Auditing the Revenue Cycle
Learning Objectives
• After studying this chapter, you should:
• Understand the operational tasks associated with the
revenue cycle under different levels of technology.
• Understand audit objectives related to the revenue cycle.
• Be familiar with revenue cycle control issues related to
alternative technologies.
• Recognize the relationship between revenue cycle audit
objectives, controls, and tests of controls.
• Understand the nature of substantive tests in achieving
revenue cycle audit objectives.
• Be familiar with common features and functions of ACL that
are used to perform substantive tests.
Area of Concern (Around the
Computer)
• Obtaining and Recording the Customer’s
Orders
• Approving Credit
• Processing Shipping Orders
Areas of Concern (through the
Computer)
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Keypunch/ Data Entry
Edit Run
Sort Run
AR Update and Billing Run
Sort and Inventory Update Run
General Ledger Update Run
Batch Cash Receipts Systems
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Mailroom
Cash Receipts Department
AR Department
Data Processing Department
Real-Time Sales Order Entry and Cash
Receipts
• Sales Procedures
– Check credit
– Prepare sales document
– Transmit data to warehouse and shipping
• Warehouse Procedures
– Print data from sales department
– Print stock release document
– Give goods and a copy of the stock release
document to shipping
• Shipping and Billing
– Reconcile goods, stock release document and
copy of packing slip from terminal (which came
from the sales department)
– Prepare shipping notice, invoice is prepared (open
sales order must automatically be cancelled)
– Goods are shipped
• Collections
– Receive cash
– Input payment (AR subsidiary file should be
automatically updated, and cash receipts journal
should also be automatically updated)
– Prepare official receipt
Point of Sale Systems
• POS systems are used extensively in grocery
stores, department stores, and other types of
retail organizations. In this example, only cash,
checks, and bank credit card sales are valid. The
organization maintains no customer accounts
receivable and inventory is kept on the store’s
shelves, not in a separate warehouse. The
customers personally pick the items they wish to
buy and carry them to the checkout location,
where the transaction begins.
Audit Objectives, Controls and
Test of Controls
Input Controls
• Input controls are designed to ensure that
transactions are valid, accurate, and complete.
– Credit Authorization
– Data Validation
– Batch Controls
– Process Control
Process Controls
• Process controls include computerized
procedures for file updating and restricting
access to data. Depending on the level of
computer technology in place, process
controls may also include physical manual
tasks.
– File Update Control
– Access Control
– Physical Control
• Physical Control
– Segregation of Duties
– Supervision
– Independent Verification
Output Controls
• Output controls are designed to ensure that
information is not lost, misdirected, or
corrupted and that system processes function
as intended.
– AR Change Report
– Transactions Logs
• Types of Transaction Logs
– Transaction Listings
– Log of Automatic Transactions
– Unique Transaction Identifiers
– Error Listing