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AUDITING SALES SYSTEMS

Haider Munir Tiwana Mohammad Iqbal Chaudhary

Sales Audit

A sales audit is a review of a company's entire sales process This type of audit is different from a financial audit A sales audit evaluates the effectiveness of every aspect of the sales process helps companies determine whether or not their methods are cost effective and beneficial in generating revenue.

Sales auditors may begin by analyzing the atmosphere in which a company works, both externally and internally The external environment refers to the market size in which a company markets their product, the market demand for that product, and the growth trends in that area The internal environment refers to the culture of the company itself, including the ways in which the sales team interact with one another and the nature of their relationships with their managers

Auditors may next consider a companys specific goals and the sales tactics used to achieve those goals, including long-term and short-term goals A company can request that their auditor review the inner workings of their support staff, such as accounting or billing departments and marketing departments

Sales Transaction
Accounts
Sales Accounts receivable Processing customer orders, Granting credit, Shipping goods, Billing customers and recording sales

Business Functions

Sales invoice, Sales journal or listing, Sales Documents transaction file, Accounts receivable master and Records file and trial balance, Monthly statements

Cash Receipt Transaction


Accounts
Cash in bank (debits from cash receipts) Accounts receivable

Business Functions

Processing and recording cash receipts

Remittance advice, Prelisting of cash receip Documents Cash receipts transaction file, and Records Cash receipts journal or listing

key stages of the sales cycle


1. Orders 2. Dispatch 3. Invoicing and credit notes 4. Returns inwards 5. Receivables 6. Bad Debts

Test Check Sales


ORDER GDN INVOICE

Three Should be same Check forward and reverse line of sales Cut off sales Fictitious sales Bank transactions

Orders
(i) Existing customers should be allocated a credit limit and it should be ascertained whether this limit is to be exceeded if the new order is accepted. If so the matter should be referred to credit control. (ii) Any new customer should be referred to the credit control department before the order is accepted.

(iii) All orders received should be recorded on pre-numbered sales order documents so that a check can be made that all orders have been dealt with -a completeness check.
(iv) All orders should be authorized before any goods are dispatched. (v) The sales order document should be used to produce a dispatch note for the goods outwards department. No goods may be dispatched without a dispatch note.

Dispatch
(i) Dispatch notes should be pre-numbered and a register kept of them to enable them to be matched with relate to sales invoices and customer orders. (ii) Dispatch notes should be authorized before goods leave the company.

(iii) Regular checks should be made to ensure that all dispatches have been invoiced

Invoicing and credit notes


(i) Sales invoices should be authorized by a responsible official and matched with the authorized order and dispatch note. (ii) All invoices and credit notes should be entered In daybook records, the sales ledger, and sales ledger control account. Batch totals should be maintained for this purpose. (iii) Sales invoices and credit notes should be checked for prices. casts and calculations by a person other than the one preparing the invoice.

(iv) All invoices and credit notes should be serially prenumbered and regular sequence checks should be carried out.

v) Credit notes should be authorized by someone unconnected with dispatch or sales ledger functions. (vi) Copies of cancelled invoices should be retained. (vii) Any cancellation of an invoice should lead to a cancellation of the related dispatch note. (viii) Cancelled (and free of charge) invoices should be signed by a responsible official.

ix) Each invoice should distinguish between different types of sales and, if relevant, different rates of VAT or sales tax. Any coding of invoices should be periodically checked independently

Returns
(i) Any goods returned by the customer should be checked for obvious damage and, when accepted. a document should be raised.

(ii) All goods returned should be used to prepare appropriate credit notes

Receivables/Debtors
(i) A receivables ledger control account should be prepared regularly and checked to individual sales ledger balances by an Independent official. (ii) Receivables ledger personnel should be independent of dispatch and cash receipt functions.

(iii) Statements should be sent regularly to customers.


(iv) Formal procedures should exist for following up overdue debts which should be highlighted either by the preparation of an aged list of balances or by the preparation of regular customer statements. (v) Letters should be sent to customers for collection of overdue debts. A policy should be in place for the Institution of legal proceeds where appropriate.

Bad debts
(i) The authority to write off a bad debt should be in writing. Appropriate adjustments should be made to the sales ledger and the control account (ii) The use of court action or the writing-off of a bad debt should be authorized by an official independent of the cash receipt function

Tests of Control

Tests of control should be designed to check that the control procedures are being applied and that objectives are being achieved.

TESTS OF SALES
Customer order
Shipping document Duplicate sales invoice

Sales journal

General ledger

Accounts receivable master file

(a) Carry out sequence test checks on invoices, credit notes, dispatch notes and orders. Ensure that all items are included and that there are no omissions or duplications. (b) Check the existence of evidence for authorization in respect of: iii. acceptance of the order (the creditworthiness check) iv. dispatch of goods v. raising of the invoice or credit note vi. pricing and discounts vii. Write off debtors as bad debts. Check both that the relevant signature exists and that the control has been applied.

(c) Seek evidence of checking of the arithmetical accuracy of: viii. invoices, including pricing, and VAT and sales tax calculations ix. credit notes, This is often done by means of a 'grid stamp' containing several signatures on the face of the document. Ensure that he control has been applied by checking the accuracy of such invoices and credit notes. d) Check dispatch notes and goods returned notes to ensure that they are matched with invoices and credit notes. (e) Check that control account reconciliations have been performed and reviewed. In all cases, tests should be performed on a sample basis.

Effect of E-Commerce on the Sales and Collection Cycle

Auditors should obtain an understanding of the design and operation of key internal controls over e-commerce revenues.

Evidence for e-commerce activities is likely to be in electronic form.

END