Chapter 6 REVENUE

Question 1

What are the key risks when an order is taken?

Answer 1

• orders taken from customers who cannot pay on a timely basis
• orders not recorded properly

Question 2

What are the key control objectives when an order is taken?

Answer 2

• only supply customers who are likely to pay on time
• record orders correctly
• fulfil all orders

Question 3

what are the key controls activities when an order is taken?

Answer 3

• obtain credit checks
• authorise credit limits
• review credit limits regularly
• check credit remaining before taking order
• use sequentially numbered order forms
• check inventory levels before confirming orders
• match customer orders with despatched notes

Question 4

What are the key risks when goods are dispatached?

Answer 4

• incorrect goods dispatched
• customers dispute as to whether goods were received
• goods dispatched but not recorded

Question 5

what are the key controls objectives when goods are dispatched?

Answer 5

• orders dispatched quickly and to the correct customer
• all orders dispatched
• all dispatches are recorded

Question 6

what are the key control activities when goods are dispatched?

Answer 6

• examine goods outward for quality, quantity etc
• record goods outwards on sequentially numbered goods despatch notes (GDN)
• match GDNs to invoices and follow up unmatched GDNs
• obtain customer signature on a copy of the GDN

Question 7

what are the key risks when invoices are raised?

Answer 7

• invoices not raised or raised in correctly
• invoices wrongly cancelled by credit notes resulting in loss to the business

Question 8

what are the key control objectives when invoices are raised?

Answer 8

• all goods dispatched are invoiced
• invoiced are raised accurately
• credit notes are only raised accurately and for valid reasons

Question 9

what are the key controls activities when invoices are raised?

Answer 9

• use authorised selling prices to raise invoices
• check calculations of quantity x price for accuracy
• check condition of goods returned and record on goods return notes
• authorisation of credit notes

Question 10

what are the key risks when sales are recorded?

Answer 10

• invoices and credit notes not properly recorded leading to misstatements in the financial statements
• debts recorded which are not recoverable

Question 11

what are the key control activities when sales are recorded?

Answer 11

• only valid sales recovered
• sales recorded in correct customer accounts
• identify potential bad debts on a timely basis

Question 12

what are the key control activities when sales are recorded?

Answer 12

• sequence checks for invoices being recorded
• match cash receipts to invoices
• send regular statements to customers
• review and follow up overdue accounts
• authorisation of bas debt
• reconciliation of receivables ledger with nominal ledger

Question 12

what are the key risks when cash is collected?

Answer 12

• receipts allocated to wrong customer
• delays in banking could result in cash being lost

Question 13

what are the key control objections for when cash is being collected?

Answer 13

• all receipts are recorded correctly and banked promptly

Question 14

What are the key control activities for when cash is being collected?

Answer 14

• segregation of duties between recording and banking
• safe custody of receipt books and cash
• daily banking
• reconciliation of bank paying in slips
• regular bank reconciliations

Question 15

before an auditor can test internal controls what must they do?

Answer 15

• identify the controls and address the given risk
• to check the control is working the auditor must make enquires, observations, inspections of assets and documents