Chapter 6 - Revenue system Flashcards
What risks are associated with orders?
- customers unable to pay
- Customer unlikely to pay for a long time
- Incorrectly recorded
What do order controls do?
Ensure that goods and services are only supplied to customers with good credit ratings
How do controls implemented differ?
Depends on nature of company and what risks need mitigating
What are examples of controls?
- Segregation of duties
- Authorisation of credit terms to customers
- Authorisation for data changes
What are some general control tests?
- Confirming that are being obtained for all new customers
- Check receivables ledger authorised by senior staff
- Matching POs and dispatch records
Where should all invoiced sales and credit notes be recorded?
Nominal ledger
What controls can be implemented to mitigate cash collection risk?
- Segregation of duties
- Record receipts
- Record cash sales
- Safeguarding of cash in bank accounts
What are the tests of control in relation to cash collection?
- Post opening procedures being followed
- Trace amounts to cash book
- Verify deliveries
What control is
most likely to ensure that customers are invoiced for goods dispatched?
Matching of dispatch records with sales invoices
What is a control objective relating to the sales system?
Credit notes are only issued for valid reasons
Which population should the auditor start from when testing for the
completeness of reported sales of a manufacturing company?
Goods dispatch records
What is a control objective relating to the revenue system?
Credit notes are only issued for valid reasons.
What control provides the most assurance regarding the completeness
of the revenue figure in the financial statements of a manufacturing company?
The use of a pre-numbered goods dispatched note for every sales transaction and internal
checking for completeness of processing
What is the most likely consequence of dispatch documentation not being sequentially pre-numbered?
Invoices may not be raised for all goods dispatched.
What are 2 risks directly associated with recording in the revenue system?
- Sales included in wrong accounts
- Incorrect recording of credit notes
