1531 Understand The Business Process - Revenue

Preparer: SAQ 5/8/2016
Reviewer: MSH 12/8/2016
Understand the Business Process - Revenue 1532: 1/15
GENERAL INSTRUCTIONS
This document is a template that can be used to document the information required to understand control activities relevant to the
audit. The guidance contained in this document will assist in identifying those areas where, through inquiry and discussion with
management, we wish to obtain and document our understanding of the entitys internal control and relevant control activities. This
document can be replicated to separate our documentation by class of transaction, account and or disclosure, or can refer
specifically to entity prepared documents that provide narratives of controls processes.
The use of this template is recommended on a go forward basis to document our understanding of control activities relevant to the
audit .The use of existing SAS 153* series documents is only recommended to carry-forward information obtained in prior periods
and not to facilitate significant documentation of new control activities or those with changes.
Understanding of control activities relevant to the audit
An understanding of internal control assists us in identifying types of potential misstatements and factors that affect the risks of
material misstatement and in designing the nature, timing, and extent of further audit procedures. [ISA 315.A42] [2400.15]
We shall obtain an understanding of control activities relevant to the audit, being those we judge it necessary to understand in order
to assess the risks of material misstatement at the assertion level and design further audit procedures responsive to assessed risks.
An audit does not require an understanding of all the control activities related to each significant class of transactions, account
balance, and disclosure in the financial statements or to every assertion relevant to them. [ISA 315.12] [2400.13]
Control activities are the policies and procedures that help ensure that management directives are carried out. Control activities,
whether within IT or manual systems, have various objectives and are applied at various organizational and functional levels.
Examples of specific control activities include those relating to the following: [Adapted from 2440.01]
Gillette Pakistan Limited, June 2016
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Authorization - Certain control activities may depend on the existence of appropriate higher level policies established by
management or those charged with governance. [ISA 315 Appendix 1.10] [Excerpt from 2440.02]
Performance reviews - These control activities include reviews and analyses of actual performance versus budgets,
forecasts, and prior period performance; relating different sets of data operating or financial to one another, together with
analyses of the relationships and investigative and corrective actions; comparing internal data with external sources of
information; and review of functional or activity performance. [ISA 315 Appendix 1.9] [2440.03]
Information processing See below
Physical controls - Physical controls are controls that encompass:
o The physical security of assets, including adequate safeguards such as secured facilities over access to assets and
records
o The authorization for access to computer programs and data files
o The periodic counting and comparison with amounts shown on control records (e.g., comparing the results of cash,
security and inventory counts with accounting records).
The extent to which physical controls intended to prevent theft of assets are relevant to the reliability of financial statement
preparation, and therefore the audit, depends on circumstances such as when assets are highly susceptible to
misappropriation. [ISA 315 Appendix 1.9] [2440.09]
Segregation of duties - Segregation of duties means assigning different people the responsibilities of authorizing
transactions, recording transactions, and maintaining custody of assets. Segregation of duties is intended to reduce the
opportunities to allow any person to be in a position to both perpetrate and conceal errors or fraud in the normal course of the
persons duties. [ISA 315 Appendix 1.9] [2440.11]
Our knowledge about the presence or absence of control activities obtained from our understanding of the other components of
internal control assists us in determining whether it is necessary to devote additional attention to obtaining an understanding of
control activities. [2440.17]
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Information Processing (Including Application Controls and General IT Controls)
The two broad groupings of information systems control activities are application controls, which apply to the processing of individual
applications, and general IT-controls, which are policies and procedures that relate to many applications and support the effective
functioning of application controls by helping to ensure the continued proper operation of information systems. [ISA 315 Appendix
1.9] [2440.04]
For the purposes of this document, our understanding of general IT-controls is performed in form 1540.
Application controls are manual or automated procedures that typically operate at a business process level and apply to the
processing of individual applications. Application controls can be preventive or detective in nature and are designed to ensure the
integrity of the accounting records. Accordingly, application controls relate to procedures used to initiate, record, process and report
transactions or other financial data. These controls help ensure that transactions occurred, are authorized, and are completely and
accurately recorded and processed. Examples include edit checks of input data, and numerical sequence checks with manual follow-
up of exception reports or correction at the point of data entry. [ISA 315.A97] [2440.05]
Related parties
We shall inquire of management and others within the entity, and perform other risk assessment procedures considered appropriate,
to obtain an understanding of the controls, if any, that management has established to:
Identify, account for, and disclose related party relationships and transactions in accordance with the applicable financial reporting
framework
Authorize and approve significant transactions and arrangements with related parties
Authorize and approve significant transactions and arrangements with related parties outside the normal course of business. [ISA
550.14] [G385.10]
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Accounting estimates
When performing risk assessment procedures and related activities to obtain an understanding of the entity and its environment,
including the entitys internal control, we shall obtain an understanding of the following in order to provide a basis for the identification
and assessment of the risks of material misstatement for accounting estimates:
The requirements of the applicable financial reporting framework relevant to accounting estimates, including related disclosures.
(Paragraphs 3-5)
How management identifies those transactions, events and conditions that may give rise to the need for accounting estimates to be
recognized or disclosed in the financial statements. In obtaining this understanding, we shall make inquiries of management about
changes in circumstances that may give rise to new, or the need to revise existing, accounting estimates. (Paragraphs 6-10)
How management makes the accounting estimates, and an understanding of the data on which they are based, including:
(paragraphs 11-12)
The method, including where applicable the model, used in making the accounting estimate (paragraph 13-15)
Relevant controls (paragraph 16-17)
Whether management has used an expert (paragraph 18)
The assumptions underlying the accounting estimates (paragraph 19-24)
Whether there has been or ought to have been a change from the prior period in the methods for making the accounting estimates,
and if so, why (paragraph 25)
Whether and, if so, how management has assessed the effect of estimation uncertainty. (Paragraph 26) [ISA 540.8] [G5810.02]
We shall review the outcome of accounting estimates included in the prior period financial statements, or, where applicable, their
subsequent re-estimation for the purpose of the current period. The nature and extent of our review takes account of the nature of
the accounting estimates, and whether the information obtained from the review would be relevant to identifying and assessing risks
of material misstatement of accounting estimates made in the current period financial statements. However, the review is not
intended to call into question the judgments made in the prior periods that were based on information available at the time. [ISA
540.9] [5810.27]
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We shall determine whether, in our judgment, any of those accounting estimates that have been identified as having high estimation
uncertainty give rise to significant risks. [ISA 540.11] [5820.04]
Understanding Sales and Receivables:

Introduction:
GILLETTE Pakistan Limited is engaged in the business of importing and distributing world-renowned quality consumer goods of
GILLETTE.
Product portfolio of GILLETTE Pakistan Limited includes Razors, Braun. Oral B has been discontinued on February 2014.
Remaining products are imported from related group companies. All these products are sold to a single distributor, Abu Dawood
Trading Company Pakistan Limited (ATCO).
Business segment and specific strategy
A Strategy Deployment Meeting (SDM) is held every year in the period of November to December to decide on the country wise
targets for the CEEMEA region. This meeting is held at the Global Business Unit level (GBU) and is attended by all representatives
from the countries in the CEEMEA region. The GBU communicates quarter wise targets for each country on the basis of last years
performance and expected growth this year factoring in economic, social and political factors that may affect demand, supply, and
marketing initiatives. Additionally, each country is provided with a calendar for initiatives to be undertaken by the respective country
in each quarter.
A Market Deployment Meeting (MDM) is held locally at the Market Development Organization level (MDO), usually within three
months after the SDM. In this meeting the targets set by the GBU in the SDM are considered, and the ability to fulfill these targets is
reviewed. The Initiative Master Plan is then formulated on the basis of set targets and is approved in SM (Strategic Meeting) which is
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attended by key executives of the company including CEO. It details quarter wise bifurcation of the initiatives to be undertaken with
regard to marketing, sales and distribution, in order to meet these objectives. The ACAT sheets are then updated in every BBAM to
reflect these initiatives and the budgets for the upcoming months. SIS (Master Sales Report) is monthly prepared which shows actual
volumes achieved and next month's best forecasted volume and forecast of next 12 months. It acts as a reconciliation of ACAT.
Sales planning and forecasting
Demand planning software is used by the Demand Planner (DM) to prepare monthly forecast considering the annual approved sales
budget. The forecasting activity is conducted one month in advance in BOD Meeting. BOD Meetings consists of a monthly Initiative
Review Meeting (IRM), Building Block Alignment Meeting (BBAM) and Strategic Meeting (SM), Business Manager (BM) coordinates
with Regional Sales Managers (RSM) and the Supply Network Operations (SNO) to set the region wise sales targets for the next
month. Performance for current month is also reviewed in these meetings and corrective action, if any, are discussed.
Order processing
ADP confirms the order via email To (Supply Network Operation) SNO and allocates its purchase order (PO) number to that order. ADP provides
bulk orders that are brought by P&G into shipment wise orders.
When customer Purchase order is uploaded in SAP by Anny (CSO Team), sales order is generated on the basis of availability of stock. Sales
order number is allocated to this order, these numbers are sequential worldwide. Invoice cannot be generated in the system unless its order has
been generated in the system. <Automated Control>
Credit Limits for Customer:
When customer code is entered in order entry form then system automatically picks the credit limit of customer as specified in customer master file
and compares it with the ordered amount entered <Automated Control>. If ordered amount is less than credit limit then its ok and system allows
the further processing of order but if ordered amount exceeds the specified credit limit then system do not allow the further processing of order
until and unless credit limit is changed in customer master file. SAP blocks the order if invoice is not paid within credit period <Automated
Control>. Credit limits are revised on a quarterly basis based on the historic sales and next quarter sales forecast keeping in mind fluctuation and
credit period.
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Khushbakht Vaka (Customer Business Development - Financial Analyst) then prepares calculation of customer credit and uploads a request in
STEAM system. The system then automatically forwards the approval request to the Finance Manager / Country Manager based on hierarchy
defined in the system that is as per the designation <Automated Control>. After approval of request, email intimation is sent to the Poland staff
for updating of master data accordingly.
Product pricing and implementation of price list
Trade marketing department is responsible to determine prices of the products (Shelf Keeping Unit - SKU) of the Company. There are separate
brand analysts for each brand, who recommend changes in price, based on many factors like increase in government duties, increase in demand
etc. Price Reconciliation for each price change is prepared by Relevant Brand Financial Analyst and is forwarded to Miss Khushbakht Vaka
(Customer Business Development - Financial Analyst) who then uploads a request in STEAM system. The system then automatically forwards the
approval request to the signatories based on the pre-defined hierarchy according to Designation of Authority <Automated Control>. After
approval of request, email intimation is sent to the Poland staff for updating of master data accordingly.
When item / product code is entered in the order through order entry function, system automatically picks the price of product from price master
file. <Automated Control>
Invoicing and dispatches
At the shipment stage the DN (Delivery number from SAP to <Agility logistics system WMS exceed>) is sent, that order is reflected on 3PL WMS
System, which results in preparation of Stock Issue Note (SIN). Auto Run is made in SAP and after every 10 15 minutes the invoice is generated
automatically.
Below are the codes of order status in the ZSKU report and are as follows:
SAP Status:
Sales order uploaded in the system 20
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Delivery made in the system by

DC Team (Dispatch Centre) at Agility 30
Means stock availability
Order ready to be loaded in truck,

but not shipped yet 40 At this stage, SIN is generated by the system.
Invoice is recorded 50 After 10 15 minutes of SIN, invoice is generated and entry is posted in
the GL.
Blocked orders 10
Cancelled Orders 99
Process relating to Agility

CSO Manager Ms. Manizeh Dossa after reviewing the stock position at distributor branches and marketing plans initiates the replenishment at
agility warehouse. The Agility makes the arrangement for Shipment on the basis of that unique shipment No and Delivery No then SAP that
automatically generates Stock issue note (SIN). On the basis of it the invoice is generated through SAP.
On the basis of SIN, Agility allocates the quantity and location and reserve the quantity for shipment. Then, prepares order pick list which includes
description relating to;
SIN
Location (from the stock available)
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Quantity (that demand)

Product code
Reference No.
The picker checks the required order mentioned in pack slip and load it into the truck
Two documents are prepared
Truck Receipt (TR) is prepared by Truck Transporter which includes the reference no. mentioned in Pack slip and builty no.
Delivery Sheet is generated by Agility system (Exceed) which is signed by Client Service Representative (CSR) including the
details relating to
-- SIN
-- Vehicle (Truck) No.
-- Reference No. mentioned in Pack slip
Presently there are 4 dedicated transporters in which major transporters are
DHL Transport
Bashir Saeed Transport
Agility Transport
Super transport network
Subsequently, these two documents are sent to the customer. For confirmation regarding the goods acceptance
For cancellation of order, Gillette intimates the Agility through email and Agility reply the same for confirmation.
Agility processes the required order to shipping activities within 24 hours of SIN received.
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Adjustment relating to Damaged Goods
If goods are in good condition as per stock sheet and truck receipt i.e. reconciled with SIN and Delivery sheet then it is evident that goods are not
damaged during transportation. It is cross charged to transporter and the maximum limit for charge to transporter is Rs.10, 000/-
If transporter brings the evidence of goods damaged or missing due to container being hijacked or theft of goods (FIR logged by the transporter),
the whole amount of damaged goods is written off.
Product returns and issuance of credit notes
Claims for short shipments and price changes are received via email to the Supply Network Operations (Tipu Khairi). No claims for damages are
made as all damages are borne by P&G. The SNO Officer in the SNO department forwards the claims lodged to the finance department for
processing after checking the calculations and the supporting documents.
Adjustment relating to Excess or Short Order:
In case of any excess or short delivery as compared with the order, ADP complains via email to Mr. Tipu Khairi (CSO Co-ordinater) who forwards
the customer complaint to DC team at agility. He also maintains the detail of all complaints in the form of Excel based Tracking Sheet<Manual
Control>.
After receiving reply from Agility, Mr. Tipu Khairi uploads a request in steam for approval by Miss Manizeh Dossa (Sales - Logistics Manager)
<Automated Control> after which original invoice is reversed and new invoice is issued.
Quantity Related Adjustments:
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In case of excess supplies, separate invoice is prepared and is treated as a new sales transaction if ADP agreed. However, if ADP does no
agree then ATCO sends its representatives to take excess supplies back from ADP.
In case of short delivery, credit note is issued.
System generates the documents on the basis of following codes :< Automated Control>
>F2 (2A) Normal sales transaction

>ZCR6 (2H) Sales Reversing document (only in price related adjustment)
>ZRE5 (2G) Reversal due to the excess/wrong quantity delivered than invoiced
>ZDR6 Correct invoice issued due to price related matters.
Price Related Adjustments:
Adjustments related to price could arise due to non-updating of price master file or errors by the master data (taking Temporary Price Reduction
with +ve sign) etc.
Invoice is priced on the basis of ADP Purchase order date. System automatically picks the price for the relevant SKUs through order entry
function.
Price related complaints are communicated to Mr. Muhammad Asim (SNO Account receivable Analyst by ADP who then checks the pricing of the
relevant invoices. If the complaint is reasonable, he sends the required changes in invoice for approval on steam. After obtaining approval on
steam from Miss Manizeh Dossa (Sales-Logistics Manager) <Automated Control>, original invoice is reversed and new invoice is issued.
System generates the documents on the basis of following codes :< Automated Control>
>F2 (2A) Normal sales transaction

>ZCR6 (2H) Sales Reversing document (only in price related adjustment)
>ZRE5 (2G) Reversal due to the excess/wrong quantity delivered than invoiced
>ZDR6 Correct invoice issued due to price related matters
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Accounts receivable management
There is no any fixed period for the review of credit period, whenever there is any change in business dynamics CBD (Customer Business
Development) Department considers the revision in credit period. Credit Period last year was 22 days and P&G has stopped providing advances
that it provided to ADP.
As at 30th June, 2016 credit limits of ADP are PKR 620 Million and the credit period is 26 days.
The Credit period starts from the date shipment is received by ADP in their system. ADP also sends location wise monthly DR reports (Delivery
Reliability) to P&G detailing all shipments received and date of receipt and quantity.
In SAP, location wise baselines dates are defined as Invoice Date + in transit Days and are maintained in the system.
Mr. Muhammad Asim (AR Analyst-SNO) sends weekly list of all invoices raised during the week to ADP. ADP shares its payment plan for the
invoices in the list sent by him specifying the date of payment for each invoice.
He then reconciles the payment Date as per ADP with the Payment Date as per SAP (Which is Baseline Date plus 26 days).<Manual Control> In
case of difference between SAP date and ADP payment plan date greater than 4 days, Mr. Muhammad Asim sends an email to (Sami Ahmed)
Country Finance Manager for approval. After getting approval, baseline date is revised in SAP by him. The difference arises due to reasons such
as late arrival of transporter at ADP warehouse than usually expected, etc.
i. Payment Terms - Payment terms changes (permanent or temporary) shall be updated in system by AR Analyst. In case of
permanent payment term changes, AR Analyst will manually update the payment terms for all outstanding invoices. Current payment
term for LE 394 is 26 days.
ii. Baseline Date AR Analyst shall change the Baseline date(s) when needed to reflect corresponding change in the invoice due date.
Baseline date(s) may be changed due to the following 3 reasons:
a. Unresolved quantity/pricing issue which may result in customer order block.
b. Difference in actual GR date (as shared by ADP) vs. P&G systems baseline date due to any reason (including in-transit time
differences, branch offloading issues, delay in GR of excess stock issued via debit note, natural disasters, thefts, law & order
situation, non-routine holiday, etc.).
c. Withheld payment by ADP AP in lieu of ADP Trade Claims.
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iii. Payment Term Days Payment term days are automatically updated in the system as per the weekend or other non-working day.
However when baseline dates are changed manually in the system, payment term days do not get automatically updated to the next
working day. Hence, AR Analyst will ensure that there should be no net due date lying on any holiday, if the payment term days are
initially greater than the normal payment term days (27 days due to weekend) then after changing its baseline date the payment term
days will be set. Changes to payment term days does not require any separate approval as this is part & parcel of the STEAM
request for changing the baseline date.
In case the orders are blocked due to any overdue invoice which hasnt been paid by ADP for 5 days after its due date, AR Analyst shall raise
STEAM request as per local Delegation of Authority for invoice due date extension (via baseline date change). Upon approval, blocked orders will
be manually released by AR Analyst.
Allowance for Bad Debts Reserve
i. Only in case of a serious dispute with the customer in which any amount is not recoverable, AR Analyst shall create allowance for
doubtful debts.
ii. Allowance will be created in light of customer aging at month end if there is any outstanding amount that is overdue for more than
30 days and which exceeds the tolerance level ($5M) at LE level.
Timing of Recognition
Revenue is recognized as soon as invoice is generated in the system (i.e. after stock issue note). It is important to note that determining the timing
of revenue recognition is dependent on the substance, not just the terms, of the transactions. In addition to sales terms, the substantive evaluation
should include a determination of when the true "risks and rewards" of ownership transfer to the third party i.e. ADP. This determination will
support the timing of recognizing the revenue.
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To the extent that the core transaction processing systems will not efficiently or effectively allow for the recognition in accordance with the above
guidelines, manual adjustments to appropriately reflect or estimate shipments based on the goods in transit, are made to make the sales fairly
stated.
IDENTIFIED RISKS
Summarize risks and significant identified risks from our understanding of the entity and its environment as follows:
If SAS documents are used to document risks and our planned responses:
1) Risks pertaining to a material account or class of transactions should be recorded in the appropriate Risk Assessment and
Audit Plan (RAAP) document (158X)
2) Disclosure risks should be recorded in either:
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a. Form 1580, Material Disclosure Risk Assessment and Audit Plan - If we plan to address responses to disclosure risks
in a single Model Audit Program
b. 158X Risk Assessment and Audit Plan - If we plan to address responses to disclosure risks in the Model Audit
Program of an account balance or class of transactions, the disclosure risk should be recorded in the appropriate
158X Series document for the particular account balance or class of transactions.
3) Financial statement level risks should be recorded in Form 1810, Audit Planning Memorandum.
If SAS documents are not used to document risks and our planned responses:
Risks and significant risks pertaining to account balances, classes of transactions, and disclosures , as well as risks pertaining to the
financial statements as a whole, should be recorded in Form 158*, Risk Assessment and Audit Plan (RAAP) and Model Audit
Program (MAP) for Material Account Balances, Classes of Transactions, Disclosures.
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1531 Understand The Business Process - Revenue

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Preparer: SAQ 5/8/2016

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 1/15

Understanding of control activities relevant to the audit

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 2/15

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 3/15

Information Processing (Including Application Controls and General IT Controls)

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 4/15

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 5/15

Understanding Sales and Receivables:

Business segment and specific strategy

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Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 6/15

Sales planning and forecasting

Credit Limits for Customer:

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 7/15

Product pricing and implementation of price list

Invoicing and dispatches

Sales order uploaded in the system 20

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 8/15

Delivery made in the system by

Order ready to be loaded in truck,

Process relating to Agility

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 9/15

Quantity (that demand)

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 10/15

Adjustment relating to Damaged Goods

Product returns and issuance of credit notes

Adjustment relating to Excess or Short Order:

Quantity Related Adjustments:

Gillette Pakistan Limited, June 2016

Period End: 6/30/2016 8/20/2017 1:34 PM

Reviewer: MSH 12/8/2016

Understand the Business Process - Revenue 1532: 11/15

In case of short delivery, credit note is issued.

>F2 (2A) Normal sales transaction

Price Related Adjustments:

>F2 (2A) Normal sales transaction

Gillette Pakistan Limited, June 2016