NEW! SOX Report (featured in The CPA Journal)

Effective Controls for Sales Through Distribution Channels

As featured in the September 2007 Issue of The CPA Journal

By Niranjan (Chips) Chipalkatti, Ph.D., A.C.A
Associate Professor of Accounting, Seattle University


Summary
Based on a recent study by proxy advisors Glass Lewis and Co, nearly 70% of the internal control weaknesses that resulted in restatements in 2004 and 2005 were attributable to issues related to financial systems/procedures and revenue recognition. This paper focuses on the potential reasons why such control deficiencies might exist in companies that sell through distribution channels. For such companies, some of the key data originates from within the financial accounting system of its distributors. Thus the design and the testing of controls that reside within the purview of thecompany itself, takes on added importance. The paper details the automated systems and control activities that management of companies with sell through revenue should effectively incorporate into their revenue accounting processes.

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