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63 Cards in this Set
- Front
- Back
Manual Procedures
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-Obtaining and recording customer's orders
-Approving credit -Processing shipping orders |
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Obtaining and recording customers orders
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-Document = sales order
-One copy in "open order file" |
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Approving credit
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-One copy of sales order went to the credit department
-Returned authorized copy triggers the release of the sales order into the system |
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Processing shipping orders
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-Multiple copies of sales order are sent to the warehouse; packing slip, shipping notice, stock release, file copy
-Locate and pick goods using stock release, and package them with the packing slip -Reconcile documents and goods, sign the shipping notice, and prepare the bill of lading (multiple copies) -Transfer custody of goods (packing slip inside) and send 2 copies of the bill of lading to the carrier -Record the shipment in the shipping log -Send the shipping notice to the billing department **File: stock release, one copy of the bill of lading, and a file copy |
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Legacy System Procedures
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-Keypunch batch of shipping notices
-Edit run program, checking and correcting erros -Sort run on batches by A/R account number -A/R update and billing run -Resort by inventory item? -Inventory update run -Sort journal entries by general ledger # -Run general ledger update -Prepare management reports |
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Edit run program, checking and correcting errors
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-Field checks
-Limit tests -Range tests -Price times quantity extensions |
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Sort run on batches by A/R account number
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-Legacy systems store records in a sequential manner, usually by type
-The next process is to post individual shipping notices to appropriate individual shipping notices to appropriate individual A/R accounts |
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A/R update and billing run
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-Updates the A/R file and becomes the new A/R file
-Billing would be printing invoices to be mailed -Sales journal file or printout -Journal entry: dr A/R cr Sales |
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Resort by inventory item?
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-To update inventory items
-Based on the field that you are going to be updating |
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Inventory update run
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-Reduce quantity on hand for items shipped, and generate a new inventory file
-Compare "on hand" quantity with the "reorder point" to identify items needing replenishment (file or printout) -Journal entry: dr COGS cr Inventory |
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Batch cash receipts system with direct access files
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-Discrete events that naturally fit the batch approach
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Batch cash receipts system with direct access files - Mail room
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Mailroom
-Receives checks and remittance advices -Separates checks from remittance advices -Prepares a remittance list (multiple copies) -Copy of the remittance list and checks go to the cash receipts department -Remittance advices and copy of remittance list goes to the A/R department -Last copy of remittance list goes to the controller's office |
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Batch cash receipts system with direct access files - Cash receipts department
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-Reconciles checks and remittance list
-Prepares deposit slip (multiple copies) -Using terminal/IS, creates a journal voucher (dr. cash cr. A/R) -At the end of the day, deposit the cash and deposit slips to the bank -File a copy of the deposit slip |
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Batch cash receipts system with direct access files - A/R department
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-Reconciles the remittance advices and the remittance list
-Prepares batch for transactions based on remittance advice data to update the A/R subsidiary ledger -Files remittance advices and remittance list |
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Batch cash receipts system with direct access files - Data Processing Department
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-Accesses the 2 files created in the cash receipts and A/R departments
-Reconciles the files -Updates the A/R subsidiary accounts -Updates the general ledger (A/R and cash) -Creates a cash receipts journal -System produces a transaction listing that is end to the A/R department where the A/R clerk will reconciles against the remittance list of the file there -Produce more management reports |
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Real-Time sales order entry and cash receipts - Sales Procedures
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-Transactions are processed as they occur
-Credit check is performed online by the system -If approved, system checks availability of inventory -If inventory is available, the system: transmits electronic stock release to warehouse department, transmits electronic packing slip to the shipping department, updates the inventory file records for depletion, records a sale in open sales order computer file |
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Real-Time sales order entry and cash receipts - Warehouse procedures
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-Produces a hard copy of the stock release
-Clerk picks goods and sends them with a copy of the stock release to the shipping department |
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Real-Time sales order entry and cash receipts - Shipping Procedures
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-Reconciles goods, stock release, and packing slip from the system
-Online, it prepares the bill of lading for shipping and the shipping notice for the data processing department -Select a carrier and prepare the goods for shipment (include the packing slip and bill of lading) -Stock release form is filed |
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Real-Time sales order entry and cash receipts - Billing Procedures
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-Record sales invoice and shipment in IS
-Print invoice to be send to the customer -Update the shipping log and sale invoice files -Delete shipment from open sales order file |
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Real-Time sales order entry and cash receipts - Cash Receipts Procedures
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-Keypunch cash receipts using the remittance advices into IS, matching it with the specific record in the sales invoice file
-Keypunch any credit memos using a similar process -Generate a remittance file of posted transactions |
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Features of Real-Time Processing
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Events Database
-Traditional accounting does not have to exist per se -General ledger can be derived at any time from a compilation of events from the database |
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Features of Real-Time Processing (Advantages)
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-Greatly shortens the cash cycle of the firm
-Can give a firm a competitive advantage -Real-time editing permits the identification of many kinds of errors as they occur, greatly reducing the efficiency and effectiveness of business processes -Reduces the amount of paper documents -Electronic audit trails are possible in real-time computer-based systems |
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Point of Sale Systems
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Used extensively in retail establishments
-Customers pick the inventory from the shelves and take them to the cashier -The clerk scans the universal product code (UPC). The POS system is connected to an inventory file, where the price and description of the product are retrieved. +Inventory levels are updated and reorder needs can be detected immediately -The system computes the amounts due. Payment is either cash, check, ATM or credit card (no A/R) -If checks, ATM, or credit cards are used, an online link to receive approval is necessary -At the end of the day or at the end of a cashier's shift, the money and receipts in the drawer are reconciled to the internal cash register tape or a printout from the computer's database +Cash over/under must be recorded |
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Management Assertions and Revenue Cycle Objectives
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-Existence/Occurrence
-Completeness -Accuracy -Rights and Obligations -Valuation or Allocation -Presentation and Disclosure |
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Existence/Occurrence
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-Verify that the A/R balance represents amounts actually owed as of the balance sheet date
-Establish sales presents goods shipped and/or services rendered during the period |
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Completeness
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-Determine all amounts owed to the organization are included in A/R
-Verify Shipped goods, services rendered, and/or returns and allowances |
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Accuracy
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-Verify that revenue transactions are accurately computed, based on correct prices and quantities
-Ensure A/R subsidiary ledger, sales invoice file, and remittance file are mathematically correct and agree with G/L accounts |
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Rights & Obligations
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-Determine if organization has a legal right to its A/R
-Verify that accounts sold or factored have been removed from A/R |
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Valuation or Allocation
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-Determine A/R balance stated in net realizable value
-Establish allocation for uncollectible accounts is appropriate |
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Presentation and Disclosure
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-Verify that A/R and revenues for the period are properly described and classified
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Input Controls - Purpose
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-Ensure creditworthiness of customers
-Control techniques vary considerably between batch systems and real time systems -Credit authorization procedures +Credit worthiness of customer +Batch and manual systems use credit dept +Real time systems use programmed decision rules -Testing credit procedures +Verify effective procedures exist +Verify information is adequately communicated +Verify effectiveness of programmed decision rules +Verify that the authority for making credit decisions is limited to authorized credit personnel +Perform substantive tests of details +Review credit policy periodically and revise as necessary |
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Input Controls - Data Validation Controls
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-To detect transcription errors in data as it is processed
+Batch: after shipment of goods +Real-Time: errors are handled as they occur -Missing data checks -Numeric/Alphabetic chekcs -Limit checks -Range checks -Validity checks -Check digit |
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Missing data checks
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Presence of blank fields
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Numeric/Alphabetic data checks
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Correct form of data
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Limit checks
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Value does not exceed max for the field
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Range checks
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Data is within upper and lower limits
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Validity checks
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Compare actual values against known acceptable values
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Check digit
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Identify keystroke errors by testing internal validity
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Internal Controls - Testing Data Validation Controls
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-Verify controls exist and are functioning effectively
-Validation of program logic can be difficult +If controls over system development and maintenance are not weak, testing data editing/programming logic is more efficient that substantive tests of details +Some assurance can be gained through the testing of error lists and error logs |
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Internal Controls - Batch Controls
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Manage high volumes of similar transactions
-Purpose: reconcile output produced by the system with the original input -Controls continue through all computer process -Batch transmittal sheet: +Unique batch number +Batch date +Transaction code +Record count +Batch control total +Hash totals |
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Internal Controls - Testing Data Validation Controls
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-Failure of batch controls indicates data errors
-Involves reviewing transmittal records of batches processed and reconcile them to the batch control log -Examine out-of-balance conditions and other errors to determine the cause of the error -Review and reconcile transaction listings, error logs, etc. |
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Process Controls
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-Computerized procedures for file updating
-Restricting access to data |
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Process Controls Techniques
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-File update controls
-Transaction code controls -Sequence check controls -Testing file update controls |
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File update controls
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Run-to-run batch control data to monitor data processing steps
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Transaction code controls
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To process different transactions using different programming logic
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Sequence check controls
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Sequential files, proper sorting of transaction files is required
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Testing file update controls
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-Testing data that contains errors
-Can be performed in ITE or test data -CAATs requires careful planning -Single audit proceudre can be devised that performs all tests in one operation |
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Access Controls
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Prevent and detect unauthorized and illegal access to a firm's systems and/or assets
-Warehouse Security -Depositing cash daily -Use safety deposit box, night box, lock cash drawers and safes -Accounting records |
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Testing Access Controls
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-Absence thereof allows manipulation of invoices
-Access controls are system-wide and application-specific -Access controls are dependent on effective controls in OLS networks and databases |
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Physical Controls
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-Segregation of duties
-Supervision -Independent verification -Testing physical controls |
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Segregation of Duties
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-Rule 1: transaction authorization separate from transaction processing
-Rule 2: Asset custody separate from record-keeping tasks -Rule 3: organization structured such that fraud require collusion between 2 or more people |
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Supervision
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-Necessary for employees who perform in compatible functions
-Compensate for inherent exposure from incompatible functions -Can be supplemented when duties are properly segregated -Prevention vs detection of fraud and crime is the objective - supervision can be an effective preventive control |
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Independent Verification
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-Review the work of others at critical points in the business process
-Purpose: to identify errors or possible fraud |
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Testing Physical Controls
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-Review organizational structure for incompatible tasks
-Tasks normally segregated in manual systems get consolidated in DP systems -Duties of design, maintenance, and operations for computers need to be separated -Programmers should not be responsible for subsequent program changes |
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Output Controls
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Purpose - information is not lost, misdirected, or corrupted; that the system output process is functioning properly
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Output Controls
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Controls are designed to identify potential problems
-Reconciling G/L to subsidiary ledgers -Maintenance of the audit trail - that is the primary way to trace the source of detected errors +Details of transactions processed at intermediate points +A/R change report +Transaction logs: permanent record of valid transactions +Transaction listings: successfully posted transactions +Log of automatic transactions +Unique transaction identifiers +Error listings |
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Testing Output Controls
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-Reviewing summary reports for accuracy, completeness, timeliness, and relevance for decisions
-Trace sample transactions through the audit trails; including transaction listings, error logs, and logs of resubmitted records |
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Substantive tests of revenue cycle accounts
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Determine the nature, timing, and extent of substantive tests using the auditor's assessment of inherent risk, unmitigated control risk, materiality, considerations, and efficiency of the audit
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Substantive tests of revenue cycle accounts
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Concern: overstatement or understatement of revenues
-Focus on large and unusual transactions, especially near period-end -Recognizing revenues form sales that did not occur -Recognizing revenues before they are realized -Failing to recognize cutoff points -Underestimating allowance for doubtful accounts -Shipping unsolicitated products to customers, subsequently returned -Billing customers for products held by the seller |
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Substantive Tests - Understanding Data
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-Verify data used in CAATTs is accurate
-Verify adequate setup of files from originals -Relationship and data from: +Customer file +Sales invoice file +Line item file +Inventory file +Shipping log file |
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Substantive Tests - Accuracy/Completeness Assertion
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-Analytical review of account balances
-Review sales invoices for unusual trends and exceptions -Review sales invoices and shipping log files -Review line item and inventory files for pricing accuracy |
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Substantive Tests - Existence Assertion
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-Confirmation of A/R
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Substantive Tests - Valuation/Allocation
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Corroborate or refute A/R is stated at reasonable Net Realizable Value
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