ch6 content

risks of ordering

• Customer cannot pay

• Customer pays late

• Orders not recorded

• Orders not fulfilled

control objectives for ordering

• Only supply customers likely to pay

• Encourage prompt payment

• Orders recorded correctly

• Orders fulfilled

controls for orders

• Credit checks obtained for new customers

• Credit limits authorised

• Senior staff approve new customers

• Regular review of customer accounts

• Orders only accepted from customers within credit limits

• Sequentially numbered order forms

• Prices checked before quoting

• Match customer orders to production orders

• Match customer orders to despatch records Follow up unmatched orders

• Controls over customer master file changes

tests of controls for

• new customers

• existing customers

• orders

New customers

• Inspect customer file for credit reference

• Check evidence of senior approval

• Check authorised credit limit

Existing customers

• Verify orders accepted only within credit limit

• Review evidence of periodic credit reviews

Orders

• Sequence check order forms

• Inspect unmatched order reports

• Check orders matched to production/despatch records

what are the risks of despatching

• Wrong goods sent

• Goods sent but not recorded

• Customer disputes delivery

• Inventory lost

what are the control objectives of despatching

• Correct goods despatched

• All goods despatched

• All despatches recorded

what are controls for despatches

Examine goods before despatch

Check:

• Quantity

• Quality

• Condition

Sequentially numbered GDNs (Goods Despatch Notes) Record all goods despatched Match GDN to:

• Sales order

• Invoice

Follow up unmatched GDNs Customer signs delivery note

Management approval for free goods

tests of controls for despatches

GDN sequence check

Inspect for missing numbers.

Match:

GDN → Sales order

GDN → Invoice

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Inspect customer signatures - Check delivery acknowledged.

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Review unmatched GDN reports - Verify follow-up performed.

what are risks of invoicing

• Goods despatched but not invoiced

• Wrong prices charged

• Wrong quantities charged

• Incorrect VAT

• Invalid credit notes

what are control objectives of invoicing

• All despatched goods invoiced

• Invoices accurate

• Credit notes genuine

what are controls are used for invoicing

• Invoices generated from GDNs

• Authorised price list used

• Invoice calculations checked VAT checked

• Sequentially numbered invoices

• Sequentially numbered credit notes

• Authorisation of credit notes

• Goods returned notes prepared

• Returned goods inspected Inventory records updated

what tests of control for invoices

Vouch invoice to:

• GDN

• Sales order

• Price list

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Check:

• Quantity

• Prices

• VAT

• Totals

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Review:

• Credit note authorisation

• Goods returned note

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Sequence checks:

• Invoices

• Credit notes

what are risks of recording sales

• Invoice not recorded

• Credit note not recorded

• Wrong customer account used

• Bad debts not identified

• Cut-off errors

what are control objectives of recording sales

• All invoices recorded

• All credits recorded

• Correct customer account

• Correct year-end cut-off

• Bad debts identified

what controls for recording sales

Segregation of duties

Between:

• Recording sales

• Maintaining customer accounts

• Statement preparation

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• Invoice sequence checks

• Record all invoices

• Record all credit notes

• Match cash receipts to invoices

• Retain remittance advices

• Prepare customer statements regularly Review overdue receivables

• Authorise bad debt write-offs

• Analytical review of receivables Cut-off procedures

what are tests of controls for recording sales

Receivables ledger

Check:

Invoice → Ledger

Credit note → Ledger

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Review:

• Customer statements

• Aged receivables listing

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Inspect

• Authorisation of bad debt write-offs

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Check overdue debts followed up

Inspect reminder letters/chasing activity.

what are the risks of cash collection

• Cash stolen

• Cheques stolen

• Cash not recorded

• Cash not banked

• Receipt allocated to wrong customer

what are control objectives of cash collection

• All cash recorded

• All cash banked

• Correct customer credited

what are controls for cash collection

Segregation of duties

Between:

• Receiving cash

• Recording cash

• Banking cash

This is probably the most important control.

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Post opening controls

• Two people open post

• Cheques listed immediately

• Date stamp applied

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Safe custody

• Cash locked away

• Cheques locked away

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Receipt books

• Sequentially numbered

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Daily banking Bank takings intact

(No payments made directly from cash received)

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• Bank reconciliations

• Independent review of cash balances

• Surprise cash counts

what are tests of controls for cash collection

Observe post opening

Check:

• Two people present

• Cheques listed

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Trace:

Cheque listing → Cash book → Banking records

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Inspect:

• Bank reconciliations

• Independent review evidence

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Inspect:

Paying-in slips

Compare to:

• Cash book

• Receipt records

what are factors or revenue systems

Ordering	Credit checks, credit limits, customer approval
Despatch	Pre-numbered GDNs, matching GDNs to orders/invoices
Invoicing	Invoice from GDN, authorised prices, authorised credit notes
Recording	Customer statements, invoice recording, aged receivables review
Cash Collection	Segregation of duties, daily banking, bank reconciliations