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    Sales & Cash Receipts Transactions

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    Shieldon Vic Senajon Pinoon
    This document summarizes an auditing chapter that covers auditing sales and cash receipts transactions. It describes the nature of the revenue/receipt cycle, including how goods are sold to customers and cash is collected. It then discusses the flow of information through the revenue/receipt cycle with various documents. The document outlines the internal controls for areas like credit sales, cash collection, shipping, billing, and recording. It provides guidance on assessing control risk, testing controls, computer auditing and sampling as they relate to auditing the revenue/receipt cycle.

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    Sales & Cash Receipts Transactions

    Uploaded by

    Shieldon Vic Senajon Pinoon
    130 views28 pages
    This document summarizes an auditing chapter that covers auditing sales and cash receipts transactions. It describes the nature of the revenue/receipt cycle, including how goods are sold to customers and cash is collected. It then discusses the flow of information through the revenue/receipt cycle with various documents. The document outlines the internal controls for areas like credit sales, cash collection, shipping, billing, and recording. It provides guidance on assessing control risk, testing controls, computer auditing and sampling as they relate to auditing the revenue/receipt cycle.

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    This document summarizes an auditing chapter that covers auditing sales and cash receipts transactions. It describes the nature of the revenue/receipt cycle, including how goods are sold to customers and cash is collected. It then discusses the flow of information through the revenue/receipt cycle with various documents. The document outlines the internal controls for areas like credit sales, cash collection, shipping, billing, and recording. It provides guidance on assessing control risk, testing controls, computer auditing and sampling as they relate to auditing the revenue/receipt cycle.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    130 views28 pages

    Sales & Cash Receipts Transactions

    Uploaded by

    Shieldon Vic Senajon Pinoon
    This document summarizes an auditing chapter that covers auditing sales and cash receipts transactions. It describes the nature of the revenue/receipt cycle, including how goods are sold to customers and cash is collected. It then discusses the flow of information through the revenue/receipt cycle with various documents. The document outlines the internal controls for areas like credit sales, cash collection, shipping, billing, and recording. It provides guidance on assessing control risk, testing controls, computer auditing and sampling as they relate to auditing the revenue/receipt cycle.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 28

    AUDITING

    CHAPTER 10
    Sales & Cash Receipts
    Transactions
    By
    David N. Ricchiute
    TOPICS
    Nature of revenue/receipt cycle
    Flow of information
    Auditors assessment of control risk
    Audit of internal2 control for sales,
    cash receipts
    Computer auditing, sampling, tests
    of controls
    Assurance, consulting services

    2 GBW 8th ed. Ch. 10


    NATURE OF
    REVENUE/RECEIPT CYCLE

    Goods, services sold to customers


    in exchange for future promises to
    pay
    Cash collected from customers

    3 GBW 8th ed. Ch. 10


    REVENUE/RECEIPT CYCLE
    Flow of Information
    Customer order received
    Sales order prepared
    Price, quantity, goods, terms
    Shipping document
    Identifies goods shipped
    Contract between seller, carrier
    Sales invoice (bill)
    Customer remittance advice
    Returned with payment from customer

    4 GBW 8th ed. Ch. 10


    SELLERS DOCUMENTS
    Sales order
    Identifies goods ordered, price, quantity,
    terms, etc.
    Shipping document (bill of lading)
    Identifies good shipped
    Contract between seller & carrier
    Sales invoice
    Formal notice to customer of amount &
    payment terms
    Customer remittance advice
    Returned with payment

    5 GBW 8th ed. Ch. 10


    CONTROLS FOR CREDIT
    SALES
    Multicopy, prenumbered sales order prepared
    Customer credit reviewed, approved
    Authorized copy sales order accompanies goods
    from Inventory Control to Shipping
    Goods received in Shipping compared with sales
    order; shipping document prepared
    Common carrier provides receipt for goods
    shipped
    Shipping document, approved sales order sent to
    billing for preparation of invoice, daily sales
    summaries
    Invoice copy sent to General Accounting for
    recording
    6 GBW 8th ed. Ch. 10
    CASH COLLECTION
    Process
    Checks by mail listed, endorsed
    List copy to Accounts Receivable with
    remittance for posting
    List copy with checks to Cash Receipts Dept. for
    daily deposit
    Sales returns separate from cash collection
    Uncollected accounts
    Reviewed for credit limits, aged, written off as
    necessary

    7 GBW 8th ed. Ch. 10


    INTERNAL CONTROL &
    RISK
    Controls Risks
    Authorization Credit risk, uncollectible
    accounts
    Prenumbered Shipment, billing not
    shipping timely
    documents
    Recording Items recorded in
    controls improper amounts,
    accounts
    Restricted access Theft
    8 GBW 8th ed. Ch. 10
    ASSESSING CONTROL
    RISK
    Obtain Understanding
    Review Sarbanes-Oxley Section 404
    documentation for sales process
    Document the clients system
    Flowchart, questionnaire, narrative
    Perform transaction walk-through
    Identify control activities
    Test controls to reduce control risk
    below maximum
    Assess control risk
    9 GBW 8th ed. Ch. 10
    TESTS OF CONTROLS
    Sales, Collection
    Provide a reasonable degree assurance
    that employees comply with
    managements procedures
    Sales
    Properly authorized, executed, recorded
    Cash collections
    Cash receipts recorded, deposited promptly
    Returns, uncollectible accounts
    Proper authorization, recording

    10 GBW 8th ed. Ch. 10


    CONTROL RISK
    Shipping
    Major risks
    Unauthorized shipment
    Fictitious or related parties
    Goods properly shipped, not billed,
    recorded

    11 GBW 8th ed. Ch. 10


    TESTING CONTROLS:
    Shipping
    Select random sample shipping
    documents
    Examine sample for authorized sales order &
    agreement
    Trace sample shipping documents to
    invoices (completeness)
    Trace invoices to sales journal, A/R
    ledgers
    Trace invoices to inventory records
    12 GBW 8th ed. Ch. 10
    CONTROL RISK
    Billing

    Major risks
    Bills sent but goods not shipped
    Bills not properly prepared, recorded

    13 GBW 8th ed. Ch. 10


    TESTING CONTROLS:
    Billing
    Select sample invoices from
    Billing dept.
    Verify unit prices & mathematical
    accuracy
    Trace invoices to shipping
    documents (existence/occurrence)
    Trace invoices to sales journal, A/R
    ledgers
    Trace invoices to inventory
    records

    14 GBW 8th ed. Ch. 10


    CONTROL RISK
    Recording
    Periodic summaries not prepared
    or not prepared correctly

    15 GBW 8th ed. Ch. 10


    TESTING CONTROLS:
    Recording
    Review evidence of procedures for
    Reconciliation daily sales summaries with
    sales journal totals
    Periodic reconciliation A/R trial balance with
    general ledger control
    Scan sales journal for unusual
    transactions, large amounts
    Verify mathematical accuracy sales
    journal for selected periods; trace
    postings to general ledger
    16 GBW 8th ed. Ch. 10
    CONTROL RISK
    Cash Collection, Deposit
    Risk of embezzlement, deposit into
    improper accounts

    17 GBW 8th ed. Ch. 10


    TESTING CONTROLS:
    Cash Collection & Deposit
    Cash collection
    Surprise basis: take control bank deposits
    Compare total checks to total deposit slip
    Compare check details to cash receipt
    records & A/R ledger
    Determine timeliness
    Deposits
    Interim: compare deposits CRJ with bank
    statements
    Trace CRJ to general ledger

    18 GBW 8th ed. Ch. 10


    CONTROL RISK
    Sales Returns, Allowances
    Risk that credit memoranda
    Not approved
    Not properly recorded

    19 GBW 8th ed. Ch. 10


    TESTING CONTROLS:
    Sales Returns &
    Allowances
    Test details random sample credit
    memoranda
    Receiving reports
    Perpetual inventory records
    Entries A/R ledger & general ledger
    Review credit register for unusual
    items

    20 GBW 8th ed. Ch. 10


    CONTROL RISK
    Uncollectible Accounts
    Risk that account write-offs
    Properly authorized
    Properly recorded

    21 GBW 8th ed. Ch. 10


    TESTING CONTROLS:
    Uncollectible Accounts
    For written-off entries:
    Select sample
    Trace to authorization
    Trace to posting
    Review write-offs for unusual
    entries

    22 GBW 8th ed. Ch. 10


    ASSESSING CONTROL
    RISK
    2 Questions
    Are controls effective?
    Can controls be relied upon?
    If answer is yes to both
    Assess control risk below maximum
    Assess detection risk above minimum
    Restrict substantive tests of sales,
    receivables, cash

    23 GBW 8th ed. Ch. 10


    PRELIMINARY OPINION ON
    INTERNAL CONTROL
    Required by Sarbanes-Oxley
    Auditor must form opinion on
    managements assessment of internal
    control over financial reporting based
    on
    Reports of internal auditors
    Auditors tests of controls
    Substantive audit tests

    24 GBW 8th ed. Ch. 10


    TESTS OF CONTROLS
    Deduction Management
    3 Critical questions
    Does Accounts Receivable monitor
    deductions?
    Does Account Operations approve
    deduction inquiries
    Does senior management review
    decisions made by Accounts
    Receivable, Account Operations?

    25 GBW 8th ed. Ch. 10


    COMPUTER AUDITING &
    SAMPLING
    Understand the system
    Tests of controls
    Input controls
    Code verification
    Data entry controls
    Processing controls
    Control totals
    Limit tests
    Assess control risk
    26 GBW 8th ed. Ch. 10
    TESTS OF BILLING
    CONTROLS
    An Example
    Randomly select sample sales
    invoices
    Verify unit prices, clerical accuracy
    Trace details of invoices to
    shipping documents
    Trace sales invoices to inventory
    records

    27 GBW 8th ed. Ch. 10


    ASSURANCE, CONSULTING
    SERVICES
    Sarbanes-Oxley restricts
    Information systems consulting to
    non-audit public clients, and any non-
    public clients

    28 GBW 8th ed. Ch. 10

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