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Internal Auditing > Revenue and receipts > Flashcards

Revenue and receipts Flashcards

1
Q

True or False

Management is responsible for determining the organizational objectives related to the revenue and receipts cycle within the organisation.

A

True

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2
Q

What should management implement in the organization?

A

An adequate system of internal control which includes specific functions and activities

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3
Q

What should management identify in the organization?

A

The risks within the revenue and receipt cycle which are threatening the org meeting its objectives.
To mitigate and reduce the identified risks, management implements internal control activities

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4
Q

What does the internal auditor perform in the org?

A

An internal audit engagement and engagement procedures

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5
Q

True or False

During the planning stage, the internal auditor obtains an understanding of the revenue and payment cycle

A

False

During the planning stage, the internal auditor obtains an understanding of the revenue and receipt cycle

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6
Q

What are identified by the internal auditor?

A

Key risks and key control activities are identified and an engagement work programme is prepared to achieve the engagement objectives

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7
Q

State the two functions distinguished in the revenue and receipt cycle

A
  • the selling of goods and services in return for cash (cash sales) or for an agreement that the goods and services will be paid in the agreed upon time (credit sales)
  • the collection of cash from cash sales and from debtors paying their accounts
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8
Q

Disclose the various types of organizations

A
  • Trading business
  • Service business
  • Trading and service business
  • Manufacturing business
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9
Q

Provide the basic functions/activities in a typical revenue and receipts cycle

A
  1. Receiving and processing customers orders
  2. Granting credit to customers
  3. Shipping the products to the relevant location/delivering the service
  4. Invoicing the customer and recording the sale
  5. Collecting payment from customers
  6. Processing goods return
  7. Writing off bad debts as well as providing for credit losses/doubtful
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10
Q

What do management need to ensure the internal control objectives are achieved with regard to the revenue an receipt cycle?

A
  1. Compliance with applicable policies , procedures, law and regulations regarding revenue, recognition of income, and the timeous collection of cash from debtors
  2. Achievement of activity objectives regarding the validity of revenue and completeness of cash receipts from customers
  3. Reliability and integrity of information regarding the sale of goods and rendering of services, and receipts from debtors
  4. Economical and efficient use of organizational resources regarding the sale of goods and receipt from debtors
  5. Safeguarding of org assets in terms of delivery of goods or services to customers, as well as the receipt of cash from customers
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11
Q

In context of receiving and processing customers needs.

Customers can either:

A
  • Initiate sales order verbally via the telephone
  • in person
  • In writing through the internet, e-mail, fax
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12
Q

In context of receiving and processing customers needs.

Who receives the order confirms the availability of inventory, or in the case of a service, verifies with personnel for the delivery of the service before processing the sales order?

A

The sales in the sales or marketing department

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13
Q

In relation to receiving and processing customer needs.

If order from customer is requested. What should the sales clerk do?

A

Quote a price to the customer based on the authorised pricelist.

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14
Q

In relation to receiving and processing customer needs.

Who may update the pricelist?

A

Authorized senior personnel

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15
Q

In terms of receiving and processing customer needs.

When does the sale clerk prepare a pre-numbered internal sales order (4 copies) and quotes the sale order number to the customer, if requested?

A

Upon confirming the availability of the inventory and/or service personne;

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16
Q

In context of receiving and processing customer needs.

Who examines the number sequences of filed orders to ensure that all orders are carried out?

A

Sales clerk’s supervisor

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17
Q

True or False

The supervisor keeps track of all customer complaints and ensures that corrective action is taken

A

True

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18
Q

Who is in charge of credit control procedures?

A

A credit controller from the credit department

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19
Q

What is a creditor controller?

A

An control activity put in place by management to mitigate the risk of granting credit to a customer who is not able to repay their debt.

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20
Q

What does the National credit Act 34 of 2005 state?

A

Org needs to make sure that a customer is creditworthy before credit is granted

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21
Q

True or False

Large and long outstanding debtor’s accounts have a negligible impact on the cash flow of a org.

A

False

Large and long outstanding debtor’s accounts have a substantial impact on the cash flow of a org

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22
Q

True or False

The creditworthiness of all new customers is assessed by following up on references provided or confirming their credit records with a credit bureau

A

True

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23
Q

What should be considered before debtor can receive additional credit?

A

An existing debtor’s credit limit, payment history and outstanding balance

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24
Q

Who authorizes all credit granted and ensures that no credit is granted yo existing debtors with long outstanding or overdue balances?

A

Credit manager

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25
Q

After authorization of sales order by designated manager. In terms of granting credit to customers.

How are copies generated by the system and distributed?

A
  • Original is sent to the customer
  • One copy goes to the warehouse/shipping department to match to delivery note
  • One copy is filed in the sales department
  • One copy goes to the accounting department to match to sales invoice
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26
Q

True or False

The warehouse is in possession of a copy of the sales order form and prepares the products to be delivered.

A

True

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27
Q

Who compares the products prepared to the sales order form and authorises the transfer of the products to the dispatch department?

A

The supervisor

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28
Q

Should the supervisor of the warehouse follow up on all unauthorised movement of inventories?

A

Yes

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29
Q

A pre-numbered delivery note is prepared by the dispatch department.

How are copies are generated by the system and distributed?

A
  • The original and one copy is sent to the customer ( the customer will sign and return one copy to the accounting department)
  • One copy goes to the dispatch area of the warehouse
  • 1 copy goes to the sale department
  • 1 copy goes used to update inventory records
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30
Q

True or False

The supervisor of the dispatch section compares the products received from the warehouse to the order form received from the sales department and delivery note to ensure that they all correspond after which the delivery of the products is authorized

A

True

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31
Q

True or False

The org should have multiple authorized exit point being used to dispatch inventory

A

False

The org should have only 1 authorized exit point being used to dispatch inventory

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32
Q

When goods are delivered, the customer signs the delivery note as proof of receiving the goods.

Where does the signed copy go?

A

It is returned to the driver and then forwarded to the accounting department on the driver’s return

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33
Q

Who informs the service department of any requests received from customers?

A

The sales clerk

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34
Q

Why is register of all the services requested kept?

A

To ensure that all services requested are performed within a reasonable time

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35
Q

Who reviews the register on regular basis and all requests for services not rendered are followed up?

A

The head of the department

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36
Q

In relation to rendering a service.

What do personnel do after delivering the service?

A

Submit their timesheets or job cards to the accounting department in order to invoice the customer

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37
Q

What do accounting department match?

A

All the documents received

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38
Q

True or False

In terms of invoicing the customer and recording the sale. Any unmatched documents are immediately followed up

A

True

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39
Q

Where is invoice sent to the debtor recorded?

A
  • Sales/debtors journal
  • debtors subsidiary ledger
  • general ledger
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40
Q

In context of invoicing the customer and recording the sale.

Reconciliations are authorised by who and why?

A

By authorized by management, is performed on a regular basis to ensure that the summarization and posting of all revenue transactions were done correctly

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41
Q

Which are the various methods of payment are available to customers to settle their accounts?

A
  • EFT
  • Cash
  • cheque payments
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42
Q

Which department is responsible for the receipt of payment?

A

The cash department or designated clerks in the accounting department

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43
Q

What happens when a customer pays EFT?

A
  • Proof of payment should be faxed/ emailed to the org clearly indicating any reference numbers
  • The banking details, fax number and contact person stated on the invoices to ensure accuracy of payments and to prevent payments from being made to the wrong bank account
44
Q

What happens if customer pays cash?

A

A receipt should be issued to ensure that the cash transactions is accounted for

45
Q

Should the org have a proper system in place to ensure that all cash is kept until banked?

A

Yees

46
Q

True or False

On a weekly basis, all cash received should be recorded in a cash receipts journal and reconciled with cash receipts issued as well as the bank deposit slips

A

False

On a daily basis, all cash received should be recorded in a cash receipts journal and reconciled with cash receipts issued as well as the bank deposit slips

47
Q

True or false

Each org has a policy for return of goods and refunds can be granted to customers who return products according to this policy

A

True

48
Q

Do all customers who return products receive a pre-numbered credit note after inspection of the returned goods?

A

Yes

49
Q

Who should authorise credits notes?

A

A designated manager from the warehouse or sales department

50
Q

Are all products returned are accounted for on the org’s inventory system?

A

Yes

51
Q

Should the original invoice amounts for goods services delivered be adjusted when credit notes are issued?

A

Yes

52
Q

Who should be in charge of the functions and activities related to bad debts?

A

Senior personnel

53
Q

In terms of bad debts.

What should the internal auditor assess?

A

Whether steps to write off bad debts are complied with and that the org’s legal section is approached timeously to institute legal action

54
Q

What happens when losses due to bad debts are unacceptably high or an analytical review indicates a financial risk?

A

An investigation should be launched into efficiency and effectiveness of the org’s credit control and cash management policies and processes

55
Q

State the control objective of granting credit to customers

A
  • Sales transactions are made to creditworthy customers
  • Credit is granted according to the company policy (adhering to credit limits)
56
Q

Disclose the risk of granting credit to customers

A
  • Products are sold to customers who are not creditworthy
  • Sales are made to existing customers that exceed their credit limit
57
Q

What are the control measures to prevent risk of granting credit to customers?

A
  • A credit controller exists for credit granting process (SOD between ordering and granting of credit)
  • New debtors complete credit application form
  • Credit record checked through external bureau/references
  • Debtors customer number allocated
  • Credit limit set by credit controller
  • Credit limit reviewed by credit controller before a sale is authorized
58
Q

What is the control objective of ordering function?

A
  • Order are received from valid customers and are complete and accurate
  • All orders received from customers are processed
59
Q

Mention the risk of the ordering function

A
  • Fictitious customers places orders (invalid sales orders)
  • Inaccurate and/or incomplete sales orders
  • Goods not in store/unavailable
  • Sales orders received but are not processed
60
Q

How can ordering function risk be managed?

A
  • Approved customer list maintained for credit customers
  • Unique login and passwords for online orders
  • Use valid price lists maintained (drop down menu) and provided to sales staff
  • Verbal confirmation of orders detail captured by sales clerk
  • Pre-numbered internal sales order should be created by sales clerk (copies sent to relevant departments)
  • Sales clerk confirms availability of goods before proceeding to prepare sales order
  • System automatically displays a message that there is no stock available (IT)
61
Q

State delivery/Dispatch/Gate control control objectives

A
  • Deliveries to customers are authorised and accurate
  • Deliveries through the access point are valid
62
Q

What are the risk of delivery/dispatch/gate control functions?

A
  • Incorrect products types and quantities delivered
  • Theft of inventories/goods
63
Q

Disclose internal control measures of delivery/dispatch/gate control function

A
  • Delivery note matched to sale order by warehouse manager before shipping the goods.
  • Security personnel check and match types and quantities of goods dispatched with details of approved delivery note
  • Barcodes and scanners to track and trace items between warehouse and gate
  • Only one exit may be used for delivery of goods sold
  • Physical inspection of vehicles leaving the premises
64
Q

Mention the control objective of invoicing of customers

A

All credit sales are invoiced accurately

65
Q

Disclose the risks of invoicing of customers

A
  • Incorrect invoicing
  • Goods sold to customer are not recorded in accounting records
66
Q

State the internal controls to manage invoicing of customers

A
  • Customer must sign delivery note as proof of delivery
  • Debtors clerk must match sale order with proof of delivery before preparing sales invoice
  • Sales manager verifies accuracy of documents
67
Q

State the control objectives of recording of sales in accounting records

A
  • All sales transactions are invoiced accurately
  • All sales transactions accurately recorded in records
68
Q

What are the risks of recording of sales in accounting record?

A
  • Missing sales transaction
  • Sales transaction recorded inaccurately
  • Dispute over invoice by customer
  • Incorrect invoicing (inaccurate)
69
Q

How can recording of sales in accounting recorded risks be managed?

A
  • Pre-numbered of all sales documents
  • Sales journal entries matched to sale order and delivery note
  • Customer must sign DN as proof of delivery
  • Sales manager must verify accuracy of docs (+ approve invoice)
  • Debtor’s clerk must match ISO with DN before preparing invoice
70
Q

Mention the control objective of collection debtors payment

A
  • Debtors payment are collected timely
  • Debtor’s payments are recorded accurately
71
Q

Disclose the risk of collecting debtors payment

A
  • Outstanding balances are not collected
  • Debtors payments are allocated to incorrect account
72
Q

State the control measures of collecting debtors payment

A
  • Regular monthly statements are prepared and sent to debtors
  • Long outstanding debtors are followed up by debtors’ clerks
  • Regular debtors reconciliations between debtors statements and debtors ledger must be performed by the debtors control manager
  • Regular age analysis of debtors ledger must be prepared
73
Q

What is returning of goods control objective?

A
  • Only valid return of goods from customers are recorded accurately and timely
  • Only valid return of goods from customers are accepted
  • All return of goods are recorded accurately.
74
Q

State returning goods risks

A
  • Unauthorized and invalid goods returned by customers are accepted
  • Credit note issued for goods returned, but goods are not received in the warehouse
75
Q

How can returning goods risk be managed?

A
  • Formal goods returned policy exists that explains the condition and procedure for goods returned
  • Pre-numbered credit notes are prepared for all returns
  • Credit notes are approved by warehouse manager/debtor control manager after confirming it adheres to the policy
  • Credit note accompany goods returned to warehouse
  • A copy of the credit note accompanies the goods returned to the warehouse.
76
Q

State bad debts control objective

A

Only authorised bad debts are written off according to the company policy

77
Q

What is bad debts risks?

A

Unauthorized bad debts balances are written off

78
Q

How can bad debts risks be managed?

A
  • Formal policy exists that explains the conditions and procedures for writing of bad debts
  • A senior person must be delegated the responsibility for approval of bad debts according to company policy
79
Q

What is cash reconciliation procedures control objective?

A

All cash sales are recorded accurately

80
Q

State cash reconciliations risks

A
  • Cash in the cash drawers is removed irregularly/fraudently
81
Q

Mention control measures of cash reconciliations

A
  • Company policy exists that describes the responsibilities and procedures for cash management
  • Cashiers must sign for receipt of cash float when signing on for duty
  • Cashiers and supervisors must both sign on the cash reconciliation statement after cash up
82
Q

State safekeeping of cash control objectives

A

Cash is secured and records are kept accurately

83
Q

Disclose the risk of safekeeping of cash

A

Cash is removed fraudulently from safe/vault

84
Q

State control measures of safekeeping of cash

A
  • All cash should be kept in a secure place
  • Two persons must at all times be present when the safe/vault is opened
  • Frequently cash reconciliations must be performed by 2 senior persons
85
Q

What is banking of cash control objectives?

A

All cash is banked and deposits are recorded accurately

86
Q

Mention the risks of banking of cash

A
  • Cash is not banked, lost or stolen
  • Cash stolen from staff on their way to the bank
87
Q

How can banking of cash risks be managed?

A
  • Company policies exists
  • Cash on hand is banked frequently
  • Copy of bank deposit slip is sent to the accounting department
  • Clerks are trained to use a different route when driving to the bank for the cash deposit
  • Banking of cask must be done by different clerks on different days and times to avoid a fixed pattern
  • A drop safe facility must be used for bank deposits
88
Q

Discuss fraud related to revenue and receipts done by management

A

Are related to sales usually involves the overstatement of sales and revenue figures in financial statements for commissions based on performance targets or to inflate profitability.

Or understate sales and revenue for tax evasion.

89
Q

What other types of fraud related to revenue and receipts

A
  • Cash frauds
  • Non-recording sales transactions by staff (collusion)
  • Granting of unauthorized discounts to friends
  • Unauthorized writing off of outstanding account balances
90
Q

State the division and people of receiving and processing of orders

A
  • Sales Department
  • Sales Clerk
  • Sales Manager
91
Q

What is the documents used in receiving and processing of orders?

A
  • Customer orders (external)
  • Sales orders (internal) (1x Warehouse, 1x Accounts Receivable, 1x Customer, 1x Filed Numerically)
92
Q

Disclose the granting credit to customers divisions and people

A
  • Credit control department
  • Credit controller
  • Financial manager
93
Q

State the document and records of granting credit to customers

A
  • Credit Application
  • Copy of ID
  • 3 months BS
  • Debtor’s balance
94
Q

What is the shipping the products division and people?

A
  • Warehouse (Storage)
  • Inventory clerk
  • Warehouse supervisor
  • Dispatch area
  • Dispatch supervisor
  • Driver
  • Security guard (gate control
95
Q

Mention the documents and records of shipping of products

A
  • 1x Sales order
  • Picking slip
  • Delivery Note (2x Customer -1 returned to AR,1x Sales Depart, 1x Dispatch area, 1x filed numerically)
96
Q

Disclose recording of sale division and people

A
  • Accounts receivable/Debtors
  • Accounting department
  • Debtors’ clerk
  • Senior personnel member
97
Q

How is the transaction of recording of sales disclosed?

A

Dr: Debtors
Cr: Sales
Dr: Cost of sales
Cr: Inventories - perpetual records)

98
Q

Disclose recording of sales documentations and records

A
  • 1x Sales Order
  • 1 x Delivery note (signed)
  • Invoice (1x Customer, 1x filed numerically)
99
Q

Mention receipts of payments division and peoples

A
  • Accounts receivable
  • Cash department
  • Cash clerk or
  • Debtors clerk 2
100
Q

How is the transaction/activities of receipts of payment recorded?

A

Dr. Bank
Dr. Discount allowed
Cr. Debtors

101
Q

State receipts of payments documentation and records

A
  • Proof of payment (EFT)
  • Bank statements
  • Cash receipt (1x Customer, 1x filed numerically)
  • Bank deposit slip (1x Bank, 1x Accounting)
102
Q

Mention goods returned division and people

A
  • Warehouse
  • Warehouse manager
103
Q

State how goods returned is recorded/transactions

A

Dr. Sales returns
Cr. Debtors

Dr. Inventory
Cr. Cost of sales
(Perpetual records)

104
Q

What is the documents and records of goods returned?

A
  • Credit Note (1x Customer, 1x Warehouse, 1x Accounts Rec)
105
Q

State bad debts division and people

A
  • Accounting
  • Finance
  • Financial Manager
  • Accountant Manager
106
Q

How is bad debts transaction recorded?

A

Dr. Bad Debts
Cr. Debtors

107
Q

Disclose bad debts records and documents

A
  • Age analysis (approved)
  • Internal Memo
  • Credit note

Internal Auditing (9 decks)

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