Revenue Cycle

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AUDITING THE REVENUE CYCLE

Audit procedures associated with the revenue cycle is the main point in this report. Basically, it is divided into three sections. First, it begins with a review of alternative technologies used in both legacy and modern system. The focus is on the key operational task performed under each technological environment. The second section discusses the revenue cycle audit objectives, controls and test of controls that an auditor would perform to gather evidence needed to limit the scope, timing and extent of substantive tests. The last section describes revenue cycle substantive tests in relation to audit objectives.

OVERVIEW OF REVENUE CYCLE TECHNOLOGIES

Technology and automation are integral to successful financial leaders' strategy to offset rising expenses and improve operating income. The most efficient revenue cycle will use "best practice" processes enabled by highly optimized technology. By using this combination of process and technology, organizations may realize efficiencies driven by improved workflows; reduced manual intervention; and more relevant, reliable, and timely decision-support information.

This section examines alternative information technologies used in the revenue cycle. The first of these is a sales order system that employs batch processing and uses sequential files for storing accounting records. This is an example of an early legacy type system. This approach characterizes the era of data ownership in which files were designed exclusively for the use of a single user. Second is a cash receipt system that employs batch processing and uses direct access files. This configuration is found in both modern systems and late-era legacy systems. The direct access file approach offers operational advantages over sequential file processing and permits limited data sharing. The final system is a modern real-time sales order entry and cash receipts system that uses database technology. Modern systems design embraces reengineering to radically reshape business processes and workflow. This process involves replacing traditional procedures with procedures that are innovative and sometimes very different from those that previously existed.

Information Technologies Used in the Revenue Cycle
I. Batch processing system using sequential files
Batch processing using sequential files involves two procedures: ❖ Manual procedures
❖ Automated procedures

Batch processing system using sequential files - Manual procedures
In this basic system, order taking, credit checking, warehousing and shipping are performed manually. The following discussion outlines the key features of the system.

1. Obtaining and recording the customers’ order
The sales process begins in the sales department with the receipt of a customer order indicating the type and quantity of merchandise being requested. The primary objective of this step is to ensure that the relevant data about the transaction are transcribed into a standard format that can be processed by the selling entity’s system. The document prepared in this procedure is the sales order.

The process begin as the sales order captures vital information such as the name and address of the customer; the customer’s account number; the name, number and description of the item sold; the quantities and unit prices of each item sold; and other financial information such as taxes, discounts and freight charges. In manual systems, multiple copies of sales order are produced to serve different purposes. After preparing the sales order, the sales clerk files one copy of it in the customer open order file for future reference. Since the process is done manually, filling the order and getting the product to the customer may take days or even weeks.

2. Approving Credit
The next step in the revenue cycle is transaction authorization, which involves...
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