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Charoen Pokphand Public Company Limited

Revenue Cycle

CP Gentlemen

Accounting Information System

Members

Atis Uyangkul 6002640107

Nanon Wiwatwongthorn 6002640578


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Nathaphol Prasertwaree 6002640651 Rattanan Wanikorn 6002641147

Pornpawee Sutjarittham 6002641022 Thanaphon Krintrakul 6002641493


Table of content

Page

1. Company profile 4
2. Company’s current computer system 12
3. Organization chart 14
4. Accounting standards, principles and policies 18
5. Process in the Revenue Cycle 19
➢ Sale Order Processing 19
➢ Delivery 21
➢ Billing Processing 23
➢ Cash Receipt Processing 25
6. Accounting Entries 28
7. Accounting Code Structure 29
8. Risk and Control 33
9. Computer Related Control 36
10. Recommendation 38

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Project Paper Content (Revenue Cycle)
1. Brief description of the company profile

Charoen Pokphand Foods Public Company Limited.

Source: Annual report 2017

Charoen Pokphand Foods Public Company Limited (“CPF”) is one of the


world’s leading agro-industrial and food conglomerates which operate vertically
integrated business. The Company operates in 16 countries, and exports products
from Thailand to over 30 countries, covering over 4 billion population around the
world. The Company operates in both the livestock (swine, broilers, layers, and
ducks) and aquaculture (shrimp and fish) businesses. The vertically integrated
businesses incorporate the manufacturing of animal feed, animal breeding and
animal farming; meat processing, the manufacturing of semi-cooked meat and fully-
cooked meat; food products and ready meal products, as well as the meat and
food retailer and restaurant businesses.

1.1. Nature of business, key products and services

The businesses are divided into two segments: the livestock business segment,
which comprises chicken, duck and pigs, and the aquaculture business segment,
which consists of shrimp and fish. The integrated businesses incorporate the
manufacture of animal feed, animal breeding and animal farming; meat
processing, the manufacture of semi-cooked meat and fully-cooked meat; food
products and ready meal products, as well as the meat and food retailer and
restaurant businesses. The products are distributed and exported under the brand
name CP in Asia, Europe and America. Other products include grilled and fried

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chicken under the brand name 5-Star, and sausages, chicken rolls, chicken nuggets,
hamburgers and hotdogs under the brand name Chester’s.

Source: Annual Report 2017

1.2. Locations (office, plants, warehouse, outlets, depot)

Source: Annual Report 2017

Headquarter

Charoen Pokphand Foods Public Company Limited 313 C.P. Tower, Silom Road,
Bangrak, Bangkok 10500, Thailand

Tel: +662-766-8000

Fax: +662-638-2139

Website: http://www.cpfworldwide.com

Plants (Farm)

Kokudom Farm

Na Di, Na Di District, Prachin Buri, 25220

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Warehouse

1. Bangna Warehouse

Bangna Trad Road, Moo 25, 11/1 Soi Bangna Trad 20, Bangna Sub-District, Bangna,
bangkok, 10260

2. Min Buri Warehouse

200/2, Moo 15, Seehaburanuchit 9, Min Buri, Bangkok 10510

3. Saraburi Warehouse

Phra Phutthabat, Phra Phutthabat District, Saraburi 18120

4. Korat Warehouse

Chok Chai District, Nakhon Ratchasima 30190

Outlet

1. Five Star Business (5500 Outlets)

2. Chester’s (198 Chester’s Restaurant)

3. CP Freshmart (425 Stores)

4. CP Pork shop (2000 Shops)

5. CP S&P (100 Stores)

1.3. Size (in term of number of employees in total)

There are 126,341 employees in 2017.

Source: Annual Report 2017

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1.4. Key customers, suppliers, and competitors

1.4.1. Key Customers

Key customers of the company are mostly international fast food franchise
restaurant and retail stores, for example:

- Costco
- Emart
- Fast food chain
- McDonalds
- Nippon Ham
- Subway

Source: Annual Report 2017

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1.4.2. Key Suppliers

Source: Annual Report 2017

The key suppliers

There are around 50,000 CPF’s suppliers however; the specific names of those
suppliers are confidential. Most types of business for CPF’s supplier are poultry cage
system, chicken & egg processing equipment and other supporting automation
equipment.

Poultry cage system

Designing and distributing poultry cages for efficient egg production.

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Chicken and egg processing equipment

This automatic egg collecting machine including imported equipment, pick up


eggplant, export device, buffer device, transmission device, sprocket, and the lifting
chain, described by a number of egg pick up eggs device connected in parallel by
the claw group down the chain above, The equipment and systems with anti-slip
and without damage the egg function, can reduce the human and material
expenses, and for large chicken farm.

Supporting automation equipment

Ladder type automatic feeding system is scientifically designed, reasonable


structure, durable, easy to operate. Simply press the button to complete the feeding
operation, saving labor, centralized control, easy to disease prevention and control,
and to extend the chicken laying period, is the ideal equipment of green ecological
farming.

1.4.3. Key Competitors

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1. Betagro

Betagro is one of the key competitors of CP that have completely full


livestock life cycle. They also produce foods for pet, medicine. They have their own
chicken and pork farm. Mostly, they export fresh chicken to their trading partner
such as Mitzui, Japan. They also gain market share for about 35%.

2. SahaFarm

SahaFarm produced quality frozen chicken products. They are the biggest
Thai exporter of frozen with 22% market share of the total export. Saha Farms
products dominated the markets in Japan, England. Germany. China, Netherlands,
Belgium etc. Company was awarded with the world latest standards which included
ISO 9002, HACCP that is in line with the company's policy to supply quality food for
the word.

3. Lam Thong

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Lamthong Foods Industries Co., Ltd. is a manufacturer and a packer of
canned and frozen fruits and vegetables in Thailand. Presently, Lamthong Foods
exports 95 per cents of its products to the worldwide market with the bulk of output
sold to North America, Western Europe, Asia Pacific, the Middle East and Oceania.
With a wide range of products, our customers can easily find product they desire. In
addition to the manufacturing of canned fruits and vegetables, New Lamthong
Foods also has OEM capabilities under customer brands.

2. Company's current computer systems


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2.1. Enterprise resource planning (ERP)

Source: https://www.sap.com/sea/index.html

The company is currently using SAP ERP for its business applications. Right now, the
current version that they are using is SAP ECC6.0.

SAP ERP Central Component (SAP ECC) is an on-premises enterprise resource


planning (ERP) system that is commonly referred to as simply "SAP ERP." ECC software
integrates digital information that's created in one area of a business with data from
other areas of the same business in real-time. This means that when there is an
update in one area of the business, such as sales, a trigger will update information in
other relevant areas of the business, such as inventory. Having a unified view of
enterprise resources allows managers to make data-driven decisions that optimize
core business processes.

SAP ERP is used for various functions in the company. The SAP’s functions
currently used in CPF’s business process are

2.1.1. Production planning (PP)

The PP component helps businesses create demand and manufacturing


capacity alignment so they can plan product manufacturing, sales and distribution.
PP plays a critical role in a manufacturer's supply chain and can be used for
discrete, process or repetitive manufacturing or a combination of more than one
type.

2.1.2. Sales and distribution (SD)

The SD component manages major processes of sales and distribution,


including selling products or services in national and international markets through
direct sales to customers or through distribution networks. SD also handles customers'
returns, along with billing and credit issuance.

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2.1.3. Financial Accounting (FI)

The FI component records a company's financial transactions, including


transactions of its customers and vendors. FI handles receivables from sales,
payables for procurement, and cash management as well as bank payment and
reconciliation processes.

2.2 Server

CPF use IBM x3650 M5 as computer server

2.3 Database Management

CPF use Oracle as Database Management System which running under ERP
system (SAP). Currently CPF is using Oracle version 12C as it Database Management
System.

3. Company’s Organization Chart

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3.1. Overview of company’s organization structure

Source: Annual Report 2017

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The above chart shows the overall organization structure of the company. The
company has many production departments such as production of pig business,
production of chicken business, and etc. The organizations of the company are
structured based on products. However, for administrative function, accounting and
finance function, as well as for IT function, they are organized based on functions.
The company also have IT department which is independent from other business
functions.

3.2. IT department

Information Technology and Application

Programmer and Database Network IT Support and


Software Administrator Administer Maintenance
Development

Under Information Technology and Application which is charged with


establishing, monitoring and maintaining information technology systems and
services, there are

1. Programmer and software development – responsible for performing software


development and modification.

2. Database administrators – responsible for collecting and storing information into


data warehouse and also responsible for disaster recovery planning.

3. Network administrators – responsible for implementing and maintaining network


system. They also responsible for providing the employees username and password
to access information. Normally, there is a manager responsible for this function area
to control and receive the issues related to network system from IT support.

4. IT Support and Maintenance – responsible for problems occurred with the


hardware and update backup file. Deal with problems related to application and to
ensure that the users are able to use the system.

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3.3. Finance and Accounting Department

Chief
Financial

Corporate Accounting
Finance Department

Treasury Cashier Billing Financial AP AR GL

Under Chief Finance Officer (CFO), there are two separate departments:
Accounting and Corporate Finance. The Accounting department is responsible for
maintaining the company books of accounts and financial statement preparation.
Corporate Finance department is responsible for monitor cash inflows and outflows
(Treasury), collecting cash (Cashier), billing, and analysing financial status for further
decision making (Financial Analysis).

3.4 Chief Operating Officer

For each of the product group, CPF appoints Chief Operating Officer (COO)
to head up the operation

Under Chief Operating Officer, there are Marketing Department and


Production Department. Marketing is responsible for sales and advertise. Production
Department is divided into 5 sub-departments

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1. Raw Materials and Production department - responsible for making sure
those raw materials are acquired and made into finished goods effectively,

2. Warehouse - stocking all the necessary tools, spares, raw materials and
equipment required to service the manufacturing process.

3. Research and Develop - obtaining new knowledge that it might use to


create new technology, products, services, or systems that it will either use or sell.

4. Logistic - responsible for making sure products reach their destinations


safely, securely, and on-time. Also maintain products quality throughout the logistic
processes.

5. Inventory Control - calculate and check the products in the inventory.

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4. Related accounting standards, principles and policies applied

4.1. Accrual basis

The company prepares its financial statement using accrual basis of


accounting. The company complies with TFRS.

4.2. Revenue recognition

Revenues are recognized at the time when the transfer of goods and services
occurred regardless whether the payment is already made or not. The accounting
entries for revenue incurred when the invoice is generated after the delivery is
made.

The company complies with TAS 18 as accounting standard in its financial reporting.

4.3. Inventory valuation

The company use weight average method for its inventory valuation. The
company record costs of goods sold by using periodic method as it calculate stock
at the end of the month. The company complies with TAS 2 as accounting standard
in its financial reporting.

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5. THE PROCESS IN THE REVENUE CYCLE
The process in “Revenue Cycle” of Charoen Pokphand Foods Public
Company Limited is illustrated by the flowchart below.

SALE ORDER PROCESSING

*Remark: This flowchart represents the process under COO of each type of product.

The revenue cycle of CPF starts when a customer sends in a purchase order,
this includes the types, quantities and agreed prices for each product. The
salesperson will then send the customer’s purchase order to the raw-materials
department, who will check the stock information and availability by retrieving the
information from the raw-materials data database.

After checking and there’s enough stock, the raw materials manager will
approve the customer order and then the sales person will enter sales order after
that the system will reserve the balance of the raw materials. The sales order will be
file by number after the sales has been entered into the system. The confirmed
customer order will be sent to salesperson and salespersons enter sales information

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into the system. The system will automatically check the customer information and
credit availability by retrieving the information from the account receivable
database. If the customer is credit trustworthy, the sales order then be recorded in
Approved sales order database and used to update the product balance and
customer credit availability in A/R database in marketing department. Since the
customer has been placed the order to the firm, the credibility has to be update
because the firm has to keep the record that the customer has agree to buy the
product from the firm.

On the other hand, if the customer credit exceeds the limit, the order will be
recorded to the pending sales order file. The pending sales order will be printed out
manually by salesperson and send to the board of director for customer credit
approval. After the board of director approved and signed the pending sales order,
the sales person will enter the approved pending sales order information to the
approved sales order database.

After sales orders are approved, salesperson will contact customer back via
email for order confirmation, then the salesperson will be notified. The approved
sales order will be process further for production.

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DELIVERY

Upon the completion of the production, the production staff will inform sales
person to notice the customer that the production is finished and confirm delivery
date with customer.

Staff at the logistic department, which is a sub-department under the


production department will print out bill of lading and tax invoice based on sales
order information in the database. Bill of lading will be printed out 3 copies, and tax
invoice for 2 copies. One copy of the tax invoice will be sent and filed by number at
A/R department and another one will be sent to customer together with 2 copies bill
of lading and 2 copies of billing note.

The staff at the accounting department will generate billing notes transaction
from the sales order database, and print out two copies of billing note, which will be
sent to logistic department, to be further sent along with the goods.

As for the printed bill of lading, the staff in the logistic department will check
the product specification of the receiving goods against the bill of lading using
barcode scanner and sign the documents upon the receiving. The bill of lading is

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printed after receiving the goods. Once it has been approved the logistic staff will
print out the bill of lading and then send it to the third party company, so that the
third party will send out to the customer. Upon the receipt of goods, the logistic
provider will then sign the bill of lading on all copies and return one copy to the
logistic staff for filing. The logistics provider delivers the goods to the customer
together with 2 copies of bill of lading, 1 copy of tax invoices, and 2 copies of the
billing note. After delivery is made, the logistic provider will return one copy of the
billing note which signed upon the receipt by the customer to the company. The
signed billing note will be sent to A/R accountant.

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BILLING PROCESSING

Upon the receipt of the signed billing notes, the accounts receivable
accountant will then update the order status to “Delivered”. Invoice transaction will
also be automatically generated and printed (2 copies) from the system. Then, the
accounting manager will authorize the invoices and send the approved invoices to
customer on pre-determine billing acceptance date. The cost of sales are
automatically updated and recorded in GL after the invoice is generated. When the
invoice is sent to the customer, the customer signs on both copies and keeps one
copy. The other signed copy of the invoice will be returned back to the A/R
department.

Dr. Accounts Receivable xxx

Cr.Vat Payable xxx

Cr. Sales Revenue xxx

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When the A/R department receive the invoice, the computer system will then
automatically update the A/R and inventory database. Then the data will be sent to
generate journal transaction, these information is coming from sales order. After it
generate, it will be update account balance and then update general ledger
accordingly.

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CASH RECEIPT PROCESSING

After the customers received the invoices from the company, the customer
needs to make a payment within 3 days. The customer must make a payment
through bank transfer. The company sales department specifically the sale
employees will send the reminder about sales collection via email seven day before
the due date. The customers have to submit the payment evidence that they have
made a payment via email to the salesperson. Then, salesperson will forward the
email to A/R accountant. Bank will get the hard copy of bank statement from the
bank at the end of the day and send to A/R accountant.

Next, A/R accountant will check the bank statement against the customer
payment information to ensure that the collection to deposited to the bank
properly.

After checking the documents, accounts receivable accountant enter the


cash receipt details into receipt transaction database and the transaction will be
used to update in A/R balance. The receipt voucher and three copies of the official
receipt will be automatically printed out and will be sent to be checked.

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Dr. Cash/Cheque xxx

Cr. Accounts Receivable xxx


Afterward, the account receivable accountant receives the approved
documents from accounting manager. Then, the accountant will send the first copy
of receipt to the customer by postal mail. The second receipt will be attached with
receipt voucher as evidence and will be kept in the document file in numerical
sequence, and the last one will also be kept in the document file in numerical
sequence at A/R department for management purpose

After entering the collection data, the A/R sub-ledger and inventory sub
ledger will be automatically updated and post to the sales journal and the related
GL.

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Document Prepared by Print from the No. of copies Filed at
Name system (Y/N)

Customer Customer N 0 Salesperson


Order

Tax Invoice Computer’s Y 2 Accounting


system department,

Customer

Receipt Computer’s Y 3 Accounting


system department,

Customer

Bill of lading Computer’s Y 3 Accounting


system department,
Logistic
Provider (Third
party),
Customer

Pending Sales Salesperson Y 1 Sales


Order department

Invoice Computer’s Y 2 Accounting


system department,
Customer

Billing Note Computer’s Y 2 Accounting


system department,
Customer

Bank Bank N 0 Accounting


Statement department

Receipt Computer’s Y 1 Accounting


Voucher system department

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6. ACCOUNTING ENTRIES

Revenue Recognition: After the goods are delivered, invoice is generated


and automatically record revenue

Dr. Accounts Receivable xxx

Cr.Vat Payable xxx

Cr. Sales Revenue xxx

Cash Recognition: After A/R accountant receive payment evidence from


sales person, A/R will check correctness and then debit cash and credit accounts
receivable.

Dr. Cash/Cheque xxx

Cr. Accounts Receivable xxx

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7. Accounting code structure
There are 8 digits of accounting code used by the company’s general ledger
system.

The first digit is used to describe the type of account, which is categorized in 7 types.

The rest of digits are sequential code.

Noted: According to the first and second types in the first digit, the following digits
represent the liquidity of accounts; the lower digit is, the more liquidity accounts are.

First digit includes with

1. Assets

2. Liabilities

3. Shareholders’ Equity

4. Revenues

5. Expenses

6. Cost of goods sold

7. Other income and other expenses

Examples of significant assets

1. Assets

Accounting code Description

10000000 Assets

10100000 Cash on hand

10110000 Petty cash

11000000 Current assets

11100000 Cash in banks

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11200000 Accounts and notes receivable

11210000 Accounts and notes receivable: Trade

11300000 Inventory

12000000 Noncurrent Assets

12100000 Property plant and equipment

2. Liabilities

Accounting code Description

20000000 Liabilities

21000000 Current liabilities

21100000 Accounts and notes payable

22000000 Noncurrent liabilities

22100000 Bank loan

3. Shareholder’s equity

Accounting code Description

30000000 Shareholder’s equity

30100000 Preference share

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30200000 Common share

31000000 Retained earnings

31200000 Dividend

4. Revenues

Accounting code Description

40000000 Revenues

41000000 Sales revenues

41600000 Sales revenues - Main products

41604000 Sales revenues - By products

41610000 Sales revenues - Instalment sales

5. Expenses

Accounting code Description

50000000 Expenses

52800000 Salaries and wages

52801000 Employee welfare

52802000 Seminar and training expenses

52803000 Traveling expenses

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6. Cost of goods sold

Accounting code Description

60000000 Cost of goods sold

61000000 Purchase

61710000 Purchase returns

61720000 Purchase discount

61730000 Goods transferred out

7. Other income and other expenses

Accounting code Description

70000000 Profit (Loss) on sale of fixed asset

71000000 Profit (Loss) from foreign exchange

71100000 Profit (Loss) from interest rate exchange

71500000 Profit (Loss) on collection

72000000 Interest income

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8. Risk and Control

Risk Manual Control IT Control

Incorrect Pricing -Authorized by sales manager. -Default price which does not
allow person to set the price
by themselves. Default price
can be adjusted by sales
manager and authorized
person such as board of
director.

Customer Order not N/A -SAP capture orders input from


captured for further sale manager.
process

Sales order not processed N/A -Constantly updates the status


of order purchasing. For orders
that are not processed within
the timeframe, exception
reports will be prepared by
sale manager and will be sent
to board of director.

Uncollectible sales due to N/A -Automate checking of credit


customer not credit limit of customer from
trustworthy database.

-Only allow authorized person


to perform on-line approval to
process orders with exceed
credit limits.

Cannot make delivery as N/A -The raw material staff checks


promise due to stock availability and make
shortage reservation prior to
commitment

Incorrect sales order -Salesperson will be the one N/A


information who send an email to confirm
order with customer.

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Incorrect -Supervision during warehouse N/A
shipment(Shipped the picking
wrong items or wrong
quantity) -Barcode scanned on items to
be shipped and ensures it
matches with the purchase
order.

Incorrect Delivery -Ensure that customers sign the N/A


(Delivered to the wrong receipts.
address or customer)

Inventory Stolen -Restriction of access to -Access restriction so that the


warehouse warehouse’s personnel cannot
freely manipulate the
-Release of inventory from inventory transaction without
warehouse on valid document
related transactions initiated
such as picking ticket. by others.
-Segregation of duties
between warehouse staff and
inventory control

Sales and Receivables not -Independent verification: -Journal entries for sales
recorded or incorrectly General Ledger accountant
recorded reconciles sub-ledger (AR and is recorded automatically
Inventory) with control when the collection date is
accounts) recorded for the invoice.

Invoice due not collected N/A -List of invoice due for


(human error on missing collection and overdue
invoice due) receivable.

Collection is stolen/ -A/R accountant check N/A


missing, not deposited to payment evidences along with
bank hard copy of bank statement
from the bank

Cash receipt not recorded N/A -Automatic update receivable


to journals and A/R sub- balance both for general

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ledgers or recorded ledger and sub ledger upon
incorrectly recording of cash receipt. -
Automated reconciliation by
importing the bank statement
into the system

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9. Company related control
9.1. Disaster Recovery Plan

In the business world, there are risks that we should take into account when
planning the risk management. When crisis occurs, there will surely be consequences
that follow so it is good for the company to have a written discover recovery
backup plan. Without the plan, the company’s business operation could be
interrupted due to the unavailability of IT services and prolong interruption could
cause major loss to the company.

For CPF Company, they have a written back up plan. Their plan is to have
data backup at two data second sites in Thailand. The specific locations and type
of second sites were not given since it is company’s confidential information. The
information backup daily, twice a day.

9.2. Access Control

The IT Officer oversees who has the access to it and is the one who give out
the passwords. Nobody can have access to it without have the IT officer’s
permission. When the employees or managers of the company want to have access
to certain information, they will have to request for a username and password. The
different usernames and passwords are given to each person, and they will have
access to the only part they are allowed to use. There are many levels of logging in,
people in different levels can access different information. It is a process that
everyone has to go through when they want to have access to the database.

9.3. Segregation of duty

Separating system development/maintenance from computer operation

● Available. The company bought some software from outsourcing and some
operation the company built the software themselves.

Separating database administrator from other IT function

● Not available. The company bought the database administration from other
company, so it has some other IT function that has been already built in.

Separating maintenance from new system development

● Available. The one who is responsible for making the system is not the one
who is responsible for maintenance the system.

Separating data library from operation

● Available. The one who keeps the company’s data does not have the
authority to perform the operation. There is another person responsible for
doing it.

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Separating security administrator from any other function

● Not available. IT officer is the one who perform user management.

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10. Recommendation
1. Improving the access control of the database

Currently, the backup data is restricted to the IT officers only. When the
employees need to have access for a specific data in the database. The users are
given different username and password to have access to the system and the
applications that they need to use to perform their jobs.

However; by only giving out different usernames and passwords without time
limit to have access to the database isn’t secure enough. From our point of view, we
recommend that the company apply time limit to each time they login and enter
the database.

The company should use the function auto logout inactive users, and set the
idle time for no longer than 20 minute in order to ensure the proper access control
on the system in case that the user forget to logout from the system.

2. Disaster and Recovery Plan

CPF have a formal recovery plan in case of any emergency or disaster


happening, but the plan is only known by a group of people. Only higher executive
people and IT department who have the written plan. The plan also does not
include all the necessary information and that the plan is not adequately to the
relevant personnel. Communicating this will be a problem because the employee
would not remember all the details of the plan. The plan should include the
company’s activities and resources, company’s vulnerable areas, and both short-
term and long-term plan.

We recommend that the firm should print out the entire plan and distribute to
every employees, also having practice once in a while is a must. Testing and
consistently maintaining and updating the plan is must as the business changes.

3. Separating security administrator from any other function

The company should have the subdivision under the IT department. Each
division should responsible for different section. There should be a segregation of
duty. Right now IT department is responsible for every function about IT inside the
company, from user management up to the security of the company. Having
subdivision will allow improving the efficiency of the company.

We suggest that security administration should be performed by an


independent person who is responsible solely for security administration and has no
other duties in IT department.

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4. Use less paper

Currently, the firm’s main documentation is in form of paper. It means that


most of the unnecessary has been printed out as well. Unnecessary file such as
emails. This affects the environment and also incurs the cost to the company, not
only the cost of the paper itself but also cost of filing and storage of the documents.
Some document has been print out many copies in order to distribute the
information to different departments. Instead of printing more copies, the company
should provide information sharing electronically rather than using hard copy
document.

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