Sale System

Question 1

Sale system

Answer 1

1. New Customers:
   
   • Orders may be accepted from new customers without checking references or authorizing a credit account.
2. Credit Limits:
   
   • Orders may be accepted from existing customers that exceed their credit limits.
3. Order Processing:
   
   • Some orders may be overlooked or processed twice.
4. Unauthorized Discounts:
   
   • Customers may receive price discounts without proper authorization.
5. Unauthorized Sales:
   
   • Sales may be made to unauthorized or unapproved customers.

1. Credit Control:
   
   • Ensure that giving credit to new and existing customers is controlled and consistent with company policy.
2. Order Processing:
   
   • Ensure all customer orders are processed correctly and do not exceed agreed credit limits.

1. Segregation of Duties:
   
   • Separate the roles of processing orders and conducting credit checks. This can be done manually or through programmed controls that only accept orders within credit limits.
2. Authorization:
   
   • All new customer accounts and their credit limits should be authorized.
3. Sequential Numbering:
   
   • Orders should be recorded on sequentially-numbered documents or the system should allocate sequential numbers.
4. Dispatch Notes:
   
   • A dispatch note should be produced for every sales order, and goods should not be dispatched without one.

1. Segregation of Duties:
   
   • Test: Establish which individuals take orders and process them, and which carry out credit checks. Observe these individuals to ensure procedures are followed.
   • Reason: To verify that duties are properly segregated to prevent unauthorized transactions.
2. Credit Checks:
   
   • Test: Check for signatures or initials of credit checking staff on customer orders. Use test data to ensure the system rejects orders that exceed credit limits.
   • Reason: To confirm that credit checks are performed and documented.
3. Authorization of New Accounts:
   
   • Test: Verify the signature of the manager authorizing new customer accounts on the approval document.
   • Reason: To ensure that new customer accounts and credit limits are properly authorized.
4. Sequential Numbering and Dispatch Notes:
   
   • Test: Review lists of sequentially-numbered customer orders and confirm that each has a corresponding dispatch note number. For IT systems, follow test data from order to dispatch note and confirm sequence completeness.
   • Reason: To ensure all orders are processed and dispatched correctly, preventing duplicates or omissions.

1. Risk: Orders may be accepted from new customers without checking references.
   
   • Control Objective: Ensure all new customer accounts are authorized.
   • Control: Require managerial approval for new customer accounts.
   • Test of Control: Verify the manager’s signature on new customer account approval documents.
2. Risk: Orders may exceed customer credit limits.
   
   • Control Objective: Prevent orders that exceed credit limits.
   • Control: Implement system controls to reject orders exceeding credit limits.
   • Test of Control: Use test data to input orders that exceed credit limits and ensure the system rejects them.
3. Risk: Orders may be overlooked or processed twice.
   
   • Control Objective: Ensure all orders are processed once and accurately.
   • Control: Use sequentially-numbered order documents.
   • Test of Control: Review sequential order lists and confirm each order has a unique dispatch note.

By understanding these risks, control objectives, controls, and tests of controls, auditors can effectively evaluate the customer ordering system and ensure it operates as intended. This structured approach helps identify weaknesses and provides a basis for improving internal control.

1. Non-Despatch or Double Despatch:
   
   • Goods may not be despatched for some orders, or they may be despatched twice.
2. Credit Issues:
   
   • Goods may be despatched to customers without sufficient credit.
3. Missing Invoices:
   
   • Invoices may not be produced for despatched goods.
4. Customer Claims:
   
   • Customers may claim they did not receive goods that were delivered.
5. Unrecorded Returns:
   
   • Returns from customers may not be properly recorded, leading to incorrect sales figures.

1. Despatch Control:
   
   • Ensure goods are despatched for every authorised customer order and not despatched twice.
2. Customer Acknowledgement:
   
   • Ensure customers acknowledge receipt of goods.
3. Invoice Production:
   
   • Ensure an invoice is produced for every despatch note.
4. Invoice Accuracy:
   
   • Ensure invoices are for the correct amount.
5. Returns Management:
   
   • Ensure all goods returned by customers are accompanied by an authorised credit note.

1. Sequential Numbering:
   
   • Despatch notes or Goods Delivery Notes (GDNs) should be numbered sequentially and attached to a specific customer order.
2. Customer Signatures:
   
   • Customers should sign a delivery note upon receipt of goods.
3. Document Transfer:
   
   • Signed delivery notes should be attached to despatch notes and customer orders, then transferred to the accounts department for invoice production.
4. Invoice Linkage:
   
   • Each sales invoice should be linked to a despatch note and customer order, or produced automatically from them.
5. Segregation of Duties:
   
   • Separate the roles of despatching goods, preparing sales invoices, and processing customer orders.
6. Credit Note Authorization:
   
   • Credit notes should be sequentially numbered and authorised.
7. Periodic Checks:
   
   • Conduct periodic checks on the accuracy of invoices or implement strong IT controls to ensure accuracy.

1. Customer Signatures:
   
   • Test: Check a sample of delivery notes to confirm customer signatures.
   • Reason: Ensure customers received and acknowledged the goods.
2. Segregation of Duties:
   
   • Test: Verify that the segregation of duties exists by observing the process.
   • Reason: Prevent unauthorized transactions and ensure proper control.
3. Sequential Numbering of GDNs:
   
   • Test: Ensure all GDNs are sequentially numbered and review error reports for non-sequential numbering.
   • Reason: Confirm all deliveries are accounted for and errors are explained.
4. Invoice Linkage:
   
   • Test: Check that lists of invoices show a customer order number and a despatch note number.
   • Reason: Ensure all despatched goods are invoiced.
5. Credit Note Cross-Referencing:
   
   • Test: Verify that credit notes cross-refer to a sales invoice number.
   • Reason: Ensure returns are properly recorded and credited.
6. Credit Note Authorization:
   
   • Test: Check credit notes for the authorization signature of the appropriate manager.
   • Reason: Ensure credit notes are authorized and legitimate.
7. Despatch Process Observation:
   
   • Test: Observe the despatch process to ensure goods are despatched only with a GDN.
   • Reason: Verify that goods despatched correspond with GDN details.
8. Invoice Accuracy Checks:
   
   • Test: Review documentary evidence of arithmetical checks on invoices or verify strong IT controls by checking calculations.
   • Reason: Ensure invoices are accurate.

1. Risk: Goods may not be despatched or may be despatched twice.
   
   • Control Objective: Ensure goods are despatched for every authorised order and not despatched twice.
   • Control: Sequentially-numbered GDNs signed by authorised staff.
   • Test of Control: Review sequential numbering and check for signatures.
2. Risk: Invoices may not be produced for despatched goods.
   
   • Control Objective: Ensure an invoice is produced for every despatch note.
   • Control: Link sales invoices to despatch notes and customer orders.
   • Test of Control: Verify that invoices show a customer order number and despatch note number.
3. Risk: Customers may claim they did not receive goods.
   
   • Control Objective: Ensure customers acknowledge receipt of goods.
   • Control: Require customer signatures on delivery notes.
   • Test of Control: Check a sample of delivery notes for customer signatures.

By understanding these risks, control objectives, controls, and tests of controls, auditors can effectively evaluate the despatch and invoicing system, ensuring it operates as intended and mitigating potential risks.

If you have any further questions or need more examples, feel free to ask!

1. Unrecorded Invoices and Credit Notes:
   
   • Risk: Invoices and credit notes may not be recorded in the accounting system.
   • Control Objective: Ensure all invoices and credit notes are recorded.
2. Incorrect Recording:
   
   • Risk: Invoices and credit notes may be recorded in the wrong customer accounts.
   • Control Objective: Prevent incorrect recording or detect errors when they occur.
3. Unauthorized Write-offs:
   
   • Risk: Debts may be written off as uncollectable without proper consideration.
   • Control Objective: Ensure proper authorization for writing off debts.

1. Sequential Numbering:
   
   • Control: Invoices and credit notes should be sequentially numbered to ensure completeness and traceability.
2. Customer Statements:
   
   • Control: Regular statements should be sent to customers to confirm account balances and transactions.
3. Control Account Reconciliations:
   
   • Control: Regular reconciliations of trade receivables control accounts should be performed to ensure accuracy.
4. Authorization of Bad Debts:
   
   • Control: Bad debts must be authorized by a responsible manager to prevent unauthorized write-offs.
5. Follow-up Procedures:
   
   • Control: Procedures should be in place for identifying and following up on overdue accounts and unpaid invoices.

1. Sequential Numbering:
   
   • Test: Check lists of invoices and credit notes to ensure sequential numbering. Alternatively, view documents on screen to verify numbering.
   • Reason: Ensure all invoices and credit notes are recorded and traceable.
2. Segregation of Duties:
   
   • Test: Verify that there is segregation of duties between individuals who prepare and send out invoices, collect payments, and follow up on late payments.
   • Reason: Prevent unauthorized transactions and ensure proper control.
3. Customer Statements:
   
   • Test: Check that statements are produced and dispatched to customers regularly.
   • Reason: Confirm account balances and transactions with customers.
4. Control Total Checks:
   
   • Test: Look for documentary evidence that control total checks have been made.
   • Reason: Ensure the accuracy of recorded transactions.
5. Authorization of Bad Debts:
   
   • Test: Check for documentary evidence of proper authorization for debts written off as bad.
   • Reason: Prevent unauthorized write-offs.
6. Follow-up on Overdue Debts:
   
   • Test: Verify that there are individuals responsible for collecting overdue debts and check for evidence of their work. Alternatively, check that an exception report listing all overdue debts is regularly produced and followed up.
   • Reason: Ensure timely collection of overdue debts and proper follow-up.

1. Risk: Invoices and credit notes may not be recorded.
   
   • Control Objective: Ensure all invoices and credit notes are recorded.
   • Control: Sequentially number invoices and credit notes.
   • Test of Control: Check lists of invoices and credit notes for sequential numbering.
2. Risk: Invoices and credit notes may be recorded in the wrong customer accounts.
   
   • Control Objective: Prevent incorrect recording.
   • Control: Perform regular control account reconciliations.
   • Test of Control: Look for documentary evidence of reconciliations.
3. Risk: Debts may be written off without proper consideration.
   
   • Control Objective: Ensure proper authorization for write-offs.
   • Control: Require authorization for bad debts.
   • Test of Control: Check for authorization signatures on bad debt write-offs.

By understanding these risks, control objectives, controls, and tests of controls, auditors can effectively evaluate the recording of sales in the accounting system, ensuring accuracy and completeness.