Chapter 6: Revenue system

Question 1

Name 2 risks related to ordering process in sales system

Answer 1

1. customers cannot pay
2. orders may not be fulfilled

Question 2

Describe the process of the ordering stage in the sales system

Answer 2

customers order -> credit checks -> authorization from mgt -> inventory check -> generates orders -> sent to despatching department

Question 3

Name 2 risks related to the despatch and invoicing process in the sales system.

Answer 3

1. goods are despatched but not invoiced
2. invoices/ credits raised in error

Question 4

Describe the process of the despatching and invoicing stage in the sales system

Answer 4

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)

Question 5

Name 2 risks related to the recording process in the sales system.

Answer 5

1. invoices are not recorded
2. invoices are processed to wrong account

Question 6

Describe the process of the recording stage in the sales system

Answer 6

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

Question 7

Name 2 risks related to the cash collection process in the sales system.

Answer 7

1. money received but not recorded
2. money received but not banked

Question 8

Describe the process of the cash collection stage in the sales system

Answer 8

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

Question 9

Name 3 of the functions should ideally be segregated to have an effective system of internal control over the sales system.

Answer 9

1. authorization of orders
2. recording cash receipts from receivables
3. invoicing

Question 10

Why do auditors prefer to perform tests of control over sales rather than substantive procedures?

Answer 10

Because sales usually comprise a large number of similar transactions

Question 11

What is a key control over cash collection process in the sales system?

Answer 11

segregation of duties