First Reference Internal Controls Checklist | March 2019

The 60 Essential
Revenue Cycle
Questions
Ensure robust internal controls for
sales and receivables

www.firstreference.com Author: Jeffrey D. Sherman, Bcomm, MBA, CIM, FCPA, FCA

First Reference Compliance & Best Practice Resources
© 2019 First Reference Inc.

This guide offers general commentary on developments of concern to businesses and is written for informational purposes only. It
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Author: Jeffrey D. Sherman, Bcomm, MBA, CIM, FCPA, FCA

Editor: Adam Gorley
Designer: Fred Stewart
First Reference Internal Controls Compliance Group

First edition: March 2019

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 60 essential questions to strengthen your revenue cycle
T
he importance of finance and accounting controls
goes far beyond complying with legal requirements. Controls over
accounting and finance are perhaps the most important
component of an organization’s overall internal control framework.
Not only are accounting controls an organization’s strongest
defence against fraud and loss, they help ensure that decisions are
made based on valid and reliable information. Moreover, accounting,
management and financial reporting are the backbone of an
organization’s information and communication system.
The revenue cycle
Sometimes referred to as “Sales, Receivables, Receipts,” the revenue
cycle includes all activities directly associated with selling products or
services. Typically, it encompasses order processing, credit checking,
sales contracts, warranties or guarantees and cash receipts.
Revenue cycle policies are designed to ensure that there are
effective internal controls over all aspects of the cycle. Objectives of
internal control over sales, receivables and receipts include:
• Ensuring that all sales are billed and that all billings are recorded
• Controlling risks associated with extending credit
• Minimizing loss or theft of assets, particularly cash or cheques
• Reporting accurate financial information
These objectives can be achieved by establishing basic internal
controls, including:
• Comparing business activity to billings
• Processes to control and grant credit
The 60 Essential Revenue Cycle Questions
• Controlling processes over mail opening and receiving cheques by using
more than one person and by independently comparing a list of cheques
received to bank deposits
• Separating handling of cash receipts from accounting record-keeping
• Following up customer complaints independently of the invoicing function
• Approval processes and support for credit notes, write-offs of bad debt,
and other items that reduce revenue or accounts receivable
• Analyzing results by comparing to budget and prior years and investigating
unusual trends
Control checklist
The revenue cycle assessment checklist below is consistent with COSO’s Internal
Control — Integrated Framework, the standard for evaluating internal control over
management and financial reporting in Canada and the United States.
In addition, the checklist refers you to recommended policies and where
you can find ready-to-use versions of each policy in Finance & Accounting
PolicyPro®, published by First Reference. You can use this cross-reference to
ensure that you have all the policies you need and that you have reviewed and
updated them to meet your internal and external compliance requirements.
Each organization must assess its own risks and then ensure that
appropriate controls are in place. Simply having policies isn’t enough; you'll also
need to demonstrate that your employees have read and understood them.
PolicyProPlus® is the online policy manager that ensures you are effectively
distributing policies and obtaining employee sign-off.
Find out more about Finance & Accounting PolicyPro and PolicyProPlus on
the back cover.
 FAPP policy
Question Yes No N/A Comments
number

Are employees who perform sales; handle cash,

cheques and electronic payments; and/or manage
OP 4.06, 6.06
receivables competent for their assigned tasks,
adequately trained and supervised?

FN 1.01, 1.02,
Are sales terms and policies regularly
1.03, 1.04, 1.07;
communicated to staff?
OP 6.06

Are there controls built into point-of-sale (POS)

processes to reduce risk of loss due to fraud, theft FN 1.01
or accounting error?

Are customers informed (with store signs, etc.)

FN 1.01
that they should obtain receipts for every sale?

Are cash register sales totals reconciled to sales

and cash receipts totals?
FN 1.01

Is approval documented?

Is the sales journal/subledger reconciled to the

FN 1.01
general ledger (GL)?

The 60 Essential Revenue Cycle Questions 2

 FAPP policy
Question Yes No N/A Comments
number

Are customer orders handled efficiently and

FN 1.02
accurately?

Do you use current pricing and inventory

FN 1.02
information?

Do controls exist to prevent unauthorized changes

IT PolicyPro
to standard price lists and customer master files?

Do you perform an independent matching of daily

FN 1.02, 5.02
deposit totals to cash receipt records?

Do you use a standard price list for invoice

preparation, and require documentation and FN1.02
approval for exceptions?

Does your system track order forms and do you

follow up on those not processed in a reasonable FN 1.01, 1.02
time frame?

Do you verify customer order information with

appropriate sales and marketing personnel and FN 1.02, 1.03
contact customer if needed?

The 60 Essential Revenue Cycle Questions 3

 FAPP policy
Question Yes No N/A Comments
number

Is a credit limit established for each customer?

Do you ensure that no goods are shipped or FN 1.02, 1.04

services provided that exceed the limit, unless
there is management approval?

Do your credit information systems provide

accurate approved credit limits, current balances FN 1.01, 1.02,
due, age of receivables and other important 1.03, 1.04
information?

Do you review shipping documents for

completeness and compare to customer order for FN 1.02, 3.03
accuracy before shipment?

Does your system track shipping documents and

FN 1.02
do you investigate missing documents?

Do you use standard shipping and contract terms

and communicate non-standard terms to FN 1.02, 1.03
accounts receivable?

The 60 Essential Revenue Cycle Questions 4

 FAPP policy
Question Yes No N/A Comments
number

Do you match orders, shipping documents,

invoices and customer information and FN 1.02, 1.03
investigate missing or inconsistent information?

Do you have procedures/system checks to

FN 1.02
prevent the same invoice being issued twice?

Do non-routine sales (e.g., sales of scrap, sales to

employees) require supporting documentation FN 1.02
and approval?

Do you produce a monthly report on pricing

exceptions and non-routine sales?
FN 1.02

Is it reviewed by management?

Do you use written sales contracts?

FN 1.03
Do they clearly identify the terms and conditions?

Do you have clear, well understood and enforced

FN 1.04
credit policies?

The 60 Essential Revenue Cycle Questions 5

 FAPP policy
Question Yes No N/A Comments
number

Is the customer credit limit reviewed on a regular

FN 1.04
basis and changes made as required?

Is credit approval independent of the sales and

FN 1.04
accounts receivable functions?

Are your sales commission policies clear and

FN 1.05
equitable?

Do you have clear, well documented warranty and

guarantee policies?
FN 1.06
Are they understood by the staff who administer
them?

Do you have consistent customer refund policies?

FN 1.07
Are they followed by staff?

Do you monitor customer returns or billing

FN 1.07
disputes and analyze the reasons?

Are credit memos authorized by individuals

FN 1.07
independent of the accounts receivable function?

The 60 Essential Revenue Cycle Questions 6

 FAPP policy
Question Yes No N/A Comments
number

Does your system track credit memos and do

personnel independent of the accounts receivable
FN 1.07
function match them with receiving documents if
appropriate?

Do you consistently monitor and follow up

accounts receivable?
FN 1.08

Do you have a policy that outlines the process?

Do collection staff take timely action on overdue

FN 1.08
accounts?

Do you ensure that the preparation and mailing of

FN 1.08
statements are not done by the receivables clerk?

Do you mail customer statements periodically?

FN 1.08
Do you resolve disputes using personnel
independent of the invoicing function?

Do you monitor the number of customer complaints

FN 1.08
regarding improper statements or invoices?

The 60 Essential Revenue Cycle Questions 7

 FAPP policy
Question Yes No N/A Comments
number

Do you review correspondence authorizing returns

FN 1.08, 7.05
and allowances?

Do you have written policies and procedures

governing the recognition of revenue for FN 1.09
accounting purposes?

Are revenue recognition policies clearly

communicated to accounting and operations FN 1.09
personnel?

Do procedures exist to ensure revenue is recorded

FN 7.05
in the appropriate accounting period (cut-off)?

Do you reconcile the accounts receivable

subsidiary ledger with sale and cash receipts FN 1.09, 7.05
transactions?

Do you have strong, well documented controls

FN 1.10
governing pricing and discounting?

Do you have documented procedures for

FN 1.11
calculating, collecting and remitting sales taxes?

The 60 Essential Revenue Cycle Questions 8

 FAPP policy
Question Yes No N/A Comments
number

Do you provide timely and accurate information FN 1.12, 2.12,

that management and others need to discharge 2.14, 3.05, 3.06,
their responsibilities? 7.01, 7.02, 7.03

Do you prepare management and financial reports

FN 1.12, 2.12,
on a timely basis and in compliance with applicable
2.14
laws, regulations, rules or contractual agreements?

Do you ensure completeness and accuracy of

FN 1.12
accounts receivable?

Do you regularly produce a sales report showing sales

by customer, product line, region, division, etc., FN 1.12
including comparisons to budget and/or prior periods?

Do you regularly produce a report showing sales

returns and allowances? FN 1.07, 1.12;
GV 6.02
Does management investigate unusual variances?

Do you regularly produce a report analyzing sales,

cost of sales and gross profit against budget FN 1.12
and/or prior periods?

The 60 Essential Revenue Cycle Questions 9

 FAPP policy
Question Yes No N/A Comments
number

Does management regularly (at least monthly)

compare budgeted sales to actual sales and FN 1.12, 7.02
investigate variances?

Does management regularly (at least monthly)

review gross profit ratios and sales trends and FN 1.12, 7.02
document reasons for variances?

Does management regularly review period

FN 1.09, 1.12,
end/major transactions to ensure revenue
7.02
recognition policies are being followed?

Does management regularly (at least monthly)

review pricing exception reports and follow up FN 1.02
when needed?

Does management regularly (at least monthly)

review a reconciliation of aged receivables to FN 1.12
control accounts?

Does management investigate significant overdue

FN 1.08
customer accounts and follow up as necessary?

The 60 Essential Revenue Cycle Questions 10

Appendix A: List of related policies found in Finance & Accounting PolicyPro® (FAPP)

Finance and Accounting policies – FAPP Volume I FN 7.01 Use of Generally Accepted Accounting Principles
FN 7.02 Management and Financial Reporting
FN 1.01 Point of Sale Revenues
FN 7.03 Financial Disclosure and Notes
FN 1.02 Customer Order Processing
FN 7.04 Accounting Controls
FN 1.03 Sales Contracts
FN 7.05 General Accounting Procedures
FN 1.04 Extending Credit
FN 1.05 Sales Commissions Corporate Governance policies – FAPP Volume II
FN 1.06 Warranties and Guarantees
GV 6.01 Responsibility for Internal Control
FN 1.07 Customer Refunds
GV 6.02 Internal Control Processes
FN 1.07 Customer Refunds - Retail
GV 6.03 Internal Control Implementation
FN 1.08 Overdue Accounts and Bad Debts
GV 6.04 Internal Control Monitoring
FN 1.08 Overdue Accounts and Bad Debts – Statement
FN 1.09 Revenue Recognition Operations and Marketing policies – FAPP Volume III
FN 1.10 Accounting for Retail Sales Promotions (only available in PolicyPro desktop software)
FN 1.11 Sales Taxes
OP 4.06 Training
FN 1.12 Management Reporting
OP 6.06 Sales Training
FN 2.12 Recognition of Costs
FN 2.14 Management Reporting Information Technology policies
FN 3.03 Finished Goods Inventory
Find out more in Information Technology PolicyPro®.
FN 3.05 Costing
FN 3.06 Management Reporting
Access expert-prepared samples of all of these
FN 5.02 Cash Receipts
policies in Finance & Accounting PolicyPro!
FN 5.03 Returned Items
FN 5.09 Cash Management Click here to claim your free 30-day trial.

The 60 Essential Revenue Cycle Questions 11

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