Introduction to Business Processes and Internal Controls

Presentasi Untuk Mahasiswa PPAk UI Theodorus Djoko Sutrisno

Objectives
Describe a business process. Explain the importance of a business process in managing a company. Describe the flow of transactions and processes within the revenue business cycle. List the typical business cycles of a manufacturing company. Describe the relationship of specific accounts to particular business cycles.
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Objectives

(contd.)

Describe the components of a business cycle. Explain the control environment and its importance in relation to the business cycles and the audit engagement. Explain internal controls and their relationship to the revenue cycle. Describe basic internal control concepts and tests of controls.
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Business Processes
A refreshment stand
Business Objective: To fulfill a customer order for hot food. Business Process: The process would involve four main steps, as follows:

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Fulfilling an Order for Hot Food

Take customers order
Receive payment from customer

Give food to customer

Cook food

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Selling a Car
Greet Customer Identify and Respond to Customer Needs Salesperson Locates Car Requested

Vehicle Title, Financing Contract, Insurance

Credit Dept. Verifies File Prior To Releasing Car Customer File Created & Sales Order Number Assigned

Sales Contract And Credit Application Prepared

Deliver Car to Customer

Credit Application And Terms of Sale Approved

Sales Summary Generated

Sale is Posted as Final into General Ledger Sale Recorded & Inventory Reduced Bill Revenue
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Processes and Subprocesses

Process Fulfilling an order for hot food
Take customers order
Receive payment from customer

Give food to customer

Cook food

Subprocess Receive payment from customer

Receive payment from customer
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Subprocess Receive Payment from Customer

Tasks:
Enter customers order into cash register Tell total price to customer Receive money and place in cash register Give appropriate change to customer

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Business Process Objectives

Operational
The customer order is taken correctly

Compliance
The order is cooked in compliance with food health and safety regulations

Financial
The money received from customers is recorded accurately
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Receive Payment from Customer

Business objectives:
The customer is charged the correct amount The correct payment is received The transaction is recorded accurately All such transactions are recorded

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Identifying Risks
Customer is charged correct amount
Risk: order price is calculated incorrectly

Correct payment is received

Risk: incorrect change is given to customer

Transaction is recorded accurately

Risk: Orders are entered incorrectly into register

All transactions are recorded

Risk: employees keep money instead of placing in cash register
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Control Activities
Risk: price is calculated incorrectly
Control activity: each product sold is assigned a button on the cash register. The total price is calculated automatically.

Risk: incorrect payment is received

Control activity: at the end of the day, the amount of cash in the register is reconciled to recorded receipts.

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Subprocess Receive Payment from Customer

Subprocess with tasks and control activities:
Enter customers order into cash register CA: each product sold is assigned a button on the cash register. The total price is calculated automatically. Tell total price to customer Receive money and place in cash register Give appropriate change to customer CA: at the end of the day, the amount of cash in the register is reconciled to recorded receipts.
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Subprocess Receive Payment from Customer

Subprocess with tasks and control activities:
Enter customers order into cash register CA: each product sold is assigned a button on the cash register. The total price is calculated Automated, automatically. Tell total price to customer
Preventive

Receive money and place in cash register Give appropriate change to customer
Manual, CA: at the end of the day, the amount of cash in the Detective register is reconciled to recorded receipts.
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Selling a Car
Greet Customer Identify and Respond to Customer Needs Salesperson Locates Car Requested

C A

Vehicle Title, Financing Contract, Insurance

Credit Dept. Verifies File Prior To Releasing Car Customer File Created & Sales Order Number Assigned

Sales Contract And Credit Application Prepared

AC

Deliver Car to Customer

Credit Application And Terms of Sale Approved

AC
Bill Revenue
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Sales Summary Generated

Sale is Posted as Final into General Ledger Sale Recorded & Inventory Reduced

Link Control Activities to Control Objectives

Control Activities
Customer credit reviewed and approved.

Control Objectives

Deliveries of cars are confirmed and checked for accuracy before release. Term of sale approved. Orders are approved by management as to price and terms of sale. Orders are recorded in the Customer file created and sales order number assigned. system and assigned a unique identifier for tracking. Finance department verifies file prior to releasing car.
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Link Control Activities to Control Objectives

Customer credit reviewed and approved. Term of sale approved. Customer file created and sales order number assigned. Finance department verifies file prior to releasing car. Orders are recorded in the system and assigned a unique identifier for tracking. Deliveries of cars are confirmed and checked for accuracy before release.
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Orders are approved by management as to price and terms of sale.

Business Cycles Are a sequence of activities

performed by an entity to process related classes of transactions.

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Typical Business Cycles

1. Revenue 2. Expenditure 3. Treasury 4. Fixed Assets 5. Financial Accounting 6. Inventory Management 7. Payroll and Personnel
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Flow of a Business Cycle

Business Cycle

Principal Business Activity

Principal Business Activity

Principal Business Activity

Control Objective

Control Objective

Control Objective

Control Activity

Control Activity

Control Activity
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Steps in Creating a Business Process

usiness bjective 1. Identify your overall B_____ O_______ 2. Determine your sequence of T______ asks ontrol bjectives 3. Identify your C______ O_______. risk will 4. Consider the ______ that these _____ _____ be met. not Control _______ 5. Design _______ activities to mitigate risks these _______. Control _______ 6. Insert these _______activities into the process.
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Control Concepts
What are the different ways you can classify control activities?
Preventive vs. Detective Manual vs. Automated

What are the three different types of control objectives?

Financial, compliance, and operational

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Tests of Controls
Observation Examination of Documentation Re-performance Corroborative Inquiry

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Partners in Learning

Deloitte Touche Tohmatsu

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