TESTING THE SALES SYSTEM

Control Objectives
• Customers’ orders should be authorized, controlled
and recorded in order to execute them promptly.
• Goods shipped and work completed should be
controlled to ensure that invoices are issued and
revenue recorded for all sales.
• Goods returned and claims by customers(for
example, in respect of damaged goods) should be
controlled in order to determine the liability for
goods returned and claims received.
• Invoices and credits should be appropriately checked
for accuracy and should be authorized before being
entered in the receivables’ records.
• Only authorized debtors’ transactions, should be
accurately entered in accounting records.
• There should be procedures to ensure that sales
invoice are subsequently paid by customers and that
doubtful amounts are identified in order to
determine any provisions or write offs required.
 Control procedures over sales and
debtors
Orders
• Existing customers should be allocated a credit limit
and it should be checked whether this limit has been
exceeded when a new order is accepted. If so, the
method should be referred to credit control.
• Any new customers should be referred to the credit
control department before the order is accepted.
• All orders received should be recorded on pre-
numbered sales order documents so that a check can
be made that all order have been dealt with- a
completeness check.
• All order should be authorized before any goods are
dispatched.
• The sales order document should be used to produce
a dispatch note for the goods outwards department.
No goods may be dispatched without a despatch
note.
Dispatch
• Dispatch notes should be pre-numbered and a
register kept of them to enable them to be matched
to sales invoices and customer orders.
• Dispatch notes should be authorized before goods
leave the company.
• Regular check should be made to ensure that all
dispatches have been invoiced.
Invoicing and credit notes
• Sales invoice should be authorized by a responsible
official and matched with the authorized order and
dispatch note.
• All invoice 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.
• Sales invoices and credit notes should be checked for
prices, casts and calculations by a person other than
the one preparing the invoice.
• All invoices and credit notes should be serially pre-
numbered and regular sequence checks should be
carried out.
• Credit notes should be authorized by someone
unconnected with dispatch or sales ledger functions.
• Copies of cancelled invoice should be retained.
• Any cancellation or an invoice should lead to a
cancellation of the related dispatch note.
• Cancelled (and free of charge) invoices should be
signed by a responsible official.
• 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
• Any goods returned by the customer should be
checked for obvious damage and, when accepted, a
document should be raised.
• All goods returned should be used to prepare
appropriate credit notes.
Receivables
• A receivables ledger control account should be
prepared regularly and checked to individual sales
ledger balances by an independent official.
• Receivables ledger personnel should be independent
of dispatch and cash receipt functions.
• Statements should be send regularly to the
customers.
• 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.
• Letters should be sent to customers for collection of
overdue debts. A policy should be in place for the
institution of legal proceedings where appropriate.
Bad debts
• The authority to write of a bad debt should be
writing and at the correct level of seniority.
Appropriate adjustments should be made to the
sales ledger and the control account.
• The use of court action or the writing-off bad debt
should be authorized by an official independent of
the cash receipt function.
 Tests of control
• Carryout 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.
• Check the existence of evidence for authorization in
respect of:
-acceptance of the order(the creditworthiness
check)
- dispatch of goods
 - raising of the invoice or credit notes
- pricing and discounts
- write-off of bad debts
Check both that the relevant signature exists and that
the control has been applied.
• Seek the evidence of checking of the arithmetical
accuracy of:
- Invoices, including pricing and VAT and sales
tax calculations
- credit notes
• Check dispatch notes and goods returned notes to
ensure that they are matched with invoices and
credit notes.
• Check the control account reconciliations have been
performed and reviewed.
TESTING THE PURCHASE SYSTEM
 Control Objective
• Purchased goods/services are ordered under proper
authority and using proper procedures.
• Purchased goods/services are only ordered as necessary
for the proper conduct of the business operations and
are ordered form suitable, approved suppliers.
• Goods/service received are inspected for quality,
quantity and description.
• Invoice are related documentation are properly checked
and approved as being valid before being entered as
trade creditors.
• All valid transaction related payables(suppliers’ invoice,
credit notes and adjustments), and only those
transactions, should be accurately recorded in the
accounting records.
 Control procedures over purchases
and payables
Orders
• Requisition notes for purchases should be authorised
at the correct level of seniority.
• All order should be authorized by a responsible
official whose authority limits should be pre-defined.
• Major items e.g. capital expenditure, should be
authorized at an appropriate level, possibly by the
Board of Directors.
• All orders should be recorded on official documents
showing suppliers’ names, quantities ordered and
price.
• Copies of orders should be retained as method of
following up late deliveries by suppliers.
• Re-order levels and quantities should be pre-set and
preferably recorded in advance on the requisition
note.
Receipt of goods
• Goods inwards areas should be identified to deal
with the receipt of all goods.
• All goods should be checked for quantity, quality and
description. Goods received notes should be raised
for all goods accepted. The GRN should be signed by
a responsible official.
• GRNs should be checked against purchase orders and
procedures should exist to notify the supplier of
under or over-deliveries. GRNs should be
sequentially numbered and checked periodically for
completeness.
Invoicing and returns
• Purchase invoices received should be stamped with
an approval grid and given a unique serial number to
ensure purchase invoices do not go astray.
• Purchase invoices should be matched with goods
received notes and company orders and should not
be processed until this is done.
• The invoice should be checked against the order and
the GRN, and cast and extensions should also be
checked.
• The invoices should be signed as approved for
payment by a responsible official independent of
ordering and receipt of good functions
• Invoices sequential numbers should be checked
against purchase day book details.
• Input VAT should be recorded separately from
expense element of the invoice total.
• Invoices should be properly allocated to nominal
ledger accounts, perhaps by allocating expenditure
codes. Sample of coding should be checked
independently by senior member of staff.
• Batch controls should be maintained over the
posting of invoices to the purchases day book,
nominal ledger and purchase ledger.
• A record of goods returned should be kept and
checked to credit notes received from suppliers.
Purchase ledger and suppliers
• A payables ledger control account should be
maintained and regularly checked against balances in
the purchase ledger by an independent official.
• Payables ledger records should be kept by persons
independent of receiving of goods, invoice
authorization and payment routines.
• Statements from suppliers should be checked against
the ledger account.
Tests of control