Observe the procedure and inquire of personnel who perform the procedure. Cash may be misappropriated. Cash may be misappropriated. Cash may be unrecorded or misappropriated. Cash may be misappropriated. Credits posted to customers’ accounts may be overstated or understated.
Chapter 2 –Internal Control: Revenue and Receipt Cycle Page 14 Valuation or allocation: Debits to cash and credits to accounts receivable are valued at amounts received. 10.Cash receipts are recorded at the amount received. 11.A responsible person approves cash discounts taken. For a sample of entries in cash receipts journal, examine remittance advices. For a sample of entries in cash receipts journal, examine remittance advices for approval of discount taken. A customer may be given credit for an amount greater than payment A customer may take a larger discount than appropriate. Presentation and disclosure: Cash receipts transactions are recorded to result in presentation and disclosure in accordance with PAS. 12.A supervisor approves account classifications made in journalizing. Observe procedure. Examine approvals by supervisor. Entries may be made to wrong accounts. Source: Kiger and Scheiner (1997), Auditing. 2ndEdition. Houghton Mifflin Company. Boston,Figure 2-7: Internal Control Objectives Authorization Controls •Proper authorization of transactions (documentation) should occur so that only valid transactions get processed. •Within the revenue cycle, authorization should take place when: –a sale is made on credit (authorization) –a cash refund is requested (authorization) –posting a cash payment received to a customer’s account (cash pre-list) Segregation of Functions - Three Rules 1.Transaction authorization should be separate from transaction processing. 2.Asset custody should be separate from asset record-keeping. 3.The organization should be so structured that the perpetration of a fraud requires collusion between two or more individuals. Segregation of Functions •Sales Order Processing –credit authorization separate from SO processing –inventory control separate from warehouse –accounts receivable sub-ledger separate from general ledger control account •Cash Receipts Processing –cash receipts separate from accounting records –accounts receivable sub-ledger separate from general ledger
Chapter 2 –Internal Control: Revenue and Receipt Cycle Page 15 Supervision •Often used when unable to enact appropriate segregation of duties. •Supervision of employees serves as a deterrent to dishonest acts and is particularly important in the mailroom. Accounting Records •With a properly maintained audit trail, it is possible to track transactions through the systems and to find where and when errors were made: –pre-numbered source documents –special journals –subsidiary ledgers –general ledger –files Access Controls •Access to assets and information (accounting records) should be limited.
You've reached the end of your free preview.
Want to read all 22 pages?
- Spring '16