Revenue Cycle Tests of Controls

& Substantive Testing

Revenue Cycle Risks and Audit Concerns
 In general, the auditor‟s concerns in the
revenue cycle pertain to the potential for
overstatement of revenues and accounts
receivable rather than their
understatement. Overstatement of
accounts can result from material errors in
the processing of normal transactions that
occur throughout the year. In addition, the
auditor should focus attention on large and
unusual transactions at or near period-end.
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Review Sales Documents and
Balances for Unusual Trends
and Exceptions
 1 Review Sales Documents and Balances
2 for Unusual Trends and Exceptions
A useful audit procedure for identifying
potential audit risks involves scanning data
files for unusual transactions and account
balances. For example, scanning accounts
receivable for excessively large balances may
indicate that the company‟s credit policy is
being improperly applied.

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 Review Sales Documents
1 and Balances for Unusual
Trends and Exceptions

Login using the AUDITOR account.

Open a list of Sales Order for examination for

any unusual trends and exception using Query.

 Open Query Generator and create a query

statement to produce an ad hoc report
showing the list of all sales order
~ Go to Tools Menu > Queries > Query Generator

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 On the Table field, Type „ORDR‟ then press
Tab. The Field names and description will
appear. (Note: ORDR is the table name of
Sales Order in the MSSQL where the database
used in SAP are running)
 Double click the following field names:
DocNum, DocDate, CardCode, CardName,
DocTotal
~ (Tip: You can list the field name alphabetically by
double clicking the name title)
 Click in the Sort By field then double click
DocTotal in the list of Field names.
 Then click execute to produce the ad hoc
report, “List of Sales Order”
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2 You can do the same to other documents (such as PO).

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Review Sales Invoices and
Customer Master Data for Missing
and Duplicate Items
 3 Review Sales Invoices and
Customer Master Data for Missing
4 and Duplicate Items
Searching for missing and/or duplicate
transactions and data entries is another
important test that helps the auditor
corroborate or refute the completeness and
accuracy assertions. Duplicate and missing
transactions in the revenue cycle may be
evidence of over or understated sales and
accounts receivable.
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 Review Customer Balances
3 For Unusual Trends &
Exceptions

 - Open a Blank Master Data.

~ Go to Business Partners > Business Partner
Master Data
 Change the BP Type to Customer then
insert an anterisk symbol (*) in the code
field then press Enter. A List of Business
Partners for customers will appear.
Propose an adjusting entry for the unusual transaction, if any.
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 Review List of Customers
4 for any duplicate items

 Open a Blank Master Data.

~ Go to Business Partners > Business Partner
Master Data
 Change the BP Type to Customer then insert
an anterisk symbol (*) in the code field then
press Enter. A List of Business Partners for
customers will appear.
 List alphabetically the list of customers by
double clicking the BP Name Header

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 5
Aging of Accounts Receivable
5 Aging of Accounts Receivable
 The auditor‟s objective regarding proper valuation and
allocation is to corroborate or refute that accounts
receivable are stated at net realizable value. This
objective rests on the reasonableness of the allowance
for doubtful accounts, which is derived from aged
accounts receivable balances.
 To achieve this objective, the auditor needs to review
the accounts receivable aging process to determine
that the allowance for doubtful accounts is adequate.
As accounts age, the probability that they will
ultimately be collected is decreased. Therefore, as a
general rule, the larger the number of older accounts
that are included in an company‟s accounts receivable
file, the larger the allowance for doubtful accounts
needs to be to reflect the risk.
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 Aging of
5 Accounts Receivable

 Open the Aging Report of the company‟s

customer balances
~ Go to Financials > Financial Reports > Accounting
> Aging > Customer Receivables Aging
 In the Selection Criteria insert the following
information:
~ Code: From C1100 To C2200
~ Aging Date: 03.31.14 Then click OK
~ SAP Business One will generate Customer
Receivables Aging showing the age of receivables
from the customers.
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 Now you can perform the analysis based on
this aging and compute the appropriate
amount of Allowance for Doubtful Accounts
based on the Company‟s policies.

 Compute the amount of Allowance for Doubtful

Accounts According to the industry experiences, the
collectability of accounts are as follows:
~ 0 – 1 month = 100%
~ Over one month not over two months = 98%
~ Over two months not over three months = 95%
~ Over three months not over four months = 92%
~ Over four months = 90%

How much is the proposed Allowance for Doubtful Accounts?

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