
c) Each cashier responsible for own funds - keep safe and locked.
d) Cashier is responsible for own float.
e) Supervision over cashiers obtained with cameras etc.
f) Cashed banked a.s.a.p
Petty cash:
a) 1 person responsible
b) Physical safekeeping.
c) Limit fund amount
d) Definte type of expenditure
e) Prenumbered petty cash vouchers
f) Payments approved
g) Reimbursements
h) Exact amount of voucher
i) Vouchers cancelled
3.
a) Bank account reconciled monthly with cashbook.
Review done by person independent from cash book author;
Needs to be done by independent senior official'
b) EFT's are valid but need effective control.
Basic controls;
Controls over cash and petty cash;
Controls over bank account.
Credit sale documents:
Customer order;
Internal sales order;
Price list;
Credit application form;
Credit bureau info.
Picking slip;
Delivery note;
Back order note;
List of deliveries.
Sales invoice;
Price list.
Invoice;
Sales journal;
Debtors journal;
General ledger.
All records important;
Age analysis;
Monthly statement;
Credit bureau info.
Receipt from debtors documents:
In terms of bank:
Cancelled cheques;
Cheque requisitions;
Deposit slips;
Bank statements;
Bank confirmation;
Cash book;
Bank reconciliation.
In terms of cash:
Cash register reading;
Cash advance documents;
Cash summaries;
Receipts;
Physical cash counts.
Test of controls for revenue cycle
Cash
: Observe controls, do surprise cash count and agree cash with supporting documentation, enquire as to the policy of receiving and counting cash.
It is important to agree amounts of cheques and beneficiaries.
Bank
: Select bank reconciliations for a period and inspect reconciliations performed. Determine independence of calculations. Confirm signature is present of senior official.
Credit sales:
Validity: Select sample to determine presence of all supporting documentation.
Authorization: Ask credit department for clarity on credit procedure and select sample of credit being granted to customers. Determine client creditworthiness.
Completeness:
:Select sample of ISO, DN and invoices and inspect them for numerical sequence as well as proof of signature to follow up missing numbers.
Accuracy:
Select a sample and recalculate tests and castings to determine mathematical accuracy. Match quantities with DN and prices with official price list.
Recording:
Select sample of journal entries and determine if all the transactions were correctly recorded in relevant ledgers.
Classification:
Select sample of sales and determine that all sales were correctly classified.
Cut off:
Select sample of invoices with dates before/ after period and match it with DN and agree dates upon them.
Dean Fensham
Auditing 31
Unit 4
Revenue- and Receipt Cycle