Chapter 6: Revenue System

Question 1

What are the stages for the revenue cycle?

Answer 1

Order taken

• Good despatched
• Invoice raised
• Sale recorded
• Cash collected

Question 2

What are the risks and procedures of revenue when orders taken?

Answer 2

• Late customer payment - so supply to customer that pay
• Incorrect recording of transaction - record properly
• Credit check on new Customer
• Accept credit limits
  Ask how much credit left before accepting order

Question 3

What are the risks and procedures of revenue when goods dispatched?

Answer 3

• Incorrect goods may despatched - examine order
• good despatched but not recorded - examine sequentially numbered
• customer dispute goods not received - match inv No.

Question 4

What are the risks and procedures of revenue when invoice raised?

Answer 4

• invoice not raised or inaccurate - authorise selling prices/ check calc
• invoice wrongly cancelled - check goods if returned & credit notes

Question 5

What are the risks and procedures of revenue when sales recorded?

Answer 5

• Invoices and credit notes not properly recorded - check sequence
• ## debts recorded when not recoverable - match cash & inv. & review and follow-up accounts & recon REC GL

Question 6

What are the risks and procedures of revenue when cash collected?

Answer 6

• receipts given wrong to customer - segregation of duties of recording and banking
• delay in banking - Daily banking; recon bank pslips

Question 7

What and when are test of controls in use for revenue?

Answer 7

• if internal control effective, auditor perform test control for facts/proof

Question 8

How are the test of controls for revenue used?

Answer 8

• by addressing the risk, enquires, conversation of processes

Question 9

Cope is a large national charity, and among their fundraising activities they
have collecting boxes that are located in retail outlets, cafes and restaurants.
During the audit planning, you have identified that there is a risk of cash or
boxes being stolen before the donation income is recorded, so Cope’s
revenue could be understated.
(1) What control activities would help to ensure completeness of
donation income for Cope?
(2) What audit procedures would you carry out to test the effectiveness
of these internal controls?

Answer 9

1) Internal control of reducing risk of revenue being understated
 Physical controls – chain boxes to the counter
 Responsible person at the outlet listed in a central register
 Sealed boxes – so it is easy to see if they have been opened
 Regular collection
 Two people count cash together
 Regular banking
2) Appropriate testing
 Inspect the register of responsible persons and contact a sample of
individuals to check the register is up to date
 Observe collection of boxes at a sample of sites to determine
whether they are physically secure
 Observe two members of staff counting cash
 Inspect banking records to identify regularity/speed after collection

Question 10

Which of the following is risk for ordering, despatch, invoicing and recording for 1) wrong customer debited 2) goods are inferior quality 3) wrong trade discount applied 4) goods are not available

Answer 10

Ordering 4
despatch 2
invoicing 3
recording 1