CH12

Chapter Overview

• Focus: Marketing, Sales, and Collection Processes

• Key Topics:

  • Importance of marketing, sales and collections

  • Differences between credit and cash sales

  • Types of revenue recognition

  • Methods of receiving payments or collections

  • Converting system-generated data into reports and analytics

Learning Objectives

• 12.1 Describe marketing, sales, and collection processes for B2C sales

• 12.2 Evaluate the credit sales process, including risks and controls

• 12.3 Identify risks and controls concerning revenue recognition in sales

• 12.4 Assess risks and controls in cash collections and accounts receivable

• 12.5 Connect ERP systems and databases to reports and analytics

Marketing, Sales, and Collections Processes

• Follow conversion processes in the business model, akin to selling lemonade

• Aim to convert resources into products/services for revenue generation

• Simultaneous occurrence of sales and collections in transactions

Types of Sales

• Business-to-Consumer (B2C) Sales

• Business-to-Business (B2B) Sales

• Varying approaches to information systems from basic to optimized operations

Marketing Processes

• Marketing departments handle:

  • Marketing research

  • Advertising

  • Branding

  • Promotional programs

  • Search engine optimization

• Use of CRM software for managing customer interactions

• Control activities to protect customer interaction

Marketing Control Activities Example

• Risk: Unauthorized posting on corporate social media can cause damage

• Sample Controls:

  • Maintain documented policies for social media content

  • Limit passwords to authorized users only

  • Standardize responses for recurring scenarios

  • Review and approve posts before they go live

Sales Process

• Customers send orders via an app; they receive a confirmation sales order

• Sales order includes details like: date ordered, customer info, product description, price, and total cost

Cash Collections

• Occur at the time of the sale with various payment methods

• Control activities are focused on mitigating fraud in physical cash transfer

Cash Collections Control Activities Example

• Risk: Cashiers pocketing cash during transactions

• Sample Controls:

  • Only accept cashless payments in stores

  • Install security cameras at cash registers

  • Assign one cash drawer per employee

  • Conduct inventory counts to track discrepancies

Delivery Process

• Involves delivering goods to customers, requiring a delivery receipt

• Additional documents must accompany the product

Delivery Control Activities

• Risks: Product contamination or theft, inadequate food handling during delivery

• Controls include:

  • Compliance with regulations

  • Use of tamper-proof seals

  • Background checks for drivers

  • Periodic safety training

Inventory Management

• Important for determining purchasing needs based on sales forecasts

Supply Chain Management

• Encompasses the life cycle of a product including sales and collections, utilized throughout the supply chain

Credit Sales Process

• B2B often involves credit sales which affect accounts receivable

• Companies assess creditworthiness before sales

Credit Sales Control Activities

• Risk: Inadequate credit checks may lead to bad debts

• Controls include:

  • Documented credit policies and approval processes

  • Periodic reviews of credit limits

  • Separation of credit granting responsibilities

Revenue Recognition Model

• U.S. GAAP and IFRS outline five steps for revenue recognition

• Revenue can be recognized at a point in time or over time

Revenue Misstatement Control Activities

• High risk area for financial errors and management fraud

• Controls include:

  • Enforcing sales cutoff policies

  • Matching invoices with shipment records

  • Periodic reconciliations of total sales to the General Ledger

Cash Collection Processes

• Involves receiving, depositing, and recording cash

• Significant for financial statement impacts

Cash Collection Control Activities

• Risk: Misappropriation of customer payments

• Controls include:

  • Segregation of duties concerning cash handling

  • Regular bank reconciliations

  • Traceable audit trails for receipts

ERP and Reporting

• ERP systems connect marketing, sales, and collections data

• Data generated helps in creating reports and analytics for business insights.

Reports Generated Include:

• Historic Sales Analysis

• Customer Master Tables

• Non-invoiced Shipments Tracking

• Aged Trial Balance for Accounts Receivable

• Revenue Recognition Reports detailing recognized and deferred revenue

Insights from Analytic Tools

• Identify anomalies such as unusual activity, customer payment discrepancies, and fraud risks.

Discussion and Implications

• Cases of potential fraud highlight the importance of stringent controls and checks in both customer transactions and internal processes.