Question

Sales procedures failing to meet the control objectives of organizations result in financial loss and damage to reputation of an organization.

a) Explain five control risks associated with sales practices in organizations.

b) Demonstrate five internal control procedures that can be applied to control sales transactional risks from occurring or reduced to a minimum in organizations.

Answer 1

a. Control risks associated with sales practices in organization –

i) Unauthorized sales transactions

ii) Unaccounted sales

iii) Incorrect revenue recognition in the books of accounts

iv) Incorrect Inventory management

v) Overdue debtors standing in the books

b. Internal control procedures that can be applied to control sales transactional risks from occurring or reduced to a minimum in organizations.

i) There should be appropriate authorizations in place before the delivery of goods to party.

ii) There should be reconciliations to ensure all the sales have been accounted for in the books.

iii) Revenue should be recognized in the books as per Revenue Recognition principles (on the transfer of control and ownership to recipient).

iv) Appropriate reconciliations should be in place to ensure inventory in the inventory ledger is reduced once sale is made.

Appropriate debtors ageing should be in place to ensure money is collected in time.