SU 6 Flashcards
1
Q
What are business cycles (2)
A
- Result in transactions recorded, processed, reported
- Ensure business operates as intended
2
Q
Why do we need to know about business cycles
A
To understand how business operates & controls are implemented
3
Q
6 Different types of entities
A
- Retailer
- Services
- Wholesale
- Manufacturing
- Resource generation / mining
- Gvrn
4
Q
What is the nature of the r&r cycle (3)
A
- Sell g+s & receive cash from customers
- Without revenue = not viable for going concern
- Without cash collection = strain on cash flow = bankruptcy
5
Q
What are the 2 functions of r&r cycle
A
- Business function
- Accounting function
6
Q
Purpose of r&r cycle (4)
A
- Sell g+s to customers
- Record revenue earned from transactions
- Collect & record payments received from customer transactions
- Address & record related activities (bad debts)
7
Q
Typical transactions in r&r cycle
A
- Wholesalers sell on credit from customer order
- Retailers sell for cash & no background checks are necessary
8
Q
Major GL accounts affected by r&r cycle (2)
A
- SoPL
- SoFP
9
Q
Which accounts are affected in the SoPL (3)
A
- Revenue
- Sales adjustments
- Bad debts written off
10
Q
Which accounts are affected in the SoFP (2)
A
- Cash & cash equivalents
- Accounts receivable
11
Q
Accounting treatment required for recording of revenue according to IFRS15 (2)
A
- Revenue recognised as & when control over g+s transfers from entity to customer over time / at particular point in time
- If not applied = material misstatement as it influences auditor’s report
12
Q
What is a functional area (2)
A
- Separate stage within cycle where similar & related activities to transaction occur
- From where transactions begin (customers & payments received) until where it ends (recording in journals & GL)
13
Q
Need for functional areas
A
Ensures transactions are valid, accurate, complete
14
Q
What are the 10 functional areas
A
- Credit management
- Receiving orders from customer
- Authorisation of sales orders
- Picking of goods from warehouse
- Despatch & delivery of goods to customer
- Invoicing
- Recording of sales in accounting records
- Receipt of cash from customer
- Recording of receipts in accounting records
- Processing & recording of returns & other adjustments
15
Q
Purpose of ‘credit management’
A
Grant credit to creditworthy customers who don’t immediately pay when receiving goods
16
Q
Main activities of ‘credit management’ (7)
A
- Receiving credit application from customer
- Setting credit limits in terms of customer’s creditworthiness
- Ongoing review of customer’s creditworthiness
- Customers request changes to credit limits
- Collecting outstanding debts
- Handing over uncollectable debts to attorneys
- Recommending to management debtor balances that should be written off as irrecoverable
17
Q
Persons involved in ‘credit management’ (3)
A
- Credit controller
- Data capture clerk
- Financial accountant/manager
18
Q
Documents involved in ‘credit management’ (6)
A
- Credit application form
- DL
- Debtors age analysis
- GJ
19
Q
Risks associated with ‘credit management’ (7)
A
- New customers who aren’t creditworthy are accepted & provided credit
- Existing customers fail to pay debts = uncollectable debt = financial losses
- Unauthorised changes to credit limits made to debtors records
- Company fails to collect outstanding debt due to collection procedures not followed promptly
- Allowance for credit losses misstated
- Unauthorised bad debts that are collectable but written off
- Uncollectable debts not written off
20
Q
Control objective of ‘new customers who aren’t creditworthy are accepted & provided credit’ (2)
A
- New customers are creditworthy & can settle their accounts
- Validity
21
Q
Manual controls for ‘new customers who aren’t creditworthy are accepted & provided credit’ (4)
A
- Customer completes credit application form & submits trade references
- Credit controller performs background check on customers trade references & confirms credit status
- Credit controller sets credit limit & records it on credit application form
- DL reviewed by financial accountant on regular basis for new debtors & agreed-to application forms
22
Q
Control objective of ‘existing customers fail to pay debts = uncollectable debt = financial losses’ (2)
A
- Existing customers retained only if they remain creditworthy
- Validity
23
Q
Manual controls for ‘existing customers fail to pay debts = uncollectable debt = financial losses’ (2)
A
- Credit controller performs follow-up credit checks
- Reviews debtors age analysis to identify risky long-outstanding balances
24
Q
Control objective of ‘unauthorised changes to credit limits made to debtors records’ (2)
A
- Authorised changes to credit limits
- Validity
25
Manual controls for 'unauthorised changes to credit limits made to debtors records'
All requests to change credit limits are approved by credit controller after performing credit check
26
Control objective of 'company fails to collect outstanding debt due to collection procedures not followed promptly' (2)
- Collect all cash from debtors
- Operational control
27
Manual controls for 'company fails to collect outstanding debt due to collection procedures not followed promptly' (2)
- Credit controller recommends to financial accountant for approval all overdue debts to be collected
- Submits list of debtors to attorneys in timely manner
28
Control objective of 'allowance for credit losses misstated' (3)
- Reasonable allowance for credit losses according to financial reporting standards
- Calculated correctly
- Accuracy
29
Manual controls for 'allowance for credit losses misstated' (2)
- Create allowances by regularly monitoring outstanding debtor balances to identify & follow up on debtors at risk of non-payment
- Financial accountant approves allowance created according to entity policies
30
Control objective of 'unauthorised bad debts that are collectable but written off' (2)
- All bad debts written off authorised by senior management in terms of company policy
- Validity
31
Manual controls for 'unauthorised bad debts that are collectable but written off'
Credit controller recommends bad debt write-offs & submits to management with supporting documents for decision
32
Control objective of 'uncollectable debts not written off' (2)
- All debts that should be written off are written off
- Completeness
33
Manual controls for 'uncollectable debts not written off'
Regular monitoring of outstanding debtor balances to identify & follow up on debtors that should be written off
34
Purpose of 'receiving orders from customers'
Ensures orders received from customers are acted on
35
Main activities of 'receiving orders from customers' (3)
- Receiving orders from customers
- Checking inventory levels
- Creating backorders
36
Persons involved in 'receiving orders from customers'
Sales order clerk
37
Documents involved in 'receiving orders from customers' (7)
- Customer order form
- Internal sales order
- Picking slip
- Backorder note
- Inventory list
- Customer quote
- Authorised price list
38
Risks associated with 'receiving orders from customers' (3)
- Order received from customer but not acted on timeously = lost sales = negative customer relations
- Order accepted without sufficient inventory = delivery delays = negative customer relations
- Product prices on ISO not same as customer quote approved by management = undercharging = financial losses & incorrect accounting records
39
Control objective of 'order received from customer but not acted on timeously = lost sales = negative customer relations' (2)
- All orders accepted processed timeously
- Operational control
40
Manual controls for 'order received from customer but not acted on timeously = lost sales = negative customer relations' (3)
- Pre-printed sequentially nr ISO with details of customer order from sales order clerk
- Goods picked in warehouse = warehouse staff return copy of picking slip to sales order department to match with ISO
- ISO file checked by supervisor for
- Long-outstanding orders followed up to identify reason for delay
- Sequential nr to ensure all ISOs are accounted for. If unaccounted = reason identified
41
Control objective of 'order accepted without sufficient inventory = delivery delays = negative customer relations' (2)
- Items ordered are in stock & backorder placed if not
- Operational control
42
Manual controls for 'order accepted without sufficient inventory = delivery delays = negative customer relations' (3)
- Sales order clerk request warehouse to perform inventory & quantity check
- If not in stock = sales order clerk confirms with customer if goods can be placed on backorder = backorder note created if agreed
- Copy of note sent to buying department for purchase of goods
- Regular follow-up of backorder notes by sales department with buying department (informs customer when goods received)
43
Control objective of 'product prices on ISO not same as customer quote approved by management = undercharging = financial losses & incorrect accounting records' (2)
- Sales amounts of products on ISO are authorised quoted amounts
- Accuracy
44
Manual controls for 'product prices on ISO not same as customer quote approved by management = undercharging = financial losses & incorrect accounting records' (3)
- Supervisory staff in sales department check ISO to ensure authorised prices
- If ISO based on quote = prices as per quoted prices
- Telephone orders = clerk reads back details of ISO to customer when concluding order
45
Purpose of 'authorisation of sales orders'
Ensures sales are made only to approved customers & to those who'll settle account on time
46
Main activities of 'authorisation of sales orders' (3)
- Approval of customer when order is placed
- Approval of sales transaction when order received from approved customer
- Instruction to pick goods from warehouse
47
Persons involved in 'authorisation of sales orders' (2)
- Sales order clerk
- Credit controller
48
Documents involved in 'authorisation of sales' (4)
- Customer order form
- Debtors ledger
- Internal sales order
- Picking slip
49
Risks associated with 'authorisation of sales orders' (4)
- Order accepted from non-approved customer = uncollectable debts in future = financial losses
- Order accepted from approved customer which exceeds their credit limit = irrecoverable debts
- Unauthorised picking slips created = goods despatched to customer who won't settle debts
- Incorrect picking slip details
50
Control objective of 'order accepted from non-approved customer = uncollectable debts in future = financial losses' (2)
- All orders received are only from approved customers
- Validity
51
Manual controls for 'order accepted from non-approved customer = uncollectable debts in future = financial losses' (4)
- Order clerk only accepts order from customer that is on authorised customer list & can provide account nr
- If not on list = referred to credit controller who commences credit application process
- Sales order clerk requests customer to provide relevant details to confirm if genuine
- Management reviews DL for fictitious debtors accounts
52
Control objective of 'order accepted from approved customer which exceeds their credit limit = irrecoverable debts' (2)
- Credit sales only made to creditworthy debtors
- Validity
53
Manual controls for 'order accepted from approved customer which exceeds their credit limit = irrecoverable debts' (2)
- All ISOs submitted to credit controller for approval & only approved if customer stays within preapproved credit limit
- Credit controller can increase credit limit of customer after investigating client's current financial position
54
Control objective of 'unauthorised picking slips created = goods despatched to customer who won't settle debts' (2)
- Only valid picking slips created based on approved ISOs
- Validity
55
Manual controls for 'unauthorised picking slips created = goods despatched to customer who won't settle debts' (2)
- Picking slips pre-printed & cross-referenced to corresponding ISO
- Picking slips attached to ISO for submission for approval of order
56
Control objective of 'incorrect picking slip details' (3)
- Picking too few = negative
- Picking too much = returns
- Operational control
57
Manual controls for 'incorrect picking slip details'
2nd Staff member in sales order department checks accuracy of items & quantities of picking slip with ISO before sending picking slip to warehouse
58
Purpose of 'picking of goods from warehouse'
Select / pick goods from warehouse in timely manner according to orders from customer
59
Main activities of 'picking of goods from warehouse'
Picking goods from warehouse with reference to picking slip
60
Persons involved in 'picking of goods from warehouse' (2)
- Storeman
- Warehouse supervisor/manager
61
Documents involved in 'picking of goods from warehouse'
Picking slip
62
Risks associated with 'picking of goods from warehouse' (2)
- Error with goods picked not ordered by customer = short-/ over-deliveries = negative customer relations
- Delays in picking / no picking at all = negative customer relations
63
Control objective of 'error with goods picked not ordered by customer = short-/ over-deliveries = negative customer relations' (2)
- Goods picked in terms of authorised ISO & picking slip
- Operational control
64
Manual controls for 'error with goods picked not ordered by customer = short-/ over-deliveries = negative customer relations' (2)
- Supervisory staff member checks & confirms goods picked back to picking slip before sent to despatch bay
- Supervisory staff member signs picking slip as evidence of check
65
Control objective of 'delays in picking / no picking at all = negative customer relations' (2)
- Items promptly picked upon receipt of duplicate picking slip from sales order department
- Operational control
66
Manual controls for 'delays in picking / no picking at all = negative customer relations' (2)
- Supervisor regularly checks file of sequentially nr picking slips for any not acted on
- When goods picked = copy of picking slip returned to sales order department to indicate picking has taken place
67
Purpose of 'despatch & delivery of goods to customers'
Ensures all goods ordered & picked are despatched & delivered intact to customer
68
Main activities of 'despatch & delivery of goods to customers' (7)
- Packaging goods for despatch
- Safely storing goods until despatch
- Goods transferred from warehouse to despatch bay
- Loading packaged goods onto delivery vehicle
- Security checks on goods leaving entity's premises
- Transporting goods
- Delivery of goods to customers
69
Persons involved in 'despatch & delivery of goods to customers' (3)
- Despatch clerk
- Gate security guard
- Driver
70
Documents involved in 'despatch & delivery of goods to customers' (2)
- Picking slip
- Delivery note
71
Risks associated with 'despatch & delivery of goods to customers' (3)
- Quantities on authorised picking slip doesn't match that sent to despatch bay = misappropriation of inventory
- Goods leaving premises not recorded on supporting document = delivery without charge to customer / theft of goods before reaching customer
- Customer denies having received goods
72
Control objective of 'quantities on authorised picking slip doesn't match that sent to despatch bay = misappropriation of inventory' (2)
- Only quantities according to supporting picking slip transferred to despatch bay
- Operational control
73
Manual controls for 'quantities on authorised picking slip doesn't match that sent to despatch bay = misappropriation of inventory' (4)
- Despatch bay exists separate from warehouse & fenced off with physical access controls
- Goods transferred to despatch bay = despatch clerk physically inspects quantities & descriptions of all items relating to picking slip
- Despatch clerk doesn't accept any items not included on picking slip & follows up on missing items
- Despatch clerk signs picking slip as proof of having taken custody of items accepted
74
Control objective of 'goods leaving premises not recorded on supporting document = delivery without charge to customer / theft of goods before reaching customer' (2)
- All goods loaded onto delivery truck for despatch recorded on delivery note
- Completeness
75
Manual controls for 'goods leaving premises not recorded on supporting document = delivery without charge to customer / theft of goods before reaching customer' (3)
- Despatch clerk creates sequentially nr delivery notes for all goods despatched
- Driver checks goods loaded back to delivery note & signs as evidence of taking custody of goods
- Security guard at gate checks delivery note to ensure goods leaving recorded on note
- Security guard checks nr of boxes on truck
- Spot checks content on delivery note
76
Control objective of 'customer denies having received goods' (2)
- Proof of delivery obtained for every delivery
- Validity
77
Manual controls for 'customer denies having received goods'
Customer required to sign copy of delivery note to acknowledge acceptance of goods
78
Purpose of 'invoicing'
Create & issue invoice to customers notifying them of their obligation to pay for goods received
79
Main activities of 'invoicing' (2)
- Customer-signed copy of delivery note received by accounting department to create invoice
- Sending invoice to customer
80
Persons involved in 'invoicing' (2)
- Invoicing clerk
- Senior supervisory debtors clerk
81
Documents involved in 'invoicing' (4)
- Customer invoice
- Sales journal
- DL
- Price list
82
Risks associated with 'invoicing' (4)
- Goods delivered to customer but customer never invoiced
- Deliveries not invoiced timeously = sales recorded in incorrect accounting period
- Invoices created when no goods delivered to customer
- Incorrect prices & quantities = under/over-charging
83
Control objective of 'goods delivered to customer but customer never invoiced' (2)
- All deliveries give rise to corresponding invoice
- Completeness
84
Manual controls for 'goods delivered to customer but customer never invoiced' (3)
- Copy of customer-signed delivery note received from driver upon return & filed in pending file in sequential order by invoicing clerk
- Invoicing clerk makes sequentially nr invoice for every delivery note & copy thereof filed with delivery note & ISO
- Supervisory bookkeeping staff reviews pending file to identify any missing delivery notes to follow up on, & delivery notes for which no invoices recorded in sales journal
85
Control objective of 'deliveries not invoiced timeously = sales recorded in incorrect accounting period' (2)
- Sales recorded in period to which it relates
- Validity
86
Manual controls for 'deliveries not invoiced timeously = sales recorded in incorrect accounting period'
Supervisory staff member ensures correspondence between date of invoice & financial period when delivery was made
87
Control objective of 'invoices created when no goods delivered to customer' (2)
- Sales invoices only for actual sales transactions with bona fidei customers
- Validity
88
Manual controls for 'invoices created when no goods delivered to customer' (2)
- Invoice cross-referenced & attached to original authorised ISO & delivery note
- Senior staff member checks if invoice is supported by customer-signed delivery note & ISO
89
Control objective of 'incorrect prices & quantities = under/over-charging' (2)
- All invoices created with accurate quantities, prices, calculations
- Accuracy
90
Manual controls for 'incorrect prices & quantities = under/over-charging' (3)
- Prices & quantities included on invoice according to ISO & delivery note
- Second staff member checks prices on invoice with company price list & quantities with delivery note
- Second staff member checks accuracy of castings & calculations on invoice before sent to customer / posted to sales journal
91
Purpose of 'recording of sales in accounting records' (2)
- Record sales transactions in accounting records
- Send out monthly statements to debtors
92
Main activities of 'recording of sales in accounting records' (5)
- Posting sale to sales journal
- Posting debtors account to ledger
- Updating GL
- Performing debtors reconciliations
- Sending monthly statements to debtors
93
Persons involved in 'recording of sales in accounting records' (3)
- Accounts receivable bookkeeper
- Senior bookkeeper
- Financial accountant
94
Documents involved in 'recording of sales in accounting records' (5)
- Sales journal
- Debtors ledger
- GL
- Revenue & trade receivables control accounts
- Debtors statement
95
Risk associated with 'recording of sales in accounting records'
Incomplete, inaccurate, invalid postings to journals, ledgers, control accounts
96
Control objective of 'incomplete, inaccurate, invalid postings to journals, ledgers, control accounts' (6)
- Only valid invoices posted to journals & ledgers
- Validity
- Details of sales transactions correctly posted from invoice to books
- Accuracy
- All sales info posted
- Completeness
97
Manual controls for 'incomplete, inaccurate, invalid postings to journals, ledgers, control accounts' (4)
- 2nd bookkeeping clerk checks recorded invoices in sales journal by agreeing entries to supporting invoices to confirm valid invoice exists & was accurately posted by checking numerical sequence & amounts
- Debtors recon performed by supervisor in bookkeeping to recon total of DL with control account
- Financial manager reviews debtors recon & follows up reconciling items before monthly statements prepared & sent
- Independent person follows up on debtors queries
98
Purpose of 'receipt of cash from customers'
Receive & promptly bank cash from customers
99
Main activities of 'receipt of cash from customers' (3)
- Receiving cash from customers
- Recording receipt
- Depositing cash in enitity's bank account
100
Persons involved in 'receipt of cash from customers' (3)
- Cashier
- Chief cashier (reviewer)
- Security company guard (depositing)
101
Documents involved in 'receipt of cash from customers' (3)
- Receipt
- Cashing-up sheet
- Bank deposit slip
102
Risk associated with 'receipt of cash from customers' (5)
- Money received but not deposited into entity's bank
- Theft of monies paid in person by recipient preparing no / fictitious receipt
- Theft of cash from till & loss not identified due to insufficient cashing-up & review procedures
- Theft of cash from facility when cash stored before taken to bank
- Theft of cash in transit to bank
103
Control objective of 'receipt of cash from customers' (2)
- All cash received deposited
- Completeness
104
Manual controls for 'receipt of cash from cashiers' (11)
- Adequate security arrangements made (CCTV; Security company)
- Notice that customer should insist on receipt from cashier
- Cashier creates sequentially nr, multi-copied receipt for money received
- Cashier counts cash at end of shift & recons with receipts issued
- Chief cashier reviews cash-up results of cashiers to confirm shortages / surpluses to be reported. Signs as evidence for review & taking custody of cash
- Chief cashier completes bank deposit slip indicating total cash received
- Cash kept in secure, fire-proof drop safe until collected for banking
- Drop safe only has 2 keys (management & security company)
- Security company collects cash
- Bank-stamped deposit slip returned to company for recon with company's deposit slip & totals of cashing-up sheets
- Bank deposit slip filed in date sequence & regularly reviewed by independent staff member for missing deposit dates
105
Purpose of 'recording of receipt in accounting records'
Ensure all receipts from customers are accurately accounted for in accounting records
106
Main activities of 'recording of receipt in accounting records' (2)
- Posting receipts to cashbook, DL, GL
- Performing bank reconciliation
107
Persons involved in 'recording of receipt in accounting records' (2)
- Cash book clerk
- Senior bookkeeper / Financial accountant/manager (review)
108
Documents involved in 'recording of receipt in accounting records' (6)
- Cash book
- DL
- GL
- Bank, cash, debtors control accounts
- Bank statement
- List of unidentified deposits
109
Risk associated with 'recording of receipts in accounting records' (4)
- Fictitious cash receipts recorded in CB & customer's DL account
- Receipts not posted accurately to CB / DL
- Not all cash receipts posted to CB / DL
- CB clerk can't identify party that deposited into bank account = debtor not accurately recorded = misappropriation
110
Control objective of 'fictitious cash receipts recorded in CB & customer's DL account' (2)
- Cash receipts recorded relate to actual cash received
- Validity
111
Manual controls for 'fictitious cash receipts recorded in CB & customer's DL account'
Debtors recon performed on monthly basis to ensure correct posting to DL & control accounts
112
Control objective of 'receipts not posted accurately to CB / DL' (4)
- Cash deposited posted in correct CB & debtor account
- Accuracy
- Correct amounts of CB totals posted to GL control accounts
- Accuracy
113
Manual controls for 'receipts not posted accurately to CB / DL'
Bank recon performed by independent staff member on regular basis by reconciling balance in CB with balance on bank statement
114
Control objective of 'not all cash receipts posted to CB / DL' (2)
- All cash receipts occurred recorded in CB & posted to GL control accounts
- Completeness
115
Manual controls for 'not all cash receipts posted to CB / DL' (3)
- Recon items reflected on bank recon with noted reasons
- Bank recons reviewed by financial manager & signed as evidence
- 2nd bookkeeping clerk checks accuracy & allocation of postings from receipts to CB & DL
116
Control objective of 'CB clerk can't identify party that deposited into bank account = debtor not accurately recorded = misappropriation' (2)
- All unidentified deposits made into bank account recorded in accounting records
- Completeness
117
Manual controls for 'CB clerk can't identify party that deposited into bank account = debtor not accurately recorded = misappropriation' (2)
- Unidentified deposits suspense account created in GL
- List of all unidentified deposits prepared by CB clerk with details of each deposit. Financial accountant regularly recons list with suspense account & follows up on unusual recurring entries
118
Purpose of 'processing & recording of returns & other sales adjustments'
Ensure only authorised credits to debtors accounts are granted & recorded
119
Main activities of 'processing & recording of returns & other sales adjustments' (4)
- Receiving returned goods from customers
- Authorising sales returns
- Granting discount & other adjustments
- Recording sales returns & adjustments
120
Persons involved in 'processing & recording of returns & other sales adjustments' (5)
- Goods receiving clerk (takes custody of returned goods)
- Sales manager / credit controller (approval)
- Sales returns clerk (recording)
- Bookkeeper
- Financial manager/accountant (reviewing)
121
Documents involved in 'processing & recording of returns & other sales adjustments'
- Goods returned voucher
- Credit & debit note
- Sales adjustment journal
- GJ
- DL
- GL
122
Risk associated with 'processing & recording of returns & other sales adjustments' (5)
- Unauthorised credit granted to customer accounts
- Sales returns not recorded at correct quantities / amounts
- Not all credit granted recorded
- Unauthorised discount provided
- Discounts not accurately recorded
123
Control objective of 'unauthorised credit granted to customer accounts' (2)
- Credit adjustments to customer accounts authorised in terms of company policy
- Validity
124
Manual controls for 'unauthorised credit granted to customer accounts' (5)
- Goods receiving clerk issues sequentially nr goods returned voucher after inspecting goods for valid return reason
- Sales returns clerk prepares sequentially nr credit note if corresponding sales invoice nr provided by customer & goods returned voucher issued by goods receiving clerk
- Financial manager signs credit note after inspecting supporting documents
- Only signed credit notes posted to books
- Financial manager reviews sales adjustment journal on regular basis to ensure each entry supported by valid credit note & goods received note
125
Control objective of 'sales returns not recorded at correct quantities / amounts' (2)
- Sales returns recorded at correct amounts
- Accuracy
126
Manual controls for 'sales returns not recorded at correct quantities / amounts'
2nd accounting clerk reperforms calculations on credit notes & checks accuracy of posting of credit notes to journals & ledgers
127
Control objective of 'not all credit granted recorded' (2)
- All credit notes timeously issued & posted to debtors accounts
- Completeness
128
Manual controls for 'not all credit granted recorded' (2)
- Sales returns clerk reviews file of goods returned vouchers for which no corresponding credit note has been created & follows up on long-outstanding items
- Financial manager checks sequence of credit note nr recorded in SRJ
129
Control objective of 'unauthorised discount provided' (2)
- Only authorised discounts provided to customers in terms of discount policy of company
- Accuracy
130
Manual controls for 'unauthorised discount provided' (2)
- Discount % only approved by management when customer applies for credit
- Responsibility of relevant managers to change discount %
131
Control objective of 'discounts not accurately recorded' (2)
- Discount calculated in terms of authorised discount % & correctly recorded on invoice
- Accuracy
132
Manual controls for 'discounts not accurately recorded'
2nd salesclerk checks accuracy of calculations on invoice
133
Explain the info system is used in r&r cycle (3)
- Sales & services to customers on credit increase trade receivables
- Cash received from customers increase bank & cash & reduce trade receivables
- Proper record keeping important for reliable financial reporting
*learn flow of documents pg 201
134
Documents used in r&r cycle (13)
- Credit application form
- Customer order form
- ISO
- Backorder note
- Picking slip
- Delivery note
- Sales invoice
- Debtors statement
- Customer receipt
- Remittance advice & POP
- Deposit slip
- Goods returned voucher
- Credit note
135
What is a 'credit application' (2)
- Form completed by new customer wishing to buy from entity on credit
- Full particulars of customer provided with trade references
136
What is a 'customer order form'
Physical evidence of order received from customer
137
What is a 'ISO'
Sequentially nr document to record details of customer & what they ordered
138
What is a 'backorder note' (2)
- Created for items ordered by customer but not available in stock
- Used by purchasing department that'll order the items
139
What is a 'picking slip' (2)
- Created from ISO & contains descriptions & quantities
- Instruction for goods picked from warehouse for delivery to customer
140
What is a 'delivery note' (2)
- Created from actual goods packed for despatch to customer
- Should agree with items despatched
141
What is a 'sales invoice'
Prepared for g+s accepted by customer & customer held liable to pay
142
What is a 'debtors statement' (2)
- Summary of all transactions to debtor over period of month prepared by debtors clerk
- Prepared from debtors account & indicates what debtor still owes
143
What is a 'customer receipt' (2)
- Made out to customer when payment is received
- Shows payee & amount
144
What is a 'remittance advice & POP' (2)
Remittance advice
- Sent to entity by debtor with payment to indicate invoice to which payment relates
POP sent by debtor if they paid by EFT
145
What is a 'deposit slip' (2)
- Entity's staff prepares deposit slip if money received in cash
- Indicates total cash received & taken to bank
146
What is a 'goods returned voucher'
Internal document prepared when goods returned by customer
147
What is a 'credit note'
Prepared when debtors account has to be credited
148
Records used in r&r cycle (6)
- Sales journal
- Sales adjustment journal
- CB
- GJ
- DL
- GL
149
What is the 'sales journal'
Records all sales transactions with customers
150
What is the 'sales adjustment journal'
All transactions relating to sales returns & other adjustments
151
What is the 'CB'
All transactions of amounts received from customers
152
What is the 'GJ'
Record of all non-routine transactions & events not posted to other journals
153
What is the 'DL' (2)
- Detailed record of all transactions of debtors
- Each debtor has own account
154
What is the 'GL' (3)
- Collection of all amounts drawn from journals about transactions that occurred in business cycle
- Used to prepare TB & financial statements
- Enables double-entry bookkeeping
155
Explain the 'debtors age analysis' as a type of report (2)
- Contains breakdown of debtors outstanding balance in terms of ageing
- Assists accountant with decision about allowance for credit losses
156
What are 2 types of recons
- Debtors recon
- Bank recon
157
Explain the 'debtors recon' as part of recons (2)
- Between total of individual debtor accounts & balance of control account at specific point in time
- Identifies posting errors
158
Explain the 'bank recon' as part of recons (2)
- Between bank balance as per bank statement & balance as per CB at specific point in time
- 2 balances not same = reconciling items exists
159
4 Major risks affecting revenue
- Fictitious sales recorded (overstated revenue)
- Recorded in wrong financial period (need to defer & accrue revenue to when it's earned)
- Not recording all sales transactions (understated profit)
- Not recognised in terms of applicable financial reporting standards
159
2 Major risks affecting cash & cash equivalents
- Fictitious receipts recorded (overstated cash & bank)
- Non-recording of cash receipts / deposits (understated cash & bank)
160
Fraudulent financial reporting techniques (4)
- Under/overstating revenue
- Boosting sales through round-trip deals (2 parties sell to each other only to purchase back again)
- Channel-stuffing business partners with excessive inventory to increase sales (force customers to buy more than normal)
- Kiting with bank transfers (entity with accounts at several banks exploits the time to clear bank transfers between different banks)
161
Misappropriation risks (4)
- Theft of cash
- Lapping (cashier takes money from one debtor payment & covers it up with payment from another debtor)
- Fictitious deposits (Forged POP - no deposit actually made = financial losses)
- Phishing scams (Fraudster uses trickery to convince staff member to send their online banking username & password)
162
Computer technologies used in cycle (3)
- Point-of-sale systems & barcode scanning
- EFT's
- Online internet-based sales
163
What is a weakness (3)
- Control activities that aren't in place / not working as it should
- "no" or "not"
- Written in negative format
164
What is a recommendation
- Things that should be implemented
- "should" or "must"
- What entity should implement to address weakness (positive form) & reason why it will address weakness (control objective)
165
Copies of documents (4)
- At least 3 of each
- 1 to go to previous function to prove that current function was done
- 1 to stay in current function to follow order trail
- 1 to go to next function to authorise current function
166
How many copies are needed of the delivery note
4
