Pricing & Discount Policies

Control Objectives for Pricing and Discount Policies

(a) To ensure that pricing and discount structures are authorised and
documented;
(b) To ensure that pricing levels are competitive, profitable, and adequately
cover the underlying costs;
(c) To ensure that an awareness of market trends, competitor pricing, etc. is
maintained to enable the appropriate commercial response;
(d) To ensure that authorised prices and discounts are correctly applied to
invoices;
(e) To ensure that changes to prices and discounts are authorised and
correctly implemented;
(f) To ensure that accurate and reliable records of costs are maintained in
support of determining the pricing policy;
(g) To provide adequate costing information as a means of identifying the
potential for cost savings, etc.;
(h) To ensure that the effects of taxation and duty are taken into account
when setting prices;
(i) To ensure that, when applicable, geographic differentials and the effects of
cyclical sales patterns are taken into account when determining variations to the
pricing policy;
(j) To ensure that pricing structures accord with the relevant distributor,
agent, retailer chain and are competitive at each stage; and
(k) To ensure that government, national and international pricing restrictions
are taken into account when applicable.

Risk & Control Issues for Pricing and Discount Policies

1 Key Issues

1.1 Have documented pricing and discount policies been authorised and
implemented, (and are they based upon established profit margins, etc.)?
1.2 What steps are taken to ensure that prices remain competitive,
profitable and sustainable?
1.3 How is management assured that the correct prices and discounts
are always applied to invoices (and what mechanisms are in place to detect
and report any unauthorised variations)?
1.4 How can management be certain that product costing information is
accurate, complete, and reliable as the basis for determining prices?
1.5 What measures ensure that changes to prices and discount structures
are justified, authorised and correctly applied?
1.6 When applicable does management take into account the effects of
taxation (i.e. VAT or sales tax), duty and any prevailing price constraints
when determining pricing levels?

2 Detailed Issues

2.1 How can management be sure that the most appropriate form of product
costing is applied?
2.2 How does management maintain an accurate awareness of market trends,
competitor prices, etc. as determinants of pricing policy?
2.3 Are the required profit levels and returns realistically established?
2.4 What processes link individual customers to the correct pricing and
discount structure, as so to ensure the accurate calculation of invoices?
2.5 What parameters govern the eligibility for discounts, and what
mechanisms ensure that they are correctly applied?
2.6 What steps are taken to protect commercially sensitive pricing
information from either unauthorised access or leakage?
2.7 Does management take into account the potential for geographic
differentiation in pricing policy, and if so how can they be assured that the
variations are correctly applied to invoices?
2.8 Where the sales of a product are affected by cyclical patterns, does the
pricing structure vary in relation to demand (and is this process duly authorised)?
2.9 Where prices vary according to cyclical sales patterns, how does
management ensure that the correct price is applied?
2.10 What measures prevent the set-up and application of invalid or
unauthorised prices and discounts?
2.11 How can management be assured that the prevailing pricing structure
complies with any national or international pricing regulations?
2.12 How is the accuracy of data input from other systems (i.e. product
costing) confirmed?
2.13 How is the accuracy of data output to other systems (i.e. accounts
receivable or advertising and promotion) confirmed?