2.
1 Sales Cycle or
Revenue Cycle
The Revenue Cycle is a series of activities
which composed of two phases: Physical
Phase and Financial Phase. In Physical Phase,
goods or services are delivered to the buyer
while in Financial Phase, the buyer makes
payment for goods and services delivered.
2.2 Internal
Control over
Revenue Cycle
There are three duties that should be
segregated to prevent collusion and fraudulent
acts (if not applicable, must increase
supervision): Authorization, Execution or
Custody and Recording. Management should
set combination of internal controls to these
duties to prevent and detect errors. The
following are common errors committed by
management or employees that can be
prevented and detected through some internal
control procedures:
2.3 Audit
Objectives for
Receivables and
Revenues
The auditor's principal objectives in the audit of
accounts receivable and sales are to:
• Consider internal control over receivables and
sales transactions (TOC)
• Determine the existence of receivables, that the
client has rights to these assets and the
occurrence of sales transactions (Existence
and Occurrence)
• Establish the completeness of recorded
receivables and sales transactions
(Completeness)
• Determine that the receivables are measured at
appropriate amortized cost (Valuation)
• Establish that the presentation and disclosure
of receivables and sales are appropriate
(Presentation and Disclosure)
 • 2.4.1
Classification of
Receivables
• 2.4.1
Classification of
2.4 Audit Receivables
Procedures for
Receivables and
Related Revenues
These are the audit procedures that can be
performed by the auditor:

• Confirmation of receivables to customers

and review of subsequent cash receipts
• Inspect notes on hand and confirm those
not on hand
• Performing receivable and sales cutoff
• Reconciliation of subsidiary ledger with
general ledger
• Analysis of notes receivable and related
interest
• Perform analytical procedures
• Evaluating the adequacy of allowance of
uncollectible accounts
• Testing valuation of receivables
denominated in foreign currencies
• Examining sales returns and allowances
• Ascertaining authorization of write-off
• Investigate receivables from related parties
investigate any credit balances and unusual
items
• Ascertain the existence of pledged
receivables