CHAPTER 8
AUDITING THE REVENUE CYCLE
A.
OVERVIEW OF REVENUE CYCLE TECHNOLOGIES
THE CHAPTER PRESENTS THREE DIFFERENT APPROACHES TO THE
AUDIT OF THE ACTIVITIES/ACCOUNTS THAT MIGHT BE FOUND IN
THE REVENUE CYCLE.
1. BATCH PROCESSING USING SEQUENTIAL FILES:
(A) ACTIVITIES THAT ARE PERFORMED MANUALLY
INCLUDE:
-ORDER TAKING
-CREDIT CHECKING
-WAREHOUSING
-SHIPPING
NOTE THAT COMPUTER PROGRAMS ARE USED TO PROCESS
THE ACCOUNTING RECORDS (SEE “B” BELOW).
(1) SELECTED MANUAL PROCEDURES ARE
(a)
(b)
OBTAINING AND RECORDING CUSTOMER ORDERS
(i)
ORDERS MAY BE BY PHONE OR FROM A
SALESPERSON
(ii)
A SALES ORDER (FIGURE 8-2) IS PREPARED.
COPIES
ARE USED FOR CREDIT
AUTHORIZATION, PACKING SLIPS, STOCK
RELEASE AND SHIPPING NOTICES.
(iii)
ONE COPY OF THE SALES ORDER FORM IS
PLACED IN THE “OPEN ORDER FILE” BY
CUSTOMER NAME
CREDIT APPROVAL
(i)
(ii)
MAY SEND TO CREDIT DEPARTMENT FOR
APPROVAL OR REFER TO LIST OF
APPROVED CUSTOMERS WITH MAXIMUM
CREDIT
APPROVAL IS RETURNED TO SALES
DEPARTMENT
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(c)
(2)
PROCESSING SHIPPING ORDERS
(i)
SALES DEPARTMENT SEND COPY OF SALES
ORDER TO WAREHOUSE TO AUTHORIZE
STOCK RELEASE.
(ii)
ONE COPY OF THE INVOICE IS SENT WITH
THE GOODS TO THE SHIPPING
DEPARTMENT. ONE COPY IS RETAINED IN
THE WAREHOUSE TO PROVIDE A RECORD
OF THE TRANSACTIONS.
(iii)
COPIES OF THE SALES INVOICE FOR (1)
PACKING SLIP AND (2) SHIPPING NOTICE
ARE SENT FROM THE SALES DEPARTMENT
DIRECTLY TO THE SHIPPING DEPARTMENT.
(iv)
WHEN GOODS ARE SHIPPED, THE SHIPPING
NOTICE COPY IS SENT TO THE BILLING
DEPARTMENT
(v)
SHIPPING CLERK PREPARES A “BILL OF
LADING” (CONTRACT WITH TRANSPORT
COMPANY TO DELIVER GOODS). THIS
DOCUMENT, WHEN SIGNED BY THE
CARRIER, ESTABLISHES OWNERSHIP (FOB
DESTINATION OR SHIPPING POINT)
AUTOMATED PROCEDURES (REFER TO FIGURE 8-1,
MIDDLE PART)
(a)
NOTE THAT THIS ILLUSTRATION IS FOR A
LEGACY SYSTEM (LARGE MAINFRAME SYSTEM)
THAT USES A SEQUENTIAL FILE STRUCTURE
(EACH RECORD IS LOCATED SEQUENTIALLY
WITH IN THE STORAGE SPACE. E.G. RECORD 1723
WILL COME IMMEDIATELY AFTER RECORD 1722,
ETC.)
(i)
KEY PUNCH OPERATOR RECEIVES COPIES
OF THE SHIPPING NOTICE – THESE ARE
CONVERTED TO “MAGNETIC” MEDIA.
BATCH TOTALS ARE CALCULATED FOR
CONTROL PURPOSES.
(ii)
EDIT RUN - THE BATCH OF SALES ORDERS
IS TESTED FOR ERRORS. TESTS INCLUDE
FIELD TEST CHECKS, LIMIT TESTS, RANGE
TESTS AND MATH TESTS (EXTENSIONS,
TOTALS)
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(iii)
FIRST SORT RUN – PLACES THE SALES
ORDER FILE IN THE SAME SEQUENCE AS
THE MASTER FILE THAT IS BEING
UPDATED, IN THIS CASE THE ACCOUNTS
RECEIVABLE FILE BY ACCOUNT NUMBER.
(iv)
RECEIVABLE UPDATE AND BILLING RUN –
THE ACCOUNTS RECEIVABLE
SUBSIDIARY FILE IS UPDATED FOR THE
NEW TRANSACTIONS (SEE FIGURE 8-4).
EACH TRANSACTION IS ADDED TO THE
SALES JOURNAL FILE. AT THE END OF
THE RUN A JOURNAL ENTRY VOUCHER IS
AUTOMATICALLY CREATED UPDATING
THE ACCOUNTS RECEIVABLE AND SALES
CONTROL ACCOUNTS.
(v)
SECOND SORT RUN – THE PROGRAM SORTS
THE SALES ORDER FILE ON THE
INVENTORY NUMBER KEY (SEE FIGURE 85). THE INVENTORY QUANTITIES ARE
REDUCED BY THE QUANTITY SOLD.
QUANTITIES ON HAND ARE
AUTOMATICALLY COMPARED WITH
REORDER POINTS AND THE PURCHASING
DEPARTMENT USES THIS INFORMATION TO
PREPARE PURCHASE ORDERS. JOURNAL
ENTRIES “VOUCHERS” ARE
AUTOMATICALLY PREPARED TO INCREASE
THE G/L COST OF GOODS SOLD ACCOUNT
AND DECREASE THE INVENTORY
ACCOUNT.
(vi)
GENERAL LEDGER UPDATE RUN –
THE
GENERAL LEDGER IS UPDATED AT
PREDETERMINED TIMES, GENERALLY NO
MORE OFTEN THAN ONCE EACH DAY. THE
JOURNAL VOUCHERS FILE CONTAINS THE
JOURNAL ENTRIES PRODUCED AS BY
PRODUCTS OF THE OTHER RUNS AS NOTED
ABOVE. MANAGEMENT REPORTS WILL BE
AUTOMATICALLY PREPARED WHEN THE
GENERAL LEDGER IS UPDATED.
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2. BATCH CASH RECEIPTS SYSTEM WITH DIRECT ACCESS FILES:
(A) UPDATE PROCEDURES
(1)
MAIL ROOM
SEPARATES (1) CHECKS AND (2) REMITTANCE ADVICES
THEN PREPARES (3) A REMITTANCE LIST. SENDS (1)
AND COPY OF (3) TO CASH RECEIPTS DEPT. SENDS (2)
AND A COPY OF (3) TO A/R DEPT.
(2)
CASH RECEIPTS DEPARTMENT
RECONCILES CHECKS AND REMITTANCE LIST .
PREPARES DEPOSIT SLIPS. PREPARES JOURNAL
VOUCHER OF CASH RECEIVED ON COMPUTER
TERMINAL. FILES REMITTANCE LIST AND COPY OF
DEPOSIT TICKET. DEPOSITS CASH IN BANK.
(3)
ACCOUNTS RECEIVABLE DEPARTMENT
RECONCILES REMITTANCE ADVICES AND REMITTANCE
LIST. ON COMPUTER, CREATES A CASH RECEIPTS
TRANSACTION FILE BASED ON REMITTANCE ADVICES.
(4)
DATA PROCESSING DEPARTMENT
RECONCILES INPUT FROM CR DEPT AND AR
DEPARTMENT AND UPDATES SUB AR AND CONTROL
(AR AND CASH) ACS. PRODUCES TRANSACTION
LISTING FOR A/R CLERK TO RECONCILE AGAINST
REMITTANCE LIST.
3. REAL-TIME SALES ORDER ENTRY AND CASH RECEIPTS
(A) ORDER ENTRY PROCEDURES
(1)
CREDIT CHECK
(2)
DETERMINE INVENTORY AVAILABILITY
(3)
TRANSMIT STOCK RELEASE RECORD TO WAREHOUSE
AND SHIPPING NOTICE TO SHIPPING DEPARTMENT
(B) WAREHOUSE PROCEDURES
(1)
RECEIVES STOCK RELEASE FORM
(2)
PICKS GOODS AND FORWARDS TO SHIPPING DEPT.
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B.
(C)
SHIPPING AND BILLING
(D)
CASH RECEIPTS PROCEDURES
(E)
FEATURES OF REAL-TIME PROCESSING
REVENUE CYCLE AUDIT OBJECTIVES, CONTROLS, AND TESTS OF
CONTROLS
1. INPUT CONTROLS
(A) CREDIT AUTHORIZATION PROCEDURES
-TESTING CREDIT PROCEDURES
(B) DATA VALIDATION CONTROLS
-TESTING VALIDATION CONTROLS
(C) BATCH CONTROLS
- TESTING BATCH CONTROLS
2. PROCESS CONTROLS
(A) FILE UPDATE CONTROLS
(i)
TRANSACTION CODE CONTROLS
(ii)
SEQUENCE CHECK CONTROLS
(iii)
TESTING FILE UPDATE CONTROLS
(B) ACCESS CONTROLS
-TESTING UPDATE CONTROLS
(C) PHYSICAL CONTROLS
(i)
SEGREGATION OF DUTIES
(ii)
SUPERVISION
(iii)
INDEPENDENT VERIFICATION
(iv)
TESTING PHYSICAL CONTROLS
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3. OUTPUT CONTROLS
(A) ACCOUNTS RECEIVABLE CHANGE REPORT
(B) TRANSACTION LOGS
(C) TRANSACTION LISTINGS
(D) LOG OF AUTOMATIC TRANSACTIONS
(E) UNIQUE TRANSACTION IDENTIFIERS
(F) ERROR LISTING
(G) TESTING OUTPUT CONTROLS
C.
SUBSTANTIVE TESTS OF REVENUE CYCLE ACCOUNTS
1. REVENUE CYCLE RISKS AND AUDIT CONCERNS
.
2. UNDERSTANDING DATA
(A) CUSTOMER FILE
(B) SALES INVOICE FILE
(C) LINE ITEM FILE
(D) INVENTORY FILE
(E) SHIPPING LOG FILE
(F) FILE PREPARATION PROCEDURES
3. TESTING THE ACCURACY AND COMPLETION ASSERTIONS
(A) REVIEW SALES INVOICES FOR UNUSUAL TRENDS AND
EXCEPTIONS
(B) REVIEW SALES INVOICE AND SHIPPING LOG FILES FOR
MISSING AND DUPLICATE ITEMS
(C) REVIEW LINE ITEM AND INVENTORY FILES FOR SALES PRICE
ACCURACY
(D) TESTING FOR UNMATCHED RECORDS
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4. TESTING THE EXISTENCE ASSERTION
(A) SELECTING ACCOUNTS TO CONFIRM
(i)
CONSOLIDATE INVOICES
(ii)
JOIN THE FILES
(iii)
SELECT A SAMPLE OF ACCOUNTS TO CONFIRM
(B) PREPARING CONFIRMATION REQUESTS
-POSITIVE AND NEGATIVE CONFIRMATIONS
(C) EVALUATING AND CONTROLLING RESPONSES
5. TESTING THE VALUATION/ALLOCATION ASSERTION
(A) AGING ACCOUNTS RECEIVABLE
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