Chapter 6 - Revenue system Flashcards
What are the four stages of the revenue system we must consider when implementing controls?
1) Receipt of customer order
2) Dispatch of goods to the customer
3) Invoice the customer
4) Recording the sale
5) Receipt of payment from the customer
What three risks might a company recognise at the receipt of customer order stage?
Orders may be taken from customers who are not able to pay.
Orders may be taken from customers who are unlikely to pay for a long time.
Orders may not be recorded properly and therefore not fulfilled and customers might be
lost.
What are four control objectives that might arise from the risks at the receipt of customer order stage?
Goods and services are only supplied to customers with good credit ratings.
Customers are encouraged to pay promptly.
Orders are recorded correctly.
Orders are fulfilled.
What are eight controls that might be put in place to mitigate the risks at the receipt of customer order stage?
Segregation of duties; credit control, invoicing and inventory despatch
Authorisation of credit terms to customers
Authorisation for changes in other customer data
Orders only accepted from customers who have no credit problems
Sequential numbering of blank pre-printed order documents and subsequent checking of sequence for completeness
Correct prices quoted to customers
Matching of customer orders with production orders and despatch records and querying of orders not matched
Dealing with customer queries
What risks might a company recognise at the dispatch of goods to the customer stage?
Goods may be despatched but not recorded so they are lost to the business.
Goods dispatched may be of poor quality/wrong amount
Customer information (i.e. delivery address) is incorrect
Customers may not acknowledge recipt of goods
What are four control objectives at the dispatch of goods to the customer stage?
All despatches of goods are recorded.
All goods sent are of sufficent quality and of the correct amount
Customer information matches details provided during the order stage
Customers acknowledge receipt of goods
What are six controls that might be put in place to mitigate the risks at the dispatch of goods to the customer stage?
Authorisation of despatch of goods
Regularly review inventory
Examination of goods outwards as to quantity, quality and condition
Recording of all goods outwards in a despatch record
Agreement of despatch records to customer orders
Pre-numbering of despatch records and regular checks on sequence
Signature of despatch records by customers
At the invoice to customer stage, which risks might a company recognise?
Goods may be despatched but not invoiced for.
Invoices may be raised in error with resulting customer dissatisfaction.
What are two control objectives at the invoice to customer stage?
All goods and services sold are correctly invoiced.
All invoices raised relate to goods and services supplied by the business.
What are four controls that might be put in place to mitigate the risks at the invoice to customer stage?
Regular review for despatch records not matched by invoices
Regularly review inventory
Matching of sales invoices with despatch records and sales orders
Pre-numbering of despatch records and regular checks on sequence
When recording sales, which risks might a company recognise?
Invoiced sales might not be properly recorded.
Sales might be recorded in the wrong customer accounts.
Debts might be included in receivables that are not collectable.
What are five control objectives relating to the recording of sales?
All sales that have been invoiced are recorded in the nominal ledger.
All entries in the receivables ledger are made to the correct receivables ledger accounts.
Cut-off is applied correctly.
Potentially irrecoverable receivables are identified.
What are twelve controls that might be put in place to mitigate the risks relating to recording of sales?
Segregation of duties: recording sales, maintaining customer accounts and preparing statements
Recording of sales invoices sequence and control over spoilt invoices
Matching of cash receipts with invoices
Retention of customer remittance advices
Cut-off procedures to ensure goods despatched and not invoiced (or vice versa) are properly dealt with in the correct period
Regular preparation of trade receivables statements
Checking of trade receivables statements
Safeguarding of trade receivables statements
Review and follow-up of overdue accounts
Authorisation of writing off for irrecoverable receivables
Analytical review of receivables account and profit margins
What is the key risk regarding cash collection?
The key risks are that money might be received at the business premises but not be recorded or banked
What are the two control objectives relating to cash collection?
All monies received are recorded.
All monies received are banked.
