REVENUE CYCLES AUDIT OBJECTIVES, CONTROLS, AND TEST OF CONTROLS
1. Credit Authorization Procedures
* Only customer transactions that meet the organization’s credit standards are valid and should be processed further.
2. Testing Credit Procedures
* It pertains to the valuation/allocation audit objectives and the accuracy objective
3. Data Validation Controls
* Input validation controls are intended to detect transcription errors in transaction data before they are processed. Validation procedures are most effective when they are performed as close to the source of transaction as possible.
a. Missing Data Check – are used to examine the contents of a field for the presence of blank data or spaces (missing product numbers, missing customer accounts numbers, or incomplete mailing address)
b. Numeric-alphabetic ...view middle of the document...
d. The numbers of records in the batch (record count)
e. The total dollar value of a financial field (batch control total)
f. The total of a unique nonfinancial field (hash total)
1. File Update Controls – monitoring the batch as it moves from one programmed procedure (run) to another.
2. Sequence Check Control
* An out-of-sequence sales order record in a batch may prevent the remaining downstream records from being processed
3. Access Controls
* Prevent and detect unauthorized and illegal access to the firm’s assets. Inventories and cash are the physical assets of the revenue cycle.
* Designed to ensure that information is not lost, misdirected, or corrupted and that system processes function as intended.
PURCHASES AND CASH DISBURSEMENT PROCEDURES
1. The revenue cycle or the conversion cycle initiates the purchase process.
2. When inventories are reduced by sales, the system determines if the affected items in the inventory subsidiary file have fallen to their reorder point.
3. Upon receipt of the purchase requisition, the purchasing department prepares a five part purchase order. (Vendors, accounts payable, receiving, data processing, and the purchasing department’s own file.
4. When the goods arrive from vendors, the receiving clerk prepares a receiving report. (purchasing, accounts payable, and data processing)
5. The data processing department runs a batch job that updates the inventory subsidiary file from the receiving reports and removes the “on order” flag from the inventory record.
6. When the accounts payable clerk receives the supplier’s invoice, he or she reconciles it with the supporting documents that were previously placed in the accounts payable pending file.
ADVANTAGES OF AUTOMATED SYSTEM
1. Improved Inventory Control
2. Better Cash Management
3. Time lag
4. Purchasing Bottleneck
5. Reduce Excessive Paper Documents
6. Segregation of Duties
7. Accounting Records and Access controls