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Business Proposal in ABM

The document discusses the revenue cycle, including direct exchange of goods for cash and more complex credit sales. It describes features of real-time processing like shortened cash cycles and competitive advantages. The document then covers revenue cycle audit objectives, controls, and tests of controls. This includes input controls to ensure valid and accurate transactions, as well as process controls and substantive tests of revenue cycle accounts. Specific risks are identified, such as recognizing fictitious or premature sales. The tests described validate sales prices and quantities, confirm accounts receivable, and analyze aging reports.

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Ma. Katrina Busa
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54 views

Business Proposal in ABM

The document discusses the revenue cycle, including direct exchange of goods for cash and more complex credit sales. It describes features of real-time processing like shortened cash cycles and competitive advantages. The document then covers revenue cycle audit objectives, controls, and tests of controls. This includes input controls to ensure valid and accurate transactions, as well as process controls and substantive tests of revenue cycle accounts. Specific risks are identified, such as recognizing fictitious or premature sales. The tests described validate sales prices and quantities, confirm accounts receivable, and analyze aging reports.

Uploaded by

Ma. Katrina Busa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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REVENUE CYCLE

Reported by:
Jean Ygot
Gracelle Adayo
Abegail Boñaga
Johnrey Bragais
Jenifer Buama
REVENUE CYCLE
 
Direct exchange of finished goods or
services for cash in a single
transaction between the buyer and
the seller.
More complex revenue cycle process
sales on credit. 
FEATURES OF REAL-TIME PROCESSING

• Real-time processing greatly shortens the cash cycle of


the firm.
• Real-time processing can give a firm a competitive
advantage in the marketplace
• Manual procedures tend to produce clerical errors, such
as incorrect account numbers, invalid inventory
numbers and price-quantity extension miscalculations.
• Real-time processing reduces the amount of paper
documents in a system.
REVENUE CYCLE AUDIT OBJECTIVES, CONTROLS,AND TESTS
OF CONTROLS
RELATIONSHIP BETWEEN MANAGEMENT ASSERTIONS AND
REVENUE CYCLE AUDIT OBJECTIVES
RELATIONSHIP BETWEEN MANAGEMENT ASSERTIONS AND
REVENUE CYCLE AUDIT OBJECTIVES
RELATIONSHIP BETWEEN MANAGEMENT ASSERTIONS AND
REVENUE CYCLE AUDIT OBJECTIVES
INPUT CONTROL
• Input controls are designed to ensure that transactions are valid,
accurate, and complete.
• Control techniques vary considerably between batch and real-time
systems.
1. CREDIT AUTHORIZATION PROCEDURES
2. TESTING CREDIT PROCEDURES
3. DATA VALIDATION CONTROLS
4. TESTING VALIDATION CONTROLS
5. BATCH CONTROLS
6. FILE UPDATE CONTROLS
7. ACCESS CONTROLS
8. PHYSICAL CONTROLS
9. OUTPUT CONTROLS
CREDIT AUTHORIZATION PROCEDURES
DATA VALIDATION CONTROLS
BATCH 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 CONTROLS
PHYSICAL CONTROL
OUTPUT CONTROL
SUBSTANTIVE TESTS OF REVENUE CYCLE
ACCOUNTS
REVENUE CYCLE RISKS AND AUDIT CONCERNS

1. Recognizing revenues from sales transactions that did not occur


2. Recognizing sales revenues before they are realized (i.e., billing customers for items still
being manufactured at period-end)
3. Failing to recognize period-end cutoff points, thus allowing reported sales revenues for the
current period to be inflated by post-period transactions
4. Underestimating the allowance for doubtful accounts, thus overstating the realizable value of
accounts receivable
5. Shipping unsolicited products to customers in one period that are returned in a subsequent
period.
6. Billing sales to the customer that are held by the seller (Special terms associated with such
transactions may require no payment for a lengthy period of time.)
UNDERSTANDING DATA
1. CUSTOMER FILE- The Customer master file contains address
and credit information about customers
2. SALES INVOICE FILE along with the Line-tem file, captures
sales transaction data for the period.
3. CASH RECEIPTS FILE
4. LINE ITEM FILE- The Line-tem file contains a record of every
product sold
5. INVENTORY FILE- The Inventory file contains quantity, price,
supplier, and warehouse location data for each item of
inventory.
6. SHIPPING LOG FILE
TESTING THE ACCURACY AND COMPLETENESS
ASSERTIONS

• Substantive tests of details with an analytical review


of account balances(trends and ratio analysis)
• Review sales invoices for unusual trends and
exceptions
• Review sales invoice and shipping log files for
missing and duplicate terms
• Review line tem and inventory files for sales price
accuracy
• Testing for unmatched records
TESTING THE EXISTENCE ASSERTION
CONFIRMATION OF ACCOUNTS RECEIVABLE
• The Confirmation Process, states that auditors should request
confirmations of accounts receivable except in the following three
situations:
1) accounts receivable are immaterial
2) based on a review of internal controls, the auditor has assessed
control risk to be low; or
3) the confirmation process will be ineffective.
• POSITIVE CONFIRMATIONS are particularly useful when the auditor
suspects that a large number a of accounts may be in dispute.
• NEGATIVE CONFIRMATIONS request the recipients to respond only if
they disagree with the amount shown in the letter.
EVALUATING AND CONTROLLING
RESPONSES
 The auditor should retain custody of the confirmation
letters until they are mailed.
 The confirmation letters, together with self-addressed
stamped envelopes, should be addressed to the auditor,
rather than the client organization.
 The confirmation request should be mailed by the
auditor. If client mailroom personnel participate in the
process, they should be adequately supervised.
TESTING THE VALUATION/ALLOCATION
ASSERTION
 ACCOUNTS RECEIVABLE AGING (tabulated via an aged
receivables report) is a periodic report that categorizes a
company's accounts receivable according to the length of time an
invoice has been outstanding.
 It is used as a gauge to determine the financial health of a
company's customers.
 If the accounts receivable aging shows a company's receivables
are being collected much slower than normal, this is a warming
sign that business may be slowing down or that the company is
taking greater credit risk in its sales practices.
Thank You 

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