A wholesaler in Onitsha takes orders by phone, WhatsApp and walk-in. Goods leave the warehouse on handwritten slips, and the accounts clerk raises invoices when she can. A month later, a customer says he never received a delivery and refuses to pay ₦4 million. Another customer is found to owe ₦9 million, far above any sensible limit. The sales cycle is where most revenue, receivables and fraud risk sit.
Its controls follow the goods and the paperwork: order, dispatch, invoice and record.
This topic applies the risk, control objective, control and test method to the three stages of the sales system: customer ordering, dispatch and invoicing, and recording sales and accounting for receivables. The previous topic gave the method. The next topics apply it to purchases and payroll.
In 30 seconds
Stages: receiving orders; dispatching and invoicing; recording sales. Key risks: credit given without checks, orders lost or processed twice, goods sent but not invoiced, invoices wrong, returns unrecorded, debts written off without authority. Key controls:
- credit limits and approval of new accounts
- sequentially numbered orders, dispatch notes, invoices and credit notes
- customer-signed delivery notes
- segregation of ordering, dispatch, invoicing and cash
- customer statements
- control account reconciliations
- authorised write-offs
Tests: inspect signatures, check sequences, observe, use test data.
Key terms in plain English
| Term | What it means |
|---|---|
| Goods delivery note | A document signed on delivery of goods to a customer |
| Credit limit | The most a customer may owe |
| Sequence check | Checking that numbered documents have no gaps |
| Control account | A ledger total used to check the sub-ledger |
| Write-off | Removing an uncollectable debt from the books |
| Exception report | A list of items that break a rule |
Syllabus check
This topic is in syllabus area B, the nature and use of internal control (20% of marks). It covers:
- accounting systems and internal controls in the sales cycle
- the evaluation of internal controls
- tests of controls
CAMA 2020 and the sales system
The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 404(2) | The auditor states whether proper books of account were kept | Sales records are part of the books |
| s. 405 | Corporate responsibility for financial reports | Management designs the sales controls |
| s. 407(3) | Right of access to books, accounts and vouchers | Access to orders, dispatch notes and invoices |
The rules in more depth
The elements of the sales system
Leaving out the collection of payments from credit customers, the main elements of the sales system are:
- (a) receiving orders from customers
- (b) dispatching the goods and invoicing customers
- (c) recording sales and amounts receivable in the accounts
For each element we identify risks, control objectives, controls and tests of control. The lists below are not complete, but show the approach.
Customer ordering
| Risks | Control objectives | Principal controls |
|---|---|---|
| Orders accepted from new customers, and credit given, without references or formal authorisation of an account and credit limit | Credit to new and existing customers is controlled and follows company policy | Segregation: those who process orders do not do credit reference checks or credit limit checks; the check is made against a file of approved limits or by a programmed control that accepts an order only if the customer stays within the limit |
| Orders accepted that take an existing customer over the credit limit | Orders are not processed if they would take the customer over the limit | All new accounts and their credit limits are authorised |
| Some orders are overlooked and not processed; some are processed twice | All orders from customers are processed correctly | Orders on sequentially numbered documents, or numbers allocated by the system |
| A price discount is given without authorisation | Discounts only as authorised | A dispatch note is produced for every sales order, and goods are not dispatched without one; price and discount lists restricted |
Tests of control. The client can help by recording on the order form that checks were made, with space for the initials of the person who did each task. The auditor can:
- find out who takes orders, who does credit checks and who checks credit limits. Observe them to see if procedures are followed; in an IT system, use test data to see if an order that takes a customer over the limit is rejected;
- look for the signatures or initials of the credit-checking staff on orders, or use test data;
- look for the signature of the manager on the approval document for new customer accounts; and
- look at a sequentially numbered list of orders and confirm that each has a dispatch note number; or, in an integrated IT system, follow test data from order to dispatch note and check the sequences on screen.
The controls and tests must suit the system described, noting which parts are manual and which are IT-based. The objectives are the same for both, but the specific controls and tests sometimes differ.
Dispatch of goods and invoicing
| Risks | Control objectives | Principal controls |
|---|---|---|
| Goods not dispatched for some orders; dispatched twice | Goods are dispatched for every authorised order and not twice for the same order | Goods delivery notes (GDNs) are numbered in sequence, attached to a copy of the specific order and signed by authorised dispatch staff; the sequence lets all deliveries be accounted for |
| Goods dispatched to customers without credit | Dispatch only after credit authorisation | Segregation: dispatch staff are not the people who prepare invoices or process orders |
| Customers claim they did not receive goods | Customers acknowledge receipt | Customers sign a delivery note; the signed note is attached to a copy of the dispatch note and order and passed to accounts |
| Invoices not produced for goods dispatched; invoices wrong | Every dispatch note has an invoice, for the correct amount | Each invoice linked to a dispatch note and order, or produced automatically; invoices numbered in sequence; periodic accuracy checks by accounts staff or strong IT controls |
| Returns not properly recorded | Every return has an authorised credit note | Credit notes numbered in sequence and authorised |
Tests of control:
- check a sample of delivery notes for the customer's signature;
- check that segregation of duties exists;
- check that all GDNs are in sequence and, if not, that the system produced an error report and the break was explained;
- check that the sequence of invoices shows an order number and a dispatch note number;
- check that credit notes cross-refer to an invoice number;
- check that credit notes carry the signature of the appropriate manager, or, on the computer, were raised only by staff with authority;
- observe the dispatch process; and
- look for evidence that accounts staff checked the arithmetic of invoices, or prove that IT controls ensure accuracy by recalculating.
| Test of control | Purpose |
|---|---|
| Review error reports on non-sequential GDNs and ask what action was taken | Check that all GDNs are in sequence, or that breaks are properly explained |
| Test a sample of GDNs for the customer's signature | Check that the customer received the goods and acknowledged receipt |
| Observe the dispatch process | Check that goods leave only against a GDN and agree with it |
| Observe the credit checking process | Check that dispatch is not authorised for a customer over his credit limit |
Recording sales and accounting
| Risk | Control objective |
|---|---|
| Invoices and credit notes are not recorded in the accounting system | All invoices and credit notes are recorded |
| They are recorded in the wrong customer accounts | They are recorded in the correct accounts |
| Debts are written off as bad without proper consideration | Write-off only after proper consideration and authorisation |
Controls: invoices and credit notes numbered in sequence; regular statements to customers; control account reconciliations for trade receivables; authorisation of bad debts; and procedures to identify and follow up overdue accounts and unpaid invoices.
Tests of control:
- check lists of invoices and credit notes for sequential numbering, or view them on screen
- check segregation between those who prepare and send invoices, those who collect payments and those who follow up late payers
- check that statements are produced and sent
- look for documentary evidence that control total checks were done and reconciliations carried out
- look for evidence of authorisation of write-offs
- check that someone is responsible for collecting overdue debts, with evidence of their work, or that the system regularly produces an exception report of overdue accounts
Linking the controls to the assertions
| Control | Assertion it supports |
|---|---|
| Numbered orders, dispatch notes and invoices | Completeness of sales |
| Customer signature on delivery notes | Occurrence of sales and cut-off |
| Credit limits and approval of accounts | Valuation of receivables |
| Check of invoices to price lists | Accuracy of sales |
| Customer statements and reconciliation | Existence and accuracy of receivables |
| Authorised write-offs | Valuation of receivables |
If the tests show that these controls operate, the auditor can reduce substantive testing of sales and receivables, for example by using smaller samples for receivable confirmations. If they do not, the auditor extends substantive testing, especially of the completeness of sales, cut-off and the allowance for doubtful debts.
Worked examples
Example 1: credit limit. A system accepts an order of ₦3 million from a customer with a ₦5 million limit who already owes ₦4 million.
- The order takes the customer to ₦7 million, above the limit.
- A programmed control should reject it. The auditor tests this with test data.
Example 2: gap in sequence. The auditor finds that dispatch notes 4021 to 4029 are missing from the file.
- Goods may have been dispatched but not invoiced.
- The auditor asks for the notes or an explanation, checks the exception report and traces the goods to invoices.
Example 3: write-off. The credit controller writes off a ₦600,000 debt without authority and keeps the customer's later payment.
- The control objective is write-off only with authorisation.
- A test is to inspect a sample of write-offs for the manager's approval and to compare them with later receipts.
Example 4: manual or IT? A company's invoices are produced automatically from dispatch notes.
- The auditor tests the master price file and the general IT controls instead of checking each invoice manually.
- Test data confirms that the invoice follows the dispatch note and uses the correct price.
How to score full marks
- Divide the answer into order, dispatch and invoicing, and recording.
- Give risk, objective, control and test for each stage.
- Match manual or IT controls to the system described.
- Explain why each test shows the control works.
Common mistakes in the exam
- Testing balances instead of the control.
- Forgetting credit control.
- No segregation of order, dispatch, invoicing and cash.
- Missing the customer signature on delivery notes.
Quick revision
- Order, dispatch and invoice, record.
- Credit limits; numbered documents; signed delivery notes.
- Statements and reconciliations; authorised write-offs.
- Tests: inspect signatures and sequences, observe, test data.
Practice questions
Questions 1 to 10 are multiple choice. Questions 11 to 13 are written. Try each before opening the answer.
Question 1. A control to stop orders over the credit limit is:
- A credit limit check
- A delivery note
- A bank statement
- A payroll check
Show the answer
A. Manual or programmed.
Question 2. Sequentially numbered dispatch notes help to check:
- That all deliveries are accounted for
- Credit limits only
- Salaries
- Tax
Show the answer
A. Gaps can be investigated.
Question 3. A customer-signed delivery note provides evidence that:
- The customer received the goods
- The invoice is correct
- The price is fair
- The debt is paid
Show the answer
A. Acknowledgement of receipt.
Question 4. A risk in dispatch is that goods are:
- Dispatched but not invoiced
- Invoiced and paid
- Ordered
- Returned and credited
Show the answer
A. Revenue is lost.
Question 5. Credit notes should be:
- Numbered and authorised
- Unnumbered
- Raised by anyone
- Kept secret
Show the answer
A. To prevent misuse.
Question 6. Regular customer statements help to detect:
- Errors and disputes in receivables
- Payroll fraud
- Stock theft
- Tax errors
Show the answer
A. Customers confirm balances.
Question 7. Bad debts should be written off:
- Only with authorisation
- By the cashier
- Without records
- At year end only
Show the answer
A. Authorisation is the control.
Question 8. To test that an IT system rejects orders over the limit the auditor uses:
- Test data
- Only inquiry
- Only observation of paper
- Nothing
Show the answer
A. A CAAT.
Question 9. Segregation in the sales cycle separates:
- Order processing, dispatch, invoicing and cash
- Audit and tax
- Planning and reporting
- Debits and credits
Show the answer
A. To stop one person controlling the whole cycle.
Question 10. A control account reconciliation of receivables checks:
- The ledger total to the control account
- The bank balance
- Payroll
- Stock
Show the answer
A. It shows errors in posting.
Question 11 (10 marks). Identify the risks, control objectives, controls and tests of controls for customer ordering. (8 marks)
Question 12 (10 marks). Describe the controls and tests of control over dispatch of goods and invoicing. (8 marks)
Question 13 (10 marks). Explain controls and tests over recording sales and receivables. (4 marks)
Model answers
Show the model answer to Question 11
Risks: credit without checks; orders over limit; orders lost or processed twice; unauthorised discounts. (2) Objectives: credit controlled; all orders processed correctly. (1) Controls: segregation of order processing and credit checks; authorised new accounts and limits; numbered orders; dispatch note for each order. (3) Tests: observe the checks; inspect initials and approval signatures; test data for limits; check order and dispatch note sequences. (2)
Show the model answer to Question 12
Controls: numbered GDNs matched to orders and signed; customer signs delivery note; invoices linked to dispatch notes and numbered; segregation; numbered and authorised credit notes; accuracy checks. (4) Tests: check customer signatures; segregation; sequences and error reports; invoice cross-references; credit note authorisation; observe dispatch; evidence of arithmetic checks. (4)
Show the model answer to Question 13
Controls: numbered invoices and credit notes; customer statements; control account reconciliations; authorised bad debts; follow-up of overdue accounts. (2) Tests: check sequence; segregation; statements sent; evidence of reconciliations and write-off authority; exception reports. (2)
Pathfinder on The sales system: controls and tests of controls
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Revise first: Dispatch of goods and invoicing
Source: ICAN Pathfinder, Audit, Assurance and Forensics. Diets covered: May 2026 and November 2025.
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