Audit Program – Sales and Receivables

Company/Unit/Dept : …………………………….. Period covered : ……………………..

Area of Coverage : Sales and Receivables Done By : ………………………

Audit Ref : ……………………………. Reviewed By : ………………………

Credit And Collection

Objective:
Proper credit and collection procedures have been established and compliance is assured.

Audit Procedures / Tests / Controls W/P Ref Comments

Controls: Credit and collections policies and procedures are established

Obtain and review credit and collections policies and

procedures and ensure the followings are outlined:
 Standard terms and conditions of payment
 Levels of authority to vary standard customer
terms and conditions
 How prospective customers are assessed for
credit
 Who has the authority to set and amend credit
limits
 How and when overdue accounts are controlled
and followed up
 When to turn delinquent accounts over to a third
party / lawyer for collection
Levels of authority to override the charging of interest
and penalties

Controls: Policies and procedures clearly defined the responsibility, timing and actions to be taken on
overdue accounts

Review collection policies and procedures and ensure

responsibility, timing and actions to be taken on
overdue accounts are clearly defined.

Controls: Full time trained dedicated credit and collection staff is employed and proper training is
provided

Obtain departmental organisation chart and discuss

with department head to ensure adequate resources
are deployed and staff have been trained on:
 How to manage and collect receivables
 Understanding the standard terms and conditions

Controls: Clearly defined DOA for approving credit limits

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Review DOA and ensure DOA defines different
authority for approving credit limits in the following
circumstances:
 Generic credit limits based on credit ratings
 Overrides to the formula

Controls: Proper segregation of functions should be installed

Note the following incompatible duties are segregated:

 Accounts receivable
 Credit control
 Collections
 Order entry
 Invoicing
 Cash receipts
 Credit notes
 Stock custody/delivery
 General accounts

Controls: All credit applications and essential information such as the nature and size of customers’
businesses, and their bank and trade references and the results of trade inquiries should be
documented

1. Review customer credit files and ensure all

customer information is available to support the
credit ratings.
2. The rating is then used for:
 Defining DOA authority levels (i.e. for
unblocking credit holds according to credit
ranking
 Setting monetary credit limits
 Assigning priorities for collection efforts
 Focusing monitoring and credit reviews of
higher risk customers
 Provision of better credit facilities to lower risk
customers

Controls: All new customers are assessed for their credit standing regardless of apparent standing

Review new customer files to ensure these new

customers are assessed against credit standards.

Controls:
 Credit limits are reviewed periodically based on a predefined schedule based on the ratings
 Changes in credit limits are approved by management in writing and with supportings

1. Discuss with management about the interval of

customer credit rating assessment.

2. Review assessment file and check whether the

followings are available to support the revision of
credit:
 Obtaining a copy of the latest accounts
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  Performing a detailed financial analysis
 Understanding the:
- history of the business
- experience of management
- owners and their financial resources
 Conducting a site visit to the client
 Obtaining bank, trade and credit agency
references, where available
 Completion of a credit appraisal form

Controls: Individual orders that would cause the total outstanding balance to exceed the credit limit are
rejected and flagged for attention

Select _____ samples of transactions, note for

transactions that broke the credit limits by
documenting previous credit standing and current
credit standing after accepting the transaction and
credit excesses were approved by higher level
management in writing prior to the related order was
processed.

Controls: Terms and conditions are communicated to customer when an account is opened and related
payment terms and methods are specified in sales invoices

 Review customer credit application form and

ensure payment method is specified on the
documents.
 Review invoices and ensure payment terms and
due dates are clearly and accurately displayed
on the invoices.

Note:
Post-dated cheques are only accepted under
extraordinary circumstances and with the approval
of senior credit or financial management

Controls: Prompt collection action is taken when pre-determined warning signal appears

1. Discuss with collection staff to ensure prompt

collection actions are taken when more than one
of the following signals is noted about a customer:
 Slower payments or changes in payment habits
 Broken promises of payment
 Unreturned messages
 Post-dated checks
 Changes in customer banks
 Unauthorised return of merchandise
 Radical changes in buying patterns
 Customer selling at unusually low prices
2. Review delinquent customer files and note
whether collection action have been taken when
warning signal appeared.

Also, observe whether records 9in summary form) of

verbal follow-up/ communications with debtors are
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kept (E.g. Telephone conversation details, date and
name of person spoken to, etc.)

Controls: High-risk accounts are not approved unless security is provided

1. Review 10 high risk customer files and note

whether security is provided, such as:

 Cash
 Bank guarantee
 Standby letter of credit
 Corporate guarantee
 Personal guarantee
 Mortgage
 Deposit
 Retention of title clauses

Controls: Credit staff monitors the guarantees continuously

1. Discuss with credit staff and ensure credit staff

monitor the followings for each guarantee:

 Current value (when assets are pledged)

 Financial situation of guarantor

Controls: Collection processes are clearly specified

Review collection policies and procedures and ensure:

1. Invoices are issued with terms net 30 days on the

day of sale, delivery of service or completion of
milestone,
2. Pre-collection calls to customers are required
before the receivable is due to confirm that:

 Everything is satisfactory
 The invoice has been received, and
 Terms are understood
 Customers with past due invoices are called
ten days after the due date

Controls: Documentation on debt collection must be kept

Review debt collection records to ensure the following

information:

 Dates and details of calls and correspondence

to customers,
 Details of when payments were promised, and
 Last payments received.

Controls: Credit report should be prepared and reviewed by management so that actions can be taken
immediately to prevent loss
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Review management reports to ensure they are
prepared and reviewed monthly (or more frequently)
detailing:

 Receivables aged analysis, including significant

past due balances, accounts in dispute and
claims by customers
 Customer balances which exceed credit limits
 Overdue customer accounts
 Customer accounts that regularly fall overdue
 Credit balances
 Unallocated cash

Controls: Account clerk updates accounts receivable balances upon receipt within a reasonable time
period

 Discuss with management/ employees about the

updating practice.

 Select __ samples of receipts from receipt

logbook and trace to respective receivable sub-
ledgers for updating in a reasonable time frame.

Pricing

Objective:
Standard price is maintained with proper approval.

Audit Procedures / Tests / Controls W/P Ref Comments

Controls: Management should approve standard price list and any subsequent changes

1. Review standard price list to ensure it’s

approved by appropriate level of management.

2. Review standard price list and ensure changes

to price lists, pricing data, and discounts are
approved by authorised personnel and, where
computerised, subject to access control.

Controls: Selling price entered to price master file by Finance staff based on authorised revised price
list

1. Discuss with related personnel on the updating of

standard price list and who can access to the
price list.

2. Review price list to ensure only personal with

authority can perform the changes.

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Sales ordering

Objective:
A proper sales order system is established.

Audit Procedures / Tests / Controls W/P Ref Comments

Controls: Sales order logbook should be used to log all customer purchase order, both verbal and
written

Ensure whether a sales order logbook is used to log all

customer purchase orders.

Controls:
 Sales orders are made in accordance with authorised terms and conditions.
 Credit limit is checked at the time of order.
 Non-standard terms are approved with appropriate management.

Select sales orders and perform the following:

 Check sales orders are authorised;

 Check supporting document for credit check, i.e.,
sales is accepted only if credit limit has not been
exceeded.

Controls:
 Write access and edit to sales order file is limited to authorised personnel.
 Sales order number is generated by system or pre-numbered.
 Missing sales order has been investigated.

 Scrutinise sales order file for any duplicate or

missing orders.
 Discuss with management and confirm that only
designated employees can access sales orders.

Controls:
 Approval should be obtained for order modification.
 Modified or cancelled order should be timely communicated to production department.
 Orders modification or cancellation should be timely updated in the sales order file.

1. Check monthly report of changes in sales order

file has been reviewed by management.
2. Select sales order modification or cancellation,
perform the following:
 Check proper approval;
 Check update in sales order file;
 Check timely communication to production
department.

Goods Delivery

Objective:
Goods are shipped with authorisation.

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 Audit Procedures / Tests / Controls W/P Ref Comments

Controls:
 All delivery should be reference back to sales order or contract and approved.
 Delivery Notes are pre-numbered.
 Credit manager should verify all delivery prerequisite before release of goods.
 Customer credit limit has been checked before delivery authorised.
 Customers should sign on Delivery Notes as evidence of goods receipt.

Select Delivery Notes and match to related sales order

by reference of sales order number, perform the
following:
 Check product shipped agreed with product
ordered;
 Check quantity shipped is less than or equal to
quantity ordered;
 Check customer in sales order and Delivery
Note are the same;
 Check customer acknowledgement of receipt;
 Investigate any unmatched transactions.

Sales Invoicing

Objective:
All sales should be recorded accurately on a timely basis

Audit Procedures / Tests / Controls W/P Ref Comments

Controls: Sales invoices are sequentially controlled

Scrutinise sales invoice files and note for duplicate or

missing invoices.

Controls: Sales invoices are prepared based on terms and conditions from sales orders or contracts
and information from Delivery Notes

Select ____ sales invoices and trace to related sales

orders, Delivery Notes, agree price, quantity and terms
and conditions on sales invoices to sales order and
Delivery Notes.

Controls: Sales should be recognised upon physical delivery

 For above sales invoices selected, check whether

sales invoice dates is the same as dates on
Delivery Notes.
 Review shipping Log and identify goods shipped
that have not been invoiced.

Controls: Management approves sales invoices

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For above sales invoices selected, check whether
appropriate management approves sales invoices.

Controls: Sales journal should be reviewed periodically for numerical sequencing. Missing invoice
numbers should be investigated

Review 3-month sales journals and scrutinise for any

missing invoice number.

Credit Notes And Adjustments

Objective:
Returns and allowance should be controlled, documented and recorded .

Audit Procedures / Tests / Controls W/P Ref Comments

Controls: Access to invoice and credit note functions is restricted to authorised personnel

 Discuss with management and confirm with MIS

that invoicing and credit note functions are
restricted to authorised employees.
 Observe that invoicing and credit note function is
password controlled.

Controls: Credit notes are sequentially controlled

Review ____ batches of credit notes, each have __

copies, note for sequential numbering.

Controls: Written authorisation should be given to customers to permit the return of goods when
appropriate

Review returned reports and note for management

approval with justification and conditions of the goods
in writing.

Controls: Credit notes are approved by senior management on a requisition setting out the reasons for
the credit note

Review ____ credit notes and note for proper

justification, supporting (e.g., receiving report, quality
report) and management approval.

Controls: Open file of unmatched receiving reports should be reviewed periodically to identify valid but
unprocessed claims

Review open file of unmatched receiving reports to

identify any long outstanding unprocessed claims.

Cash Receipts

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Objective:
Receipt is identified and recorded on a timely basis.

Audit Procedures / Tests / Controls W/P Ref Comments

Controls:
 Cash receipts are set off accounts receivable on a timely basis.
 Cash receipts match to individual sales invoices.
 Unidentified cash receipts analysed and cleared periodically.
 Receipts are banked in promptly.

 Discuss with receivable accountant about the

practice.
 Review the unidentified cash suspense account
and note for material and long outstanding
unmatched receipts.
 Selected _____ cash receipts from bank
statements and check account receivable has
been promptly credited and verify cash is applied
to individual invoices.

Accounts Receivable

Objective:
A/R balance is accurately stated.

Audit Procedures / Tests / Controls W/P Ref Comments

Controls:
 Customer statements are mailed periodically to customers and disputes/queries are investigated
on a timely basis and monitored by a responsible official.
 Ageing report is prepared and reviewed by management.
 All overdue balances are reviewed, at least quarterly, by a senior official and appropriate
provisions determined.

 Discuss management action towards long

outstanding and disputes/queries invoices.

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 Check customer statements have been sent
on a timely basis.
 Review ageing report and monthly
investigation report on long outstanding receivable
and note management follow-up action
documented in writing, in particular, responsibility,
follow-up steps and evaluation, etc.

Controls:
 Accounts receivable status should be reviewed periodically.
 Provisions are calculated in accordance with approved procedures.
 Bad debt write-offs are properly approved by authoritative staff.

 Discuss with management about the provision

procedures.
 Ensure provision procedures are in compliance
with corporate policies.
 Check bad debt write-off authorisations.

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