17Aud - Controls Specific To Transaction Cycles - Revenue/receipts Sales

Front 1

What is the flowchart order of typical internal controls for Sales?

Back 1

1. Customer's PO
2. Sales Order
3. Shipping Documents
4. Sales Invoice
5. Sales Journal
6. General Ledger

Front 2

What are the Objectives of internal controls in the Revenue/Receipts Sales area?

Back 2

A. Goods and services are provided in accordance with management's authorization (and based on approved orders).

B. Terms of sale (including prices and any discounts) are in accordance with management's authorization.
C. Credit terms and limits are properly established (as authorized).

D. Deliveries of goods and services result in accurate and timely billings.

E. Any sales-related discounts and adjustments (including returns) are in accordance with management's authorization.

Front 3

In the transaction cycle of Revenue/Receipts Sales, what audit procedures for "Segregation of Duties" should be done to assess internal control?

Back 3

1. An independent employee should review the statements to customers.

2. Credit to customers granted by an independent department (separate from sales staff which may be paid on commission and which may have an incentive to view everyone as "credit worthy").

3. Returns are accounted for by an independent clerk in the shipping/receiving area.

Front 4

In the transaction cycle of Revenue/Receipts Sales, what audit procedures for "Comparisons" should be done to assess internal control?

Back 4

1. Trial Balance Reconciled to Ledger -- An aged trial balance for accounts receivable is reconciled to the general ledger (control) account -- to establish the mathematical accuracy of the general ledger; the aging provides important information about the quality of receivables and the need for follow-up.

2. Monthly Statements -- Are sent to all customers -- to provide information to customers about their account balances and payments received.

3. Sales Invoices and

Orders:
4. Sales invoices are matched with a sales order (perhaps the customer's purchase order, P.O.) and applicable shipping documents.

Front 5

In the transaction cycle of Revenue/Receipts Sales, what audit procedures for "Access" should be done to assess internal control?

Back 5

Including direct (physical) & indirect (by computer) access.

1. Computer passwords limit unauthorized access.

2. Cash receipts are handled by someone without access to accounts receivable recordkeeping.

Front 6

In the transaction cycle of Revenue/Receipts Sales, what audit procedures for "Records" should be done to assess internal control?

Back 6

Regarding the adequacy of underlying documentation; e.g., key documents that constitute the "audit trail" should be pre-numbered and the numerical sequence should be accounted for to establish control over these documents.

1. Sales invoices are pre-numbered (and the numerical sequence is accounted for).

2. Shipping documents for outbound shipments are pre-numbered (and the numerical sequence is accounted for).

3. "Receivers" (shipping documents used exclusively for inbound shipments) are pre-numbered (and the numerical sequence is accounted for).

Front 7

In the transaction cycle of Revenue/Receipts Sales, what audit procedures for "Execution of transactions" should be done to assess internal control?

Back 7

should be as authorized.

1. Management should review the terms of sales transactions and note that approval on the sales invoice (billing).

2. Management should usually establish "general" approvals of transactions within specified limits, and specifically approve transactions outside of those prescribed limits.

3. Management should specifically approve all adjusting journal entries.