Chapter 6 - Revenue system Flashcards
What three risks might a company recognise when considering sales orders?
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 when considering sales orders?
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 when considering sales orders?
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 are four tests of controls that assurance providers may carry out with regards to the risks when considering sales orders?
Check that references are being obtained for all new customers.
Check that all new accounts on the receivables ledger have been authorised by senior staff.
Check that orders are only accepted from customers who are within their credit terms and credit limits.
Check that customer orders are being matched with production orders and despatch records.
When considering despatch and invoicing, which risks might a company recognise?
Goods may be despatched but not recorded so they are lost to the business.
Goods may be despatched but not invoiced for.
Invoices may be raised in error with resulting customer dissatisfaction.
Invoices may be wrongly cancelled by credit notes resulting in loss to the business.
What are four control objectives relating to despatch and invoicing of goods?
All despatches of goods are recorded.
All goods and services sold are correctly invoiced.
All invoices raised relate to goods and services supplied by the business.
Credit notes are only given for valid reasons.
What are twelve controls that might be put in place to mitigate the risks relating to despatch and invoicing of goods?
Authorisation of despatch of goods
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 and invoices
Pre-numbering of despatch records and regular checks on sequence
Condition of returns checked
Recording of goods returned on goods returned notes
Signature of despatch records by customers
Preparation of invoices and credit notes
Inventory records updated
Matching of sales invoices with despatch records and sales orders
Regular review for despatch records not matched by invoices
What are eight tests of controls that assurance providers may carry out with regards to the risks relating to despatch and invoicing of goods?
Verify details of trade sales or goods despatch records with sales invoices
Verify details of trade sales with entries in inventory records
Verify non-routine sales
Verify credit notes
Test numerical sequence of despatch records and enquire into missing numbers
Test numerical sequence of invoices and credit notes, enquire into missing numbers and inspect copies of those cancelled
Test numerical sequence of order forms and enquire into missing numbers
Check that despatches of goods free of charge or on special terms have been authorised
by management
When recording sales, which risks might a company recognise?
Invoiced sales might not be properly recorded.
Credit notes 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 credit notes that have been issued 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
Separate recording of sales returns, price adjustments etc
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 are eight tests of controls that assurance providers may carry out with regards to the risks relating to recording of sales?
Check entries with invoices and credit notes respectively.
Check additions and cross casts.
Check additions and balances carried down.
Note and enquire into contra entries.
Scrutinise accounts to see if credit limits have been observed.
Check that trade receivables statements are prepared and sent out regularly.
Check that overdue accounts have been followed up.
Check that all irrecoverable receivables written off have been authorised by management.
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.
What are six controls relating to cash collection?
Segregation of duties
Recording of receipts received by post
Recording of cash sales and collection
General controls over recording
Banking
Safeguarding of cash and bank accounts
