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Revenue and Receipts Cycle: Controls and Test of Controls - Coggle Diagram
Revenue and Receipts Cycle: Controls and Test of Controls
About
Specific Controls
Management
implements specific controls
in an orderly manner
to meet objectives.
Occurrence/Validity
Authorization
Completeness
Classification
Cut-off
Recording
Accuracy
General Controls
These controls are
necessary for a well-functioning business
.
Personnel take leave regularly
Internal audit function
Rotation of duties
Sufficient stationery control
Segregation of duties
Scrutinize all records
and
documents for extraordinary/unusual items
Supervision
and
review by management
Test castings
and calculations on all selected items, documents, and ledger accounts
Test of Controls
Management
must test controls to ensure they meet objectives
set by management.
Below is a table setting out:
Objective to be achieved
by the control to be implemented (including definition)
How the objective will be achieved
How to test implementation
of the control
By understanding the
importance of controls and testing of controls
, businesses
can ensure that their operations are well-functioning
and
achieve their desired objectives
.
Sales
Accuracy:
All sales are recorded on sales invoices at the correct quantity, price and are arithmetically correct
Control
The price on the invoice is obtained from the official price list (master file).
Select a sample of invoices and:
agree prices with the authorised price list;
re-perform mathematical accuracy
agree the quantities to the delivery note;
inspect for evidence of review by client personnel (signature);
Test of Controls
Calculations are reviewed by an independent person
The quantities on the invoices are obtained from the delivery notes.
The sales journal is recorded from the sales invoices
Select a sample of invoices and follow them through to the sales journal and agree the amount and particulars thereon.
Classification:
All sales are correctly classified according to the nature thereof
Control
External and internal sales (intercompany) are classified as such, clearly distinguished by a code number, recorded on separate documentation and are separately recorded.
Select all internal purchase orders i.r.o. both external and internal sales and follow them through to the sales journal and postings to the general ledger to ensure correctly classified and accounted for.
Test of Controls
Completeness:
All valid sales are recorded and nothing is left out
Control
After the sale has been authorised, a numerical delivery note is prepared.
Select a sample of DN and inspect for the numeric sequence.
All delivery notes are recorded in a register for purposes of matching with the invoice at later stage
Select a sample of delivery notes and match them to the invoice and agree the particulars thereof (name, date, quantity).
A numerical ISO is made out on receipt of the client's order.
Enquire from management about the policy for when an order is received from a customer.
Test of Controls
Gate control: guard counts goods and agrees it with the delivery note
Select a sample of delivery notes and inspect them for the signature/stamp of the guard
Enquire of guards / foreman the delivery procedures. Observe procedures i.r.o. gate control.
On receipt of a signed delivery note a numerical invoice is made out, and marked off in the register (mentioned).
Perform a sequence test on the numerical list of delivery notes and invoices. Follow up all missing numbers.
All unmatched delivery notes (in the register) are frequently followed up.
A numerical list of delivery notes and invoices is frequently produced and missing numbers are frequently followed up by a senior person
Recording:
All sales invoices are recorded correctly
Control
Sales journal are posted to:
The total sales to the debtors control account and the sales account in the general ledger
The individual debtor's account in the debtors ledger;
Test a sample of the postings from the sales journal to the general ledger and debtor’s ledger accounts (follow entry).
Test of Controls
Authorisation:
All
credit sales
are
authorised according to the company’s policy
(creditworthy).
Control
An
internal sales order
is
authorised
by the
credit or sales manager
Select a sample of internal sales orders and inspect the signature as proof of authorisation.
Test of Controls
Credit limits
are
determined for all credit clients
after approving their creditworthiness.
Enquire of the credit manager procedures followed for granting of credit.
Select a sample of credit customers and inspect that the credit limits are backed with supporting documentation that proves/confirms their credit worthiness.
Cut-off
All sales transactions are accounted for in the correct accounting period
Control
Invoices are made out from the delivery notes i.r.o. the date of delivery
Select a sample of recorded invoices from the sales journal before and after period end and follow them through to the delivery note – ensure that the invoices are accounted for in the correct period.
(Always test in both directions: Source to Records and Records to Source)
Select a sample of sales invoices i.r.o. dates before/after period end:
match it with the delivery note and agree the date thereon;
ollow through to accounting records, inspect date of entry to evaluate if transactions recorded in the correct accounting period
Test of Controls
Occurrence/Validity:
All
recorded sales actually occurred
(are valid) and are
supported by appropriate documentation
Control
All entries in the
sales journal are supported by
:
Delivery Note
Invoice
Internal Sales Order
Test of Control
Select a sample of entries from the sales journal and
inspect if the entries is supported by the following:
Delivery Note
Invoice
Internal Sales Order
Receipts from Debtors
Accuracy
All payments and discounts accounted for at the correct amount and discounts are accurately calculated.
Controls
Discounts granted are independently reviewed
Discuss with management regarding procedures for reviewing calculations – inspect documentation for management signature
Test of Controls
Calculations are independently reviewed
Recording & Classification:
All payments and discounts are correctly classified and recorded
Controls
Payments allocated to debtor's account and accounting period according to the payment advice.
Debtors' statements are sent out regularly and differences and errors on statements are immediately independently followed up
Test of Controls
Follow above selected payments through to the debtor's account and:
agree details i.r.o. name, amount, discount, date, etc
follow payments through to debtor's statement and debtor's age analysis - ensure that they allocated correctly
Completeness:
All valid payments received from debtors are recorded.
Controls
A daily cash receipt summary is prepared, balanced with cash and independently reviewed
Select a sample of receipts from the receipts books i.r.o. debtors payments and follow them through to:
the cash receipt summary and duplicate receipt;
the entry in debtor's account
A debtors' control account is kept and is regularly reconciled with the debtors' ledger
Re-perform the reconciliation of the debtors control account and follow any discrepancies with management.
Numeric receipts are issued i.r.o. all money received
Perform a sequence test on all receipts. Follow up any missing numbers with management
Test of Controls
Authorisation
All credit adjustments, e.g. credit notes, discounts, etc., are authorised according to company policy
Controls
Settlement discounts are granted according to fixed company policy
Inspect and review a copy of the company policy on discounts.
Test of Control
Management monitors discounts granted and goods returned
Select a sample of debtors' payments and recalculate the discount according to company policy and ensure that the payment meets the criteria.
Select credit adjustments and follow them through to the supporting documentation for proof of authorisation by management.
Cut-off:
Payments and discounts are recorded in the correct period to which it relates.
Control
Payments and discounts are recorded on the date of receipt.
Select a sample of receipts i.r.o. payments before/after month/period end and follow through to debtor's account - ensure recorded in correct period Select from debtor's account payments on month and period end and follow it through to the receipt – to determine recorded in correct period. (Always test in both directions: Source to Records and Records to Source)
Test of Control
Occurrence:
All payments and discount on debtors' accounts are valid and are supported by appropriate documentation
Controls
Payments on debtors' accounts are supported by:
cash receipt summary
deposit slip
sequentially numbered receipt;
Test of Control
Select a sample of payments from debtors' accounts and follow them through to:
follow the receipt through to the cash receipt summary
follow the cash receipt summary through to the deposit slip;
the receipts
i.r.o. the abovementioned inspect debtor's details, amount, date