In general, the objective of an internal audit is to assess the risk of material misstatement in financial reporting. Material misstatements can arise from inadequacies in internal controls and from inaccurate management assertions. As such, testing the validity of various implicit managerial assertions is a key objective of an internal auditor.
While this applies to all financial cycles, this article is the eighth in a series focusing on the General Control Activities for the Sales, Invoicing and Credit Management (SICM) cycle. The most important general controls for SICM include:
- Sales Planning and Target Setting
- Customer Acquisition
- Client Acceptance and Sales Agreements
- Managing Client Relationships
- Order Processing
- Sales Returns and Credit Notes
- Credit Management
- Customer Master Data
Returns and Credit Notes
When conducting an audit of Returns and Credit Notes look for the following controls/best practices:
- Validate that all goods returned by customers are logged and reviewed during the appropriate accounting period to ensure they are reflected in the final figures.
- Verify that all credit notes are authorized prior to issue and the credit notes are linked to goods receipt.
- Make sure that the nature and volume of credit notes is approved and monitored by the responsible manager.
- Test that access to generate credit notes is restricted and the access rights are reviewed on regular basis.
When fielding Customer Service Complaints it is important that the business promptly resolve the issues and monitor service going forward in order to take advantage of improvement opportunities.
When conducting an audit look for the following controls/best practices:
- Verify that a procedure is in place for complaint/claims registration and a process to notify the relevant department.
- Make sure that complaints are investigated, root causes identified and that any actions taken are monitored.
- Validate that old open complaints are regularly reviewed and followed up.
- Test for a process to solicit customer feedback.
- Verify that the general manager (or appropriate member of management) personally visits key customers to seek their feedback.
In conclusion, auditing standards require that auditors test basic underlying management assertions implicit in the financial statements. Key objectives to these assertions are; Existence and Completeness, Rights and Obligations, Valuation or Allocation, and Presentation and Disclosure.