Accounting Information Systems: The Processes and Controls, 2nd Edition

RISKS AND CONTROLS IN SALES PROCESSES (STUDY OBJECTIVE 2, continued)

Management should strive to achieve a system of internal controls, using both manual and programmed procedures to minimize the chance of error or fraud. Unfortunately, the existence of good internal controls is not necessarily related to financial success in terms of a company's ability to make money; internal controls do not ensure high sales and profits. However, effective and efficient internal controls may relieve managers of valuable time that might otherwise be spent on accounting or operational problems, thus making it possible for them to devote more attention to revenue growth and cost reduction.

In terms of the five internal control activities described in Chapter 3, following are common procedures associated with the sales process:

AUTHORIZATION OF TRANSACTIONS

Specific individuals within the company should have authoritative responsibility for establishing sales prices, payment terms, credit limits, and guidelines for accepting new customers. Only designated employees should perform these authorization functions. These specific people should have a recognized method of communicating when sales transactions have been authorized. For example, approval is often documented by a signature or initials on a sales order or shipping document. Such a signature indicates that a designated employee has verified that the sale is to an accepted customer, the customer's credit has been approved (i.e., it has not ...