Chapter 6: Revenue system Flashcards
Name 2 risks related to ordering process in sales system
- customers cannot pay
- orders may not be fulfilled
Describe the process of the ordering stage in the sales system
customers order -> credit checks -> authorization from mgt -> inventory check -> generates orders -> sent to despatching department
Name 2 risks related to the despatch and invoicing process in the sales system.
- goods are despatched but not invoiced
- invoices/ credits raised in error
Describe the process of the despatching and invoicing stage in the sales system
despatching department receives orders -> check for packaged goods -> sent to customers -> customers make quality check -> customers sign a pre-numbered despatch record -> raised invoices/ credit notes (if the goods are not in good quality)
Name 2 risks related to the recording process in the sales system.
- invoices are not recorded
- invoices are processed to wrong account
Describe the process of the recording stage in the sales system
accounting department after receiving despatch record, credit notes and invoices -> matched receipts with invoices to record sales to the correct customer account -> check trade receivable ledgers to identify any irrecoverable receivables
Name 2 risks related to the cash collection process in the sales system.
- money received but not recorded
- money received but not banked
Describe the process of the cash collection stage in the sales system
case 1: customers pay immediately -> treasurer receives money -> accountant record payment transactions
case 2: customers pay on credit -> accountant record on trade receivables -> regularly checking to identify any irrecoverable receivables
Name 3 of the functions should ideally be segregated to have an effective system of internal control over the sales system.
- authorization of orders
- recording cash receipts from receivables
- invoicing
Why do auditors prefer to perform tests of control over sales rather than substantive procedures?
Because sales usually comprise a large number of similar transactions
What is a key control over cash collection process in the sales system?
segregation of duties