Accounting and Order Administration 2461



  • I am new to the SOX world, Customer Service Manager for a team responsible for order review, order entry, acknowledgements, etc. Our company has my team responsible for processing Credit Memo’s instead of the Accounts Receivable Department due to SOX requirements and compliance issues. As well, if a customer needs a Pro-forma invoice to pay a previously short-paid invoice, my team also provides that - for the same reason.
    This does not make sense to me, and I wanted to make sure that we were note misinterrupting SOX.
    Thank you.



    1. SOX is not specific on this so there is no particular misinterpretation.
    2. What you described does not entirely sound right to me:
    • why would you need a pro-forma for a short-paid invoice? If the original invoice was for the correct amount and should give the customer all the documentation they need :?
    • I would normally expect to see AR processing credit notes, with an appropriate approval mechanism in place i.e. I would expect management on the business/commercial/sales side originating and approving credit notes against their sales NOT customer services: Where Customer Services do originate a credit note I would still expect to see business approval, unless within an appropriate tolerance for ‘admin’ type issues.
    • Credit memos (and invoices for that matter) are normally generated out of the accounts system and as such I would expect to see the physically processed by AR, and subject to approriate approval limits


  • As Denis has already pointed out, section 404 of the Sarbanes-Oxley Act only generally requires the management of an issuer that uses the public capital market of the U.S. to assess the effectiveness of internal control over financial reporting and to have his auditor audit the effectiveness of internal control over financial reporting (i.e. the effectiveness of the quality system that assuraces the correctness of financial reporting).
    In some industries and in some ERP sytems (such as SAP), you can have different kinds of credit notes, e.g.

    1. credit notes for returned goods
    2. credit notes without a return of goods (e.g. wrong price, customer overpaid in error, credit note for a deferred annual volume rebate, etc.)
      A credit note related to a return of goods would typically flow through the ERP system in a similar way as a normal customer order. That means customer sales would enter an order to get a goods return, the warehousing goods would enter the return with reference to the order and whoever does the billing run would generate the credit note.
      Internal controls over financial reporting would come into play to prevent or detect errors or fraud (i.e. cooking the books or misappropriating assets). Is there an added-risk if you create the credit notes? If you can generate credit notes alone, then you would need to be in collusion with a customer to misappropriate the delivered goods or you would also need to be able to create or change a delivery address for the goods before they get delivered (if the credit note is not related to a return of goods). It would make sense if a supervisor or a financial controller does at least an analytic review of the credit notes as a percentage of the related revenue versus a standard to catch typoes in the numbers or odd things.
      On a first glance, I do not see an issue with this, but you always need to look at the entire process from the beginning until the end.


  • Thank you both for your replies. I have been on business travel and out of the office and just now able to read.
    Your responses confirm what I thought. My department (Customer Service) flows up under the Sales organization chart. My team is responsibile for supporting the sales efforts in terms of Quoting, Order Entry, updating CRD, etc. and working with Planning, Accounting, Quality, and all other departments.
    While I see the benefit of Customer Service reviewing, or perhaps approving certain credit memo’s, the actual processing of the credit memo, tracking, and providing to the customer to me should be an accounting (A/R) function.
    I am going to a SAP training class in October, so will learn more about the SD module at that time, and will bring up this issue with my management team.
    Thank you again.


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