CHAPTER 6:

Auditing Business Processes Part 1

(Record to Report, Order to Cash, and Procure
to Pay Processes)
PRESENTED BY:

ARABELLA B. BEDO
MA. MIA DORDAS
 LEARNING OBJECTIVES
Upon completion of this chapter, you will

• Identify internal controls related to financial reporting, order to cash, and

procure to pay business processes.
• Recall the fundamental tasks performed, departments involved, and the
documents related in these business processes.
• Determine the risks associated with these processes.
• Enumerate best practices in the aforementioned processes.
• Recommend business process improvement initiatives to bridge the current
state of the processes to a desired future state.
• Lay down a simple but comprehensive implementation plan for the
recommendations proposed.
 THE HALLMARKS OF A
GOOD
BUSINESS PROCESSES
a. designed to meet objectives which are clear
b. has regard to competitive issues
c. performance can be (and is) measured
d. unsatisfactory performance is rectified
e. activities are completed in a timely way
f. processes are cost effective
g. controls are "preventative" rather than merely
"permissive"
h. as few "movements"/ "stages" as possible
i. unnecessary steps have been eliminated
j. nothing is done which is unimportant to the
achievement of objectives
k. proper authorizations
l. controls positioned as early as possible in the
process
m. documented n. has an audit trail
o. right people doing the right job
p. room for adaptation
q. defines risks within the process itself.
GENERAL ACCOUNTING AND FINANCE
(RECORD TO REPORT) PROCESS
 FINANCIAL REPORTING CONTROL
CONSIDERATIONS

• S E G R E G AT I O N • PREVENT AND
OF DUTIES DETECT

• CONTROLLING
THE CONTROLS
 CONTROL OBJECTIVE FOR FINANCIAL CONTROL OBJECTIVE FOR GENERAL
INFORMATION AND REPORTING LEDGER/MANAGEMENT ACCOUNTS

a. To ensure that management (and others within the organization) are provided with a. To ensure that the general ledger and management accounts are
accurate and timely financial information to support their decision making and accurate, reliable, and appropriately reflect the structure and operations
activities. of the organization.
b. To ensure that all the relevant financial reports and returns are accurately prepared b. To ensure that the accounting data is capable of meaningful and
and distributed to external bodies in accordance with the prevailing legislation, accurate analysis in order to support management decisions and actions.
regulation, and contractual obligations
c. To ensure that the accounting records are maintained in accordance
c. To ensure that accounting records and statements are correctly maintained and
with the prevailing laws, regulations, and professional good practice.
prepared in accordance with the prevailing accounting standards and good practice.
d. To ensure that the accounting information can be used to generate all
d. To ensure that all financial information is adequately protected from loss, misuse,
the required statutory published accounting statements.
or unauthorized leakage.
e. To ensure that sensitive or confidential corporate financial information is
adequately protected.
 ORDER TO CASH (REVENUE TO COLLECT)
PROCESS

The basic activities in the revenue cycle are:

• Order entry
• Soliciting and processing customer activities
• Filling customer orders and shipping merchandise
• Invoicing customers and maintaining customer accounts collections
• The cashier handles remittances and deposits them in the bank;
accounts receivable personnel credits customer accounts for the
payments received.
 REVENUE AND RECEIPT CYCLE

The revenue receipt cycle encompasses both the sale of

goods(revenue) and the collection of cash (receipt).

• SALES DEPARTMENT
• SALES ORDER FORM
• CREDIT DEPARTMENT
• SHIPPING DEPARTMENT
• WAREHOUSE
• BILL OF LADING
 THE COMMON DOCUMENTS IN REVENUE CYCLE ARE AS
FOLLOWS:

• Sales invoice notifies customer of amount to be paid.

• Monthly statement summarizes all transactions that occurred during month.
• Credit memo authorizes the billing department to credit the customer's account,
should be issued by credit manager.
 CHARGE INVOICE COLLECTION
SALES INVOICE RECEIPT
PROVISIONAL RECEIPT OFFICIAL RECEIPT
 PROCURE TO PAY
(EXPENDITURE AND DISBURSEMENT ) PROCESS
 PROCURE TO PAY
(EXPENDITURE AND DISBURSEMENT ) PROCESS

• PURCHASE REQUISTION
• PURCHASE ORDER
• RECEIVING REPORT
• VENDOR INVOICE
PURCHASE ORDER PURCHASE
REQUISITION FORM
 BIDDING
Bidding is a common process to obtain information from organizations that are
vying for the work. It typically begins with the definition of requirements and the
distribution of a request for bids, request for proposals, or request for tenders. This
is a formal and structured invitation to suppliers. Interested organizations then
respond by submitting their details as proposals, which are then reviewed by the
hiring organization, and often after some final negotiations, a contract is signed,
and the relationship formalized resulting in the purchase and delivery of goods and
services.
 PRODUCT RECIEPT ( QUALITY)

Quality is a critical differentiator for most organizations, and those in the

manufacturing sector, face an additional risk factor-suppliers who provide
defective parts. Organizations must develop robust procedures to ensure
production processes adhere to high-quality standards and that goods are
shipped according to client expectations. Defective inputs, however, can
diminish the effectiveness of such procedures.
 PETTY CASH AND EXPENSES
Petty cash reviews are generally related to questions of scale. The levels of petty cash and general expense
expenditure will vary considerably between organizations. Taking account of the possible low-level scale of
petty cash costs, management may feel content with the application of common controls and cost containment
principles, as it will consider that there are more pressing business issues to address.

CONTROL OBJECTIVES FOR PETTY CASH AND EXPENSES

a. To ensure that all expenses are valid and authorized.

b. To ensure that all expenses are correctly identified, recorded and accurately reflected in the
accounting system.
c. To ensure that all expense payments are in accord with company policy and any relevant
external regulations (e.g., for sales tax or VAT).
THANK
YOU