Contributed December 21, 2001

REVENUE CYCLE PROCEDURES

1. Functions of the revenue cycle

Revenue cycle includes following functions: concluding services contracts with customers, client acceptance procedures, credit control activation and disactivation of subscribers providing cellular communications services and products customer master file maintenance customer billing sales analysis customer returns and allowances collection of accounts receivable provisioning for doubtful accounts receipt of cash from trade customers (initial deposit, prepayments, under/over payments, regular receipts, etc.)

2.

Critical forms and documents associated with the cycle:

Service agreements with clients; Billing system output (minutes used by clients); Invoices; Credit memos; Bank statements evidencing payments for services received

3.

Common risks associated with the Revenue cycle

Authorization and accuracy of contracts with clients

Unauthorized rates or prices are quoted. Extension of credit terms to customers who represent unacceptable credit risks to the company. Orders may be accepted/contracts concluded from/with related parties without management's knowledge or at unacceptable prices or terms. Orders may be accepted at prices or on terms that violate governmental laws and regulations.

Providing services/shipping
Goods may be shipped or services delivered (cellular services provided) to the wrong party. The wrong goods or services or the wrong quantity of goods or services may be shipped or delivered. Fictitious or otherwise invalid shipments or services may be made or provided.

Billing
Goods (phones) sold or cellular services provided may not be initially recorded and reported. Records of sales or cellular services provided may be lost and therefore not billed. Incomplete invoicing of services and goods delivered to customers (minutes used are not included in the customers billings). Invoices are raised on an untimely or inaccurate basis leading to payment delays. Revenues may be recorded for goods or services that were not delivered. Invoices may not be priced from an authorized source. Incorrect billings may be issued due to clerical or mechanical errors. Invoices may not be summarized and posted on a timely basis.

Accounts receivable
Ineffective collections of receivables from customers.

Cash receipts
Non-recording of cash receipts. Incorrect application of cash receipts to the subsidiary ledger. Non-compliance with statutory rules and regulations in respect of revenue recognition and taxes.

4. Control objectives of the revenue cycle internal control procedures

The principal objective of control procedures supporting the revenue cycle include the following:

Authorization and accuracy of contracts with clients

Contracts with customers are subject to full review and authorization prior to approval (client acceptance procedures are in place). All orders received (for cellular telephones) should be reported on a timely basis to enable warehouse to order and prepare the requested goods. Rates, special rates and discounts as well as prices for cellular telephones shall be approved on an appropriate level and quoted in accordance with current policy

Billing
All cellular communication services or goods delivered should be recorded and recognized in the accounting records in the appropriate period. Billing for services and goods (cellular telephones) should be complete, accurate and recognized in the appropriate accounting period. Billings recorded in the billing system shall be reconciled to the general ledger on a regular basis.

Accounts receivable
Credit control procedures shall be designed to ensure consistent and effective credit collection policies are applied and no unauthorized credits to be granted to customers with doubtful credit worthiness.

Cash receipts
All cash receipts should be recognized in the books on a timely basis and be accurately applied to customer accounts in the subsidiary ledger or serve as a basis for sales recognition (in Russian books).

5.

Transaction flow control procedures

An entity's internal control structure comprises the policies and procedures established to provide reasonable assurance that specific entity objectives will be achieved. The internal control structure might include a wide variety of objectives and related policies and procedures. Mostly important procedures to be established in revenue cycle are as follows:

Authorization and accuracy of contracts with clients

Authorization and Accuracy of Sales Orders - Customer requests for goods and services and accordingly services contracts that meet management's criteria should be approved and should be accurately reported on a timely basis. 1. Controls to ensure valid authorization of sales orders: Approval by the proper level of management of established prices, rates per minute, special rates and prices (for cellular telephones), customers, credit limits and terms. Current prices, customers, credit limits and terms are made available to order entry personnel. Approval by authorized individuals of orders and services contracts as to customers, prices, credit, quantities and terms by reference to documented data approved by management. Approval is made by persons not involved in the sales function nor in the preparation of sales orders or contracts. Type of the control procedure establishing of the procedure Responsible person Financial Director

on a regular basis on a regular basis

Sales department Financial Director

2. Controls to ensure accurate recording of sales orders and services contracts: Accurate recording of orders received and contracts concluded as to customer, prices, quantities and terms for use in subsequent processing.

Type of the control procedure on a regular basis

Responsible person Sales department

3. Supervisory controls to ensure the continued operation of above controls: Review and approval by a designated official of sales orders over a specified amount, and orders/services contracts with special prices, terms or discounts.

Type of the control procedure adherence to the procedure

Responsible person Financial Director

Completeness of Services Contracts and Sales Orders - All customer requests for goods and services should be reported. 1. Controls to ensure completeness of sales orders: Type of the control procedure adherence to the procedure -Responsible person Sales department --

Use of prenumbered sales orders/contracts or other means in recording all orders. Accounting for the sequence of prenumbered sales orders/contracts and follow-up of missing orders. 2. Supervisory controls to ensure the continued operation of above controls: Review by a designated official of the results of follow-up on missing documents. 3. Written procedures to ensure the proper operation of above controls Adequate written procedures regarding order entry function activities.

Type of the control procedure on a regular basis Type of the control procedure establishing of the procedure

Responsible person Financial Director Responsible person Financial Director

Providing services/Shipping Function

Completeness of Shipments - All shipments made and services provided should be reported. 1. Controls to ensure completeness of recording of goods shipped and services provided: Use of prenumbered documents, logs, or other means in recording all shipments and services rendered (For computer-generated shipping documents, assignment by computer of sequential number to the documents - minutes of use report). Accounting for the sequence of prenumbered shipping documents or records of services provided (minutes of use report), and follow-up of missing documents. Matching of shipping documents with sales orders and records of services provided (minutes of use report) with services contracts and followup of long unmatched orders, by persons other than those who maintain the records of unmatched orders. Type of the control procedure establishing of the procedure Responsible person billing department, warehouse incharge

on a regular basis

--

on a regular basis (for phone sales), on a periodic basis- for cellular services

--

2. Supervisory controls to ensure the continued operation of above controls: Review by a designated official of the results of follow-up on unmatched orders and missing documents.

Type of the control procedure on a regular basis

Responsible person Deputy Chief Accountant

Accuracy of Providing Service/Shipments - Shipments made and services provided should be based on authorized customers' orders/services contracts, and should be accurately reported on a timely basis. 1. Controls to ensure validity of shipments and services provided. Shipment of goods or providing of services not made without an authorized sales order/services contract. 2. Controls to ensure accuracy of recording of shipments and services provided: Physical counting of goods at time of shipment by persons other than those who: a) have custody or access to inventories; b) authorize or make shipments. Accurate recording of services provided as to description, dates, quantities and other relevant data for use in subsequent processing. Use of verified shipping documents in subsequent posting of quantities to inventory subsidiary records. Adherence to documented procedures for services provided/shipping cut-off (daily and period end). Type of the control procedure adherence to the procedure Responsible person Billing

Type of the control procedure on a regular basis

Responsible person warehouse in charge

--

Billing

-adherence to the procedure

warehouse incharge Financial Director

3. Supervisory controls to ensure the continued operations of above controls: Assignment of a designated official to supervise providing services and shipping operations. 4. Written procedures to ensure the proper operation of above controls: Adequate written procedures regarding shipping function activities.

Type of the control procedure assignment of the person Type of the control procedure establishing of the procedures

Responsible person Financial Director Responsible person Financial Director

Billing
Completeness of Billings - All shipments made and services provided should be billed and recorded in the general ledger and subsidiary records. 1. Controls to ensure the completeness of recording of billings for goods shipped and services provided: For computer-generated invoices, assignment by computer of sequential number to invoices (in manual systems - use of prenumbered and controlled sales invoices in recording all billings.) Invoices are automatically generated by the computer system based on computer records of shipments/services provided to customers. For invoices produced manually - Matching of sales invoices with shipping documents or records of services provided, and follow-up of long unmatched shipments or services by persons other than those who maintain the records of unmatched items. Type of the control procedure establishing of the procedure Responsible person Billing

--

Billing

on a regular basis

Deputy Chief Accountant

2. Controls to ensure the completeness of summarization of billings for goods shipped and services provided: Accounting for sequence of prenumbered manually-prepared invoices, and follow-up of missing and/or duplicate invoices by persons other than those who (1) prepare invoices, (2) record shipments, (3) process accounts receivable transactions, (4) deal with cash receipts (5) authorize the voiding of invoices, (6)prepare credit memos. (7) record goods returned and claims or (8) are involved in computer operations and programming. Detailed checking of sales invoices (quantities billed) against printouts (minutes of use reports), follow-up of unprocessed invoices, and investigation and correction of differences by persons with no incompatible duties. Reconciliation (by computer or users) of invoice control totals for posting to the receivable control account with totals of previous reports. Reconciliation, and investigation and correction of differences, by persons with no incompatible duties. Prenumbered journal entry forms and related accountability for all numbers each period.

Type of the control procedure on a regular basis

Responsible person Deputy Chief Accountant

on a regular basis

--

--

--

adherence to the established procedure

--

3. Supervisory controls to ensure the continued operation of above controls: Review by a designated official of the results of follow-up on unmatched shipments and services. Review by a designated official of the results of follow-up on missing documents.

Type of the control procedure on a periodic basis --

Responsible person Financial Director --

4. Written procedures to ensure the proper operation of above controls: Adequate written procedures regarding procedures for billing and summarization of sales invoices.

Type of the control procedure establishing of the procedures

Responsible person Financial Director

Accuracy of Processing and Summarization of Billings - Billings (including costs of goods and services sold and sales-related expenses where these are based on billings) should be based on shipments made and services provided (actual minutes used by client), should be accurately computed, and should be accurately and promptly summarized and recorded in the correct accounts in the general ledger and subsidiary records. 1. Controls to ensure validity of recorded sales Type of the control procedure on a test basis Responsible person Deputy Chief Accountant

Verification of invoiced prices to approved sales orders or price lists, by persons other than those who (1) prepare sales invoices or (2) are involved in the order entry function (For computergenerated invoices where prices are stored on current authorized price master file adequate controls over the master file). Ensuring that manually-prepared sales invoices have been checked and approved as being valid before posting of amounts to the accounts receivable control account and subsidiary records.

on a regular basis

--

2. Controls to ensure accuracy of recorded sales:

Type of the control procedure on a periodic basis

Responsible person Deputy Chief Accountant

Verification of extensions and footings of invoices by persons other than those who prepare sales invoices. (For computer-generated invoices, adequate assurance of the propriety of program logic.). 3. Controls to ensure propriety of account classification Checking of coding of invoices.

Type of the control procedure on a regular basis

Responsible person Deputy Chief Accountant

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4. Controls to ensure accuracy of summarization

Type of the control procedure on a regular basis

Responsible person Deputy Chief Accountant

Verification of mathematical accuracy of summaries (e.g., by periodic refootings or agreement to independent control totals) used as basis for general ledger entries. Period-to-period comparisons of the amounts of recurring entries. Adherence to documented cut-off and period-end closing procedures. 5. Supervisory controls to ensure the continued operation of above controls: Review by a designated official of exception report on the verification and checking of invoices. Review and approval by a designated official of invoices over a specified amount, and invoices with special prices, terms or discounts. Review and approval of each journal entry by a designated official who did not participate in its preparation.

on a periodic basis at the end of period Type of the control procedure on a periodic basis on a regular basis --

Financial Director --

Responsible person Chief Accountant Financial Director Chief Accountant

6. Written procedures to ensure the proper operation of above controls: Adequate written procedures regarding activities on billing and summarization of sales invoices.

Type of the control procedure establishing of the procedure

Responsible person Financial Director

11

Accounts receivable related procedures

Substantiation of balances - the validity, accuracy and completeness of recorded balances of receivables and sales should be periodically substantiated. 1. Controls to ensure the validity, completeness and accuracy of recorded balances: Periodic comparison of recorded balances with budgeted amounts, prior periods and industry statistics. Maintenance of the accounts receivable subsidiary records by persons other than those who (1) prepare, check or approve accounts receivable documentation, (2) maintain the control account or (3) deal with the cash receipts function. Periodic reconciliation of accounts receivable subsidiary records with related control account and investigation of differences by persons other than those who (1) post the accounts receivable subsidiary records, (2) maintain the control account, (3) account for sales invoices and credit memos or (4) deal with the cash receipts function Periodic mailing of customer statements, and investigation of exceptions by persons with no incompatible duties. Periodic review of credit balances in accounts receivable to determine their causes. Type of the control procedure on a periodic basis appointment of the person Responsible person Financial Director Chief Accountant

on a periodic basis

Deputy Chief Accountant

--

--

--

Chief Accountant

12

Evaluation of balances - the valuation of recorded balances of receivables and related allowances should be periodically evaluated. 1. Controls to ensure receivables are stated at realizable value. Type of the control procedure on a periodic basis Responsible person

Comparison of provisions, write-offs, credit memos and other non-cash reductions to receivables with budgets and historical information. Preparation of an aged analysis of receivables and follow-up of past due items (Compiling and approving a disconnection list). Reconciliation of total of aging analysis with related control account balance. Periodic review of the formula used for determining provisions and allowances for doubtful accounts. Periodic determination of provisions required and accounts to be written off by a person not involved in the sales, accounts receivable recording and cash functions. Periodic determination of additional valuation allowances (returns, allowances and other noncash reductions) by persons not involved in the sales, accounts receivable recording and cash functions.

Deputy Chief Accountant

on a regular basis

A/R accountant

on a periodic basis --

--

Chief Accountant

--

--

2. Supervisory controls to ensure the continued operation of above controls Review by a designated official of aged analysis of receivables for unusual items and results of reconciliation procedure. Review and approval by a designated official of provisions, write-offs and additional valuation allowances made.

Type of the control procedure on a periodic basis --

Responsible person Financial Director --

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3. Written procedures to ensure the proper operation of above controls of above controls:

Type of the control procedure establishing of the procedure

Responsible person

Adequate written procedures regarding accounts receivable function activities.

Financial Director

Cash Receipts control procedures

Completeness of cash receipts procedures- all cash receipts should be recorded in the general ledger and subsidiary records. 1. Controls to ensure the completeness of recording of cash receipts: Prenumbering and control over bank statements evidencing cash receipts from customers, that are subsequently accounted for, in recording all cash receipts. Comparison, either individually or in total, of the records of entries in the cash receipts book with bank statements as to dates and amounts, by persons other than those who (1) handle cash receipts or (2) maintain the accounts receivable records (This is done as part of bank reconciliation.) 2. Controls to ensure completeness of summarization of cash receipts: Accounting for sequence of prenumbered cash receipts documents and follow-up of missing documents. Prenumbered journal entry forms and related accountability for all numbers each period. Type of the control procedure establishing of the procedure Responsible person Cash in bank accountant

on a periodic basis

Deputy Chief Accountant

Type of the control procedure on a regular basis

Responsible person Deputy Chief Accountant

14

Accuracy of processing and summarization of cash receipts - cash receipts should be accurately recorded as to amounts, dates, customer names and numbers, and should be accurately and promptly summarized and recorded in the correct accounts in the general ledger and subsidiary records. 1. Controls to ensure validity of cash receipts: Type of the control procedure on a regular basis Responsible person Deputy Chief Accountant

Ensuring that cash receipts have been checked and approved as being valid before posting of cash receipts to control account and subsidiary records.

2. Controls to ensure propriety of account classification: Checking of account coding of cash receipts for posting to general ledger.

Type of the control procedure on a regular basis

Responsible person Deputy Chief Accountant

3. Controls to ensure accuracy of summarization of cash receipts: Verification of mathematical accuracy of summaries (e.g., by periodic refootings or agreement to independent control totals) used as bases for general ledger entries. Period-to-period comparisons of amounts of recurring entries. Adherence to documented cut-off and periodend closing procedures.

Type of the control procedure on a periodic basis

Responsible person Chief Accountant

4. Written procedures to ensure the proper operation of above controls: Adequate written procedures regarding cash receipts processing and summarization activities.

Type of the control procedure establishing of the procedure

Responsible person Financial Director

15

Access To Cash ReceiptsAccess to cash receipts should be restricted to authorized personnel, and cash receipts should be deposited in bank accounts promptly. 1. Controls to ensure adequacy of physical safeguards: Type of the control procedure establishing of the controls Responsible person

Adequate physical controls (e.g., lockbox arrangements, work area layouts, safes, etc.) of cash on hand.

Chief Accountant

2. Written procedures to ensure the continue operation of above controls: Adequate written procedures regarding cash receipts function activities.

Type of the control procedure establishing of the procedure

Responsible person Chief Accountant

Completeness Of Receiving And Processing Of Sales Returns (phones) And AllowancesAll goods(phones) returned should be promptly reported and recorded in the accounting records. 1. Controls to ensure the completeness of recording of returns and allowances: Use of prenumbered receiving documents, logs or other means to record all returns made. Accounting for sequence of prenumbered receiving documents and follow-up of missing documents. Use of prenumbered and controlled credit and debit memos, that are subsequently accounted for, in recording all returns and other adjustments. Matching of credit memos with prenumbered receiving documents, and follow-up of unmatched items by persons other than those who maintain the records of unmatched items. Type of the control procedure establishing of the procedure on regular basis -Responsible person Warehouse incharge --

Deputy Chief Accountant

--

--

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2. Controls to ensure accuracy of recorded returns and allowances: Physical counting of goods at time of return. Accurate recording of returns made as to quantities, description, customer, date and other reference data for use in subsequent processing.

Type of the control procedure adherence to the procedure --

Responsible person warehouse incharge --

3. Written procedures to ensure the proper operation of above controls: Adequate written procedures regarding activities on processing and summarization of sales returns and allowances.

Type of the control procedure establishing of the procedure

Responsible person Financial Director

6.

Common accounting entries

Revenue cycle functions are likely to initiate accounting entries reflecting such economic events as: Sales Costs of services rendered, goods sold Cash receipts Cash discounts Sales returns and allowances Allowance for doubtful accounts A/R write-offs and recoveries Commission expense VAT

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