Auditing Sales and Collection cycle in the auditing financial statements in AVINA – IAFC

TABLE OF CONTENTS
LIST OF DIAGRAM iii
LIST OF TABLE iv
INTRODUCTION 1
CHAPTER 1: THEORETICAL FRAMEWORK ON AUDIT OF SALES
AND COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED
BY AVINA - IAFC 3
1.1. Features of sales and collection cycle 3
1.2. Accounting for Sales and Collection 4
1.3. Fraud and errors in accounting information of Sales and collection 6
1.3.1. Fraud 6
1.3.2. Errors 6
1.3.3. The potential frauds and errors in accounting information reflecting Sales and
Collection 6
1.4. Internal controls over Sales and collection cycle 6
1.5. Objectives in auditing the Sales and collection cycle 7
1.6. The necessity of auditing Sales and collection cycle in financial audits 9
1.7. Sequence in auditing the Sales and collection cycle in financial audits 9
1.7.1. Audit planning 10
1.7.2. Audit implementation 13
1.7.3. Completing the Sales and Collection cycle audit 19
CHAPTER 2: PRACTICE OF AUDIT SALES AND COLLECTION
CYCLE IN FINANCIAL AUDITS CONDUCTED BY AVINA – IAFC 20
2.2. Objectives in auditing the Sales and collection cycle of AVINA – IAFC 22
2.3. Sequence in auditing Sales and collection cycle in financial audits conducted by
AVINA – IAFC 24
2.3.1. Audit planning 24
2.3.2. Audit implementation 32
2.3.3. Audit Completion 57
CHAPTER 3 ASSESSMENTS AND RECOMMENDATIONS TO
IMPROVE AUDIT OF SALES AND COLLECTION CYCLE IN

FINANCIAL AUDITS CONDUCTED BY AVINA – IAFC 59
3.1 Assessment on audit of Sales and collection cycle in financial audits conducted by
AVINA – IAFC 59
3.1.1 Strengths 59
3.1.2 Weaknesses 60
3.2 Recommendations 62
3.2.1. The necessity of accomplishing Sales and Collection cycle 62
i
3.2.2 Solutions to improve the audit of Sales and Collection cycle in financial audits
by AVINA – IAFC 63
CONCLUSION 65
REFERENCES 66
ii
LIST OF DIAGRAM
Diagram 1.1. The cycle of production and business operations of
manufacturing commercial enterprises 3
Diagram 1.2.1. Process of vouchers circulated in the Sales and Collection
cycle 4
Diagram 1.2.2. Accounting process of sales and collection cycle 4
Diagram 1.5. Steps to implement the objectives of the audit 8
Diagram 1.7. The process of auditing the sales and collection cycle 9
2.1. Features of Sales and Collection of customers that affect financial
audits conducted by AVINA - IAFC 20
Diagram 2.1: Function of the sales and collection cycle 20
Diagram 2.3.1. The company accounting system 29
Diagram 2.3.2.1. Reconcilation process 37
Diagram 2.3.2.2. The process of confirmation letter of receivables
38
iii
LIST OF TABLE

Table 1.7.2.1. Tests of control with sales transactions 13
Table 1.7.2.2. Tests of control with collection cycle 14
Table 1.7.2.3. Test of details of of sales transactions 16
Table 1.7.2.4. Test of details in Cash Collection 17
Table 1.7.2.5. Audit procedures on customer receivables 18
Table 2.2. Auditing objectives for the sales and collection cycle specified
by AVINA - IAFC 22
Table 2.3.1.1. Balance Sheet (31/12/2014) 26
Table 2.3.1.2. Income Statement (31/12/2014) 27
Table 2.3.2.3 The procession of inspecting customer receivable items in
detail 56
iv
INTRODUCTION
Auditing financial reports is the synthesis of the audit results of separate
economic profession cycle. Hence, it is to make conclusions on the financial
statements which are presented honestly and reasonably and suffer no serious errors
on critical aspects. The auditing financial statements is a basis for making objective
and honest opinion on the financial statements and providing investors, suppliers,
customers and interested persons and States agents reliable information. Thereby it
contributes to enhancing the reputation, quality of services and increasing
competitiveness with other auditing companies.
Sales and Collection cycle has an important role in a business cycle, which is
the final stage to assess the outcome of a full cycle of business operations. In fact,
according to the judgment of professional auditor, the result of Sales and Collection
cycle indicates the important items which has crtical function on the financial
statements and the nature of this cycle demonstrates complex relationships of many
parties. Hence, the results of the Sales and Collection Cycle is the primary subject
that receive cocern of the financial statements’ users. Thus, performing Sales and
Collection cycle in the auditing financial statements allows companies to save time,
costs, and improve audit efficiency. It helps enterprise to see the flaws and

weaknesses in the accounting and management to improve business production
efficiency, to contribute to ensuring the legitimate of two parties and to determine
the responsibility of enterprises in the implementation of their obligations to the
State.
Recognizing this importance, while studying at National Economics
University and practical time in AVINA – IAFC, I have chosen the topic: “Auditing
Sales and Collection cycle in the auditing financial statements in AVINA – IAFC”.
Through the topic study, I want to have an in-depth understanding about
nature as well as the implementation of audit work on both theoretical and practical
perspectives based on my knowledge at the university and internship.
The content of the thesis is as follows:
1
Chapter 1: Theoretical framework on auditing Sales and Collection cycle
in financial audits conducted by auditing firms
Chapter 2: Practice of auditing Sales and Collection cycle in financial
audits conducted by AVINA - IAFC
Chapter 3: Assessments and Recommendations to improve auditing Sales
and collection cycle in Financial audits Conducted by AVINA - IAFC
Due to limited internship time and knowledge, my thesis inevitably has
shortcomings. Therefore, I am looking forward to receiving my teacher’s advices
and suggestions to improve my thesis.
I would like to express my most sincere thanks to Assoc. Prof. Dr. Nguyen
Thi Phuong Hoa, the staff from AVINA – IAFC and my teachers from Auditing
Department of National Economics University who help me to complete this thesis.
2
CHAPTER 1: THEORETICAL FRAMEWORK ON AUDIT OF
SALES AND COLLECTION CYCLE IN FINANCIAL AUDITS
CONDUCTED BY AVINA - IAFC
1.1. Features of sales and collection cycle
Diagram 1.1. The cycle of production and business operations of

manufacturing commercial enterprises
The Sales and collection cycle is the last cycle in the capital circulation. This
cycle is extremely important in companies, especially manufacturing business or
commercial services. The outcome of this cycle is used to evaluate the effectiveness
of the previous cycles and results of the whole process of production and business.
The Sales and collection cycle is the ownership transfer of goods and
services through goods – money transfer and only ends when the money is obtained
or customer payments are accepted. An efficient cycle means that the funds are
mobilized properly, cash flow is distributed seamlessly to set the stage for the next
production and business cycle.
The Sales and collection cycle is the cycle shows most clearly the result of
the continuous operation of production and business systems as well as the
performance of the company.
3
Capital in cash
Sales and
Collection
Receiving and
Returning
Purchasing
Payment
Salaries and
Employees
Inventory
1.2. Accounting for Sales and Collection
During the Sales and Collection cycle, vouchers and invoices are rotated
through the various functional units.
Diagram 1.2.1. Process of vouchers circulated in the Sales and Collection cycle

All accounting information will be reflected on the account system,

including:
1. Discount, sales returns
2. Revenue deductions
3. Cash sales
4. Revenue
5. Deferred Revenue
6. Credit Sales
7. Write-off uncollectible receivables
8. Reserve provision for bad receivables
9. Provision for bad debts
Diagram 1.2.2. Accounting process of sales and collection cycle.
4
Customer Marketing room Manager
Marketing room
Demand for
buying
Purchase orders
- Approving the
sale
- Making Sales
invoices
- Making the
delivery bills
Storekeepers Marketing room Accountants
Stock out
- Carriage
- Prepare shipping
documents
Recording and
making the report

Storing and
preserving
vouchers
Accounts used in the accounting process of the sales and collection cycle:
Ac 531, 532: Reduced cost of goods sold and returned goods
Ac 511: Revenue for sales
Ac 3387: Deferred revenue
Ac 131, 136: Receivables
Ac 642: General and administration expenses
Ac 139: Provision for bad debts
Ac 721: Other income
Ac 811: Financial expenses
5
Ac 111, 112 Ac 811, 531,532 Ac 511, 512 Ac 111, 112
Ac 3387
Ac 131, 136
Ac 642
Ac 139
Ac 721
Ac 004
(1) (2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
- Bad debts written off
- Bad debts had been

written off now
collecting
1.3. Fraud and errors in accounting information of Sales and collection
1.3.1. Fraud
Fraud is deliberate deception to falsify economic, financial data made by any
people of Board of Directors, staff, etc. that affects financial statements. Fraud may
present in the form like erroes but it is deliberate (falsify documents, modify
documents, falsify financial reports, etc.)
1.3.2. Errors
Based on VAS 29, errors may arise from the recognition, valuation,
presentation of the items in financial statements. Therefore, the causes of errors
include:
• Due to calculation
• Due to misapplication of accounting policies
• Due to ignoration, misunderstanding or incorrect interpretation
• Due to frauds
1.3.3. The potential frauds and errors in accounting information reflecting
Sales and Collection
• In terms of listed companies, revenue can be overstated, opposed to non-
listed enterprises, revenue can be omitted to pay less tax.
• Confusion between different tariffs, of taxable goods according to the tax
rate 0%, 5%, 10% or not taxable. Enterprises are able to push commodities
with higher tax rate to low tax rates to limit the amount of tax paid to the
State.
• Accounting year is misstated
• Books and accounting vouchers is recorded dishonestly, violate the
regulation of Accounting Law
• Lack of invoices when economic transactions arise
• Lack of signatures of authorized person on receipts, etc.
1.4. Internal controls over Sales and collection cycle

The internal control system is different from a company to another,
depending on characteristics and size of the business and attitude awareness of
managers towards internal controls. The general purpose of enterprises is to build
6
an internal control system that intends to serve controlling activities and providing
information quickly and reliably to help managers direct their own activities.
The system of internal control is all the policies and procedures established
by an organization to control and maintain the activities of the unit in order to
achieve the following objectives:
• Directing the business effectively.
• Ensuring that all activities are carried out as planned.
• Timely detection of problems and errors can be handled.
• Preventing and detecting fraud, errors in time.
• Protecting asset and organization information.
• Performing the accounting and reporting.
The system of internal control makes an important role for the company's
operations. Likewise, for the sales and collection cycle, the internal control system
helps to monitor and complete the activities of the cycle.
Internal control system consists of three main components:
• Environmental Control.
• Information and Communication system.
• The control procedures.
1.5. Objectives in auditing the Sales and collection cycle
According to Vietnam Auditing Standards No. 200 (objectives and general
principles governing an audit of financial statements) or Statement on auditing
standards of Australia No.10 (SAS - AU 10), “The objective of an audit of financial
statements, as aimed at by the auditor and the audit firm, is to express an opinion as
to the fairness of the financial statement on the basis of the general principle
governing an audit of financial statements”.
The audit objectives set out with closely related to the assertions of the

business management about the financial information presented in the financial
statements. Normally the objective of an audit is implemented through the
following steps (diagram 1.5)
7
(Source: Vietnam Auditing Standards No. 16, page 200, International
Auditing Standards No. 1):
Diagram 1.5. Steps to implement the objectives of the audit


Five assertions in audit of the sales and collection cycle included.
+ The existence : Revenue on the income statement reflects the exchange of
goods and services actually happened, the receivables in the balance sheet is made
on the date of recording in the balance sheet
+ C ompleteness : All sales of services, goods and receivables are collected
including recording in financial statements.
+ Ownership: goods and receivables of the business at the date of the
balance sheet owned by the enterprise.
+ Evaluation and classification : revenues, receivables are classified
correctly the nature and correctness.
+ P resentation : Revenue and receivables are presented truthfully and
correctly on the balance sheet or in the financial statements in accordance with
accounting systems of this enterprise and the current accounting regulations.
8
Financial statements
The components of the financial statement)
Confirmation from Board of Directors of the components of financial statement
The overall audit objective for components
The specific auditing objectives for components
Besides the assertions of the administrator of the enterprise, the general
objectives and specific objectives of the audit should be considered.

Sales and collection cycle is a component of the financial statements. Therefore,
when conducting audit sales and collection cycle must comply with the general
process of financial statements auditing to ensure consistency.
1.6. The necessity of auditing Sales and collection cycle in financial audits
Textbooks financial audit 186 pages, National Economic University
Publisher marked "Sales - collection (consumption) is the process of transferring
ownership of the goods through good exchange - money (between audited guests
and their customers). With that sense, the process is started from requirement of
customer buying (purchase orders, purchase contracts ), ending with the
transformation goods into money."
The concept of "collection" there is not just the narrow sense when people
purchase payment as collection but this concept also implies that customers
purchase, accept payments. Therefore, when auditing sales and collection cycle, it
also encompasses the auditing for customer’s receivable accounts.
1.7. Sequence in auditing the Sales and collection cycle in financial audits
Auditors perform specific audit procedures will be based on the process that
company has established and depending on the characteristics of the client's
business.
Diagram 1.7. The process of auditing the sales and collection cycle
9
Stages 1
Audit planning
Stages 2
Audit implementation
Stages 3
Audit completion
1.7.1. Audit planning
Stage 1: Preparing the audit
Prepare audit is the first step work of the audit institutions, it decisive to the
quality of the whole auditing This work is often done by senior auditors and

processes perform the following tasks:
 Audit planning
According to the Auditing Standards No. 300 on audit planning "audit
planning must be established for all audits. Audit planning must be set appropriately
to ensure that all materiality aspects of the audit: fraud detection, risk and potential
problems ensure audits are completed on time. Audit plan assigns for assistant
auditor and coordinates with other auditors and experts ".
It can be confirmed that the audit planning has an important role requires
auditors to ensure the efficiency and quality of the whole auditing By which, the
audit plan for sales and collection cycle consists of the following steps:
Step 1: Prepare the audit plan
In this step, the company will consider whether to accept or not customers,
identify possible risks and find out why customers need to audit.This reason may
know through original interview the director of company (for new clients) or
through review of last auditors (with old client). Also in this first step, the audits
will be appointed after a thorough review of the scale and characteristics the audits:
competence and personal experience of each person as well as independent their
customers.
Step 2: Finding, collecting information about customers
Understanding the business situation of the customer: Auditing Standards
310 said "to conduct audit financial statements, auditors must have the necessary
knowledge, comprehensive business situation in order to assess, and analyze the
events and operational practices of the unit.” The understanding of the business
situation is critical for auditors to make professional assessments.
Through the collection of this information, auditors need to understand the
field of business, major clients, key clients, consumer policy, credit policy and
revenue recognition criteria. Based on the information and documents that the
10
customer provided, auditors will conduct a preliminary analysis to help auditors
know the changes in the business activities of customers as well as identify

questionable on operability of the company
Researching the internal control system of the customer indicates the
existence of audit risk and control environment, which is estimated the volume,
complexity of the audit, the estimated time and identified focal auditing. Internal
control system more effective, the smaller the control risk is and conversely, the
higher the control risk is when internal control system is weak.
To obtain this information, the auditor may collect through the following
sources:
• Talking to the director, chief accountant, liability accountant, treasurer
about the internal control system for the sales and collection cycle.
• Talking with internal auditors and reviewing the internal audit report.
• Experience in auditing this unit in the previous year.
• Finding through the public media.
• Profile audited last year.
• Exchanging with predecessor auditor.
• Talking with experts and external objects (economist, superior agencies,
customers, suppliers ).
• The legislation and regulations related companies.
• Visiting Factory.
Step 3: Collecting information about legal obligations clients
Collecting legal obligations help auditors to grasp the processes affects
production and business operations of the company. Auditors need collect
established license of this companies, companies charter, financial statements,
minutes of the General Meeting of Shareholders, the major sales contract
Step 4: perform analytical procedures
According to the Auditing Standards No. 520, "Auditor shall perform
analytical procedures in planning the audit period review the overall of the audit".
Process analysis helps auditor to determine the content, schedule and extent of other
11
audit procedures. At this stage, the Auditor may apply both horizontal analysis and

vertical analysis.
Horizontal analysis: analysis is done by comparing the value on the financial
statements, including comparative actual figures with estimated figures or estimates
of auditors, comparative figures for the year, compared to the industry norms by
which auditors will compare with the industry average. With sales and collection
cycle proceeds, the auditors should compare the indicators: revenue, sales
deductions this year compared to the previous year, beginning of the period
compared to the end of the period, the actual revenue than planned.
Vertical Analysis: analysis is done by comparing the relative proportion of
the targets and different items on the financial statements. With sales cycle
proceeds, the auditors should compare the rate indicators of profitability, liquidity
ratios, rates of return, the debt ratio
Based on analytical procedures, auditors get the initial assessment of the
business and can delimiting the wrong domain, from which conduct auditing.
Step 5: Assessing materiality and audit risk
Assessment of materiality: Materiality is the term to refer to the importance
of information without it or misleading information, it will affect the decisions of
users. With sales cycle proceeds, the materiality is allocated to the items of
revenues, receivables and cash.
Assessment of audit risk: The audit risk is the risk that auditors and audit
firms give inappropriate opinion when the audited financial statements have
remaining material misstatements. Audit risk has 3 components: inherent risk (IR),
control risk (CR), detection risk (DR).
Step 6: Understanding Internal Control Systems and assessment of control
risk
This is an important task to require auditors to conduct seriously and
carefully because its outcome will help auditors to determine next procedures.
Auditors need to find out 5 components of Internal Control System (according to
International Standard on Auditing 315)
- The control environment;

12
- The entity’s risk assesment process;
- The information system, including the related business processes,
relevant to financial reporting, and communication;
- Control activities; and
- Monitoring of controls
 Design auditing program for the sales and collection cycle
Based on the results of the work was done above, the sales and collection
cycle consists with the specific conditions of the client company.
1.7.2. Audit implementation
During this period, the Auditor and assistant auditor will conduct audit tests
in the audit program, including test of control and substantive test. If the Internal
Control System works effectively, auditors will increase test of control and reduce
substantive test. Otherwise, Internal Control System is considered inefficient, the
auditors would not carry out control procedures, so they carry substantive test.
Tests of control with collecting the sales and collection cycle are
demonstrated in Table 1.7.2
Table 1.7.2.1. Tests of control with sales transactions
Assertion Test of control
Validity Select a continuous range of book sales invoices, comparing the
recording amounts of sales to each invoice. Considering the
voucher associated as transport orders.
Completeness Choose a range of sales invoices or shipping collated and
compare them with the sales journal, general journal, subsidiary
ledger, inventory, accounts receivable.
Rights &
obligations
Auditor check the arrangement and tracking of goods not owned
by the company
Approving Review of the lists or detailed records of sales and collection.

comparing to economic contracts, transportation orders other
vouchers approved to warehousing of goods, modes of transport.
Collate vouchers approved with powers and authorities of the
browser.
Valuation Considering the price regulations.
To compare the bill with regulation of price or economic
contract.
Considering signs for internal inspection.
Classification To compare the accounting vouchers, the reciprocal relations
13
account to confirm the correctness of the classification of
economic transactions by content and related accounts.
Check method of recording economic unusually transactions.
Accuracy To compare sales from transactions detailed books, journal sales,
and detailed records of sales, sales deductions and cash records .
Add up the numbers on the ledger and reconcile with the general
ledger, sales journal.
Timeliness Considering the transportation documents but not yet billed to
figure out the business can accommodate fraud.
Considering the regulation recording time of sales transactions
and comparing internal documents and recording up over time.
Table 1.7.2.2. Tests of control with collection cycle
Assertion Tests of control
Validity Auditors examine the separation of responsibilities between the
holder and recorder . auditors know through interviews,
observation and investigation.
Check document evidencing the inspection, periodic independent
comparing between businesses and banks.
Completeness Auditors inspect the split of responsibilities between the holder
and recorder . Auditors know through interviews, observation and

investigation.
Check the numbering sequence prior the paper reported, receipts,
statements of cash through review the continuity of these
documents.
Rights &
obligations
Collect the regulation of collection on approved conditions
discount, etc. Auditor conducted through interviews with the
board of directors.
Valuation Survey organization accounts receivable accounting.
Consider a monthly comparing with the bank.
For payments in foreign currency, it must be recorded at the
exchange rate at the date of the transaction reality.
Classification Check to used account scheme and regulations on reciprocal.
Consider sign of internal control.
Timeliness Observe the organization of reporting record collection revenue
in the related parts.
Consider checking internal signs.
Accuracy Consider separating the responsibility between the collection
revenue and recorder.
14
Check sending the balance sheet about collection revenue.
Consider internal inspection.
• Perform analytical procedures
Analytical procedures used in all 3 phases of the audit. In the implementation phase
of the audit, analytical procedures help auditors determine the content, timing and
extent of other audit procedures. Analytical procedures will help auditors make
decision to expand or narrow the detailed inspection procedures. Analytical
procedures include ratio analysis and trend analysis.
- Trend analysis:

When analyzing the amounts of revenues, auditors conducted comparing
sales of each type of goods and services and the company's total sales, revenue
deductions this year compared to last year, between the months together and
compared with industry to assess the trend of revenues in the period , this year
compared with last year goods tends to grow quickly, so there is reasonable growth
or not. If there are any irregularities, need to focus and specific analysis to find the
causes and explanations.
When analyzing collection items, auditors conducted comparing customer
receivables with previous periods in order to find trends. Combined with the trends
of revenue items ,auditors can concludes about the sales and collection cycle.
- Ratio analysis:
Auditors analysis ratios: Gross profit margin; Rotation inventories;
Percentage of sales deductions to total revenue; Receivable turnover ratio; Provision
expense ratio compared to sales on credit; Receivables on liquid assets ratio;
Provision for doubtful receivables on total account receivables.
Gross profit margin is a profitability ratio that measures how much of every
dollar of revenues is left over after paying cost of goods sold (COGS).
Gross profit margin is calculated by subtracting COGS from total revenue
and dividing that number by total revenue.
Gross profit margin = (Revenue – COGS) / Revenue
15
The top number in the equation, known as gross profit or gross margin, is the
total revenue minus the direct costs of producing that good or service. Direct costs
(COGS) do not include operating expenses, interest payments and taxes.
Provision for doubtful receivables on total receivables is calculated for each
product, each region and for the whole ofenterprise to assess the effectiveness of
business operations of customers.
Auditors consider the rationality between the number of goods sold in the
period with the actual capacity of machines or the level of reserves in inventories. If
the number of sales in the period is larger than the capacity of machinery, the

auditor must see if it is the untruthful declaration.
Based on a comparison of ratios and comparisons with industry, auditors
make an accurate assessment of the situation in the sales and collection cycle.
• Test of details
Table 1.7.2.3. Test of details of of sales transactions
Assertion Test of details
Validity Sampling some operations and perform detailed testing:
Considering the sales journal, ledger, subsidiary ledgers, accounts
receivable with major clients, the unusual operations.
To compare and confirm the sales entry with bills of lading
To compare shipping documents with recording records of
inventories (manufacturing operations)
To compare the sales entry with sell orders credit, shipping orders
Completeness Revise vouchers according to a continuous sequence, especially at
the time of the subsequent accounting periods.
To compare the bill of lading with the entry of sales are recorded
in order to verify all the documents have been recorded
Rights &
obligations
Auditor compare prices on the price lists and the invoice has been
signed
Collect documentsabout Credit policy regulations on rebates,
discounts, method of delivery,etc. and check if these policies have
been perform properly or not
Classification Check the classification of internal sales and external with the
different tax rates.
Valuation Auditors recalculate the numbers on sales receipts
Sampling some bills, check and compare the selling method, price
and compare with the the listing price or agreement.
To compare the sales journal with the bill of sale.

To compare the details of lading bills with orders.
16
Timeliness Sampling of services incurred before and after the cut off date,
compare dates indicated on sales order, delivery bill, etc. Recheck
the sales contract to determine whether existence provisions leads
to recorded sales postponed.
Accuracy Choose a transactions range on the book details to recalculate and
reconciliation of accumulating, turning pages. Collating data from
ledger to detail from ledger to report.
Table 1.7.2.4. Test of details in Cash Collection
Assertion Test procedures
Validity Sampling some cash collection, collation from ledger, subsidiary
ledger cash, deposits, book collection, receipts, cash receipts,
bank's notice. Especially It should be noted to the services
incurred with large amounts.
Completeness Cash is huge amounts of risk. Should be collated from receipt,
through the receipt cash, to collection journal ,books detailing
cash ledger.
Deposit less risky more than, as tracked by 3rd party ,but deposits
are likely to be missed. Auditors collated from notices of the
bank, in bank statements, detailed records of deposit accounts.
Rights &
obligations
Check the signature on the receipts and compare them with the
original documents.
Reconciling credit notice of the bank with the invoice.
Collation discounts paid with provisions of the Companies.
Valuation To compare with the amounts actually collected at norm prices or
at negotiated prices.
Reconciling receipts, notices with collection journal, with

invoice, contracts.
Accuracy Select a range of collection cash, performing combined. To
compare with the cash book entries and recording payment books
Classification Distinguish the customer transactions advances with direct
payment and customer receivables.
Correctly classify of collection by bank deposits in various bank
accounts.
Foreign currency transactions need to take note exchange rate at
the transaction date.
Timeliness Sampling some transactions before and after the cut off date,
inspect, collate date on receipts, notices with journal collection,
detailed books, cash ledger, deposits.
• Test of details on customer receivables
To check details on customer receivables, audit procedures that are most effective
are to send confirmation letter which provides auditors evidence from the 3
rd
party
17
that is validity targets, the valuation and timeliness. Although it does not detect all
errors, but it is the evidence that has high reliability and objectivity.
Table 1.7.2.5. Audit procedures on customer receivables
Assertion Audit procedures
Rationalization Check out the list, the balance sheet about the large amount of
cash receipts or unusual signs.
Calculate the ratio and monitor large changes compared with
previous year.
Validity Taking and monitoring confirmation of buyer of the receivables
that have large scale. Also choose some typically small amounts.
Completeness Adding back list, the balance sheet accounts receivable,
reconciliation with General Ledger.

To compare with the bill of lading , money collection books and
record of debt.
Accounts receivable incurred in the sales process has not been
processed are be fully recorded.
Rights &
obligations
Receivables are owned by companies
Accuracy Choose some accounts receivable, then reconciliation them with
collection books and ledger.
Adding back the pages , accumulated list or the balance sheet
about money collection and compare with other relevant records
Valuation Taking, monitoring confirmation of buyer of receivables, selected
some large receivable scale and some small receivable scale.
Talking to the management about credit policies, the ability to
recover , assess the recoverability.
Classification Collate accounts receivable on list and the balance sheet about
money collection by deadline.
Investigate, contact managers about the receivables in the
voucher to verify the classification.
Performance Check the bill proceeds, the minutes of the meeting
Discussions with the management about unclear accounts
receivable.
Timeliness Select transactions occurred before or after the cut off dat ,
compare with shipping documents.
Note actual shipping date , record date.
Check the return shipment after the date of the declaration of
financial tables relating to the audit period.
18
1.7.3. Completing the Sales and Collection cycle audit
In this stage, auditors must collect opinions, summarize the work done, give

comments on the audit reports in general and audit sales and collection cycle in
particular. To make an opinion, auditors need to consider subsequent events, use
analytical procedures to confirm once again the findings during the inspection of the
accounts or items on the financial statements, help auditors make conclusions on the
truthfulness of the whole financial reports reasonably.
To sum up, auditors pointed out the materiality, suggest adjustments to
accountants, require company to adjustment. If customers accept, the auditor gives
unqualified opinions with sales and collection cycle. If customers do not accept,
consider the materiality of errors and frauds that auditors will give qualified
opinion.
Finally make the report, write a letter to the management.
19
CHAPTER 2: PRACTICE OF AUDIT SALES AND
COLLECTION CYCLE IN FINANCIAL AUDITS CONDUCTED
BY AVINA – IAFC
2.1. Features of Sales and Collection of customers that affect financial audits
conducted by AVINA - IAFC
Diagram 2.1: Function of the sales and collection cycle
Handling orders from buyers: There are several types of orders. That could
be a purchase request form or require purchase by mail, telephone, the purchase
contract - sale of goods and services. Handling order is classifying orders according
to some specific criteria. E.g. by types of goods, quantity purchased, and the buyers,
it can eliminate some orders that don’t reach the required standards of the unit. It
20
Handling orders from buyers
Consideration and approval of sales on credit
Delivering of goods
Sending invoices to buyers and recording sales transactions
Handling, recording cash receipts
Handling, recording sales returned items, discounts

Appraising and eliminating non-collected receivables
Provision for doubtful debts
can be considered that handling orders of buyers, is the starting point of the sales
and collection cycle, which creates a legal basis, sometimes substitutes for customer
contracts.
Consideration and approval of credit sale: Company assess the situation
and solvency of the buyer to decide whether to sell or not , sell part or the whole
consignment. This decision may also be on the economic contract as a condition
agreed upon within trading relations in the contract. The sold on credit
consideration and approval is important but there are some companies ignore
considering or if only make a deal leading to bad debts and irrecoverable debts.
Auditors audit the sales and collection cycle focus on this function because it helps
auditors to assess internal control for consideration and approval of credit sales.
Goods deliver: Marked by the enterprise goods delivered to the customer on
commodity ownership -one of 5 standards of revenue recognition. This can be seen
to accept and recording sales book. Shipping documents must be made at time of
shipment from the warehouse line with the actual amount of goods, in accordance
with the contract and other related documents. The company has large-scale with
regular sales operations that often make a shipped book to update the shipping
documents. Shipping documents are documents proving the transfer of goods to the
purchaser. Therefore, to test the real transfer of goods, auditors just reviewed,
evaluated on the shipping documents.
Sending bill to buyers and writing transactions sales: If shipping
documents are documents evidencing the transfer of goods, sales invoice is the
basis for accounting entries sales transactions, as well as revenue, income from the
sale of goods. Sales invoices indicate models, quantities and prices of goods
including original price, transportation costs, insurance, taxes and value-added.
Auditors note the validity of the invoice, invoiced goods, unit price and total value
of shipments consistent with the signed contract or decision of the board of director
of sales…

Handling and recording cash receipts: If the customer pays in cash,
accountants conduct recording in receipt journal. If the customer unpaid, the
company reflected on accounts 131 and monitored details for each object and
21