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Reading Report Chapter 9

The document discusses revenue cycle activities and technologies, including batch processing systems and point of sale systems. It then describes the processes for batch-processing and integrated real-time sales order systems. Finally, it discusses audit objectives, controls, and tests for the revenue cycle, including input controls, process controls, output controls, and substantive tests of revenue cycle accounts.

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59 views

Reading Report Chapter 9

The document discusses revenue cycle activities and technologies, including batch processing systems and point of sale systems. It then describes the processes for batch-processing and integrated real-time sales order systems. Finally, it discusses audit objectives, controls, and tests for the revenue cycle, including input controls, process controls, output controls, and substantive tests of revenue cycle accounts.

Uploaded by

Andrea
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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(CH.

9) AUDITING THE REVENUE CYCLE

Revenue Cycle Activities and Technologies


In the alternatives of revenue data processing explores a batch processing system; in batch
transactions:
- Transactions are collected and processed together as a group
- Operational features of integrated real-time processing systems are reviewed and processed
individually according to the time the events happened
- Look into Point of Sale (POS) system are commonly used in business-to-consumer (B2C)
organizations.

Batch-Processing Sales Order System


Manual process:
- Order taking
- Credit checking
- Warehousing
- Shipping
Computer Process:
- Accounting records

Obtain and Record Customers’ Orders


Sales Department:
- Preparation of Sales Order (SO)
Credit Department:
- Credit Authorization: a copy of SO is sent to credit department to be approved. Sales order
will be placed in system after it is authorized
Warehouse:
- Stock Release: sent to warehouse to issue formal release of inventory
Shipping Department:
- File copy, Packing slip and Shipping notice
- Packing slip is sent with goods
- Shipping notice is sent to billing department to notify that customer order is fulfilled and
shipped
- Reconciliation of items with documents, clerk packages the goods, and attaches the packing
slip
- Shipping notice is completed
- Preparation of Bill of Lading (BOL) and transfer goods to carrier
- Shipping clerk records the shipment
- Shipping notice, a copy of BOL and shipping documents are sent to Billing department
GL Department:
- A/R is updated and billing is sent
- Inventory update to restore files and receive new orders
- Gen. Ledger updates GL accounts

Batch Processing Cash Receipt System


Cash receipts procedures -> natural batch system

Mailroom:
- Separates checks from remittance advices
- Remittance list is prepared as a control document
- Checks and copy of list sent to cash receipt department
- Remittance advices and copy of list go to A/R department
Cash Receipt Department:
- Clerk reconciles checks
- Prepares deposit slips
- Creates a transaction file as input for the batch process
A/R Department:
- Transactions processes is received
- Reconciles and files list
Data Processing Department:
- Master File update is run
- Update customer records in the AR voucher file
- General Ledger is updated by end of day
Controller’s office:
- Reviews deposit slip periodically
- Responsible for updating customer’s records

Integrated Real-Time Sales Order System


Sales Department:
- Verification of inventory availability
- Credit check
- Sales invoice file is recorded
- Stock release is sent to warehouse
- Digital packing slip is sent to shipping
Warehouse:
- Prints hard copy of stock release
- Clerk prepares and sends goods to shipping with stock release
Shipping:
- Prepares, reconciles and ships goods
- Sends digital notice to notify that transaction has been completed
Automatic System:
- Updates customer credit history
- Reduces inventory
- Inputs reorder when needed
- Places ship date in sales invoice record
- Updates General Ledger account
- Produces and distributes management reports

Revenue Cycle Audit Objectives, Controls, and Tests of Controls


Input Controls
- Makes sure that transactions are valid and complete
- Credit authorization: to confirm credit of customers before continuing transaction
- Testing credit procedures
- Data validation controls
- Real time and POS systems to deal with errors
- Perform general validation checks
- Batch transmittal sheet: captures relevant batch information
- Testing batch controls with reviews of transmittal records and control tools
Process Controls
- File update controls: make sure each run in system processes accurately (1. Transaction
code controls; 2. Sequence check controls)
- Test transaction codes along with sequence checks
Output Controls
- To make sure no loss of information and that system processes are functioning properly
- Reconciled General Ledger to sub ledger
- Maintains audit trail
- Audit Trail output: A/R charge report, transaction logs and listings, etc.

Substantive Tests of Revenue Cycle Accounts


Derived from the auditor’s assessment of inherent risk

Revenue Cycle Risk and Audit Concerns


- Auditors perform a selection of internal control tests and substantive tests
- Auditor should comprehend system controls and physical files
Understanding Data
- Auditor should verify the correct version of file
- Files: Customer files, sales invoice file, line item file
- Use ACL to locate its physical form
Testing the Accuracy and Completeness Assertions
- Analytical review of account balances to reveal trends in sales, cash receipts, sales returns
and A/R
- Review sales invoices for anomalies
Testing the Existence Assertion
- Confirmation of A/R
- Selecting accounts to confirm
Testing the Valuation/Allocation Assertion
- Confirm or deny A/R stated at reasonable net realizable value
- Aging Accounts Receivable

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