Internal Audit Objectives

To gain assurance over the adequacy and effectiveness of controls in place

over the revenue cycle

Scope

The revenue cycle includes all the procedures related to the sale of goods
by the entity. Sales of goods includes the supply of services. The main
processes in the revenue cycle involve the selling of goods and services
and the receipt of payment for them, typically including:

customer acceptance
sales order processing
shipping
pricing and discounts
accounts receivable
debt collection
gathering of disclosure data
PROCESS: REVENUE CYCLE

SUB-PROCESS: Customer acceptance and order entry

The appropriateness of new customers is considered before orders for goods or services are accepted.

Control Objective Control Activity COSO Risk Understanding of Testing Significance Work Paper Done by,
Category Current Process Reference Date

Goods and services are Management has defined and Financial Goods and services are provided to
only provided to communicated clear and appropriate customers with a poor credit rating,
appropriate customers criteria for customer acceptance. poor reputation, conflict of interest
etc.

Responsibility for setting credit limits for

new customers is clearly defined.

There is regular independent review of

credit limits assigned to new customers.

Credit checks are carried out on new

customers

Customer masterfile is Ability to add, delete or amend details on Operation and Invalid changes to customer
controlled. the customer masterfile is appropriately Financial masterfile enables goods and
limited and approved. services to be provided to
inappropriate customers.

There is regular, independent review of

the changes made to the masterfile (for
example by review of exception
reporting). Changes include payment
terms, credit limits, discount levels,
addresses and accounts on hold
PROCESS: REVENUE CYCLE

SUB-PROCESS: Sales order processing

Orders are accepted from valid customers. Orders are accurately and completely recorded and processed. The price of orders is correctly calculated

Control Objective Control Activity COSO Risk Understanding of Current Process Testing Significance Work Paper Done by,
Category Reference Date

Accurate quotes or Quotes or price estimates require
estimates are given to independent prior approval and are
customers. based on approved sales orders or
price lists.
Orders are accepted Orders from customers are checked to
from customers on ensure the acceptability of prices,
acceptable terms. discounts and delivery terms prior to the
authorization of the sales order.
Financial Inaccurate quotes or estimates could
lead to loss of revenue to the
business.
Financial Orders are accepted on terms which
are not favorable to the organization.

Orders are processed in A process is in place for capture of Financial Orders received are not processed
a timely and accurate orders by phone, fax, EDI, post etc. leading to loss of sales.
manner. Reconciliation is undertaken between
orders received and orders processed.
The delivery date is recorded in line
with standard procedures. Orders
raised not invoiced are identified and
investigated on a regular basis.
SUB-PROCESS: Sales order processing
Control Objective Control Activity COSO Risk Understanding of Current Process Testing Significance Work Paper Done by,
Category Reference Date

Credit terms for goods Management has clearly defined and Financial Credit terms are given to customers
and services are only communicated appropriate criteria for who are subsequently not able to
granted to appropriate granting credit to customers. This meet their payments.
customers. includes the use of credit references,
how credit, payment and delivery terms
are calculated and how terms are
communicated to customers. The
criteria for setting terms is
independently reviewed on a regular
basis. Specific approvals are required
for credit in excess of established limits.

Free or heavily Management has clearly defined Financial Free goods are given to customers
discounted goods are appropriate criteria for the issue of free or staff leading to loss of revenue or
only issued to goods to customers and staff. There tax and legal implications.
appropriate customers are limited budget codes against which
and staff. free goods can be issued and these are
reviewed on a regular basis. Treatment
of taxes or whether such free goods are
deemed "income" to the individual or
VAT issues (Europe) are determined.
PROCESS: REVENUE CYCLE

SUB-PROCESS: Shipping
Goods are shipped to customers in accordance with orders received, on a timely basis

Control Objective Control Activity COSO Category Risk Understanding of Current Testing Significance Work Paper Done by,
Process Reference Date

All customer orders can On receipt of orders, stock levels are
be met checked and stock is allocated to the
order to ensure it can be met. There is a
regular review of stock on hold awaiting
shipment, to ensure that it is current.
Financial Goods ordered by a customer are not
available and the commitment cannot be met,
leading to lost sales or delay in delivery,
harming the customer relationship.

All customers orders are Orders are reconciled to shipping Operational and Deliveries are not made in line with customer
accurately delivered documents to ensure completeness and Financial expectations.
accuracy of shipping and billing.

Goods are shipped to Approved shipping orders are Operational and Goods are shipped to incorrect customer or
valid customers only independently checked before goods are Financial are misappropriated.
permitted to leave the premises.

All goods shipped are Segregation of duties exists between Financial Goods are misappropriated.
accurately invoiced and shipping, accounts receivable, cashiers
paid for by a customer and accounting activities. Shipping
employees do not have access to the
stock room.

All cash payments are Shipping documents which state Cash on Financial Cash on Delivery is not banked.
accurately and Delivery are matched to banking records.
completely recorded and
banked
PROCESS: REVENUE CYCLE

SUB-PROCESS: Pricing and discounts

Control Objective Control Activity COSO Category Risk Understanding of Current Testing Significance Work Paper Done by,
Process Reference Date

Customers are Procedures have been established Financial Invoices contain incorrect,
accurately invoiced for for the pricing of goods and services. inaccurate pricing leading to loss
goods and services of revenue, impacting on customer
delivered relationships.
Ability to add, delete or amend Financial Invalid changes to price masterfile
details on the price masterfile is could result in inaccurate invoices
appropriately limited. All such for goods and services provided.
changes are approved. There is
regular, independent review of the
amendments made to the masterfile
(for example by review of exception
reports)

Invoices raised are reconciled to Financial Goods are shipped but the
shipping documents to ensure customer is not invoiced, leading
completeness and accuracy. to loss of revenue.
Unmatched shipping documents are
identified and followed up on a
regular basis

Prices for goods and A standard price list is in use and is Financial Incorrect prices are used for
services are correctly reviewed and approved on a regular preparing invoices, leading to loss
calculated basis. Deviations from the standard of revenue.
price list are appropriately
authorized. The prices are updated
on an annual basis
SUB-PROCESS: Pricing and discounts
Control Objective Control Activity COSO Category
Only valid discounts are Discounts are independently verified
given to customers against an authorized standard
discount list. The list should be
reviewed and approved on a regular
basis
Non routine sales are Procedures have been established
correctly priced and for the pricing of non routine sales.
invoiced Specific authorization is required for
non-routine sales, for example sale
of scrap or sales to employees
Favorable payment Payment terms are given in line with
terms are agreed with an authorized standard payment
customers terms list
Risk Understanding of Current Testing Significance Work Paper Done by,
Process Reference Date
Financial Discounts are given to customers
who do not meet specific
requirements, e.g., performance.
Financial Non routine sales are incorrectly
priced and invoiced, leading to
loss of revenue.
Financial Terms are given to customers
which impact negatively on the
organization's cashflow
PROCESS: REVENUE CYCLE

SUB-PROCESS: Customer receipts

Control Objective Control Activity COSO Category Risk Understanding of Current Testing Significance Work Paper Done by,
Process Reference Date

All cash receipts are Access to cash receipts records is Financial Cash receipts are
completely and denied to those responsible for misappropriated.
accurately recorded. posting to accounts receivable ledgers
and the general ledger.

All debts are paid in full Access to accounts receivable ledgers Financial Inappropriate discounts,
by customers. is denied to those responsible for write offs etc are granted
performing and approving transactions to customers leading to
and adjustments, such as extension of loss of revenue.
credit, approval of discounts, returns
or allowances, debt collection and
write off.

Accurate debtor Maintenance of the accounts Financial Credit notes or write offs
information is receivable ledger is segregated from may be inappropriately
maintained. the preparation of sales invoices. processed.
There is a regular reconciliation of the
general ledger to the debtors ledger,
reviewed at an appropriate level.

All receipts are posted promptly and Financial Debtors are overstated.
accurately to the debtor ledger. Payments may be
Regular customer statements are misappropriated.
issued. There is regular reconciliation
of the debtor ledger and the general
ledger.
SUB-PROCESS: Customer receipts
Control Objective Control Activity COSO Category Risk Understanding of Current Testing Significance Work Paper Done by,
Process Reference Date

Cash receipts are Cash receipts are held in a safe or Financial Cash receipts are
securely held. lockable box, with limited access by misappropriated.
staff. Cash receipts are reconciled to
bank records.
All cash receipts are Management has clearly defined and Financial Checks may be
banked. communicated procedures for banking fraudulently cashed.
of cash receipts. Checks are stamped
with restrictive endorsement upon
receipt. There is a regular bank
reconciliation, reviewed at an
appropriate level.
PROCESS: REVENUE CYCLE

SUB-PROCESS: Debt collection

Customers with overdue invoices are identified and the debt is pursued. Non collectable debts are written off.

Control Objective Control Activity COSO Category Risk Understanding of Current Testing Significance Work Paper Done by,
Process Reference Date

All debts are collected. There is clearly defined responsibility Financial Debt collection activity does not take
for debt collection procedures. place, leading to bad debts.

Old debts are identified and Financial Debts which are not identified and
investigated on a regular basis. pursued in a timely manner are less
likely to be paid.
Debt collection activity is clearly Operational and
recorded and is in line with standard Compliance
procedures.

Accurate customer debt Accounts receivable and related Operational and Errors in recording transaction activity
records are maintained. transaction activity is periodically Compliance result in inaccurate management
substantiated. information on which decisions are
based.

Relevant schedules and reports are Operational

agreed to the trial balance and
subsidiary ledgers, opening balances
are agreed to closing balances and
mathematical accuracy is checked.

Write offs are only Write offs are only processed when Financial Inappropriate write off of customer
processed in appropriate specified criteria are met. Write offs debt leading to loss of revenue.
circumstances. require independent approval from a
designated individual. Above a set
value, additional approval is required.
 AREA: Inventory Deloitte Touche Internal Audit Program for the Consumer Business Industry Pack DATE: 10/07/2010

PROCESS: REVENUE CYCLE

SUB-PROCESS: Disclosure data

Control Objective Control Activity COSO Risk Understanding of Current Testing Significance Work Paper Done by,
Category Process Reference Date

Complete and accurate Analytical review is undertaken on a regular basis Financial Inaccuracies in the financial records
financial information is to confirm the reasonableness and credibility of result in incorrect financial
held. data, including: sales, bad debts, debt ageing, cash disclosure.
receipts by product line, warranties, returns, write
offs, credit notes.

Classifications, Classifications, disclosures and relevant Financial Incorrect financial disclosures are
disclosures and relevant accounting principles for accounts receivable are made.
accounting principles are reviewed for accuracy, propriety and consistency,
clear and understood. including revenue recognition.

The financial statements and management Financial

accounts are reviewed to ensure that they contain
appropriate and accurate management information.

Accurate customer debt Management has a sound basis for calculating the Financial Bad debts, not recognized, lead to
records are maintained. bad debt provision, both specific and general. incorrect financial statements.
Authority to provide for a bad debt is clearly
defined.

PRELIMINARY DRAFT - FOR DISCUSSION PURPOSES ONLY

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