As an external auditor who audits the financial statements of Fraser & Neave Holdings Berhad, he has to ensure the Fraser & Neave’s financial statement reflects true and fair view accordance with approved accounting standards. To access the accounting system and internal controls starting point is Revenue Cycle. Sales cycle is the process businesses use to describe the financial progression of company’s accounts receivables from the beginning which the company acquire product to the end of cycle when the company received cash payments from customers in cash or within credit terms if there is credit sales of products.
The sales accounting system of such an entity is relatively unaffected by whether the merchandise is acquired from others. Thus Sales cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting their cash payments. The primary objective of the sales cycle is providing the right product in the right place at the right time for the right price. Credit sales
An order entry function is starting point in the credit sales cycle. Under this function orders received, accepted and then translated into shipping and billing instructions. Order entry may or may not be integrated with the accounting system. The original order may be a written purchase order mail in by a customer, or be taken over the phone or through electronic lodgment by mechanism such as the Internet. Sales order
At this point, a decision needs to be made concerning whether to accept the order. Specific approval of credit department my required, there may be a list of approved customers determined by the credit department; or credit limits may be established that are checked by order entry. The availability of the items ordered is also established by checking the inventory records for the level of inventory items currently on hand. Shipping order
After an order accepted, a shipping order is sent to the shipping department and a copy of this report is used as record of backlog orders (orders no completed) and a routine review of it helps to prevent loss of order. Physical control of the forms used as shipping orders and physical inspection of shipments for a shipping document help to prevent unauthorized shipments. Invoicing functions
The invoicing function is usually the first department involved in the sequence that is part of the accounting department. The invoicing department is responsible for ensuring that a sales invoice is sent to bill the customer. Usually, a sales invoice is a multipart form, the original is mailed to the customer and duplicates are used to notify other department within the business. The flow creates the debit to accounts receivable. The individual sales of invoice are one of the inputs to accounts receivable processing. Sales invoices are used to update the accounts receivable master file. The invoicing department also compares a total of bills prepared. This total is sent to the general ledger function to become the debit to the accounts receivable control account. The totals sent to the general ledger function should not go through the accounts receivable function. If this separation is maintained, a reconciliation of the control account with the total of the accounts receivable master file can be a key control in the in the auditor’s assessment of control risk. Cash collection cycle
Is the next step in the cycle and several function may involved. The first step is opening mail and creating initial record of cash received. This function may be performed by a receptionist, although greater control occurs if two people are present at the mail opening. The important consideration from a control viewpoint is that this function should be separate from other functions which involve handling and keeping cash and recording in the accounts receivable master file. The person...
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