REVENUE CYCLE AUDIT PROGRAM GUIDE

OBJECTIVE: To obtain reasonable assurance that revenue activities are

operating effectively and efficiently through the use of manual and automated
testing methods.

SCOPE:
Prepared By:
Reviewed By:
I.

Order Entry/Edit
A.

Order Processing

B.

Commission

II.

Credit

III.

Shipping/Billing

IV.

Accounts Receivable/Collection

V.

Credit Memos

VI.

Cash Receipts

VII.

KPMG
A.

I.

Certification Requirements

Order Entry/Edit

A. Order Processing
Audit Step

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Obtain a listing of system users (write or update access privileges):

1.
a.

Ensure proper segregation of duties within the revenue functions

b.

Review for terminated and transferred employees. Match payroll file to the
order entry file for identification of possible unauthorized and improper
customers. (See LAN/PC APG)

c.

Test access compliance by obtaining user profiles for several critical screens
(ie new customer set up; pricing tables; releasing credit holds, changing credit
limits, inputting orders, billing, etc.) and test to ensure the screens are properly
restricted and adequate segregation of duties is maintained.

2.

Review controls over setting up new customers.

review of the following:
a.

Documentation of customer set up process

Testing should include a

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b.

Approval of new customer is periodically reviewed

c.

Customer order information is safeguarded from unauthorized access.

2.1.7)

(SIC

3.

Scan Customer Database for Government related orders (Key words include:
Agency, Bureau, Department, Federal, National, Office). Ensure these orders
were properly identified.

4.

Search for duplicate or dormant customer accounts. Highlight improper use of

data files.
Oracle: Use the Duplicate Customer report (A/R menu) to help identify
duplicate customer accounts.
Extract a representative sample of closed orders based on customer number,
customer name and credit limit from the system and review for the following:
(SIC 9.1,14,9.2.6,9.3.1)

5.

Oracle: Use the Comprehensive Order Detail report (A/R module) to extract a
sample of closed orders. To get only closed orders, enter a value of no for
the Show Open Orders Only report parameter.
a.

Signed customer commitment (SIC 2.1.1)

b.

Proper credit approval. (SIC 2.1.2)

c.

Evidence of "Table of Denial Order", "Nuclear End Use" & "High-Risk Profile"
review (may be system controlled via the customer master file database)
where applicable. (SIC 2.1.2)

d.

Price agreement to master list. If possible, consider running electronic tests to

match the price listed to the master price list.
Oracle: Use Price List Listing (Order Entry menu) for price information.

e.

Logging for commission credit was logged in same period order was placed at
the proper amount. List possible exceptions by comparing the dates of when
the commissions were logged to the appropriate accounting period. (Also see
Section IB and V for additional testing for commissions)

f.

Evidence of edit check (SIC 2.1.5)

g.

If applicable, proper sales discount approval. Test sales discount compliance

by listing large sales discounts and review for proper discount approval. (SIC
2.1.6)
Oracle: Use the Order Discount Detail report (Order Entry menu) to review and
identify large sales discounts granted to open or closed orders.

h.

Review terms and conditions of contracts for non-standard language which

could have Government compliance risk (Most Favored Pricing Clauses, New
Materials Clause, Buy American/Domestic Content clause, Any FAR or CAS
Acronyms, Priority Hiring, Small Business or Offset./Countertrade clauses) If

found notify Corp Audit Government Compliance Audit Manager and begin
steps to ensure facility can comply with these clauses. (SIC 9.1.14)
6.

Review re-seller agreements to ensure that they contain a statement regarding

group/sectors responsibility related to re-sellers sales to governments
(SIC9.1.7)

7.

Determine the means by which the Master Price List is maintained. Evaluate
the procedure for adequacy. The testing should include a review of the
following:
a.

Approval of price changes. If price list is maintained electronically, consider

isolating prices which have changes within a defined time period and review for
compliance.

b.

Input of price changes (i.e. who does this and is it documented)

c.

Checking price inputs (i.e. by someone independent and documented)

8.

Review controls for identifying specific government related

requirements and ensure compliance, if applicable. (SIC 9.1.16)

delivery

9.

If applicable, ensure management approves all goods not consistent with the
customer purchase commitment. (SIC 2.1.3)

10.

Ensure formal acknowledgment of order acceptance has been sent to

customers on a timely basis. (SIC 2.1.4)

11.

Review procedures for open orders for the following:

(SIC 2.1.8)
Oracle: Examine the Unbooked Orders report (Order Entry module) to review
orders that have been entered but not booked. Based on the order dates,
inquire about and follow up on orders which have not been booked for an
unusual amount of time.
a.

Adequate safeguards against destruction or alteration.

b.

Timely review and disposition.

c.

Communicating open order status and delinquencies to management and to

the sales force.

12.

Extract from the database a sample of aged orders on hold based on customer
number, date and customer name and test for proper follow up.
Place additional audit steps here (if necessary):

13.

Conclusion:
B. Commission
Audit Step

1.

Review and test controls over the reconciliation between the order processing
system and the sales commission system. Select a representative period and
review the reconciliations for accuracy and completeness. (SIC 4.1.3)
a.

Test accuracy and completeness by matching orders from the order

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processing system for a given period based on order number and amount to
the sales commission system.
Select a sample of commission payments and test for the following:

2.
a.

Ensure adequate approval has been obtained for all commission transactions
including approval of the commission program/rates, approval of calculation of
commission, approval of payment, etc. (SIC 4.1.3)

b.

Ensure the accuracy and validity of data entered into the commissions module.
Verify the accuracy of the information from its source. See step 1a above.

c.

Recalculate the commissions paid for accuracy. Trace commission amounts to

the general ledger. Review for reasonableness. Determine if adequate review
of commissions payable and paid is being performed.

d.

Ensure payments are in accordance with Local policy. (segregation of duties,

edit checks, approval, payment)

3.

Review for adequacy the procedures used to ensure that all orders
taken/bridged to the factory are properly included in commission calculations
and all canceled orders are delogged in a timely manner. (SIC 4.1.3)

4.

Extract a representative sample of canceled sales orders from the order

processing system and match to the commission system to determine
cancelled sales are delogged accurately and timely. (SIC 4.1.3)
Oracle: Review the Canceled Orders Report and ensure commissions
associated with these orders have been delogged.

5.

Place additional audit steps here (if necessary).

Conclusion:
II.

Credit
Audit Step

1.

Examine local procedures for the review and approval of customer

creditworthiness. Ensure these procedures are properly reviewed and
approved by Sector and Group Financial management. (SIC 2.2.1)

2.

Determine whether credit limits are established for customer accounts, and
critically review approval procedures for extensions to such limits. Obtain, if
possible, an electronic download of customer credit limits by approval
range( per local policy) and verify appropriate approval exist. Additionally,
ensure credit limit established in the system does not exceed the approved

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amount. (SIC 2.2.2)

a.

Compare accounts receivable balance with the customers credit limit (obtain
electronic download to match the customer A/R with the credit limit, if
possible). List those customers who have exceeded their credit limit.
Determine whether proper management review/approval was obtained prior to
exceeding the limit. (SIC 2.2.3)

b.

List customers with no set credit limit. (obtain electronic listing if possible)

c.

In the case of international orders, a customer account may be insured by a

third party. If these customers have orders which exceed their credit limit
ensure the third party insurer approves the order.

d.

Determine if credit limits are reviewed at least annually and any adjustments to
credit limits are approved by management. (SIC 2.2.4)
Select a sample of accounts from the historical accounts receivable aging
report (Aged Collection Report or ACR) with significant balances over 90 or
120 days (check with in-charge for scope) and determine whether an adequate
credit check was completed (i.e. Dun & Bradstreet, bank credit reference, etc.).
Alternatively, one can test for credit files from the sample of closed orders
selected at Order Processing step 1. (SIC 2.2.2)
Place additional audit steps here (if necessary):

3.

4.

Conclusion:
III.

Shipping/Billing
Audit Step

1.

Verify that bills of lading are signed by the carrier and a shipping clerk. (SIC
2.3.1 and 2.3.5)

2.

Ensure sales orders / shipping authorizations/invoices are numerically

controlled and periodically accounted for.
Review the system configuration to verify if and how the system assigns sales
and shipping authorizations. Determine if the local facility utilizes this function.
If not, determine if compensating controls are adequate. (SIC 2.3.2)

3.

Select a sample of invoices and test the following: (Note: For efficiency
purposes, the sample selected in the Order Processing APG can be used for
testing) (SIC 2.3.3)
a.

All invoices have supporting shipping document. (if possible obtain a sample
of invoices electronically to be tested)

b.

Information on shipping document and labels is accurate. (i.e. agrees to sales

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order and invoice)

c.

Timely updating to the system to reflect shipment (or if manual process,

shipping documents forwarded timely to accounting). Extract list of shipments
by process date and compare to shipping documents. (SIC 2.3.4)

4.

Review procedures over shipping products and ensure quality tests (i.e.
inspections and test counts) are performed on at least a test basis. Cross
reference with the Manufacturing APG quality review. (SIC 2.3.6)

5.

Observe shipping areas to determine whether they are adequately segregated

from the warehouse, production, receiving, and employee parking areas.
Review security over loaded trucks which are held pending release for
shipment. (SIC 2.3.7)

6.

Review access to the shipping area. If key card controlled, obtain an access
listing printout from the key card system and review for reasonableness. If not
key card controlled, assess adequacy of other procedures to restrict access.
(SIC 2.3.8)

7.

Review shipping/invoicing/sales cutoff procedures and verify that they have

been approved by management. (SIC 2.3.9)
a.

Use the system transaction history to extract the last ten sales of one month
and the first ten sales in the subsequent month. Trace these transactions to
the sales journal and the shipping documents to determine these transactions
were properly cutoff and revenue was recognized in the correct period. (SIC
2.3.9 & 2.4.11)

b.

For a given time period list the number days between shipping and invoicing.
From this list determine if orders shipped are invoiced in a different time period.

8.

Determine the adequacy of controls over safeguarding blank shipping

documents. (Also, see audit step #2) (SIC 2.3.10)

9.

Ensure adequate segregation of duties between shipping, billing, and A/R

functions. Extract user profiles from each function and compare for possible
conflicts. Additionally, through observance of each function ensure functions
are appropriately segregated. (SIC 2.3.11 and 2.4.2)

10.

Review partial shipments to ensure they aren't over/under billed or over/under

shipped.
Determine the adequacy of the system to handle partial shipments. Determine
how accounting is notified.
Oracle: Determine that customer orders are being filled on a timely basis by
reviewing the Backlog Summary report (Order Entry module). This report lists
all unshipped orders and the order date. Inquire about and investigate any
orders that have been outstanding for an lengthy time period. If a substantial
number of items are on backorder, it could be indicative of a poor MRP
process (i.e. not ordering materials on a timely basis) or of engineering/design
problems that are preventing smooth production processes.

11.

Ensure a final TDO check is performed prior to shipment if the customer

information (ship to and sold to address) is not controlled by the system.
Refer to the Export Controls APG.

12.

Review procedures over invoice processing and ensure adequate controls are
in place. (SIC 2.4.1)

13.

Review local procedures for tabulating and costing shipments. Determine the
adequacy of methods used to tabulate cost of goods sold, and the accounting
entries made.

14.

Review procedures to ensure all shipments are invoiced. Extract a listing of

shipments for a given period and trace to an invoice and the general ledger
and accounts receivable subledger (SIC 2.4.4)
Oracle: Review the Shipments report (Order Entry module) for all recorded
shipments in a defined date range. Trace selected shipments to the Order /
Invoice Summary report (Order Entry module) to determine date shipment was
invoiced. Then, the invoice can be traced to the A/R Aging report (A/R
module) to verify that transaction was indeed recorded in the A/R system. If
the balance of the A/R aging report agrees with the A/R balance, per the G/L,
for the same time period, then it would appear that invoice was posted into the
G/L.

15.

Using the sample of invoices selected in Audit step #3 of the Shipping APG,
perform the following steps:
a.

Ensure invoices are correctly and timely updated to the A/R and Sales
subledgers. See step 7a above (SIC 2.4.5)

b.

Ensure accuracy of invoices processed. Recalculate invoice amounts.

Compare shipping documentation to invoices through electronically extracting
the data. (SIC 2.4.6)

c.

If applicable, ensure proper sales or value added tax (VAT) charges are
applied. (SIC 2.4.7)

d.

If applicable, the tax exemption certificate on file has:

(SIC 2.4.7)

d.1

Certificate signed by an authorized agent of the company (e.g. Controller,

Treasurer, etc.)

d.2

Title of authorized agent

d.3

Date certificate is signed is the same as or prior to the invoice date

d.4

Motorola Inc. is listed as the vendor

d.5

Customer's legal name must match name of "Sold To" on the corresponding
invoice
Note: The "Ship To" on the invoice determines which State Exemption Form
should be used. If Motorola Inc. ships to a service shop (COSC-Motorola
owned or MSS-independent), and the order requires that the service shop
delivers the equipment to the customer in another state, the state in which the

customer accepts the equipment is the taxing state. Exemption certificates

obtained from customers should follow this rule. Also, our review should
encompass shipments made to a state other than the installation state in order
to avoid a higher sales tax.
16.

Inquire of and review any shipments made on a "no charge" basis (i.e. demos)
and ensure they are properly approved. Query the system for invoices where
the value equals zero. Investigate for reasonableness . (SIC 2.4.8)

17.

Inquire of and review any "billing only" documents to ensure they are properly
approved. (SIC 2.4.9)

18.

Review procedures over sending invoices to customers and ensure they are
not returned to the Credit Dept. for revision. Examine the physical flow of
invoices. Additionally, extract a sample of invoices and ensure the correct bill
to address is documented on the invoice and mailed directly to that address.
(SIC 2.4.10)

19.

Determine the adequacy of controls over blank invoices. (SIC 2.4.14)

20.

Review billing and revenue recognition procedures for any lease, time and
material, service-related, and progress billings and ensure they are in
agreement with the related contract or agreement and GAAP. (SIC 2.4.15)

21

Select a sample of memo billings (i.e. prebillings) and test for the following: (If
possible, determine a unique identifier in the system of these types of billings
and consider electronically extracting your test sample. (SIC 2.4.16)
a.

Pre and post approvals by the appropriate individuals.

b.

Proper reason for issuance.

c.

Disclaimer for pre-billings.

d.

Proper and timely posting to the A/R subledger.

e.

Documentation of timely reconciliation with the customer order or contract,

factory order, and factory invoice. (SIC 2.4.17)

22.

23.

Oracle: Review the Cancelled Orders report (Order Entry module) for a listing
of all orders (by line item) which have been cancelled in a specified time period
and the reasons given for the cancellation. Based on review of this report,
determine the most common reasons for cancellation of orders and if it relates
to some controllable aspect of the facilitys operations (e.g. lengthy backlog or
backorder periods, poor quality with items received in a partial shipment, etc.)
Place additional audit steps here (if necessary):

Conclusion:
IV.

Account Receivable/Collection
Audit Step

1.

Review for adequate segregation of duties. Ensure person responsible for

maintaining the A/R subledger does not have access to billing documentation

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or cash remittances OR ensure adequate compensating controls exist.

Consider extracting user profiles for these functions and compare for
reasonableness. (SIC 2.5.1)
a.

2.

Compare accounts receivable customer names with the organizations

employee file and list activity in employee accounts receivable. Investigate for
reasonableness.
Review controls over accounts receivable posting transactions for adequacy:
(SIC 2.5.2)

a.

Verify through review of user profiles and observance that access to cash
posting screen is limited to authorized personnel.

b.

Verify that duplicate posting of invoices are prevented.

List possible duplicate invoices based on matching invoice numbers, customer
name and value of invoice amount.

c.

Sequence gaps in invoices, sales orders and shipping documents.

d.

Review procedures to ensure that all receipts are posted. Also see cash
receipts apg in Section V below.
Review the reconciliation between the A/R subledger and General Ledger.
(SIC 2.5.3)

3.
a.

Ensure reconciliations are performed timely

b.

Ensure management have reviewed and approved.

c.

Review for unreconciled differences or old reconciling amounts.

d.
e.

List all journal entries that reverse transactions of more that $100.
List all suspense items in the accounts receivable file, both in individural
accounts and in a general suspense account, and age these items.
Ensure aging of the A/R detailed is reviewed by management. (SIC 2.5.4)

4.
a.

Ensure A/R subledger is properly aged. Consider aging items in the accounts
receivable file by date of transaction. Items can be categorized or stratified
into such grouping as 0 to 29 days old, 30 to 59 days old, and more than 60
days old.

b.

Review customers with account balances greater than X in the X aging

where X is user defined.
Review system for internal receivable management reporting to ensure
management is adequately monitoring receivable balances. (SIC 2.5.5)

5.

a.

Perform an analytical review of the accounts receivable as detailed in the A/R

subledger and detail trends and explain significant fluctuations

b.

List large invoices (e.g. those over $X where X is user defined) that are more
than 60 days old.

c.

List all accounts receivable balances that are negative.

d.

List overdue account receivable to ensure they have been assessed with the
appropriate service charge, if applicable.

e.

Review the percentage of unallocated cash receive included in accounts

receivable balance.

6.

Review procedures for account receivable adjustments for adequate controls.

(SIC 2.5.6)

7.

Review A/R reserve policy for adequacy and ensure it was properly approved.
(SIC 2.5.7)

8.

Review A/R reserve analysis. Ensure it is performed at least quarterly and is

calculated in accordance with Sector/Group policy. Compare reserve to
delinquent balances for reasonableness. (SIC 2.5.8)

9.

Review procedures over safeguarding accounts receivable information (both

system and hard copies). (SIC 2.5.9)

10

Review procedures over accounting for employee advances. (SIC2.5.10)

a.

Ensure employee advance accounts are reconciled monthly. Review for old
outstanding employee advances.

11.

Review collection procedures for adequacy and ensure they have been
approved by Sector/Group management. (2.6.11)

12.

Review the A/R subledger and collection call logs. Look for evidence of
adequate collection activities for outstanding invoices of over 60 days. (SIC
2.6.12)

13.

Review follow up procedures on customer correspondence. (SIC 2.6.3)

a.

14.

Ensure adequate documentation is maintained on follow up procedures

performed.
Review applicable policies on the write-off of doubtful receivables and ensure
they have been approved. (SIC 2.6.4)

a.

List the location's write-offs for the last 6-12 months and ensure they were in
accordance with Sector/Group policy. (where possible, obtain the electronic
records of A/R reversals)

15.

Determine whether "receivable insurance" or collection agencies are used by

the location. Ensure procedures exist to require all such collections be directly
deposited in Company bank accounts.

16.

Some Sector/Groups may discount the A/R portfolio. Determine if any

discounting of receivable is done. If so refer to WWCFP B-4 and perform the
following:
a.

Review with the financial management the discounting policy to determine it

was properly approved by appropriate management;
Determine if the receivable is discounted with or without recourse:
To be discounted without recourse a letter must be obtained by Motorola legal
counsel stating the receivable is beyond the reach and totally isolated from
Motorola or any of its creditors. If this criteria is met the accounting treatment
should be as follows:
Dr Cash (funds received)
Dr Discount or Interest expense
Cr Accounts receivable
If it is determined that the discounted receivable is with recourse (the amount
is secured by another party) then the accounting treatment is as follows:
Dr Cash
Cr Notes Payable
If the secured party is permitted by contract to sell the receivable and the
Motorola entity does not have the right to redeem the receivable on short
notice, then the Motorola entity should reclassify the receivable and report it
separately on the balance sheet.

17.

If the Motorola entity defaults and is no ,longer entitled to redeem the

receivable then it should not appear on the books. (SIC 6.2.4 & 2.5.6 & 6.2.5)
Add additional audit steps as deemed necessary

Conclusion:
V. Credit Memo
Audit Step

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1.

Review access to the credit memo application by evaluating user profiles for
appropriate segregation of duties. Also, through observance evaluate for
appropriateness.

2.

Evaluate the control environment for processing credit memos by summarizing

activity by credit memo number, date, customer, credit manager, and type
(price adjustment, billing error, tax adjustmentetc.). Many underlying events
should have been performed/detected prior to payment. Therefore, review for
the following: (SIC 2.4.12 and 3.4.13)
a.

Proper approval. (if approval is electronic, test adequacy of controls on-line)

b.

Propriety of reason for issuance.

c.

Adequate supporting documentation (i.e. ERA (equipment return authorization,

receiving report, etc.). Review Sector/Group policies regarding equipment
return policies and test for compliance.

d.

Proper and timely delog in the commissions system. Bounce the credit memo
file against the commissions system records and investigate any unmatched
items.

e.

Proper and timely posting to the A/R subledger. Compare the date of the
credit memo to the posting date in the general ledger. (SIC 2.5.6)

3.

Ensure credit memos are numerically controlled and periodically accounted for.
(SIC 2.4.13 and 3.4.14)

4.

Determine the adequacy of controls over blank credit memos. (SIC 2.4.14)

5.

Review for gaps in Credit Memo sequence, duplicate Credit Memos numbers,
duplicate postings of credit memos, and potential split credit memos (i.e.
attempting to bypass authorization procedures). Use CARATS tests, if
available. (SIC 2.4.14)
a.

Consider sorting credit memos by number and list duplicates and missing
numbers.

b.

Scan for three or more consecutive credit notes with the same customer. This
could highlight possible splitting of credit notes to overcome authorization limits
(if authorization procedures are incorporated to system controls)

6.

Ensure procedures for reviewing A/R balances are reasonable and address the
SIC requirements. (Also refer to A/R APG) (SIC 2.6.2)

7.

Review procedures for authorizing customer returns for adequacy. Incorporate

testing into audit procedures listed at step #2 above.

8.

Oracle: Review the Returns by Reason report (Order Entry module) to

determine the volume of returns as well as the reasons therefore. Select a
sample of returns and determine that the customers account was credited on a
timely basis.

9.

Oracle: Examine the Disputed Invoices report (A/R module) to review all
disputed invoices, debit memos, and chargebacks. This report should give
the auditor an idea as to how prevalent disputed amounts are. Significant
amount of disputed invoices could be indicative of problems such as pricing

errors, unauthorized sales tactics used by field sales personnel (i.e. field sale
personnel giving prices which later have to be revoked), or errors in the invoice
preparation process. Investigate to the extent considered necessary.
Place additional audit steps here (if necessary):

9.

Conclusion:
VI. Cash Receipts
Audit Step

1.

Review procedures over check endorsement for adequate control. Review any
checks on hand and ensure they have been properly endorsed. (SIC2.7.1)

2.

Extract a sample of in-house cash receipts based on customer, receipt date

and receipt amount and test for the following:
a.

Checks were deposited on a timely basis. (SIC 2.7.2)

b.

Checks received are recorded in the cash receipt log and posted to the
General Ledger

c.

Trace the cash receipt to the bank deposit slip or bank statement.

d.

Ensure cash receipts have been accurately and timely posted to the A/R
subledger. Trace cash receipts entries to accounts receivable subsidiary ledger
and specific customer accounts (where possible, obtain electronic cash
receipts posting records and what accounts were affected) (SIC 2.7.5)

3.

Ensure unidentified cash receipts (from both in-house and lockbox) are
promptly investigated and resolved.
a.

4.

Review cash receipt responsibilities for proper segregation of duties. Ensure

adequate compensating controls exist if individual responsible for receiving
and depositing checks/cash has any responsibilities listed in the SIC - i.e., A/R,
Order Processing, etc. (See also Order Processing APG)
a.

5.

Review user profiles, electronically where possible, for cash posting application
for possible segregation of duties conflict.
Review lockbox availability and use. Select a sample of cash received directly
at the bank (i.e. lockbox, wire transfer) and ensure timely and accurate posting
to A/R subledger. Compare the date of posting to cash account to date of
posting to the A/R subledger. (SIC2.7.4)
Ensure established cash receipts cutoff procedures are adequate.

6.
a.

7.

Reconcile cash receipt transactions to the accounts receivable reduction plus

cash sales and cash received from other sources.

Select a period end (i.e. quarter or year-end) and test a sample of shipping
and invoice dates before and after cutoff to ensure that revenue is recognized
in the proper period. Refer to Shipping/Billing APG. (SIC 2.7.6)
Review procedures over any other misc. customer remittances received for
adequacy and ensure they are approved by management. (SIC 2.7.7)

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8.

Place additional audit steps here (if necessary):

Conclusion:
VII. KPMG
A. Certification Requirements
Audit Step

1.

Pending input from KPMG

2.

Conclusion:

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