AIS ch08

Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
Chapter
8-1
Revenue and Cash

Collection Processes
and Controls
Chapter
8-2
Study
Study Objectives
Objectives
1.
An introduction to revenue processes
2.
Sales processes and the related risks and controls
3.
Sales return processes and the related risks and controls
4.
Cash collection processes and the related risks and controls
5.
An overview of IT systems of revenue and cash collection that enhance the

efficiency of revenue processes
6.
E-business systems and the related risks and controls
7.
Electronic data interchange (EDI) systems and the related risks and
controls
8.
Point of sale (POS) systems and the related risks and controls
9.
Ethical issues related to revenue processes
10.
Corporate governance in revenue processes
Chapter
8-3
Staples, the large office supply company, sells not only

in retail stores, but also to other large corporations. Top
management at Staples realizes that these corporate
sales are dependent upon customers satisfaction with their buying experience. Staples
must have sales processes that maximize customer satisfaction, because the sales
processes are what make up the buying experience. However, customer satisfaction
depends on the whole range of activities from ordering, to product delivery, to efficient
billing and collection, and facilitation of product returns. Staples must have, monitor,
and improve all of the internal processes that generate the sale, deliver to the
customer, and collect the payment. These processes must be able to handle
walk-in sales, telephone orders, and web orders. To
improve performance in filling customer orders and collecting the cash, Staples
monitors the following performance measures:
Order entry accuracy
Order fill rate versus
unit fill rate
Percent of items mispicked Percent of orders
delivered next day
Products delivered undamaged
To perform efficiently in these areas, Staples must have
processes within the company to enter customer orders, pick the correct items from
the warehouse shelves, package and ship the items correctly, bill the customer
correctly, and collect the payment as quickly as possible. If these processes are
inefficient or poorly managed, the result may be unhappy customers and reduced
Chapter
8-4sales. This chapter describes these types of revenue processes and the internal
Real
Real World
World
Introduction
Introduction to
to Revenue
Revenue Processes
Processes
Companies sell products and/or services.
Examples:
Retailers:
Manufacturers:
Record the sale,
Sell product to other

companies.
collect cash,
update inventory status
all at the time of the sale.
Deliver goods and bill

customer at a later date.
Collect payment.
Chapter
8-5
SO 1 An introduction to revenue processes
Introduction
Introduction to
to Revenue
Revenue Processes
Processes
Systems and processes must be in place to capture, record,
summarize, and report sales transactions.
Processes include:
Polices and procedures employees follow in completing the

sale.
Capturing customer data and sales quantities.
Routing sales documents to the right departments.
The Accounting System uses this flow of sales documents to

various departments to record, summarize, and report the results of
the sales transactions.
Chapter
8-6
Exhibit 8-1
Revenue Processes within
the Overall System
Introduction
Introduction
to
to Revenue
Revenue
Processes
Processes
Chapter
8-7
Introduction
Introduction to
to Revenue
Revenue Processes
Processes
Business processes common in company-to-company sales
transactions are:
1. Collect order data from customer
2. Deliver goods
3. Record receivable and bill customer
4. Handle product returns
5. Collect the cash
6. Update records, such as
accounts receivable,
revenue, and
cash,
cost of goods sold.
inventory,
Chapter
8-8
Sales
Sales Processes
Processes
Terminology
Chapter
8-9
Purchase Order
Packing Slip
Sales Order
Bill of Lading.
Price List
Shipping Log
Credit Limit
Sales Invoice (Bill)
Pick List
Sales Journal
SO 2 Sales processes and the related risks and controls
Sales
Sales Processes
Processes
Exhibit 8-2
Sales Process Map
See next slide for larger image.

Chapter
8-10
Sales
Sales Processes
Processes
Exhibit 8-2
Sales Process Map
Chapter
8-11
Sales
Sales Processes
Processes
Exhibit 8-2
Sales Process Map
Chapter
8-12
Controls
Controls and
and Risks
Risks in
in Sales
Sales Processes
Processes
Common procedures associated with the sales
process:
Authorization of transactions
Segregation of duties
Adequate records and documents
Security of assets and documents
Independent checks and reconciliation
Cost-benefit considerations
Chapter
8-13
Controls
Controls and
and Risks
Risks in
in Sales
Sales Processes
Processes
Characteristics indicating risk with respect to sales
processes:
Frequent changes made to sales prices or customers
Pricing structure is complex or based on estimates
Large volume of transactions
One or few key customers
Shipments not controlled directly by the company
Product mix is difficult to differentiate
Shipping and/or recordkeeping at multiple
Chapter
8-14
locations
Controls
Controls and
and Risks
Risks in
in Sales
Sales Processes
Processes
Concept Check
The purpose of tracing shipping documents to
prenumbered sales invoices would be to provide
evidence that
a.
shipments to customers were properly invoiced.
b.
no duplicate shipments or billings occurred.
c.
goods billed to customers were shipped.
d.
for.
all prenumbered sales invoices were accounted
Chapter
8-15
Controls
Controls and
and Risks
Risks in
in Sales
Sales Processes
Processes
Concept Check
The purpose of tracing sales invoices to shipping
documents would be to provide evidence that
a.
shipments to customers were properly invoiced.
b.
no duplicate shipments or billings occurred.
c.
goods billed to customers were shipped.
d.
for.
all prenumbered sales invoices were accounted
Chapter
8-16
Sales
Sales Return
Return Processes
Processes
Company must have procedures for receiving returned goods,
crediting customers account, and placing items back in
inventory.
Terminology:
Chapter
8-17
Receiving log
Receiving report
Credit memorandum
SO 3 Sales return processes and the related risks and controls
Sales
Sales Return
Return Processes
Processes
Exhibit 8-8
Sales Returns Process Map

Chapter
8-18
Sales
Sales Return
Return Processes
Processes
Chapter
8-19
Exhibit 8-8
Sales
Sales Return
Return Processes
Processes
Chapter
8-20
Exhibit 8-8
Risks
Risks and
and Controls
Controls in
in the
the Sales
Sales Return
Return
Processes
Processes
Specific controls over the sales returns process:
Chapter
8-21
Risks
Risks and
and Controls
Controls in
in the
the Sales
Sales Return
Return
Processes
Processes
Circumstances which may indicate high level of risk.
Quantities of returns are difficult to determine
High volume of credit memo activity
Product prices change frequently, or pricing structure is otherwise
complex
Returns are received at various locations, or issuance of credit
memos may occur at different locations

One or few key customers
Returns not controlled directly by the company
Chapter
8-22
SO 3
Risks
Risks and
and Controls
Controls in
in the
the Sales
Sales Return
Return
Processes
Processes
Concept Check
Under a system of sound internal controls, if a company
sold defective goods, the return of those goods from the
customer should be accepted by the
a. receiving clerk.
b. sales clerk.
c. purchasing clerk.
d. inventory control clerk.
Chapter
8-23
Cash
Cash Collection
Processes
Company-to-company sales are typically made on account,
and a time span is given for the customer to pay.
Terminology:
Chapter
8-24
Remittance advice
Cash receipts journal
SO 4 Cash collection processes and the related risks and controls
Cash
Cash Collection
Processes
Exhibit 8-12
Cash Receipts Process Map

Chapter
8-25
Cash
Cash Collection
Processes
Exhibit 8-12
Chapter
8-26
Cash
Cash Collection
Processes
Exhibit 8-12
Chapter
8-27
Cash
Cash Collection
Processes
Concept Check
Which of the following is not a document that is part of the
cash collection process?
a.
Remittance advice
b.
Cash receipts journal
c.
Bank deposit slip
d.
Packing slip
Chapter
8-28
Risks
Risks and
and Controls
Controls in
in the
the Cash
Cash Collection
Collection
Processes
Processes
Specific controls over the cash receipts process:
Chapter
8-29
Risks
Risks and
and Controls
Controls in
in the
the Cash
Cash Collection
Collection
Processes
Processes
Circumstances that may indicate risks to cash collections.
High volume of cash collections
Decentralized cash collections
Lack of consistency in the volume or source of collections
Presence of cash collections denominated in foreign currencies
Chapter
8-30
Cash
Cash Collection
Processes
Concept Check
Which of the following would represent proper segregation of
duties?
a.The employee who has custody of cash also does accounts
receivable record keeping.
b.The employee who has custody of cash completes the bank
reconciliation.
c.The employee who opens mail containing checks prepares a list of
checks received.
d. The employee who opens mail containing checks records
transactions in the general ledger.
Chapter
8-31
SO 4
IT
IT Enabled
Enabled Systems
Systems of
of Revenue
Revenue and
and Cash
Cash
Collection
Processes
Larger IT systems generally have:
Fewer manual processes
More computerized processes
Chapter
8-32
SO 5 An overview of IT systems of revenue and cash collection

that enhance the efficiency of revenue processes
IT
IT Enabled
Enabled
Systems
Systems of
of
Revenue
Revenue and
and
Cash
Cash
Collection
Collection
Processes
Processes
Exhibit 8-17
Revenue Processes
System Flowchart
Exhibit 8-17 is a
system flowchart of a
generic version of
revenue system with
some paper
documents.
Chapter
8-33
SO 5
IT
IT Enabled
Enabled Systems
Systems of
of Revenue
Revenue and
and Cash
Cash
Collection
Processes
Sophisticated, highly integrated IT systems capture, record,
and process revenue and cash collection events.
Such systems include:
Chapter
8-34
E-commerce systems.
Electronic Data Interchange (EDI) systems.
Point of Sale (POS) systems.

IT
IT Enabled
Enabled Systems
Systems of
of Revenue
Revenue and
and Cash
Cash
Collection
Processes
Sophisticated IT systems usually lead to:
Chapter
8-35
First, underlying processes are reengineered (BPR) so as to

be conducted more efficiently.
Second, IT systems improve the efficiency of the related

information.

E-Business
E-Business Systems
Systems and
and the
the Related
Related Risks
Risks
and
and Controls
Controls
Two popular types of Internet sales:
Chapter
8-36
Business to Business (B2B)
Business to Consumer (B2C)
SO 6 E-business systems and the related risks and controls
E-Business
E-Business Systems
Systems and
and the
the Related
Related Risks
Risks
and
and Controls
Controls
Advantages of e-commerce include:
1. Reduced cost
2. Shorter sales cycles
3. Increased accuracy and reliability of sales data
4. Increased potential market for products and services
Chapter
8-37
Real
Real World
World
Many large corporations sell to other companies. Staples is
an example of a company selling to other companies via
websites. Regarding sales of office supplies to other large
corporations, management at Staples realizes that it must
support orders in the manner the customer prefers. Jay Baitler,
the senior vice president of the Staples Contract Division, said,
Offering Internet-based transactions is now critical.2 Internetbased sales accounted for 70 percent of the revenue in the
contract division.
Chapter
8-38
E-Business
E-Business Systems
Systems and
and the
the Related
Related Risks
Risks
and
and Controls
Controls
Risks related to Internet Sales include:
Security and Confidentiality
1. Unauthorized access
2. Hackers or other network break-ins
3. Repudiation of sales transactions
Processing Integrity
4. Invalid data entered by customers
5. Incomplete audit trail
6. Errors when integrating data into back end systems
Chapter
8-39
E-Business
E-Business Systems
Systems and
and the
the Related
Related Risks
Risks
and
and Controls
Controls
Risks related to Internet Sales include:
Availability
7. Hardware and software system failures that block customers
from access to the website
8. Virus and worm attacks
9. Denial-of-service attacks by hackers
Controls should be in place to reduce the security,
availability, processing integrity, and confidentiality risks.
Chapter
8-40
E-Business
E-Business Systems
Systems and
and the
the Related
Related Risks
Risks
and
and Controls
Controls
Concept Check
When a company sells items over the Internet, it is usually
called e-commerce. There are many IT risks related to Internet
sales. The risk of invalid data entered by a customer would be
a(n)
a.availability risk.
b.processing integrity risk.
c.security risk.
d.confidentiality risk.
Chapter
8-41
E-Business
E-Business Systems
Systems and
and the
the Related
Related Risks
Risks
and
and Controls
Controls
Concept Check
When a company sells items over the Internet, there are many
IT risks. The risk of hardware and software failures that
prevent Website sales would be a(n)
a.availability risk.
b.processing integrity risk.
c.security risk.
d.confidentiality risk.
Chapter
8-42
Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
and
and The
The Risks
Risks and
and Controls
Controls
Electronic data interchange is the inter-company, computerto-computer transfer of business documents in a standard
business format.
ANSI X.12 standards divide EDI data transmissions into
three parts:
Header and trailer data
Labeling interchanges
Data segments
Chapter
8-43
SO 7 Electronic data interchange (EDI) systems

and the related risks and controls
Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
Value
Added
Networks
(VANs)
Exhibit 8-18
EDI Using a ThirdParty Network
Chapter
8-44
SO 7
Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
and
and The
The Risks
Risks and
and Controls
Controls
Advantages to an EDI system within the revenue and cash
collection processes:
1. Reduction or elimination of data keying
2. Elimination of keying errors
3. Elimination of costs related to keying errors
4. Elimination of time needed to key in orders
5. Elimination of mail delays
Chapter
8-45

Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
and
and The
The Risks
Risks and
and Controls
Controls
Advantages to an EDI system within the revenue and cash
collection processes:
6. Elimination of postage costs
7. Reduction in inventory levels
8. Competitive advantage through better customer service
9. Preservation of business with existing customers who have
adopted EDI
Chapter
8-46

Real
Real World
World
Northern Telecom (Nortel) switched to an Internet EDI system in the late
1990s. Nortel has customers all over the globe, and the use of the
Internet by Nortel customers to transmit purchase orders is a low-cost
transmission option for those customers. This was especially beneficial to
Nortel in expanding its customer base in Europe and Asia. As Nortel
works to gain new customers, a low-cost way to order is an enticement to
those customers. There are also other benefits to Nortel. The use of
Internet EDI eliminated the need for customers to fax purchase orders or
supplier information to Nortel. Michael Keef, the senior manager of
electronic business solutions at Nortel, said, Errors occur when people
fax things. We wont have to rekey shipment notices.3 Details of Internet
EDI are described in a later chapter on e-commerce.
Chapter
8-47

Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
and
and The
The Risks
Risks and
and Controls
Controls
Risks in an EDI system include:
Security and Confidentiality
1. Unauthorized access
2. Trading partners gaining access to unauthorized data
3. Hackers or other network break-ins
4. Repudiation of sales transactions
Chapter
8-48

Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
and
and The
The Risks
Risks and
and Controls
Controls
Risks in an EDI system include:
Processing Integrity
5. Invalid data entered by trading partners
6. Incomplete audit trail
7. Errors when integrating data into back end systems
Availability
8. Hardware and software system failures that block customers
from access to the EDI system.
Chapter
8-49

Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
and
and The
The Risks
Risks and
and Controls
Controls
IT controls can lessen these risks. Controls are:
Chapter
8-50
Authentication
Control totals
Encryption
Acknowledgment
Transaction logging

Electronic
Electronic Data
Data Interchange
Interchange (EDI)
(EDI) Systems
Systems
and
and The
The Risks
Risks and
and Controls
Controls
Concept Check
The use of electronic data interchange (EDI) to conduct sales
electronically has both risks and benefits. Which of the
following is a benefit of EDI, rather than a risk?
a.Incomplete audit trail
b.Repudiation of sales transactions
c.Unauthorized access
d.Shorter inventory cycle time
Chapter
8-51

Point
Point of
of Sale
Sale (POS)
(POS) Systems
Systems and
and the
the
Related
Related Risks
Risks and
and Controls
Controls
Point of Sale systems, features that assist accountants and
managers:
1. Touch screen menus
2. Bar code scanning
3. Real-time access to inventory and price data
4. Credit card authorizations during the sale
5. Real-time update of cash, sales, and inventory records
6. Immediate summaries and analyses
7. Integration with the companys general ledger system
Chapter
8-52
SO 8 Point of sale (POS) systems and the related risks and controls
Point
Point of
of Sale
Sale (POS)
(POS) Systems
Systems and
and the
the
Related
Related Risks
Risks and
and Controls
Controls
Point of Sale systems can reduce some processing integrity
risks within revenue and cash collection:
1. Pricing errors for products sold
2. Cash overage shortage errors
3. Errors in inventory changesless chance of an incorrect
product number
4. Erroneous or invalid sales voids or deletions
Chapter
8-53
Point
Point of
of Sale
Sale (POS)
(POS) Systems
Systems and
and the
the
Related
Related Risks
Risks and
and Controls
Controls
Concept Check
An IT system that uses touch screens, bar coded products,
and credit card authorization during the sale is called a(n)
a.
electronic data interchange system.
b.
e-commerce system.
c.
point of sale system.
d.
e-payables system.
Chapter
8-54
Ethical
Ethical Issues
Issues Related
Related to
to Revenue
Revenue
Processes
Processes
Intentional revenue inflation is unethical, and many
types of revenue inflation are illegal.
Two ways to inflate revenue:
Channel stuffing
Leaving sales open
http://www.sec.gov/litigation/
litreleases/lr17001.htm
Chapter
8-55
SO 9 Ethical issues related to revenue processes
Real
Real World
World
In the early days of personal computers, one of the manufacturers of
hard drives was MiniScribe Corporation. The chief executive officer of
MiniScribe, Q.T. Wiles, was convicted of fraud in 1994 and subsequently
served 30 months in prison for falsifying revenue. To inflate revenues,
Q.T. Wiles came up with a novel idea. He made the employees ship
bricks, rather than hard drives, in boxes that were sent to distributors.
The company also shipped scrapped parts in boxes that were labeled as
hard drives. The company inflated revenue by recording completely
fictitious, fraudulent sales of these bricks and scrap materials. In
addition to the CEO being sentenced to jail time, the chief financial
officer, a CPA, was disciplined by the SEC. The company ultimately
failed.
Chapter
8-56
Real
Real World
World
In 2008, the Coca-Cola Company agreed to pay a $137.5 million
settlement related to accusations of channel stuffing. After an eight-year
SEC investigation, Coke agreed to the settlement but admitted no
wrongdoing. The company had been accused of pressuring bottlers to
buy more soft drink concentrate than necessary. This overselling
technique added sales, and therefore higher profits, to Cokes financial
reports, and it kept the stock price artificially inflated. Those who
purchased Coke stock in a short period in late 1999 to early 2000 were
entitled to a portion of the settlement. In a similar case, the SEC
investigated McAfee, Inc. in 2006. McAfee, a software seller, was
accused of selling its software products to its distributors in quantities
greater than end-consumer demand. The company admitted no
wrongdoing but ultimately agreed to a $50 million settlement.
Chapter
8-57
Real
Real World
World
http://www.usdoj.gov
/opa/pr/2003/July/03
_crm_436.htm
A recent example of accountants being involved in revenue misstatement

in an accounting fraud scheme occurred at HealthSouth Corp. Richard
Scrushy, the CEO, and five different financial officers were accused of
inflating profits by $1.4 billion. The accountants involved claimed that
Scrushy held so-called family meetings to help devise and cover up
earnings falsifications. In June of 2005, to the surprise of federal
prosecutors, Scrushy was found not guilty of all counts against him even
though the five other HealthSouth officials had plead guilty
and testified that Scrushy ordered the actions. Although a jury found him
not guilty, Scrushys job prospects as a CEO are severely damaged. At a
minimum, he tolerated and failed to prevent unethical behavior, even
though it was not proven beyond a reasonable doubt that he participated
in the events.
Chapter
8-58
Corporate
Corporate Governance
Governance of
of Revenue
Revenue
Processes
Processes
Four primary functions of the corporate governance
process:
Management oversight.
Internal controls and compliance.
Financial stewardship.
Ethical conduct.
Establishing proper processes, internal controls, and ethical guidelines leads

to better corporate governance and, therefore, good financial stewardship.
Chapter
8-59
SO 10 Corporate governance of revenue processes
Corporate
Corporate Governance
Governance of
of Revenue
Revenue
Processes
Processes
Concept Check
Which of the following is not a method of unethically inflating
sales revenue?
a.Channel stuffing
b.Holding sales open
c.Premature recognition of contingent sales
d.Promotional price discounts
Chapter
8-60
SO 10 Corporate governance of revenue processes
Copyright
Copyright
Copyright 2013 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility for
errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.
Chapter
8-61

AIS ch08

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

AIS ch08

Hochgeladen von

Copyright:

Verfügbare Formate

Prepared by

Revenue and Cash

An introduction to revenue processes

Sales processes and the related risks and controls

Sales return processes and the related risks and controls

Cash collection processes and the related risks and controls

An overview of IT systems of revenue and cash collection that enhance the

E-business systems and the related risks and controls

Ethical issues related to revenue processes

Corporate governance in revenue processes

Staples, the large office supply company, sells not only

Record the sale,

Sell product to other

Deliver goods and bill

SO 1 An introduction to revenue processes

Polices and procedures employees follow in completing the

Capturing customer data and sales quantities.

Routing sales documents to the right departments.

The Accounting System uses this flow of sales documents to

SO 1 An introduction to revenue processes

SO 1 An introduction to revenue processes

cost of goods sold.

SO 1 An introduction to revenue processes

Sales Invoice (Bill)

SO 2 Sales processes and the related risks and controls

See next slide for larger image.

SO 2 Sales processes and the related risks and controls

SO 2 Sales processes and the related risks and controls

SO 2 Sales processes and the related risks and controls

SO 2 Sales processes and the related risks and controls

SO 2 Sales processes and the related risks and controls

shipments to customers were properly invoiced.

no duplicate shipments or billings occurred.

goods billed to customers were shipped.

all prenumbered sales invoices were accounted

SO 2 Sales processes and the related risks and controls

shipments to customers were properly invoiced.

no duplicate shipments or billings occurred.

goods billed to customers were shipped.

all prenumbered sales invoices were accounted

SO 2 Sales processes and the related risks and controls

SO 3 Sales return processes and the related risks and controls

See next slide for larger image.

SO 3 Sales return processes and the related risks and controls

SO 3 Sales return processes and the related risks and controls

SO 3 Sales return processes and the related risks and controls

SO 3 Sales return processes and the related risks and controls

memos may occur at different locations

SO 3 Sales return processes and the related risks and controls

Cash receipts journal

SO 4 Cash collection processes and the related risks and controls

See next slide for larger image.

SO 4 Cash collection processes and the related risks and controls

SO 4 Cash collection processes and the related risks and controls

SO 4 Cash collection processes and the related risks and controls

Cash receipts journal

Bank deposit slip

SO 4 Cash collection processes and the related risks and controls

SO 4 Cash collection processes and the related risks and controls

SO 4 Cash collection processes and the related risks and controls

SO 5 An overview of IT systems of revenue and cash collection

Electronic Data Interchange (EDI) systems.

Point of Sale (POS) systems.

SO 5 An overview of IT systems of revenue and cash collection