Revenue Cycle Procedure

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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/overpayments, 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 tothe company.

Orders may be accepted/contracts concluded from/with related parties withoutmanagement's knowledge or at unacceptable prices or terms.

Orders may be accepted at prices or on terms that violate governmental laws and

regulations.

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Providing services/shipping

Goods may be shipped or services delivered (cellular services provided) to thewrong 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 recordedand 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 thesubsidiary ledger.

Non-compliance with statutory rules and regulations in respect of revenue

recognition and taxes.

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4. Control objectives of the revenue cycle internal controlprocedures

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

Authorization and accuracy of contracts with clients

Contracts with customers are subject to full review and authorization prior toapproval (client acceptance procedures are in place).

All orders received (for cellular telephones) should be reported on a timely basisto 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 andrecognized in the accounting records in the appropriate period.

Billing for services and goods (cellular telephones) should be complete, accurateand recognized in the appropriate accounting period.

Billings recorded in the billing system shall be reconciled to the general ledger ona regular basis.

Accounts receivable

Credit control procedures shall be designed to ensure consistent and effectivecredit collection policies are applied and no unauthorized credits to be granted tocustomers with doubtful credit worthiness.

Cash receipts

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

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5. Transaction flow control procedures

An entity's internal control structure comprises the policies and proceduresestablished to provide reasonable assurance that specific entity objectives will be

achieved. The internal control structure might include a wide variety of objectivesand related policies and procedures. Mostly important procedures to be establishedin revenue cycle are as follows:

Authorization and accuracy of contracts with clients

Authorization and Accuracy of Sales Orders - Customer requests for goods and services andaccordingly services contracts that meet management's criteria should be approved andshould be accurately reported on a timely basis.

1. Controls to ensure valid authorization of salesorders:

Type of thecontrol

procedure

Responsibleperson

Approval by the proper level of management ofestablished prices, rates per minute, special ratesand prices (for cellular telephones), customers,credit limits and terms.

establishing ofthe procedure

FinancialDirector

Current prices, customers, credit limits and termsare made available to order entry personnel.

on a regularbasis

Salesdepartment

Approval by authorized individuals of orders andservices contracts as to customers, prices, credit,quantities and terms by reference to documented

data approved by management. Approval is madeby persons not involved in the sales function norin the preparation of sales orders or contracts.

on a regularbasis

FinancialDirector

2. Controls to ensure accurate recording of salesorders and services contracts:

Type of thecontrol

procedure

Responsibleperson

Accurate recording of orders received and

contracts concluded as to customer, prices,quantities and terms for use in subsequentprocessing.

on a regular

basis

Sales

department

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3. Supervisory controls to ensure the continuedoperation of above controls:

Type of thecontrol

procedure

Responsibleperson

Review and approval by a designated official ofsales orders over a specified amount, andorders/services contracts with special prices,terms or discounts.

adherence tothe procedure

FinancialDirector

Completeness of Services Contracts and Sales Orders - All customer requests for goods andservices should be reported.

1. Controls to ensure completeness of sales orders: Type of thecontrol

procedure

Responsibleperson

Use of prenumbered sales orders/contracts or

other means in recording all orders.

adherence to

the procedure

Sales

department

Accounting for the sequence of prenumbered salesorders/contracts and follow-up of missing orders.

- - - -


Type of thecontrol

procedure

Responsibleperson

Review by a designated official of the results offollow-up on missing documents.

on a regularbasis

FinancialDirector

3. Written procedures to ensure the properoperation of above controls

Type of thecontrol

procedure

Responsibleperson

Adequate written procedures regarding orderentry function activities.


FinancialDirector

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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:

Type of the

controlprocedure

Responsible

person

Use of prenumbered documents, logs, or othermeans in recording all shipments and servicesrendered (For computer-generated shippingdocuments, assignment by computer ofsequential number to the documents - minutesof use report).


billingdepartment,

warehouse in-charge

Accounting for the sequence of prenumbered

shipping documents or records of servicesprovided (minutes of use report), and follow-upof missing documents.

on a regular

basis

- -

Matching of shipping documents with salesorders and records of services provided (minutesof use report) with services contracts and follow-up of long unmatched orders, by persons otherthan those who maintain the records ofunmatched orders.

on a regularbasis (for

phone sales),on a periodic

basis- forcellular

services

- -


Type of thecontrol

procedure

Responsibleperson

Review by a designated official of the results offollow-up on unmatched orders and missingdocuments.

on a regularbasis

Deputy ChiefAccountant

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Accuracy of Providing Service/Shipments - Shipments made and services provided should bebased on authorized customers' orders/services contracts, and should be accurately reportedon a timely basis.

1. Controls to ensure validity of shipments andservices provided.

Type of thecontrol

procedure

Responsibleperson

Shipment of goods or providing of services notmade without an authorized salesorder/services contract.


Billing

2. Controls to ensure accuracy of recording ofshipments and services provided:

Type of thecontrol

procedure

Responsibleperson

Physical counting of goods at time of shipment

by persons other than those who: a) have custodyor access to inventories; b) authorize or makeshipments.

on a regular

basis

warehouse in

charge

Accurate recording of services provided as todescription, dates, quantities and other relevantdata for use in subsequent processing.

Use of verified shipping documents insubsequent posting of quantities to inventorysubsidiary records.

Adherence to documented procedures forservices provided/shipping cut-off (daily andperiod end).

- -

- -


Billing

warehouse in-charge

FinancialDirector

3. Supervisory controls to ensure the continuedoperations of above controls:

Type of thecontrol

procedure

Responsibleperson

Assignment of a designated official to superviseproviding services and shipping operations.

assignment ofthe person

FinancialDirector

4. Written procedures to ensure the properoperation of above controls:

Type of thecontrol

procedure

Responsibleperson

Adequate written procedures regarding shippingfunction activities.

establishing ofthe procedures

FinancialDirector

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Billing

Completeness of Billings - All shipments made and services provided should be billed andrecorded in the general ledger and subsidiary records.

1. Controls to ensure the completeness of recording

of billings for goods shipped and servicesprovided:

Type of the

controlprocedure

Responsible

person

For computer-generated invoices, assignment bycomputer of sequential number to invoices (inmanual systems - use of prenumbered andcontrolled sales invoices in recording all billings.)


Billing

Invoices are automatically generated by thecomputer system based on computer records ofshipments/services provided to customers.

For invoices produced manually - Matching ofsales invoices with shipping documents or recordsof services provided, and follow-up of longunmatched shipments or services by persons otherthan those who maintain the records of unmatcheditems.

- -

on a regularbasis

Billing


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2. Controls to ensure the completeness ofsummarization of billings for goods shipped andservices provided:

Type of thecontrol

procedure

Responsibleperson

Accounting for sequence of prenumberedmanually-prepared invoices, and follow-up ofmissing and/or duplicate invoices by personsother than those who (1) prepare invoices, (2)record shipments, (3) process accounts receivabletransactions, (4) deal with cash receipts (5)authorize the voiding of invoices, (6)prepare creditmemos. (7) record goods returned and claims or (8)are involved in computer operations andprogramming.

on a regularbasis


Detailed checking of sales invoices (quantities

billed) against printouts (minutes of use reports),follow-up of unprocessed invoices, andinvestigation and correction of differences bypersons with no incompatible duties.

on a regular

basis

- -

Reconciliation (by computer or users) of invoicecontrol totals for posting to the receivable controlaccount with totals of previous reports.Reconciliation, and investigation and correction ofdifferences, by persons with no incompatible

duties.

- - - -

Prenumbered journal entry forms and relatedaccountability for all numbers each period.

adherence tothe

establishedprocedure

- -


Type of thecontrol

procedure

Responsibleperson

Review by a designated official of the results offollow-up on unmatched shipments and services.

on a periodicbasis

FinancialDirector

Review by a designated official of the results offollow-up on missing documents.

- - - -

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Type of thecontrol

procedure

Responsibleperson

Adequate written procedures regardingprocedures for billing and summarization of salesinvoices.

establishing ofthe

procedures

FinancialDirector

Accuracy of Processing and Summarization of Billings - Billings (including costs of goodsand services sold and sales-related expenses where these are based on billings) should be basedon shipments made and services provided (actual minutes used by client), should beaccurately computed, and should be accurately and promptly summarized and recorded in thecorrect accounts in the general ledger and subsidiary records.

1. Controls to ensure validity of recorded sales Type of thecontrol

procedure

Responsibleperson

Verification of invoiced prices to approved salesorders or price lists, by persons other than thosewho (1) prepare sales invoices or (2) are involvedin the order entry function (For computer-generated invoices where prices are stored oncurrent authorized price master file adequatecontrols over the master file).

on a test basis Deputy ChiefAccountant

Ensuring that manually-prepared sales invoiceshave been checked and approved as being valid

before posting of amounts to the accountsreceivable control account and subsidiary records.

on a regularbasis

- -

2. Controls to ensure accuracy of recorded sales: Type of thecontrol

procedure

Responsibleperson

Verification of extensions and footings of invoicesby persons other than those who prepare sales

invoices. (For computer-generated invoices,adequate assurance of the propriety of programlogic.).

on a periodicbasis


3. Controls to ensure propriety of accountclassification

Type of thecontrol

procedure

Responsibleperson

Checking of coding of invoices. on a regularbasis


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4. Controls to ensure accuracy of summarization Type of thecontrol

procedure

Responsibleperson

Verification of mathematical accuracy ofsummaries (e.g., by periodic refootings oragreement to independent control totals) used asbasis for general ledger entries.

on a regularbasis


Period-to-period comparisons of the amounts ofrecurring entries.

on a periodicbasis

FinancialDirector

Adherence to documented cut-off and period-endclosing procedures.

at the end ofperiod

- -


Type of thecontrol

procedure

Responsibleperson

Review by a designated official of exceptionreport on the verification and checking ofinvoices.

on a periodicbasis

ChiefAccountant

Review and approval by a designated official ofinvoices over a specified amount, and invoiceswith special prices, terms or discounts.

on a regularbasis

FinancialDirector

Review and approval of each journal entry by adesignated official who did not participate in its

preparation.

- - ChiefAccountant


Type of thecontrol

procedure

Responsibleperson

Adequate written procedures regarding activitieson billing and summarization of sales invoices.


FinancialDirector

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Accounts receivable related procedures

Substantiation of balances - the validity, accuracy and completeness of recorded balances ofreceivables and sales should be periodically substantiated.

1. Controls to ensure the validity, completeness

and accuracy of recorded balances:

Type of the

controlprocedure

Responsible

person

Periodic comparison of recorded balances withbudgeted amounts, prior periods and industrystatistics.

on a periodicbasis

FinancialDirector

Maintenance of the accounts receivable subsidiaryrecords by persons other than those who (1)prepare, check or approve accounts receivabledocumentation, (2) maintain the control account

or (3) deal with the cash receipts function.

appointmentof the person

ChiefAccountant

Periodic reconciliation of accounts receivablesubsidiary records with related control accountand investigation of differences by persons otherthan those who (1) post the accounts receivablesubsidiary records, (2) maintain the controlaccount, (3) account for sales invoices and creditmemos or (4) deal with the cash receipts function

on a periodicbasis


Periodic mailing of customer statements, and

investigation of exceptions by persons with noincompatible duties.

- - - -

Periodic review of credit balances in accountsreceivable to determine their causes.

- - ChiefAccountant

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Evaluation of balances - the valuation of recorded balances of receivables and relatedallowances should be periodically evaluated.

1. Controls to ensure receivables are stated atrealizable value.

Type of thecontrol

procedure

Responsibleperson

Comparison of provisions, write-offs, creditmemos and other non-cash reductions toreceivables with budgets and historicalinformation.

on a periodicbasis


Preparation of an aged analysis of receivablesand follow-up of past due items (Compiling andapproving a disconnection list). Reconciliation oftotal of aging analysis with related controlaccount balance.

on a regularbasis

A/Raccountant

Periodic review of the formula used fordetermining provisions and allowances fordoubtful accounts.

on a periodicbasis

- -

Periodic determination of provisions requiredand accounts to be written off by a person notinvolved in the sales, accounts receivablerecording and cash functions.

- - ChiefAccountant

Periodic determination of additional valuationallowances (returns, allowances and other non-cash reductions) by persons not involved in thesales, accounts receivable recording and cashfunctions.

- - - -

2. Supervisory controls to ensure the continuedoperation of above controls

Type of thecontrol

procedure

Responsibleperson

Review by a designated official of aged analysisof receivables for unusual items and results ofreconciliation procedure.

on a periodicbasis

FinancialDirector

Review and approval by a designated official ofprovisions, write-offs and additional valuationallowances made.

- - - -

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3. Written procedures to ensure the properoperation of above controls of above controls:

Type of thecontrol

procedure

Responsibleperson

Adequate written procedures regarding accountsreceivable function activities.


FinancialDirector

Cash Receipts control procedures

Completeness of cash receipts procedures- all cash receipts should be recorded in the generalledger and subsidiary records.

1. Controls to ensure the completeness ofrecording of cash receipts:

Type of thecontrol

procedure

Responsibleperson

Prenumbering and control over bank statementsevidencing cash receipts from customers, that aresubsequently accounted for, in recording all cashreceipts.


Cash in bankaccountant

Comparison, either individually or in total, of therecords of entries in the cash receipts book withbank statements as to dates and amounts, bypersons other than those who (1) handle cashreceipts or (2) maintain the accounts receivablerecords (This is done as part of bank

reconciliation.)

on a periodicbasis


2. Controls to ensure completeness ofsummarization of cash receipts:

Type of thecontrol

procedure

Responsibleperson

Accounting for sequence of prenumbered cashreceipts documents and follow-up of missingdocuments.

Prenumbered journal entry forms and related

accountability for all numbers each period.

on a regularbasis


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Accuracy of processing and summarization of cash receipts - cash receipts should beaccurately recorded as to amounts, dates, customer names and numbers, and should beaccurately and promptly summarized and recorded in the correct accounts in the generalledger and subsidiary records.

1. Controls to ensure validity of cash receipts: Type of the

controlprocedure

Responsible

person

Ensuring that cash receipts have been checkedand approved as being valid before posting ofcash receipts to control account and subsidiaryrecords.

on a regularbasis


2. Controls to ensure propriety of accountclassification:

Type of thecontrol

procedure

Responsibleperson

Checking of account coding of cash receipts forposting to general ledger.

on a regularbasis


3. Controls to ensure accuracy of summarizationof cash receipts:

Type of thecontrol

procedure

Responsibleperson

Verification of mathematical accuracy ofsummaries (e.g., by periodic refootings or

agreement to independent control totals) used asbases for general ledger entries.

Period-to-period comparisons of amounts ofrecurring entries.

Adherence to documented cut-off and period-end closing procedures.

on a periodicbasis

ChiefAccountant

4. Written procedures to ensure the proper

operation of above controls:

Type of the

controlprocedure

Responsible

person

Adequate written procedures regarding cashreceipts processing and summarization activities.


FinancialDirector

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Access To Cash ReceiptsAccess to cash receipts should be restricted to authorizedpersonnel, and cash receipts should be deposited in bank accounts promptly.

1. Controls to ensure adequacy of physicalsafeguards:

Type of thecontrol

procedure

Responsibleperson

Adequate physical controls (e.g., lockboxarrangements, work area layouts, safes, etc.) ofcash on hand.

establishing ofthe controls

ChiefAccountant

2. Written procedures to ensure the continueoperation of above controls:

Type of thecontrol

procedure

Responsibleperson

Adequate written procedures regarding cashreceipts function activities.


ChiefAccountant

Completeness Of Receiving And Processing Of Sales Returns (phones) And AllowancesAllgoods(phones) returned should be promptly reported and recorded in the accounting records.

1. Controls to ensure the completeness of

recording of returns and allowances:

Type of the

controlprocedure

Responsible

person

Use of prenumbered receiving documents, logsor other means to record all returns made.


Warehouse in-charge

Accounting for sequence of prenumberedreceiving documents and follow-up of missingdocuments.

on regularbasis

- -

Use of prenumbered and controlled credit anddebit memos, that are subsequently accountedfor, in recording all returns and otheradjustments.

- - Deputy ChiefAccountant

Matching of credit memos with prenumberedreceiving documents, and follow-up ofunmatched items by persons other than thosewho maintain the records of unmatched items.

- - - -

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2. Controls to ensure accuracy of recordedreturns and allowances:

Type of thecontrol

procedure

Responsibleperson

Physical counting of goods at time of return. adherence tothe procedure

warehouse in-charge

Accurate recording of returns made as toquantities, description, customer, date and otherreference data for use in subsequent processing.

- - - -


Type of thecontrol

procedure

Responsibleperson

Adequate written procedures regarding activities

on processing and summarization of sales returnsand allowances.

establishing of

the procedure

Financial

Director

6. Common accounting entries

Revenue cycle functions are likely to initiate accounting entries reflecting sucheconomic 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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Documents

Revenue Cycle Procedure