Professional Documents
Culture Documents
Revenue Cycle
Revenue Cycle
THE
REVENUE CYCLE
Group 2
Barcena, Maria Mikhaela Denise Mamucud, Jeric
Estuita, Rhenzo Ong, Tommy
Godoy, Bernadette Tulagan, Glazel
Hernandez, Jejomar Tabbu, John Nathaniel
Iglesia, Ed Michael Valerio, Bea
3 MAIN SECTIONS
I. Alternative technologies used in both legacy and modern system
II. Revenue Cycle, Audit Objectives, Controls, and test of controls that
auditor would perform to gather evidence needed to limit the scope,
timing and extent of substantive tests.
III. Revenue Cycle substantive tests in relation to audit objective.
ALTERNATIVE TECHNOLOGIES USED
IN BOTH LEGACY AND MODERN
SYSTEM
BATCH PROCESSING USING
SEQUENTIAL FILES MANUAL
PROCEDURES
BATCH PROCESSING USING
SEQUENTIAL FILES MANUAL
PROCEDURES
1. Obtaining and Recording the Customers Orders
Begins with a customer order
Objective: to ensure that relevant data are transcribed to a standard format that can be
processed by the system
Document prepared in this phase is Sales Order Document
2. Approving Credit
Is basically verifying the customers creditworthiness.
Credit Authorization is sent to the Credit Department for approval
BATCH PROCESSING USING SEQUENTIAL FILES
MANUAL PROCEDURES
3. Processing Shipping Orders
Stock Release or Picking Ticket is sent by the Sales Department to the warehouse.
Before the arrival of the goods and the stock release copy, the Shipping department receives
the Packing Slip and Shipping Notice copies from the sales department.
BATCH PROCESSING USING SEQUENTIAL FILES
MANUAL PROCEDURES
3. Processing Shipping Orders
The Shipping clerk
reconciles the physical items with the stock release documents,
the packing slip, and the shipping notice to verify the correctness of
the order.
packages the goods, attaches the packing slip to the container,
completes the shipping notice, and prepares a Bill of Lading.
transfers custody of the goods, the packing slip, and two copies of
the bill of lading to the carrier, then
performs the following tasks:
Records the shipment in the shipping log.
Sends the stock release document and the shipping notice to the billing
department as proof of shipment.
Files one copy each of the bill of lading and the shipping document.
BATCH PROCESSING USING SEQUENTIAL
FILESAUTOMATED PROCEDURES
Data Processing
KEYPUNCH/DATA ENTRY
arrival of batches of shipping notices from the shipping department
Batch control totals are calculated for each batch on the file.
EDIT RUN
Typical tests include field checks, limit tests,
range tests, and price times quantity
extensions.
Sort Run
To process a sequential transaction file, it
must be placed in the same sequence as
the master file that it is updating.
AR UPDATE AND BILLING RUN
Clerk
Via Terminal, creates journal voucher record of the total
cash received.
Files the remittance list and a copy of the deposit slip.
Deposits the cash in the bank.
BATCH CASH RECEIPTS SYSTEM WITH DIRECT
ACCESS FILES
ACCOUNTS RECEIVABLE DEPARTMENT
Receives and reconciles the remittance advices and
remittance list.
Clerk
Creates the cash receipts transaction file, via terminal
Files the remittance advices and the remittance list
BATCH CASH RECEIPTS SYSTEM WITH DIRECT
ACCESS FILES
DATA PROCESSING DEPARTMENT
Batch Program
Reconciles the journal voucher with the transaction files
of cash receipts
Updates the AR-SUB and the general ledger control
accounts (AR and Cash). This employs the direct access
method.
This system produces a transaction listing that the AR
clerk will reconcile with the remittance list.
BATCH CONTROL
Credit Approval
Performs a background check in the computer program
Customers Credit Limit
Current Balance
Customers Current Credit Status
Designed to ensure that all transactions are valid, accurate and complete
CREDIT AUTHORIZATION PROCEDURES
Credit check- establish credit worthiness of customer
Batch system with manual authorization procedures
POS
Computerized Credit checks
Rules to apply
1. Transaction authorization should be separate from transaction
processing.
2. Asset Custody should be separate from the record-keeping
task.
3. Organization should be so structure that the perpetration of a
fraud requires collusion between two or more individuals.
Record-keeping functions must be carefully divided.
SUPERVISION
A compensating control when firms have too few
employees to achieve an adequate separation of functions.
Can also provide control in systems that are properly
segregated.
INDEPENDENT VERIFICATION
Purpose is to review the work performed by others at
key junctures in the process to identify and correct
errors.
EXAMPLES OF INDEPENDENT VERIFICATION
IN REVENUE CYCLE
Shipping department verifies that the goods sent from the warehouse
are correct in type and quantity.
Stock release document and the packing slip are reconciled to
identify discrepancy
Billing department reconciles the shipping notice with the sales invoice.
Ensure that customers are billed only for the items and quantities
that were actually shipped.
TESTING PHYSICAL CONTROLS
Physical controls prevent unauthorized access due to collusion and
incompatible duties
Manual
Review job descriptions and organizational charts
Observe physical process
Computer-based - Integrated tasks on computer programs
Review systems development and maintenance and organizational structure
Focus on integrity of program performing the tasks
Is the logic of the program correct?
Has it been tampered with since last tested?
Have changes made in the program caused an undisclosed error?
OUTPUT CONTROLS
Trends in sales
Trends in cash receipts
Trends in AR
Note:
Analytical procedures in revenue
cycle do not necessarily require
computer technology.
REVIEW SALES INVOICES FOR UNUSUAL
TRENDS AND EXCEPTIONS
Examples:
AR with excessively large amounts
that indicate organizations credit
policy is being improperly applied
Credit balances in AR
AUDIT PROCEDURE:
ACLS STRATIFY GROUPS DATA INTO
PREDETERMINED INTERVALS AND COUNTS
THE NUMBER OF RECORDS THAT FALL INTO
EACH INTERVAL
Since this is a Sales Invoice file, it should
normally contain only positive answers.
Negative numbers may have been
inserted into the records in a number of
ways. Such as:
Defective computer program
Unintentional clerical errors
Effort to reverse an erroneous sales transaction
Fraudulent attempt to reduce customers AR balance
ACLS FILTER CAPABILITY
The auditor will need to interview management and employees involved in the
process and seek answers to the following types of questions:
Are procedures in place to document and approve voided invoices?
How are gaps in sales invoices communicated to management?
What physical controls exist over access to sales invoice source documents?
Are batch totals used to control total transactions during data processing?
Are transaction listings reconciled and reviewed by management?
SHIPPING LOG FILE
AUDIT PROCEDURE:
Invoices missing from the shipping log provide evidence that
also tests the existence or occurrence assertions. The auditor
seeks assurance that sales revenue is recognized only when
appropriate criteria are met. In most organizations, this means
that sales recognized only when the products are shipped. The
auditor should review the shipping log for the following period to
determine if the missing invoice numbers are recorded there. If
so, this would indicate that the merchandise was shipped after
the cut-off period. It may be necessary to adjust the sales and
accounts receivable balances accordingly.
REVIEW LINE ITEM AND INVENTORY FILES FOR
SALES PRICE ACCURACY
Tradition: auditors would verify pricing accuracy by
comparing sales prices on the invoices with the
published price list. Therefore, out of thousand of
sales records, perhaps only one or two hundred
would be tested.
1. Both of the files need to be ordered according to their common key. Item number is
the primary key of the inventory master file. Since the Line Item file contains the
details of the Invoice file, it is probably organized by Invoice number at this time. The
problem now is the sorting of Item Number field which the ACLs Sort feature must be
used.
2. Next step would be to combine the two files to create a third. ACL accomplishes
this with its Join feature. The one most relevant to this test is to create a third file that
consists only of matched records. The file structure of the new file and some sample
records are presented in the table below.
RESULT:
The file may be very large but with the use of ACL, the auditor
can calculate the total price variance and make a
determination as to its materiality. If material, this issue
would need to be pursued with management.
TESTING OF UNMATCHED RECORDS
Negative Confirmation
It requests the recipients to respond only if they disagree with the amount shown in
the letter.
Used primarily when accounts receivable consists of a large number of low-value
balances and the control risk of misstatement is considered to be low.
Evidence provided through confirmation is less reliable when contact between the
auditor and the debtor is disrupted by client intervention. The auditor should take all
reasonable steps to ensure ff. procedures are observed:
The auditor should retain custody of the confirmation letters until they are
mailed.