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Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

I. Systems and Internal Controls


A. General
1. Obtain a brief idea regarding the structure of the organisation, its size, and nature its business from the Management / Directors and other executives. Review and obtain copies of Manuals / Feasibility Reports / other Reports. Identify the various Departments involved in the Marketing and Sales Function and records maintained by each of them. Identify the Products dealt in by the company, ascertain for each such product : a. The demand pattern in the market. b. The nature of the product market. c. Geographical distribution of the market and major customers. In case the organisation dealing is in Multiple products : a. Ascertain whether the client has a satisfactory product coding system so as to enable identification of all the products at any given point of time. b. Ensure that coding for a particular product is uniform for use of all those concerned for easy identification.

2.

3.

B. Enquiry by Potential Customers


5. Gather details about the modes of communication installed through which the enquiries are received from the prospective customers.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

6.

For each of the mode of gathering the enquiry ensure that suitable person/s have been made responsible for receiving enquiries and for transferring the same to Marketing Department. In the event of a prospective Customer arriving in personally for making enquiry, ascertain whether a person in the Marketing Department has been made responsible for attending such Customers. Gather details about the record / register maintained for recording enquiries, and ascertain whether it is possible to assure that all the enquiries received during the day have been attended to and are answered. Understand the nature of the controls so maintained. Collect information about the medium used to store the data accumulated on enquiries. Also, ascertain whether the mediums so used are satisfactory and the data is systematically arranged for future use. Periodicity of the updations of the Internet Site, Brochures, Advertisements etc., should be enquired into. Establish whether the same is at par with the nature of the business of the organisation.

7.

8.

9.

10.

C. Purchase Orders by Customers and Order Confirmations


11. Study the system of receipt / collection of Purchase orders from the customers and enquire whether :

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

a.

b.

Inward Entry is done in the Documents Inward Register for all the orders so received. (In case such documents are received via Fax, EMail or the Web Site ensure that the devices / software aid in the proper identification of the person placing the order.) Stamping of the Inward Entry number with the date is done on all the orders.

12.

Enquire whether there exists a system of issue of Order Confirmations for the purchase orders so received and whether the existence of such a system is justified and necessary. **(see note below) In case the system of Order Confirmation exists, ensure that : a. Confirmations will be prepared for all the orders that are received and the same will be serially numbered. (Either by using a Computer generated numbers or pre-printed numbered sheets are used.). b. Serial numbering as mentioned in a. above differs for different plants, products or on any other suitable basis so as to enable easy identification. c. Sufficient no. Of copies are prepared for distribution to each of the concerned department and Copies meant for distribution have been marked distinctly for the said departments.

13.

** Order Confirmation : Under this system once an order is received from a customer whether verbally or otherwise it is checked for technical & economic feasibility and only thereafter the same is approved by the Marketing dept. The Order is considered worth for processing by the Production Dept. only after it approved by the Marketing/Sales dept. This system is in existence in industries where technical details play a very vital role. Generally Marketing dept. also considers factors such as past record of the customer, its account position as on date before approving the order. Thus this system ensures that only orders worth processing upon are processed. Copies of confirmations are sent to customer and all the relevant departments. It is not necessary to have such a system though in case of large business houses it would be highly recommended.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

d.

e.

f.

If any confirmation is not prepared then such case can be easily identified by using the Document Inward Register and a list of the same can be conveniently generated. In case any of the Order Confirmation is required to be amended subsequent to its preparation then : 1. There exists a ceiling of maximum nos. of amendments to order confirmation. 2. The amendments to the confirmations are serially numbered using a suitable suffix to the earlier Order Confirmation number. (Such numbers could also be computer generated if the software so permits) 3. The same are clearly marked and/or colored for easy identification. Note the time required for the preparation of the Order Confirmation, so also the time interval by which they are usually passed to the concerned departments. Study the reasons for any abnormal delay arising if any.

D. Follow-up with the Production and Despatch departments:


14. Ensure that copies of Order Confirmation / Purchase Orders sent to the Planning Department are duly returned back after entering of the Job Order No. on the same so as to enable follow up with the Production and Despatch departments. Ensure that the despatch department has arrangements for suitable medium of transportation of goods (when not arranged by the customer himself)

15.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

E. Export Incentives / Grants


16. Examine the Bank Correspondence / Minutes Book etc. and ascertain whether any Incentives for export of goods have been availed. If Yes, then : 1. Identify and study the nature of the Incentive. 2. Obtain a list of the subsidiary books maintained for the Incentive. 3. The Monetary / other limits available under the Incentive. 4. Ascertain Whether such Limits so available are in accordance with the requirements of the entity and are cost effective in nature.

F. Invoicing / Despatch of goods


17. Study the system of despatch of goods and ensure that under the system : a. Goods are loaded into the vehicle only after the entry of the same has been made in the Despatch register. b. Set of all the documents are handed over to the transporter. Also ensure that he has sufficient money to enable him to pay the In-transit taxes (if any). c. Information about the despatch of the goods is passed to the Sales department, which in turn conveys to the customer. d. Copy of the despatch report is sent to the concerned departments on a very regular basis. Study the system of preparation of the Invoices : a. Gather information as to whether the Invoices are prepared at the time of despatch or after the goods have been despatched.

18.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

b.

c.

d.

e.

f.

g.

In case of Export Sales information about the Importer / L/C / Bill of Exchange is fully available both at the time of despatch and preparation of Invoice and the same is found to be in accordance with the requirements for Export Sales. In case the Invoices are prepared after the goods have been despatched, ascertain : 1. The department preparing the Invoice. 2. There exists a system whereby it can be ensured that all Invoices are prepared and the same are counter checked with the despatch records on a regular basis. Check/Ensure whether the person preparing the Invoice is in no way connected or related in the preparation of the Order Confirmations and/or goods despatch register. Study whether the software programme permits automatic updating of the accounts, and accounts receivable records on the preparation of the invoice or separate entries have to be passed for the same. Ascertain the number of copies prepared and also ensure that each such copy is easily identifiable and suitably marked for concerned departments / customer. Study the mode of authorisation of the invoice : 1. Check to ensure that the persons preparing and authorising are different.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

h.

In case authorisation of Invoice is through the system then the system has a security mode whereby only the concerned person can authorise the same (usually this is done by means of restriction of rights of users and their Logins). Study the software programme to ascertain whether it permits modification of a Final Invoice . Check/Ensure that a duly authorised invoice cannot be modified under any circumstances and corrections if any are carried out by completely canceling earlier invoice and preparing new invoice. (See ### below)

2.

### Modification of Invoices in some countries could invite attention of Revenue authorities and Penal action under the their Laws. Therefore modification of Invoices are not permissible / advisable / desirable.

G. Sales Returns / Diversion of goods


19. Ensure that goods returned on account of sales return are properly verified and are stored separately. Study the system of preparation of Sales Return Notes and,. a. Ascertain whether such notes are serially numbered using a suitable prefix for easy identification. (The same may be Pre-numbered or Computer generated numbers may also be used.) b. Entries are made in the Sales Return Note register maintained by the Finished Goods department /Stores Department. c. Acquire information on the number of copies prepared of the Sales return note, and that the same are suitably marked & distributed to the concerned departments.

20.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

21.

In case sales returns arise out of any complaints then : a. Check/Ensure that Sales/Marketing department has a system of recording the complaints in serial order in the form of a register. b. Complaints are promptly attended to by the Marketing department and by referring / seeking assistance of production and other departments if necessary. c. Entries regarding the decisions and actions taken to resolve the complaints are made in the register to enable and have control over its settlement process. In case the goods are diverted to any other customer , study the system and ascertain the manner in which Information is passed from the marketing / sales department to all concerned departments for generating new records or carrying out necessary amendments in the records wherever necessary.

22.

H. Payment Collections / Bill Discounting / Money Receipts / Dr. Notes & Cr. Notes / Accounts Receivables
23. Study the system of payment collection from the customers and check/ensure that : a. Details of the Invoices/Dr.Notes etc against which the payments are received are collected from the customer during payment collection. b. Entries are made in the Inward records and thereafter, the payments collected (along with the details of collection) are immediately passed on to the Accounts department for doing the needful.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

c.

Money receipts are generated in the Accounts department by a person who is not connected in any manner in the preparation / handling of the Invoices and later handed over to marketing department for sending the same to the customer.

24.

Where any Bills / Invoices were discounted with the bank earlier, then : a. Ascertain of the possibility of generation of details/list of bills, which are pending for maturity, and also those bills, which have been dishonored on the due date. (Usually done by maintaining a register of Bills of Exchange). b. In case a bill is dishonoured on the due date : 1. A system exists to intimate the same to the sales/ marketing department for necessary follow-up and action, and 2. Money receipts prepared earlier are cancelled by passing of appropriate reversal entries by the accounts department. Study the system and ensure that where any Export Incentives were availed of earlier from the Banks / Other Financial Institutions then : a. On receipt of payments from the Customers, the Accounts pertaining to such Incentives and Customer are duly adjusted by passing the appropriate entries. b. Also check/ensure whether Suitable entries are made / automatically made by the system in the subsidiary books maintained for such incentives (if any)

25.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

c.

Ascertain whether the existing system makes it possible to obtain a correct and updated position of such incentives at any point of time.

26.

Study the system of preparation of accounts receivable and, a. Ensure that the same is generated regularly at definite time intervals. b. Also Ensure that, the same is updated immediately on the preparation / updating of Invoices, Dr. / Cr. Notes, Money receipt, etc. c. Ascertain whether the Accounts receivable statement reflects the age of invoices due for payments and customers from whom such payments are due. (This is important from the point of disclosure requirements of Debtors in some countries.)
a.

27.

b.

c.

Study the system of generation of Debit notes and Credit Notes and, check/ensure that such notes are generated on the basis of records of the accounts department and explanations received in writing from the marketing department. (Except item d. below) Such notes are serially numbered. (Either by using pre-number printed sheets or computer generated). Based on the explanations received from Sales/Mrkt. Dept. and Internal Scrutiny of Accounts dept. (if any), check/ensure that it is possible to identify the cases for which Dr./Cr. Notes are pending to be generated.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

d.

Study the system of raising of Dr. Notes for Overdue interest on payment of Invoices and ensure that person preparing this Dr. Note is not connected in any way in the preparation of Invoice or Money receipts. Or alternatively such Dr. Notes are automatically software generated based on the money receipt so prepared.

I. MISCELLANY
28. Verify the records maintained specially for Tax return (say VAT for eg.) and Ascertain whether there exists a system whereby the such Tax Returns are automatically generated via the computer systems or are manually prepared. Any other test specially conducted keeping into account the nature of the business. (Specify the details of the test so conducted) Ascertain whether the system was reviewed in the past. If so, ascertain the date and the time of such a review. Have the Queries & Suggestions pertaining to the systems observation discussed with the management and their views gathered. Write down in brief the conclusions relating to the Systems and Internal controls in operation.

29.

30.

31.

32.

Section Reviewed by :

Section Reviewed on :

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

II. General Accounting and other tests


Start-up 33. Obtain & Check or prepare a Start-up schedule of sales for current years figures.

General
34. Identify all different types of sales and specify how each source has been audited. (either by Standard Tests below or a specially made programme)

Standard Tests : Sales


35. Select a sample of Sales Invoices including a number of items around the year and vouch to supporting documentation. a. Vouch details to delivery challan / despatch report. b. Vouch entries made in Sales Daybook, Debtors Ledger, Nominal Ledger, and Cash/Bank Book (for cash sales). c. Ensure that every item is accounted for in the correct period. d. Identify clearly the percentage of sample so selected by you. Ensure through Despatch report that all sales made are invoiced and accounted. Where goods despatched report/delivery challans are not used specify the test used to ensure that all sales made are invoiced. Check the sequence of invoices and despatch records and investigate any missing items.

36.

37.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME INCOME


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

38.

Check & Ensure that all Cash Sales if any are banked regularly. Check whether payments received against the Sales invoices are accounted properly using the Money Receipts / Bank advice etc. and that the invoices are Cross cancelled effectively to reflect the correct picture of receivables in the Accounts Receivable.

39.

Standard Tests : Sales Returns


40. Review Sales Returns. Select a sample and vouch to supporting documentation. a. Ensure that details agree to original invoice. b. Check the quantity and description on the credit note to a Sales Return Note (SRN) or other documentary proof of receipt of goods.
c.

Verify Sales Return Note register to ensure that all the sales returns have been duly accounted for. Vouch postings to Sales Return Book / Sales Daybook. (Under Computerized environment this may not be necessary) Vouch postings to Debtors Ledger, Nominal Ledger. (Under Computerized environment this may not be necessary) Where goods returned are excisable goods ensure that entries in excise records correspond to entries in accounting records and are in agreement with each other.

d.

e.

f.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

g.

Vouch entries to Complaint Register (if any) and check whether the complaints are settled on a regular and timely basis. (This will ensure that contingent liabilities if any are duly recognized and provided for)

Special Tests : Sales & Income


41. Check that prima facie all govt. grants / incentives to which client is entitled have been claimed and the same have been duly been recorded in respective books. Prepare and attach a tailored Audit Programme (if required).

42.

Other
43. Where the Organisation is a LTD Co. : a. and the company has entered in to any transaction in which any director or any other party is interested ensure that due declaration and notice to this effect is given by the concerned director. b. Ensure that disclosure requirements under as applicable to the organisation under various laws of the country in respect of Accounts Receivable have been duly complied with. Ensure that all requirements of prevalent Accounting Standards ( as may be applicable ) have been complied with. Check Casts and Cross Casts of Sales Daybook, Sales Return Daybook. (May not be necessary under a Computerised Environment.)

44.

45.

Client :

Year/ Period End : Ref :

AUDIT PROGRAMME SALES


Nature of the test Test Completed (Y/N.A) Results Satisfactory (Y/N) Ref./ Comments Initials and Date

46.

Where in case of any Income, any Tax has been deducted from such income ensure that the same has been accounted for properly and relevant certificates / proofs collected from the Parties concerned. (applicable in some countries) Verify the closing balances in the ledger accounts with the balances in the Trial Balance and ensure that the same have been properly transferred to the Profit & Loss Account. Verify the figures of turnover with Tax Returns (for eg, VAT). Also ensure that figures of Tax, are in agreement with these Tax returns. Conduct a complete ratio analysis of the Sales figures with the Profit, Stock, Debtors and cost figures and identify/record the reasons for abnormal changes in the ratios. Other tests conducted (if any) Specify the nature of the test so conducted.

47.

48.

49.

50.

Conclusion
51. Have queries pertaining from 33 to 50 been discussed with the management and their views / opinions gathered. Prepare a list of Final queries.

52.

53.

Write down the conclusion in brief.

Section Reviewed by :

Section Reviewed on :

TO WHOMSOEVER IT MAY CONCERN

DECLARATION
18th July 2003

I, Raju J. Saboo do hereby declare that the Article titled AUDIT PROGRAMME SALES is : a. A Complete Original Work and all its contents are Original in Nature. b. It has not been published / or sent for publication elsewhere. c. No Portion is re-produced from any article published in any Journal / Newspaper. The said Article is meant only for guidance and training of my colleagues and fellow students. Yours truly, --sd/-Raju J. Saboo.