Combined Table for Chapter 12 for revenue cycle

Function

Potential misstatement

Necessary control

Possible test of control

Account (s) and assertion(s)

Accepting customer orders

Sales may be made to unauthorised customers

Determination that customer is on approved customer list Approved sales order form for each sale

Observe procedure; reperform. Examine approved sales order forms for evidence of approval.

Sales (occurrence)

Accounts receivable (Existence) Approving credit Sales may be made without credit approval Credit department credit check on all new customers Customer's credit limit check before each sale Enquire about procedures for checking credit on new customers. Examine evidence of credit limit check before each sale. Sales (Accuracy)

Accounts receivable (Valuation)

Substantive test procedures (extent of which depending on the effectiveness of internal controls) Select a sample (same with all the other procedures) of sales transactions from the sales journal and vouch to supporting documents (sales invoices, dispatch notes, approved sales orders) Confirm accounts receivable Select a sample of sales transactions from the sales journal and examine the evidence of proper credit approval for each transaction Examine the balance of the

Filling and dispatching sales orders Shipping

Goods may be released from warehouse for unauthorised orders. Goods dispatched may not agree with goods ordered. Unauthorised shipments may be made.

Approved sales order for all goods released to dispatch Independent check by dispatch clerks of agreement of goods received from warehouse with approved sales orders Segregation of duties for filling and dispatching orders Preparation of dispatch note for each shipment Matching of dispatch note and approved sales order for each invoice Matching of sales invoice with each dispatch note Independent check

Observe warehouse personnel filling orders. Examine evidence of performance of independent check. Observe the segregation of duties. Inspect dispatch notes.

Sales (occurrence)

customer's credit limit with the balance of the customer's account payable Examine dispatch notes.

Sales (occurrence & completeness) Sales (occurrence) Sales (occurrence)

Examine dispatch notes. Match dispatch notes with sales records.

Invoicing customers

Invoices may be made for fictitious transactions, or duplicate invoices may be made. Some shipments may not be invoiced. Sales invoices may

Vouch invoices to dispatch notes and approved sales orders. Trace dispatch notes to sales invoices. Observe procedure; re-

Accounts receivable (Existence) Accounts receivable (completeness) Accounts receivable

Enquire customers about the receipt of sales invoices Take a sample of sales invoice and check the details with sales orders. Match dispatch notes with sales

have incorrect prices.

on pricing of invoices

perform. Inspect copy of invoice for evidence of performance. Re-perform the check on the accuracy of pricing. Vouch recorded sales to supporting documents. Review evidence of independent check; re-perform check; trace sales invoices to sales journal and customer accounts. Observe procedures; reperform. Observe procedures; reperform. Observe procedures; reperform. Observe mailing and follow-up procedures.

(completeness) Accounts receivable (Valuation) Accounts receivable (Valuation) Sales (occurrence & valuation) Sales (Completeness & Valuation)

records.

Recording the sales

Fictitious sales transactions may be recorded. Invoices may not be journalised or posted to customer accounts. Invoices may be posted to the wrong customer account.

Requirements of sales invoice and matching documents for all entries Independent check of agreement of sales journal entries and amounts posted to customer accounts with control totals of invoices Periodic accounting for all sales invoices Chart of accounts and supervisory review Mailing of monthly statements to customers, with independent follow-up of

Confirm sales recording processes, e.g. Sales general ledger, journal entries, and monthly summary.

Sales (Completeness) Sales (Presentation) Sales (Completeness)

customer complaints