If you look, the previous page, it says specific employees.
Who is doing what?
We've got the sales clerk.
They accept orders from customers and prepare the written sales order.
That deals with recording.
So the sales clerk.
It says credit manager, they check the credit.
Credit would be authorization.
Warehouse clerk, they have custody of the goods, custody.
Shipping clerk, custody.
Billing clerk, recording.
Receivables clerk, posts.
General ledger bookkeeper, posts.
Mailroom clerk or receptionist, opens the mail.
They really shouldn't do anything else in ARCs.
Cashier receives the checks, prepares deposit slip.
Cash receipts clerk receives remittance listing.
Receiving clerk receives all goods that are being returned and returns them to inventory.
If goods get returned, we don't want the goods getting returned to the salesman.
Why not?
Because if we sell goods, but the person doesn't pay, I still get my commission.
It was a good sale.
It's not my fault that you didn't check his credit.
But, we sell goods, they return them to me, I put them in the trunk of my car and sell
them at the swap meet on Sunday, and then I just tell people, oh, we sold them, but
he didn't pay.
Uncollectable, let's write it off and I still get my commission.
Uh-uh-uh.
You've got to make sure-- You ever gone, there's a place called Ikea, right, where you can
get the best furniture that lasts like an hour, and then it breaks.
First of all, you buy it.
It takes you like four days to set it up.
Then, you sit in it, and it breaks apart.
But it's a fabulous store.
It looks fabulous.
It looks great.
It's got great form, but no substance.
Anyway, so you ever return goods to Ikea?
Well, you walk in the door and you have to go to a whole separate area.
You get in line, pick a ticket, stand in line, then you get to return it.
Notice, it's not going to the person you bought it from, it's a whole different department.
The point is, you don't want the goods to be returned to the salesperson.
Otherwise, what happens?
It'll never get back in inventory.
Then the treasurer approves the credit memo and approves the write-offs.
Now, in reality, they're probably not going to do it, but there was a question and it
said, which of the following should authorize, or who should authorize the write-off of receivables?
The people they listed, the only one listed that could do it was treasurer, because what
does the treasurer do?
They have checks, they sign the check.
They're dealing with cash dispersements not cash receipts.
So the treasurer's signing the check.
So who should write-off an uncollectable receivable?
Someone who doesn't touch the receivable, like the treasurer, so that's why I said writes
off uncollectable accounts.
Then the controller, internal audit.
Controller, internal audit, they're doing the bank rec, which is the comparison of one
to the other.
All right, let's look on the next page and it talks about the assertions that I mentioned
about you perceive, understandability, presentation and disclosure, existence and occurrence.
Notice the word vouching, rights and obligations, completeness, tracing, and valuation, allocation,
accuracy.
We're going to cover these terms more in audit evidence, but those are the assertions management
is making in the form of these statements.
When you pick up management's statements, what are they asserting?
That these numbers are understandable, that they're understandable and properly classified,
that they exist, that they're properly presented, adequately disclosed, that they are rights,
they own them.
Completeness, completeness, all included.
It's not overstated, understated.
Valuation, it's the proper dollar amount.
That's what they're asserting.
Your job?
Obtain enough good evidence to give an opinion on that.
So when we talk about tracing and vouching, tracing this way goes into the books.
That's completeness.
You'll see that word in your notes.
Vouching goes from the books back to the source.
That's existence or occurrence.
That's how it ties together.
You'll also see here where it mentions about segregation of duties.
The function of authorizing the sale, authorizing the credit to receivables should be segregated.
The person authorizing the sale, recording receivables, having custody of the inventory,
should be segregated.
The function of the cashier ... So it's just basically saying the person that does this
should not do this, should not do this, should not do this, and so on.
All of these should be done by different people.
That's segregation of duties.
You'll see in your notes the picture that I put on the board.
Close enough.
But you can see again how this kind of ties together, where what goes to the customer,
what goes to accounting, what goes to the cashier, and, again, who's doing the reconciliation.
So that's how it ties together.
That is just ... I spent a lot of time on this cycle.
24 minutes.
But I want you to realize that we're going to cover many more cycles.
I won't go into as much detail, but it's very similar.
This cycle gets a lot of testing.
Why?
Cash, cash, cash.
Right over here, cash receipts.
Lot of inherent risk.
You need a lot of key controls because we've got cash, cash, and cash.
So it's really important to understand that, how it all ties together, especially this,
with inherent risk, because that's how it ties together.
That is the first of the operating cycles called what?
The revenue cycle.