SUMMARY OF STUDY OBJECTIVES

An introduction to revenue processes. The three typical types of processes related to revenues are sales processes, sales return processes, and cash collection processes.

Sales processes and the related risks and controls. Sales processes include checking customer credit and authorizing the sale if credit is not exceeded, checking inventory to determine whether goods are in stock, picking the correct goods from the warehouse, shipping goods to the customer, billing the customer, and updating accounting records. Sales process controls can be categorized into authorization, segregation, adequate records, security of assets and records, and independent checks.

Sales return processes and the related risks and controls. Sales return processes include receiving returned goods, matching goods to the original invoice, preparing credit memorandum, returning goods to the warehouse, reducing accounts receivable and increasing inventory records, issuing credit or a check to the customer, and updating accounting records. Sales process controls can be categorized into authorization, segregation, adequate records, security of assets and records, and independent checks.

Cash collection processes and the related risks and controls. Cash collection processes include receiving checks in the mailroom, comparing checks with the remittance advice, preparing a check prelist and a deposit slip, depositing the funds, updating cash, accounts receivable, and general ledger records, and reconciling the bank records to the organization's records. Cash collection process controls can be categorized into authorization, segregation, adequate records, security of assets and records, and independent checks.

An overview of IT systems of revenue and cash collection that enhance the efficiency of revenue processes. As complexity and automation in IT systems increases, there are fewer manual processes and more computerized processes. This is usually true regarding size also; larger IT systems generally have fewer manual processes and more computerized processes. More computerized processes means there would be a greater need for the IT controls to reduce IT risks. IT risks can be categorized into security, availability, processing integrity, and confidentiality risks. General and application IT controls can reduce these risks.

E-business systems and the related risks and controls. E-business can include both business-to-business (B2B) and business-to-consumer (B2C) sales. In either case, the advantages include reduced cost through lower marketing, employee, and paperwork costs, shorter sales cycles due to reduced time to place an order, deliver the order, and collect payment, increased accuracy and reliability of sales data, and increased potential market for products and services. The Internet-connected nature of e-commerce sales includes several risks that a company must manage. These risks include security, availability, processing integrity, and confidentiality risks.

Electronic data interchange (EDI) systems and the related risks and controls. Electronic data interchange is the intercompany, computer-to-computer transfer of business documents in a standard business format. The network connected nature of EDI sales includes several risks that a company must manage, including security, availability, processing integrity, and confidentiality risks.

Point of Sale (POS) systems and the related risks and controls. For retail operations, there is a type of accounting software categorized as point of sale (POS) systems. These systems capture all relevant sales data at the point of sale: the cash register. As items are checked out through a register, the bar codes are scanned on the items purchased, prices are determined by the accessing of inventory and price list data, sales revenue is recorded, and inventory values are updated. All of these processes occur in real time, and the store can provide its managers or home office with daily summaries of sales by cash register or by product. Some risks, including pricing errors, cash shortages, inventory discrepancies, and erroneous sales invoices or voids, can be lessened by POS systems.

Ethical issues related to revenue processes. Revenue processes are very susceptible to unethical revenue inflation schemes. Such schemes include fraudulent or fictitious sales, improper sales cutoff periods, and channel stuffing.

Corporate governance in revenue processes. The revenue processes described in this chapter—sales process, sales return process, and cash collection process—are part of the management oversight of corporate governance. The internal controls and ethical tone and procedures within the revenue processes are also part of the corporate governance structure. Establishing and maintaining reliable revenue processes, internal controls, and ethical practices help ensure proper financial stewardship.

KEY TERMS