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REVENUE AND RECEIVABLES AUDIT PROGRAM

REVENUE & RECEIVABLES ABC Corporation___________________ Work papers prepared by: Work papers reviewed by: Audit Program approved by: I. A. SCOPE/AUDIT OBJECTIVES: The overall objective of the audit is to evaluate the revenue cycle to ensure that revenue, and receivable are adequately supported and authorized; transaction processing controls are adequate; segregation of duties throughout the revenue cycle is appropriate; and internal controls are satisfactory. We will also evaluate adherence to sound business practices and procedures, but primary emphasis is on reviewing internal controls for effectiveness and utilization, and examining standards and procedures for policy compliance. Commissions are tested at both order acceptance and at revenue recognition if applicable specific objectives by area are: 1. Revenue Recognition: Contractual obligations are met prior to recognition of revenue. Revenue recognition practices for advance billings, maintenance/software/service fees, and multi-month contracts are proper.
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Revenue analysis and recording of revenue by type, source, method of payment, and product line is correct. 2. Delivery/Shipments and Billings: Shipments to customers are properly authorized and documented. Physical description and actual quantities of goods shipped are verified. Delivery receipts are signed by customer. There are closed loop control over billings. 3. Accounts Receivable: Controls allow only authorized entries to accounts receivable records. Documents are numerically controlled. Credit memos, write-offs, and other adjustments require management approval. A/R records are properly aged and analysis allows management review and proper calculation of required reserves. Days Revenue Outstanding (DRO) is properly calculated. 4. 5. Collections: Controls over collection activities are effective. Commissions and Bonus Payments: Payments are made in

accordance to contractual obligations and are properly supported by appropriate records and that commission and bonus payments are accurately computed. 6. General Ledger: Revenue, collections, and adjustments are properly accumulated, classified, and summarized in the accounts. General ledger entry ledger. 7. Segregation of Duties: The order entry, credit, shipping, and billings functions are segregated from accounts receivable, general ledger, and cash functions. Shipping is segregated from order entry and billing. finreporting.com 3 free online financial services controls ensure completeness and authorization. Accounts receivable subsidiary records are reconciled regularly to the general

Accounts receivable record keeping is segregated from general ledger functions. Cash functions are segregated from shipping, billing, accounts receivable and general ledger functions.

II.

REFERENCE: Policy Trade Receivables Trade Receivables - Allowance Trade Receivables - Credit & Collection Revenue Revenue Recognition Revenue - Right of Return/Price Concessions Maintenance Revenue Worldwide Transfer Prices Use of Uniform Chart of Account Issue Date ________ ________ ________ ________ ________ ________ ________ ________ ________ ________

Internal Accounting Controls - Revenue & Receivables

III.

UNIFORM CHART OF ACCOUNT COVERAGE: UCA A/R Trade - Accruals Installment Receivables A/R Maintenance A/R Annual Maint. H/W ________ ________ ________ ________ 4

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A/R Annual Maint. S/W Allowance for Doubtful Accounts A/R Allowance - Installments A/R Allowance - Maintenance Accrued Commissions Accrued Guarantee - System Maint. Accrued Guarantee Credit Sales and Use Tax Advance Maintenance Receipts Deferred Warranty Income Deferred maintenance - H/W Annual Deferred maintenance - S/W Annual Accrued Royalties

________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________

IV.

AUDIT PROCEDURES/ANALYTICAL REVIEW: Performed By Work paper Reference

A.

General Control Review/Segregation of Duties

1.

Meet with management to obtain additional perspective and expectations. Perform _________ _________ appropriate analytical review of practices and procedures.

2.

Review and document procedures via flowcharts and/or narratives. Consider 5

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controls to ensure: access to invoicing and credit memo processing functions and related data is restricted, goods/services are invoiced at authorized terms and prices, all invoice and credit memo data is completely and accurately entered for processing, invoices are completely and accurately prepared as to quantities, prices, terms, and extensions, invoices and credit memo data is matched with orders and shipment/performance data, and with receiving data for goods returned, that rejected transactions are isolated and corrected in a timely manner, invoice adjustments and credit memos data is recorded in customer accounts, invoice and credit memo data is completely and accurately accumulated in the underlying financial records, revenue and credit memo data is completely and accurately recorded in the proper period. _________ 3. Adjust the scope and/or the emphasis of the review based on your review and obtain
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_________

agreement expectations.

with

local

managements _________ _________

V.

FUNCTIONAL TESTS/VERIFICATION OF CONTROLS: Performed By Work paper Reference

B. 1.

Revenue Tests Judgmentally select a sample of invoices and credit memos from the invoicing reports and/or from order testing. All vocations should be considered. The sample should be skewed towards high dollar values. Record pertinent information, such as: Sales Order Number, Customer, Quantity, Lead Value equipment and/or service _________ _________ performed, and

2.

Obtain and record pertinent data as needed for invoice tests and later commission tests, such as: Revenue Book Date Salesman number, Commissions paid/due,

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P.O. Number and Date or Contract Number, Equipment movement (Shipper) Number and quantity shipped and/or delivery receipt number. Invoice Number. 3. Review each with the order entry analysts and verify: Customer order/contract is signed an approved, Prices are per approved price book or appropriate approval of the price was obtained, Proof of delivery (customer signature of third party delivery service), Certificate signed by a technician, Evidence of order checklist review, Software license agreement is signed, Software order was placed, _________ _________ _________ _________

Performed By Cancellations affected backlog, and Shipper and/or delivery receipt agrees to quantity invoiced. _________

Work paper Reference

_________

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4.

Trace all pertinent data form the invoice to: Sale Journal, Accounts Receivable trial balance, Invoice register. _________ _________

5.

Unbundled revenue transactions is the preferred method of invoicing hardware and software. Identify bundled contracts and ensure the Country Managers approval has been secured prior to selling goods and services on a bundled basis. _________ _________

6.

Revenue reversals should be processed within 3 months of invoice data and them only to correct administrative errors. After 3 months, adjustments due to administrative errors should be recorded as Sales Return and Allowances. Check a sample of _________ _________ reversals for correct procedures.

7.

Losses on repossession should be written off to Losses on Accounts Receivable. Verify procedures. _________ _________

8.

If revenue is recognized upon delivery, it must be agreed to in the contract or subsequent written agreement from the customer and must be pre-staged. Verify procedure as appropriate. _________ _________

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9.

If

shipments

are

direct

to

customer, _________ _________

revenue must be recognized in accordance with company policy. Verify procedure. 10. Revenue for software services (billed

custom work, maintenance, education, and publications) must be with contractual conditions and after invoicing. _________ _________

Performed By 11. For multi-service contacts (repeat billings like billed custom work) revenue recognition for stage completion must be based on agreement and invoicing. If any, verify procedure. 12. Maintenance receivables are recognized in the month the contract commences. Verify procedure. 13. Maintenance revenue is recognized over the agreement period via charges to Current Liability-Maintenance AgreementUnearned Revenue. Select sample and verify procedure. 14. Software maintenance contacts should be _________ _________ _________

Work paper Reference

_________

_________

_________

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treated the same as hardware maintenance contracts. If any, verify procedure. 15. Review support and/or reconciliations of revenue related Balance sheet accounts as appropriate. 16. Review Revenue (i.e., accounts new, well for as proper rental, export, _________ _________ _________ _________ _________ _________

classifications maintenance,

used,

etc. as

domestic, and intercompany).

C.

Accounts Receivables Test Objective: Control allows only authorized entries to accounts receivable records. Documents Credit adjustments are numerically write-offs require controlled. and other memos,

management

approval. A/R records are properly aged and analysis allows management review and proper calculation of required _________ _________ reserves.

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Performed By 1. Obtain the most recent Accounts _________

Work paper Reference

Receivable Aged Trial Balance and scan for unusual items. 2. Review calculations of Days Revenue Outstanding (DRO) and ensure all balances are included. 3. Review A/R reconciliation. Trace G/L _________ _________ _________ _________ _________

amount to subsidiary ledger. 4. Obtain the cash receipts and letters of credit control records/logs and review for completeness and accuracy of data entry. 5. Review access control over input of cash receipts and credit memo information. Observe procedures and note any weaknesses. 6. For the test items from revenue sample, verify the funds applications and deposits. 7. Obtain doubtful the Credit Departments Re-perform most the

_________

_________

_________

_________

_________

_________

recent calculation of the allowance for accounts.

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calculations

and

verify

they

are

in _________ _________ _________ _________

compliance with company policies or that an approved deviation exists. 8. 9. Trace the calculated amount to the G/L. Note that the reserves were properly disclosed in the Risk Review. (Note: Give reference to Risk Review work papers). _________ _________

D. 1.

Commission and Bonus Payment Test Verify contacts for salespersons specify commission calculation basis and quotas and are approved. _________ _________

Performed By 2. Confirm that cash receipts for and all only _________ revenues transactions for and all only _________

Work paper Reference

commissionable in the calculations. 3. Confirm that

transactions

commissionable transactions are included _________

commissionable in the calculations.


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commissionable transactions are included _________ 13

4.

Test a sample of ____ commission and bonus payments for mathematical accuracy and management approval _________ _________

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