Chapter 6 Revenue system Flashcards
1.1 Risks, controls, and procedures
Key risks Key control objectives Key control activities
Order taken Customers cannot pay on timely basis. Orders not recorded or fulfilled Supply to customers who are likely to pay on a timely basis and record and fulfil all orders Credit checks, credit limits, sequentially numbered order forms, check inventory levels before confirming orders
Goods despatched Incorrect goods sent, not recorded, customer disputes on goods received Orders despatched promptly and are recorded properly Examine quality of goods sent, record goods outwards sequentially, match GDN to invoices, obtain customer signation on copy of the GDN.
Invoice raised Invoices not raised or incorrect and wrongly cancelled by credit notes All invoices despatched and raised accurately. Credit notes only raised for valid reasons Check calculations, check condition of goods returned and record on notes. Authorisation of credit notes
Sale recorded Invoices and credit notes not recorded; debts not recorded when non-recoverable Only valid sales recorded, sales recorded in correct customer accounts, identify bad debts on timely basis Sequence checks for invoices, authorisation of bad debt allowance, reconciliation of receivables ledger with nominal ledger
Cash collected Receipts allocated wrong accounts, delays in banking All receipts recorded correctly and banked promptly Segregation duties between recording and banking, daily banking, reconciliation of bank paying in slips and cash book
2.1 Tests of controls
If internal controls are effective, the audit may choose to perform tests of controls to obtain evidence that the controls were effective in the period. To do this the audit must first identify the controls that address a given risk. Procedures are then performed to check the control is working.
