Contributed December 21, 2001

REVENUE CYCLE PROCEDURES

1. Functions of the revenue cycle

Revenue cycle includes following functions:
concluding services contracts with customers, client acceptance procedures,
credit control
activation and disactivation of subscribers
providing cellular communications services and products
customer master file maintenance
customer billing
sales analysis
customer returns and allowances
collection of accounts receivable
provisioning for doubtful accounts
receipt of cash from trade customers (initial deposit, prepayments, under/over
payments, regular receipts, etc.)


2. Critical forms and documents associated with the cycle:

Service agreements with clients;
Billing system output (minutes used by clients);
Invoices;
Credit memos;
Bank statements evidencing payments for services received


3. Common risks associated with the Revenue cycle

Authorization and accuracy of contracts with clients
Unauthorized rates or prices are quoted.
Extension of credit terms to customers who represent unacceptable credit risks to
the company.
Orders may be accepted/contracts concluded from/with related parties without
management's knowledge or at unacceptable prices or terms.
Orders may be accepted at prices or on terms that violate governmental laws and
regulations.

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Providing services/shipping
Goods may be shipped or services delivered (cellular services provided) to the
wrong party.
The wrong goods or services or the wrong quantity of goods or services may be
shipped or delivered.
Fictitious or otherwise invalid shipments or services may be made or provided.

Billing
Goods (phones) sold or cellular services provided may not be initially recorded
and reported.
Records of sales or cellular services provided may be lost and therefore not billed.
Incomplete invoicing of services and goods delivered to customers (minutes used
are not included in the customers billings).
Invoices are raised on an untimely or inaccurate basis leading to payment delays.
Revenues may be recorded for goods or services that were not delivered.
Invoices may not be priced from an authorized source.
Incorrect billings may be issued due to clerical or mechanical errors.
Invoices may not be summarized and posted on a timely basis.

Accounts receivable
Ineffective collections of receivables from customers.

Cash receipts
Non-recording of cash receipts. Incorrect application of cash receipts to the
subsidiary ledger.
Non-compliance with statutory rules and regulations in respect of revenue
recognition and taxes.
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4. Control objectives of the revenue cycle internal control
procedures

The principal objective of control procedures supporting the revenue cycle include
the following:
Authorization and accuracy of contracts with clients
Contracts with customers are subject to full review and authorization prior to
approval (client acceptance procedures are in place).
All orders received (for cellular telephones) should be reported on a timely basis
to enable warehouse to order and prepare the requested goods.
Rates, special rates and discounts as well as prices for cellular telephones shall be
approved on an appropriate level and quoted in accordance with current policy

Billing
All cellular communication services or goods delivered should be recorded and
recognized in the accounting records in the appropriate period.
Billing for services and goods (cellular telephones) should be complete, accurate
and recognized in the appropriate accounting period.
Billings recorded in the billing system shall be reconciled to the general ledger on
a regular basis.

Accounts receivable
Credit control procedures shall be designed to ensure consistent and effective
credit collection policies are applied and no unauthorized credits to be granted to
customers with doubtful credit worthiness.

Cash receipts
All cash receipts should be recognized in the books on a timely basis and be
accurately applied to customer accounts in the subsidiary ledger or serve as a
basis for sales recognition (in Russian books).

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5. Transaction flow control procedures

An entity's internal control structure comprises the policies and procedures
established to provide reasonable assurance that specific entity objectives will be
achieved. The internal control structure might include a wide variety of objectives
and related policies and procedures. Mostly important procedures to be established
in revenue cycle are as follows:
Authorization and accuracy of contracts with clients
Authorization and Accuracy of Sales Orders - Customer requests for goods and services and
accordingly services contracts that meet management's criteria should be approved and
should be accurately reported on a timely basis.
1. Controls to ensure valid authorization of sales
orders:
Type of the
control
procedure
Responsible
person
Approval by the proper level of management of
established prices, rates per minute, special rates
and prices (for cellular telephones), customers,
credit limits and terms.
establishing of
the procedure
Financial
Director
Current prices, customers, credit limits and terms
are made available to order entry personnel.
on a regular
basis
Sales
department
Approval by authorized individuals of orders and
services contracts as to customers, prices, credit,
quantities and terms by reference to documented
data approved by management. Approval is made
by persons not involved in the sales function nor
in the preparation of sales orders or contracts.
on a regular
basis
Financial
Director


2. Controls to ensure accurate recording of sales
orders and services contracts:
Type of the
control
procedure
Responsible
person
Accurate recording of orders received and
contracts concluded as to customer, prices,
quantities and terms for use in subsequent
processing.
on a regular
basis
Sales
department

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3. Supervisory controls to ensure the continued
operation of above controls:
Type of the
control
procedure
Responsible
person
Review and approval by a designated official of
sales orders over a specified amount, and
orders/services contracts with special prices,
terms or discounts.
adherence to
the procedure
Financial
Director

Completeness of Services Contracts and Sales Orders - All customer requests for goods and
services should be reported.
1. Controls to ensure completeness of sales orders: Type of the
control
procedure
Responsible
person
Use of prenumbered sales orders/contracts or
other means in recording all orders.
adherence to
the procedure
Sales
department
Accounting for the sequence of prenumbered sales
orders/contracts and follow-up of missing orders.
- - - -

2. Supervisory controls to ensure the continued
operation of above controls:
Type of the
control
procedure
Responsible
person
Review by a designated official of the results of
follow-up on missing documents.
on a regular
basis
Financial
Director

3. Written procedures to ensure the proper
operation of above controls
Type of the
control
procedure
Responsible
person
Adequate written procedures regarding order
entry function activities.
establishing of
the procedure
Financial
Director


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Providing services/Shipping Function

Completeness of Shipments - All shipments made and services provided should be reported.
1. Controls to ensure completeness of recording
of goods shipped and services provided:
Type of the
control
procedure
Responsible
person
Use of prenumbered documents, logs, or other
means in recording all shipments and services
rendered (For computer-generated shipping
documents, assignment by computer of
sequential number to the documents - minutes
of use report).

establishing of
the procedure
billing
department,
warehouse in-
charge
Accounting for the sequence of prenumbered
shipping documents or records of services
provided (minutes of use report), and follow-up
of missing documents.
on a regular
basis
- -

Matching of shipping documents with sales
orders and records of services provided (minutes
of use report) with services contracts and follow-
up of long unmatched orders, by persons other
than those who maintain the records of
unmatched orders.

on a regular
basis (for
phone sales),
on a periodic
basis- for
cellular
services

- -


2. Supervisory controls to ensure the continued
operation of above controls:
Type of the
control
procedure
Responsible
person
Review by a designated official of the results of
follow-up on unmatched orders and missing
documents.
on a regular
basis
Deputy Chief
Accountant


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Accuracy of Providing Service/Shipments - Shipments made and services provided should be
based on authorized customers' orders/services contracts, and should be accurately reported
on a timely basis.
1. Controls to ensure validity of shipments and
services provided.
Type of the
control
procedure
Responsible
person
Shipment of goods or providing of services not
made without an authorized sales
order/services contract.
adherence to
the procedure
Billing

2. Controls to ensure accuracy of recording of
shipments and services provided:
Type of the
control
procedure
Responsible
person
Physical counting of goods at time of shipment
by persons other than those who: a) have custody
or access to inventories; b) authorize or make
shipments.
on a regular
basis
warehouse in
charge
Accurate recording of services provided as to
description, dates, quantities and other relevant
data for use in subsequent processing.
Use of verified shipping documents in
subsequent posting of quantities to inventory
subsidiary records.
Adherence to documented procedures for
services provided/shipping cut-off (daily and
period end).

- -


- -

adherence to
the procedure
Billing


warehouse in-
charge
Financial
Director


3. Supervisory controls to ensure the continued
operations of above controls:
Type of the
control
procedure
Responsible
person
Assignment of a designated official to supervise
providing services and shipping operations.
assignment of
the person
Financial
Director

4. Written procedures to ensure the proper
operation of above controls:
Type of the
control
procedure
Responsible
person
Adequate written procedures regarding shipping
function activities.
establishing of
the procedures
Financial
Director

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Billing
Completeness of Billings - All shipments made and services provided should be billed and
recorded in the general ledger and subsidiary records.
1. Controls to ensure the completeness of recording
of billings for goods shipped and services
provided:
Type of the
control
procedure
Responsible
person
For computer-generated invoices, assignment by
computer of sequential number to invoices (in
manual systems - use of prenumbered and
controlled sales invoices in recording all billings.)
establishing of
the procedure
Billing
Invoices are automatically generated by the
computer system based on computer records of
shipments/services provided to customers.

For invoices produced manually - Matching of
sales invoices with shipping documents or records
of services provided, and follow-up of long
unmatched shipments or services by persons other
than those who maintain the records of unmatched
items.
- -


on a regular
basis
Billing


Deputy Chief
Accountant

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2. Controls to ensure the completeness of
summarization of billings for goods shipped and
services provided:
Type of the
control
procedure
Responsible
person
Accounting for sequence of prenumbered
manually-prepared invoices, and follow-up of
missing and/or duplicate invoices by persons
other than those who (1) prepare invoices, (2)
record shipments, (3) process accounts receivable
transactions, (4) deal with cash receipts (5)
authorize the voiding of invoices, (6)prepare credit
memos. (7) record goods returned and claims or (8)
are involved in computer operations and
programming.
on a regular
basis
Deputy Chief
Accountant

Detailed checking of sales invoices (quantities
billed) against printouts (minutes of use reports),
follow-up of unprocessed invoices, and
investigation and correction of differences by
persons with no incompatible duties.

on a regular
basis

- -

Reconciliation (by computer or users) of invoice
control totals for posting to the receivable control
account with totals of previous reports.
Reconciliation, and investigation and correction of
differences, by persons with no incompatible
duties.

- -

- -

Prenumbered journal entry forms and related
accountability for all numbers each period.

adherence to
the
established
procedure

- -


3. Supervisory controls to ensure the continued
operation of above controls:
Type of the
control
procedure
Responsible
person
Review by a designated official of the results of
follow-up on unmatched shipments and services.
on a periodic
basis
Financial
Director
Review by a designated official of the results of
follow-up on missing documents.
- - - -

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4. Written procedures to ensure the proper
operation of above controls:
Type of the
control
procedure
Responsible
person
Adequate written procedures regarding
procedures for billing and summarization of sales
invoices.
establishing of
the
procedures
Financial
Director

Accuracy of Processing and Summarization of Billings - Billings (including costs of goods
and services sold and sales-related expenses where these are based on billings) should be based
on shipments made and services provided (actual minutes used by client), should be
accurately computed, and should be accurately and promptly summarized and recorded in the
correct accounts in the general ledger and subsidiary records.
1. Controls to ensure validity of recorded sales Type of the
control
procedure
Responsible
person
Verification of invoiced prices to approved sales
orders or price lists, by persons other than those
who (1) prepare sales invoices or (2) are involved
in the order entry function (For computer-
generated invoices where prices are stored on
current authorized price master file adequate
controls over the master file).
on a test basis Deputy Chief
Accountant
Ensuring that manually-prepared sales invoices
have been checked and approved as being valid
before posting of amounts to the accounts
receivable control account and subsidiary records.
on a regular
basis
- -


2. Controls to ensure accuracy of recorded sales: Type of the
control
procedure
Responsible
person
Verification of extensions and footings of invoices
by persons other than those who prepare sales
invoices. (For computer-generated invoices,
adequate assurance of the propriety of program
logic.).
on a periodic
basis
Deputy Chief
Accountant

3. Controls to ensure propriety of account
classification
Type of the
control
procedure
Responsible
person
Checking of coding of invoices. on a regular
basis
Deputy Chief
Accountant

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4. Controls to ensure accuracy of summarization Type of the
control
procedure
Responsible
person
Verification of mathematical accuracy of
summaries (e.g., by periodic refootings or
agreement to independent control totals) used as
basis for general ledger entries.
on a regular
basis
Deputy Chief
Accountant
Period-to-period comparisons of the amounts of
recurring entries.
on a periodic
basis
Financial
Director
Adherence to documented cut-off and period-end
closing procedures.
at the end of
period
- -

5. Supervisory controls to ensure the continued
operation of above controls:
Type of the
control
procedure
Responsible
person
Review by a designated official of exception
report on the verification and checking of
invoices.
on a periodic
basis
Chief
Accountant
Review and approval by a designated official of
invoices over a specified amount, and invoices
with special prices, terms or discounts.
on a regular
basis
Financial
Director
Review and approval of each journal entry by a
designated official who did not participate in its
preparation.
- - Chief
Accountant


6. Written procedures to ensure the proper
operation of above controls:
Type of the
control
procedure
Responsible
person
Adequate written procedures regarding activities
on billing and summarization of sales invoices.
establishing of
the procedure
Financial
Director

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Accounts receivable related procedures
Substantiation of balances - the validity, accuracy and completeness of recorded balances of
receivables and sales should be periodically substantiated.

1. Controls to ensure the validity, completeness
and accuracy of recorded balances:
Type of the
control
procedure
Responsible
person
Periodic comparison of recorded balances with
budgeted amounts, prior periods and industry
statistics.

on a periodic
basis
Financial
Director
Maintenance of the accounts receivable subsidiary
records by persons other than those who (1)
prepare, check or approve accounts receivable
documentation, (2) maintain the control account
or (3) deal with the cash receipts function.

appointment
of the person
Chief
Accountant
Periodic reconciliation of accounts receivable
subsidiary records with related control account
and investigation of differences by persons other
than those who (1) post the accounts receivable
subsidiary records, (2) maintain the control
account, (3) account for sales invoices and credit
memos or (4) deal with the cash receipts function
on a periodic
basis
Deputy Chief
Accountant

Periodic mailing of customer statements, and
investigation of exceptions by persons with no
incompatible duties.

- -

- -

Periodic review of credit balances in accounts
receivable to determine their causes.

- -

Chief
Accountant



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Evaluation of balances - the valuation of recorded balances of receivables and related
allowances should be periodically evaluated.

1. Controls to ensure receivables are stated at
realizable value.
Type of the
control
procedure
Responsible
person

Comparison of provisions, write-offs, credit
memos and other non-cash reductions to
receivables with budgets and historical
information.

on a periodic
basis

Deputy Chief
Accountant

Preparation of an aged analysis of receivables
and follow-up of past due items (Compiling and
approving a disconnection list). Reconciliation of
total of aging analysis with related control
account balance.

on a regular
basis

A/R
accountant

Periodic review of the formula used for
determining provisions and allowances for
doubtful accounts.

on a periodic
basis

- -

Periodic determination of provisions required
and accounts to be written off by a person not
involved in the sales, accounts receivable
recording and cash functions.

- -

Chief
Accountant

Periodic determination of additional valuation
allowances (returns, allowances and other non-
cash reductions) by persons not involved in the
sales, accounts receivable recording and cash
functions.


- -

- -


2. Supervisory controls to ensure the continued
operation of above controls
Type of the
control
procedure
Responsible
person
Review by a designated official of aged analysis
of receivables for unusual items and results of
reconciliation procedure.

on a periodic
basis
Financial
Director
Review and approval by a designated official of
provisions, write-offs and additional valuation
allowances made.
- - - -


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3. Written procedures to ensure the proper
operation of above controls of above controls:
Type of the
control
procedure
Responsible
person

Adequate written procedures regarding accounts
receivable function activities.


establishing of
the procedure

Financial
Director

Cash Receipts control procedures
Completeness of cash receipts procedures- all cash receipts should be recorded in the general
ledger and subsidiary records.
1. Controls to ensure the completeness of
recording of cash receipts:
Type of the
control
procedure
Responsible
person
Prenumbering and control over bank statements
evidencing cash receipts from customers, that are
subsequently accounted for, in recording all cash
receipts.
establishing of
the procedure
Cash in bank
accountant
Comparison, either individually or in total, of the
records of entries in the cash receipts book with
bank statements as to dates and amounts, by
persons other than those who (1) handle cash
receipts or (2) maintain the accounts receivable
records (This is done as part of bank
reconciliation.)
on a periodic
basis
Deputy Chief
Accountant

2. Controls to ensure completeness of
summarization of cash receipts:
Type of the
control
procedure
Responsible
person
Accounting for sequence of prenumbered cash
receipts documents and follow-up of missing
documents.
Prenumbered journal entry forms and related
accountability for all numbers each period.
on a regular
basis
Deputy Chief
Accountant


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Accuracy of processing and summarization of cash receipts - cash receipts should be
accurately recorded as to amounts, dates, customer names and numbers, and should be
accurately and promptly summarized and recorded in the correct accounts in the general
ledger and subsidiary records.
1. Controls to ensure validity of cash receipts: Type of the
control
procedure
Responsible
person
Ensuring that cash receipts have been checked
and approved as being valid before posting of
cash receipts to control account and subsidiary
records.
on a regular
basis
Deputy Chief
Accountant


2. Controls to ensure propriety of account
classification:
Type of the
control
procedure
Responsible
person
Checking of account coding of cash receipts for
posting to general ledger.
on a regular
basis
Deputy Chief
Accountant


3. Controls to ensure accuracy of summarization
of cash receipts:
Type of the
control
procedure
Responsible
person
Verification of mathematical accuracy of
summaries (e.g., by periodic refootings or
agreement to independent control totals) used as
bases for general ledger entries.

Period-to-period comparisons of amounts of
recurring entries.

Adherence to documented cut-off and period-
end closing procedures.
on a periodic
basis
Chief
Accountant


4. Written procedures to ensure the proper
operation of above controls:
Type of the
control
procedure
Responsible
person
Adequate written procedures regarding cash
receipts processing and summarization activities.
establishing of
the procedure
Financial
Director


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Access To Cash ReceiptsAccess to cash receipts should be restricted to authorized
personnel, and cash receipts should be deposited in bank accounts promptly.
1. Controls to ensure adequacy of physical
safeguards:
Type of the
control
procedure
Responsible
person

Adequate physical controls (e.g., lockbox
arrangements, work area layouts, safes, etc.) of
cash on hand.

establishing of
the controls
Chief
Accountant


2. Written procedures to ensure the continue
operation of above controls:
Type of the
control
procedure
Responsible
person
Adequate written procedures regarding cash
receipts function activities.
establishing of
the procedure
Chief
Accountant



Completeness Of Receiving And Processing Of Sales Returns (phones) And AllowancesAll
goods(phones) returned should be promptly reported and recorded in the accounting records.

1. Controls to ensure the completeness of
recording of returns and allowances:
Type of the
control
procedure
Responsible
person
Use of prenumbered receiving documents, logs
or other means to record all returns made.

establishing of
the procedure
Warehouse in-
charge
Accounting for sequence of prenumbered
receiving documents and follow-up of missing
documents.

on regular
basis
- -
Use of prenumbered and controlled credit and
debit memos, that are subsequently accounted
for, in recording all returns and other
adjustments.

- - Deputy Chief
Accountant
Matching of credit memos with prenumbered
receiving documents, and follow-up of
unmatched items by persons other than those
who maintain the records of unmatched items.
- - - -



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2. Controls to ensure accuracy of recorded
returns and allowances:
Type of the
control
procedure
Responsible
person
Physical counting of goods at time of return.

adherence to
the procedure
warehouse in-
charge
Accurate recording of returns made as to
quantities, description, customer, date and other
reference data for use in subsequent processing.

- - - -


3. Written procedures to ensure the proper
operation of above controls:
Type of the
control
procedure
Responsible
person
Adequate written procedures regarding activities
on processing and summarization of sales returns
and allowances.
establishing of
the procedure
Financial
Director



6. Common accounting entries

Revenue cycle functions are likely to initiate accounting entries reflecting such
economic events as:
Sales
Costs of services rendered, goods sold
Cash receipts
Cash discounts
Sales returns and allowances
Allowance for doubtful accounts
A/R write-offs and recoveries
Commission expense
VAT


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