Chapter 9 - Auditing the Revenue Cycle Flashcards
The objective of ______________ is to reduce business-processing costs by identifying and eliminating non-value-added tasks.
reengineering
This process involves replacing some traditional procedures with procedures that are innovative and sometimes very different from those that previously existed.
Reengineering
The sales process begins in the sales department with the receipt of a ________________ indicating the type and quantity of merchandise being requested.
customer order
After preparing the sales order, the sales clerk files one copy of it in the _______________ for future reference.
customer open order file
What are the manual procedures in Batch Processing Using Sequential Files?
- Obtaining and Recording the Customers’ Orders
- Approving Credit
- Processing Shipping Orders
This document identifies the items of inventory that must be located and picked from the warehouse shelves. It also provides formal authorization
for the warehouse clerk to release custody of the specified assets.
e stock release (also called the picking ticket)
The ______________ travels with the goods to the customer to describe the contents of the order. These are either placed inside the shipping container or attached to the outside in a special plastic pouch.
packing slip
The _________________ informs the billing department that the customer’s order has been filled and shipped. This document contains such pertinent facts as the date of shipment, items and quantities shipped, the carrier, and freight charges. In some systems, this is a separate document prepared by the shipping clerk
shipping notice
What are the automated procedures in Batch Processing Using Sequential Files?
- Keypunch/Data Entry
- Edit Run
- Sort Run
- AR Update and Billing Run
- Sort and Inventory Update Runs
- General Ledger Update Run
This process under automated procedures in Batch Processing Using Sequential Files begins with the arrival of batches of shipping notices from the shipping department
Keypunch/Data Entry
This process under automated procedures in Batch Processing Using Sequential Files uses an edit program that validates transactions by testing each record for the existence of clerical or logical errors.
Edit Run
This process under automated procedures in Batch Processing Using Sequential Files physically arranges the sales order transaction file sequentially by Account Number, which is one of its secondary key
Sort Run
This automated procedure creates a new AR-SUB master file that incorporates all the changes to the customer accounts that are affected by transaction records
AR Update and Billing Run
This automated procedure used in batch processing reduces the Quantity-on-Hand field in the affected inventory records by the Quantity Sold field in each sales order record. A new inventory master file is created in the process.
inventory update program
The _______ separates the checks and remittance advices and prepares a remittance list. These checks and a copy of the remittance list are sent to the cash receipts department.
mailroom
Advantages of Real-time Processing
- Real-time processing greatly shortens the cash cycle of the firm
- Real-time processing can give a firm a competitive advantage in the marketplace.
- Manual procedures tend to produce clerical errors, such as incorrect account numbers, invalid inventory numbers, and price–quantity extension miscalculations.
- Real-time processing reduces the amount of paper documents in a system.
These are used extensively in grocery stores, department stores, and other types of retail organizations.
Point-of-Sale (POS) Systems
_______________ are designed to ensure that transactions are valid, accurate, and complete.
Input controls
______________ are intended to detect transcription errors in transaction data before they are processed.
Input validation controls
_______________ are used to examine the contents of a field for the presence of blank spaces.
Missing data checks
The audit objectives under this management assertion include:
1. Verify that the accounts receivable balance represents amounts actually owed to the organization at the balance sheet date.
2. Establish that revenue from sales transactions represent goods shipped and services rendered during the period covered by the financial statements.
Existence or Occurrence
The audit objectives under this management assertion include:
1. Determine that all amounts owed to the organization at the balance sheet date are reflected in accounts receivable.
2. Verify that all sales for shipped goods, all services rendered, and all returns and allowances for the period are reflected in the financial statements.
Completeness
The audit objectives under this management assertion include:
1. Verify that revenue transactions are accurately computed and based on current prices and correct quantities.
2. Ensure that the AR subsidiary ledger, the Sales Invoice file, and the Remittance file are mathematically correct and agree with general ledger accounts.
Accuracy
The audit objectives under this management assertion include:
1. Determine that the organization has a legal right to recorded accounts receivable. Customer accounts that have been sold or factored have been removed from the
accounts receivable balance
Rights and Obligations
The audit objectives under this management assertion include:
1. Determine that the accounts receivable balance states its net realizable value.
2. Establish that the allocation for uncollectible accounts is appropriate.
Valuation or Allocation
The audit objectives under this management assertion include:
1. Verify accounts receivable and revenues reported for the period are properly described and classified in the financial statements.
Presentation and Disclosure
These controls are intended to detect transcription errors in transaction data
before they are processed. Since errors detected early are less likely to infiltrate the
accounting records, validation procedures are most effective when they are performed
as close to the source of the transaction as possible
Input validation controls
The audit procedures described in these controls provide evidence about the accuracy assertion
Testing Validation Controls
These controls are used to manage high volumes of transaction data through a system.
The objective of this control is to reconcile output produced by the system with the
input originally entered into the system
Batch controls
These controls provide the auditor with evidence relating to the management assertions of completeness and accuracy.
Tests of batch controls
