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Sales
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Page: 1/6
Client: THL VN Ltd., Year ended: 31 Dec 20X1

Significant Class of Transactions/

Process name: Sales order to cash receipt
Significant Class of Transactions/
Process owners: Ms. Thanh Lan – Sales Accountant

Purpose of Significant Class of Transactions/Process:

Financial objectives (Assertions)

 Existence, Valuation and Completeness of Accounts Receivables
 Occurrence of Sales
 Cash- Existence

Operating objectives (Time/Cost/Quality)*

 Cost effective delivery
 On time delivery

Compliance objectives*
 Comply with local accounting and reporting regulations

Boundaries (beginning and ending points of the process or the flow of the significant class of transactions):
 Order received to customer payments.

Inputs/Outputs of the Significant Class of Transac- Inputs/Outputs of the supporting IT Application

tions/Process
Inputs: Inputs:
 Client Order & Debt confirmation  Sales file

Outputs: Outputs:
 Order confirmation  Posted transactions to Sales, A/R and inventory
 Services rendered sub-ledgers
 Posted transactions to general ledger

Significant classes of transactions embedded*:

 Sales
 Cash receipt

Significant accounts/group of accounts affected and key business and financial statement risks related to
these accounts:
 Accounts Receivable
 Sales
 Cost of Sales
 Cash

Prepared by: Student 1

Reviewed by:
6.1 Gain an Understanding of the Flow of Significant Ref.:
Classes of Transactions
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Client: THL VN Ltd., Year ended: 31 Dec 2008

Key Transformations (Initialization, Recording, Processing, and Reporting)

When documenting the flow of the significant class of transactions, we identify and develop an understanding of the
records, documents, and basic processing procedures in use that have audit significance. In the course of acquiring an
understanding of the processing procedures, we frequently learn of many of the controls in use. Thus, while the em -
phasis at this point is not to identify the presence or absence of controls, we are alert to the possible absence of con -
trols, and to the points at which errors could occur and controls are needed. The manner in which we document our
understanding is left to professional judgment of the engagement executives. However, for flows of transactions re -
lated to routine transactions, a graphical depiction of the flow (e.g., flowchart), supported with narra tive
notes
(e.g., use of this template) normally provides for easier identification of
the types of errors that could occur.
No. Describe Key Transformations Within Significant Class of Describe how IT Application sup-
Transactions/Process ports the Significant Class of Trans-
actions/Process
1. General:
There are local sales and export sales, but local sales are the
mainly kind of selling activity.
There are many types of product including TV, AV, air
conditioner, home applocable and processing sales (for Suzuki,
Philip).

Credit term is indicated in the contract around 60 days.

Sales Dept. will review the Credit status of customer before
accepting a sales request. If the debt is overdue, client will
investigate stock balance of customers in order to ensure they do
not capital drain.

Only the Branch Managers and General Manager are authorised

to decide the price (including discount and others deduction of
marketing program) and then inform this for Accounting staff
indicates in the invoice.

The products will be sold at 4 locations: Head office, HCMC

branch, Da Nang branch and Ha Noi branch with major
customers are retailers.

e / FOR INTERNAL USE ONLY

Prepared by: NHTL 11/07

6.1 Gain an Understaning of the Flow of Significant Classes of Transactions Reviewed by:
6.1 Gain an Understanding of the Flow of Significant Ref.:
Classes of Transactions
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Client: THL VN Ltd., Year ended: 31 Dec 2008

2. Sales of THL brand products:

THL’s main product are: TV, VCD, Air Conditioner. Main
contribution to total sales is coming from sales of TV and air
conditioner.

a> Request for finished goods from Branches:

When customers’ order have been raised, considering the status
of stock level is available or not then inform to the Plan &
Logictics Dept. by fax or phone for goods dispatching.

b> Good released from factory:

The production dept/warehouse (admin division) will issue Good
Dispatch Request approved by Plan&Logictics Manager.
After checking with the warehouse, P&L staff prepared Finish
good delivery notes are made into 4 copies: 1 for Accounting
Dept, 2 for warehouse, 1 for security. Base on this form, goods
will be loaded on container. Then Accounting Dept. issue a GDN
cum internal transfer in 3 copies: 1 for Accounting Dept., 1 for
warehouse and 1 for driver to deliver to the branches.

c> Receipt of goods at branches’ warehouse:

Warehouses at branches are rental warehouses. When goods
come to warehouse, a Goods Receipt Minutes is prepared with
signature of 3 parties: transportation agent, warehouse security
and branch’s stock clerk sign in GDN cum internal transfer for
received goods.

3. Sales at branches:
When receiving an order from customers, salesmen will make a
Goods Delivery Notes ( 4 copies: 1 for Acc dept, 1 for warehouse
& 2 for Sales dept) with detail of quantities & prices of the
goods, approved by head of Sales dept & pass to Acc dept. Acc
dept will check the pricing, customer’s details, the prepare a VAT
sales invoice.
On the sales invoice accounting staff will write the ref. of the
Goods Delivery Notes & on the Goods Delivery Notes also have
the ref. of sales invoice. Then 1 copy of invoice will be give to
salesman together with 4 copies of Goods Delivery Notes to come
to ware house for goods dispatching.
Goods only are dispatched when documents required are
adequate: Goods Delivery Notes & VAT sales invoices.
Warehouse’s keeper will sign on the Goods Delivery Notes &
keep 1 copy.
End of month, stock count will be made and signed by Branch
manager and chief accountant and warehouse keeper. Stock count
report would be sent to HO if required.

e / FOR INTERNAL USE ONLY

Prepared by: NHTL 11/07

6.1 Gain an Understaning of the Flow of Significant Classes of Transactions Reviewed by:
6.1 Gain an Understanding of the Flow of Significant Ref.:
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Client: THL VN Ltd., Year ended: 31 Dec 2008

4. Sales at Head Office:

a> External sales:
In some case, goods were sold at Head Office (HO) but being
ordered at HCMC branch. For this case, goods will be released at
HO warehouse.
Receiving the Goods Requisition Form from the branch will get
Branch Manager’s approval, then the GDN will be prepared by
HO warehouse with fully approved by Deputy GM, Head of
warehouse, CA. Base on this, Accounting staff of HO issues VAT
invoice. Then the procedure of delivery of goods is as the same
sales at branch.

b> Internal sales:

Daily, branches send PSI report (b/c N-X-T) and sales report
signed by chief accountant and warehouse accountant to HO
warehouse accountant to reconcile items in,out between days.
End of the month, he reconcile between PSI report (overall) and
sales report of branches. He will issue the VAT invoice for
branches base on the actual sales at branches.
So, output VAT at HO will become input VAT at branches. VAT
output and VAT input has been performed in VAT declaration.

5. Processing services: Provide plastic parts for Suzuki Vietnam

Corp.
Initially, THL buys materials from suppliers that meet the
Suzuki’s requirement about technique and quality and processes
base on the mould also provided by Suzuki. Selling price is
indicated in processing contract.
However, on 25th September 2002, two both parties had signed a
business cooperation contract. Both parties contribute capital for
business for business cooperation in producing parts and
components for Suzuki motorcycles as licensed by Suzuki Corp.
to Party B stating in the Technology Transfer Contract which has
been approved by the Vietnamese Government.
Both parties agreed to cooperate on the contract basis, no new
legal entity formed. Party B (Suzuki) will provide to Party A with
moulds, checking jigs, technical supports, technology handing,
drawings and technical documents in details for producing
products.
The total investment capital is VND 2,877,638,709 in which
Party A (THL) contributed 69% of total capital equally VND
1,985,570,709 under the form of land used right, warehouse,
depreciation equipment and other available means, cash,
materials, management costs and taxes raised. Suzuki contributed
31% of total capital equally VND 892,068,000. Party B would
fully contribute its capital within 6 months from signing date of
this contract. Please refer to BCC contract for further detail.

e / FOR INTERNAL USE ONLY

Prepared by: NHTL 11/07

6.1 Gain an Understaning of the Flow of Significant Classes of Transactions Reviewed by:
6.1 Gain an Understanding of the Flow of Significant Ref.:
Classes of Transactions
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Client: THL VN Ltd., Year ended: 31 Dec 2008

6. Revenue recognition and cash receipt.

At branches, sales will be recorded subsequently when invoices
are issued. At the end of month, sales report will be sent to HO
for consolidation management report.
When salesmen deliver goods to customers, they will ask
customers (retailers) to sign for confirmation on the Good
Delivery Notes cum debt confirmation which indicated the due
time for the goods received.
Branch salesmen are responsible to collect money from
customers. Then salesmen will submit the money to branch’s
accounting staff together with the receipt signed by customers,
and Goods Delivery Notes (white copy) with warehouse keeper’s
signature. Accounting staff will check whether the Goods
Delivery Notes match with invoices, adequate required signature,
and recount the money, then Accounting staff will prepare receipt
voucher. Salesmen will sign on Receipt voucher when
submitting money to Accounting Dept. The client encourages
customers paid through the THL’s bank account that enable the
client reducing the risk of cash loss of cash sales procedure. In
this year, the payment via the bank is about 90% of total payment
from the customers.

7. Sales transaction
Sales at branches and Head Office
Sales transaction has been recorded separately between HO and
branches. When sales have been established, accounting staff
indicated the invoice number into Sales journal. The accounting
entry is as follows:
DR Trade – receivables (13110) 100%
CR VAT output (33310) 9.0909%
CR Sales (51110) 90.9090%
When payment is settled that can be viewed in Invoice
Transaction Details.
DR Cash
CR Trade – receivables

Internal sales
At the end of month, the branches will send sales reports to the
Head Office, base on the actual sales at the branches, the HO will
issue VAT invoice to the branches. Sales transactions would be
recorded as follows:
Head office records:
DR Internal receivables (13683)
CR Internal sales (51210)
CR VAT output (33310)

The branches records:

DR COS (627)
DR VAT input (1331)
CR Internal payable (336)
Sales transactions will be recorded into AccNet system

e / FOR INTERNAL USE ONLY

Prepared by: NHTL 11/07

6.1 Gain an Understaning of the Flow of Significant Classes of Transactions Reviewed by:
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Client: THL VN Ltd., Year ended: 31 Dec 2008

8. Allowance for doubtful debts:

Policy on provision for doubtful debt:
6 months – 1 year : 50%
1 years – 2 years : 100%
2 years – 3 years : 100%
Over 3 years : 100%

What could go wrong

In Activity 6, we understand what could go wrong within each process that may lead to errors of audit importance
occurring and understand what controls management implement to address these issues. We understand those
operating and compliance objectives relevant to the process, identify points where errors could occur and identify and
assess those controls implemented by management to minimise these points of possible error to ensure the accuracy
of the financial statements in the current year. We can use the table below to document our results by matching the
most effective client controls that mitigate these possible errors.

What could go wrong in the process? Management controls and KPIs Ref
addressing these areas No.
Operating risk Impact on current year
financial accounts
Balance Income
Sheet Stateme
nt
All sales are not recorded A/R: C Sales: C
Invoice misstates the quantity of A/R: V,E,C Sales: Reconciliation between sales accountant
services rendered M,C and bank accountant.
Invoices reflect incorrect A/R: V,C Sales: M Invoices issued will be rechecked by
prices/quantities/other valuation Chief Accountant/head of Front Office
information dept. before issued.
Invoices reflect incorrect pricing, A/R: V,E,C Sales: M Invoices issued will be rechecked by
discounts, taxes etc. Chief Accountant/head of Front Office
dept. before issued.
Occasional sales outside the A/R: E,C Sales: Sales occured must be derived from bill,
normal routine process are not O,C which will be checked again by sales
recorded accountant when cross check with bank
accountant.
Fictitious/duplicate sales are A/R: E Sales: O
recorded
Invoices are generated/recorded A/R: E Sales: O
prior to services being rendered
Foreign currency translation is A/R: V Sales: M
incorrectly calculated
Segregation of duty between AR Sales accountant will reconcile with bank
recording and cash receipt. accountant about sales volume and value.

e / FOR INTERNAL USE ONLY

Prepared by: NHTL 11/07

6.1 Gain an Understaning of the Flow of Significant Classes of Transactions Reviewed by: