9/19/2018

Revenue System – BIG Picture

1. Revenue Process

2. Ordering Phase
Risk and Control Objectives
Controls
Test of Control
3. Despatch and Invoicing
Risk and Control Objectives
Controls
Test of Control
4. Recording
Risk and Control Objectives
Controls
Test of Control
5. Cash Collection
Risk and Control Objectives
Controls
Test of Control
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Revenue System Pre-Order

Processing
Order
Execution
Revenue Cycle

Inquiry from
Confirmation of Order
Customers

Finalization of
Customer Check
Contract/Work Order

Communication with
Booking of Order
Customer

Offer Preparation Request for Advance

Technical &
Delivery of Product
Commercial issues

Raising Invoices to
Signing of Offer
Customer

Submission of Offer Submitting Invoices

Negotiation Collection of Bill

Follow up for
Revised Offer
collection, if required

Acceptance from
Customer
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Revenue System
Revenue System

Parties involved in Sales

Customer Sub-contractors Seller

New Old Transporter Banker

General Controls related to New Customer

 Credit checks from a reputed credit agency.
 Limited credit terms for new customers
 Involvement of senior staff before orders are accepted.
 Ensure Commercial Terms and Condition
 New customer accounts should be reviewed and followed up for prompt
payment until a relationship is established.

Controls Related to Revenue Process:

 Agreement on Commercial Terms and Conditions
 Segregation of duties
 Proper Authorization
 Proper Recording of transaction
 Reporting
 Continuous Monitoring and follow up
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Revenue System – Ordering Revenue System – Ordering

Controls to mitigate Risks associated with Ordering Phase

Risks Associated with Ordering Phase  Segregation of duties;
 Order may be taken from customer who are not able to pay  Authorization of credit term;
 Order may be taken from customers who are unlikely pay for long time  Authorization for changes Customer Data;
 Order may not be recorded properly and not fulfilled (Lost of Customer)  Sequential numbering;
 Quoting correct prices to customers;
Control Objectives which might arise from above risks  Matching the customers order with Production order and Dispatch Note;
 Goods or services only supplied to customers with good credit rating  Dealing with customer Queries.
 Customers are encourage to pay promptly
Test of Control by Assurance Provider
 Orders are recorded correctly
 Orders are fulfilled  Customer Check and reference for all new customer;
 All new receivable accounts have authorized by senior staff on not;
 Orders accept with credit terms and credit limits;
 Checking that customer order is matched with production orders and
dispatch notes or not.

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Revenue System – Despatch and Invoicing Revenue System – Despatch and Invoicing

Risks Associated with Despatch and Invoicing Phase Controls to mitigate Risks associated with Despatch and Invoicing Phase
 Goods dispatch but not recorded;  Authorization of Despatch of Goods (as per order, right customer, special
 Goods may be despatched but not invoiced; case);
 Wrong invoicing;  Examination of goods outwards with regard to quality, quantity & condition
 Wrongly cancelled the invoice.  Recording of outward goods on Despatch Note
 Agreement of Despatch Note to Customer Order and Invoice
Control Objectives which might arise from above risks  Segregation of duties;
 Pre numbering of Invoice and maintaining its sequence;
 All dispatches of goods are recorded properly;
 Condition of returns checked and recording in Good Return Notes;
 All goods and services sold are correctly invoiced;
 Signature of Despatch Notes by Customer;
 Invoiced raised to proper customer;
 Preparation and authorization of Invoice and Credit Notes;
 Credit note only given for valid reason.
 Inventory record updated;
 Cross checking Invoice vs sales order;
 Review the despatch note and sales invoice ( regularly/ periodically).

Credit Note: A Form or Letter sent by a Seller to a buyer, stating that a certain amount has been credited to the Buyers account. A credit
note is issued in various situations to correct a mistake, such as when (1) an invoice amount is overstated, (2) correct discount rate is not
applied, (3) goods spoil within guarantee period or (4) they do not meet the buyer's specification and are returned. Also called credit memo.
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Revenue System – Despatch and Invoicing Revenue System – Recording

Test of Control by Assurance Provider
Risks Associated with Recording Phase
 Verify detail trade sales, dispatch note and sales invoice;
 Invoiced sales, credit notes not properly recorded;
 Quantities  Price compare with price list
 Trade discount have been properly dealt  Sales recorded in the wrong customer accounts;
with
 Debts included on receivables ledger that are not collectable.
 VAT, where chargeable, has
 Calculation and Addition  Correctness
been properly dealt with Control Objectives which might arise from above risks
 Verify details of trade sales with entries in Inventory Records;  All Invoiced Sales are recorded in Receivable Ledger;
 Entries in Sales Book  Posting to Receivable Ledger
 Verify Non-routine Sales (Scrap, non current assets etc.);  All issued Credit Notes are recorded in Receivable Ledger;
 Entries are made to the correct Receivable Account;
 Appropriate evidence  Appropriate Approval  Recording
 Potential Bad Debt are identified;
 Verify Credit Notes  Review and follow-up of overdue accounts;
 Authorization of writing off for bad debts;
 Correspondence and Other  Approval by Authorized
 Entries in Inventory Records  Reconciliation of receivables ledger control account.
supporting documents Signatory

 Test numeric sequence of Despatch Notes and enquire into missing numbers;
 Entries in Day Book and analysis
 Entries in Goods Return Record  Calculation and Addition
 Posting
 Test numeric sequence of Invoices and Credit Notes and to Receivable
enquire Ledger
into missing numbers;
 Check that depatch of goods as free of charge or on special term are authorized.

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Revenue System – Recording Revenue System – Recording

Controls to mitigate Risks associated with Recording Phase Test of Control by Assurance Provider
 Segregation of duties: (Recording sales, maintaining customer accounts and preparing statements);  Sales day book
 Recording of sales invoices sequence and control over spoilt invoices;  Check entries with invoices and credit notes;
 Matching of cash receipts with invoices;  Check postings to receivables ledger.
 Separate recording of sales returns, price adjustments etc;
 Cut-off procedures (Goods despatched and not invoiced (or vice versa) are properly dealt);  Receivables ledger
 Regular preparation of trade receivables statements and checking thereof;  Check entries in a sample of accounts to sales day book;
 Review and follow-up of overdue accounts;  Check additions and balances carried down;
 Authorization of writing off for bad debts;  Check that control accounts have been regularly reconciled to total of receivables ledger balances;
 Reconciliation of receivables ledger control account;  Scrutinize accounts to see if credit limits have been observed;
 Analytical review for receivables ledger and profit margins;  Check that trade receivables statements are prepared and sent out regularly;
 Check that overdue accounts have been followed up;
 Check that all bad debts written off have been authoriszed by management.

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Revenue System – Cash Collection Revenue System – Cash Collection

Controls to mitigate Risks associated with Cash Collection Phase
Risks Associated with Cash Collection Phase Segregation of Duties
 The key risks are that money might be received at the business premises  Recording of receipts received by post
Appointment of responsible person to supervise mail;
but not be recorded or banked
Amounts received listed when post opened;
Post stamped with date of receipt;
 Recording of cash sales and collections
Restrictions on receipt of cash (by cashiers only, or by sales representatives);
Evidencing of receipt of cash and Serially numbered receipt forms;
Control Objectives which might arise from above risks Agreement of cash collections with banking and cash and sales records;
 All monies received are recorded; Investigation of cash shortages and surpluses;
 General controls over recording
 All monies received are banked.
Prompt maintenance of records (cash book, ledger accounts);
Limitation of duties of receiving cashiers;
Ensuring that the person who records cash takes holidays (so they do not have absolute
control over cash recording) and controls are continued in their absence;
Giving and recording of receipts:
– Retained copies
– Serially numbered receipts books
– Custody of receipt books
– Comparisons with cash records and bank paying-in-slips

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Revenue System – Cash Collection Revenue System – Cash Collection

Controls to mitigate Risks associated with Cash Collection Phase (Contd.) Test of Control by Assurance Provider
Banking  Receipts received by post
Daily banking;
 Observe procedures for post opening are being followed;
Make-up and comparison of paying-in slips against initial receipt records and cash book;
Banking of receipts intact/control of payments.  Observe that cheques received by post are immediately crossed in the company's favour;
Safeguarding of cash and bank accounts  For items entered in the rough cash book (or other record of cash, cheques etc
Restrictions on opening new bank accounts; received by post), trace entries to:
Limitations on cash floats held; – Cash book;
Restrictions on payments out of cash received; – Paying-in book;
Restrictions on access to cash registers and offices; – Counterfoil or carbon copy receipts;
Independent checks on cash floats;  Verify amounts entered as received with remittance advices or other supporting evidence;
Surprise cash counts;
Custody of cash outside office hours;  Receipts received by post
Custody over supply and issue of cheques;  Check to paying-in slip date-stamped and initialed by the bank;
Preparation of cheques restricted;  Verify that takings are banked intact daily;
Safeguards over mechanically signed cheques/cheques carrying printed signatures;
Safeguarding of cash in transit;
Insurance arrangements;  Collection
Bank reconciliations:  Trace amounts to cash book via collectors' cash sheets or other collection records;
– Issue of bank statements;  Check entries on cash sheets or collection records with collectors' receipt books;
– Frequency of reconciliations by independent person and reconciliation procedures;  Verify that goods delivered to travelers/salesmen have been regularly reconciled with
– Treatment of longstanding un-presented cheques; sales and inventories in hand;
– Comparison with cash books  Check numerical sequence of collection records.

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Revenue System – Cash Collection Revenue System

Test of Control by Assurance Provider
 Cash Receipt cash book
 Check to entries in rough cash book, receipts, branch returns or other records;
 Check to paying-in slips obtained direct from the bank (rather than looking only at
client copy of the slip which might have been tampered with), observing that there is
no delay in banking monies received;
 Check additions of paying-in slips;
 Check additions of cash book;
 Check postings to the receivables ledger;
 Check postings to the general ledger, including control accounts;
 Scrutinize the cash book and investigate items of a special or unusual nature.

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Revenue System

Thank You

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