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Assurance (Knowledge Level) 06th Chapter

Revenue System
01. What are the risks of considering sales orders? [P- 111]
Orders may be taken from customers who are:
Customers are unable to pay
Doubtful to pay for a long time
Orders may not be recorded properly
Unable to fulfill the order
Customers might be lost for above reason

02. What are the control objectives of considering sales order? [P- 111]
Supply with good credit ratings
Customers are encouraged to pay promptly
Orders are recorded correctly
Fulfilled the order
Retain customers with satisfaction

03. Which controls activity can be used to mitigate the risk of sales order? [P- 111]
Following controls can be used as examples of how the above risks can be mitigated.
Segregation of duties- credit control, invoicing and inventory despatch
Authorisation of credit terms-
References/credit check
Authorised by senior staff
Regular review
Authorisation for changes in other customer data
Change of address by letterhead
Deletion requests by evidence of balances cleared
Accept orders without credit problems
Sequential numbering of order documents
Correct prices quoted to customers
Matching of customer orders with-
Production orders and
Despatch notes
Dealing with customer queries

04. How can test of controls in case of sales order? [P- 112]
Check the references- of new customers
Check the authorisation- new accounts of receivables by senior staff
Check the credit terms and credit limits- to accept the order
Check the matching of customer orders- with Production orders, Despatch notes

05. What are the risks of considering despatch and invoicing? [P- 113]
When considering despatch and invoicing, a company might recognise all or some of the following risks:
Despatched without record
Despatched without invoiced
Error in invoice
Invoice cancelled by wrong credit notes

06. What are the control objectives to consider despatch and invoicing? [P- 113]
These risks lead to the following control objectives:
All despatched are recorded
All despatched are invoiced
Correctly invoiced
Credit notes for valid reasons
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Assurance (Knowledge Level) 06th Chapter

07. Which controls activity can be used to mitigate the risk of despatch and invoicing? [P- 113]
The following are types of controls which could be put in place to fulfil the objectives of dispatching and
invoicing.
Authorisation of despatch-
Only on sales order
Only to authorised customers
Special authorisation- free of charge or on special terms
Examination of goods outwards- quantity, quality and condition
Recording all outwards- on a despatch note
Agreement of despatch notes to customer orders and invoices
Sequential numbering of despatch notes
Checked condition of returns
Record returns- on goods returned notes
Signature of customers- on despatch notes
Preparation of invoices and credit notes-
Authorisation of price lists
Authorisation of credit notes
Checks: prices, quantities, extensions and totals
Updated inventory records
Matching of sales invoices- with despatch notes and sales orders
Regular review for despatch notes not matched by invoices

08. How can test of controls in case of despatch and invoicing? [P- 114]
The following tests could be used in relation to the controls noted above.
Verify details of despatch notes with sales invoices:
Quantities
Official price lists
Trade discounts have been properly dealt with
Calculations and additions
Entries in sales day book are correctly analysed
VAT, where chargeable, has been properly dealt with
Postings to receivables ledger
Verify trade sales with inventory records
Verify non-routine sales (scrap, non-current assets etc) with:
Appropriate supporting evidence
Approval by authorised officials
Entries in plant register
Verify credit notes with:
Other supporting evidence
Approval by authorised officials
Entries in inventory records
Entries in goods returned records
Calculations and additions
Entries in day book
Postings to receivables ledger
Test sequence of despatch notes and enquire into missing numbers
Test sequence of invoices and credit notes and enquire into missing numbers
Test sequence of order forms and enquire into missing numbers

09. What are the risks arises at the stage of recording? [P- 116]
The following risks arise at this stage:
Invoiced sales might not be properly recorded
Credit notes might not be properly recorded
Sales might be recorded in the wrong customer accounts
Debts might be included on the receivables ledgers that are not collectable

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Assurance (Knowledge Level) 06th Chapter

10. What are the control objectives which might arise at the stage of recording? [P- 116]
These risks lead to the following objectives:
All sales are recorded in the nominal and receivables ledgers
All credit notes are recorded in the nominal and receivables ledgers
All entries are made to the correct receivables ledger accounts
Cut-off is applied correctly to the receivables ledger
Potential bad debts are identified

11. Which controls activity can be used to mitigate the risk of recording? [P- 116]
The following controls might be used to fulfil the objectives outlined above:
Segregation of duties: recording sales, maintaining customer accounts and preparing statements
Sequential numbering of sales invoice: Recording of sales invoices sequentially
Matching of cash receipts with invoices
Retention of customer remittance advices
Separate recording of sales returns, price adjustments etc
Cut-off procedures
Prepare trade receivables statements regularly
Checking of trade receivables statements
Safeguarding of trade receivables statements
Review and follow-up of overdue accounts
Authorisation of writing off for bad debts
Reconciliation of receivables ledger control account
Analytical review for receivables ledger and profit margins

12. How can test of controls in case of sales order? [P- 117]
The following tests of control might be appropriate.
Sales day book:
Check entries with invoices and credit notes respectively
Check additions and cross casts
Check postings to receivables ledger control account
Check postings to receivables ledger
Receivables ledger:
Check entries to sales day book
Check additions and balances carried down
Note and enquire into contra entries
Regularly reconciled of Control accounts with total of receivables ledger balances
Check the credit limits
Check that trade receivables statements are prepared regularly
Check that overdue accounts have been followed up
Check that all bad debts written off have been authorised by management

13. What are the risks at the stage of cash collection? [P- 118]
The following risks may arise at the stage of cash collection:
Customers are unable to pay
Properly received but not be recorded or banked

14. What are the control objectives of considering cash collection? [P- 118]
This leads to two key objectives:
All monies received are recorded
All monies received are banked

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Assurance (Knowledge Level) 06th Chapter

15. Which controls activity can be used to mitigate the risk at the stage of cash collection? [P- 118]
i. Segregation of duties between the various functions.
ii. Recording of receipts received by post:
Safeguards to prevent interception of mail between receipt and opening
Appointment of responsible person to supervise mail
Protection of cash and cheques (restrictive crossing)
Amounts received listed when post opened
Post stamped with date of receipt
iii. Recording of cash sales and collections:
Restrictions on receipt of cash (by cashiers only, or by sales representatives)
Evidencing of receipt of cash
Serially numbered receipt forms
Cash registers incorporating sealed till rolls
Emptying of cash offices and registers
Agreement of cash collections with till rolls
Agreement of cash collections with bankings and cash and sales records
Investigation of cash shortages and surpluses
iv. General controls over recording:
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
v. Banking:
Daily bankings
Make-up and comparison of paying-in slips against initial receipt records and cash book
Banking of receipts intact/control of payments
vi. Safeguarding of cash and bank accounts
Restrictions on opening new bank accounts
Limitations on cash floats held
Restrictions on payments out of cash received
Restrictions on access to cash registers and offices
Independent checks on cash floats
Surprise cash counts
Custody of cash outside office hours
Custody over supply and issue of cheques
Preparation of cheques restricted
Safeguards over mechanically signed cheques/cheques carrying printed signatures
Restrictions on issue of blank or bearer cheques
Safeguarding of IOUs, cash in transit
Insurance arrangements
Bank reconciliations
Issue of bank statements
Frequency of reconciliations by independent person
Reconciliation procedures
Treatment of longstanding unpresented cheques
Sequence of cheque numbers
Comparison with cash books

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Assurance (Knowledge Level) 06th Chapter

16. How can test of controls in case of sales order? [P- ]


The following tests of control may be used:
i. Receipts received by post:
Observe procedures for post opening are being followed
Observe that cheques received by post are immediately crossed in the company's favour
For items entered in the rough cash book, trace entries to:
Cash book
Paying-in book
Counterfoil or carbon copy receipts
Verify amounts entered as received with remittance advices or other supporting evidence
ii. Cash sales, branch takings:
For a sample of cash sales summaries/branch summaries from different locations:
Verify with till rolls or copy cash sale notes
Check to paying-in slip date-stamped and initialled by the bank
Verify that takings are banked intact daily
Vouch expenditure out of takings
iii. Collections:
For a sample of items from the original collection records:
Trace amounts to cash book via collectors' cash sheets or other collection
records
Check entries on cash sheets or collection records with collectors' receipt
books
Verify that goods delivered to travellers/ salesmen have been regularly
reconciled with sales and inventories in hand
Check numerical sequence of collection records
iv. Cash receipts cash book
For cash receipts for several days throughout the period:
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
Scrutinise the cash book and investigate items of a special or unusual nature

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