• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/63

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

63 Cards in this Set

  • Front
  • Back
Manual Procedures
-Obtaining and recording customer's orders
-Approving credit
-Processing shipping orders
Obtaining and recording customers orders
-Document = sales order
-One copy in "open order file"
Approving credit
-One copy of sales order went to the credit department
-Returned authorized copy triggers the release of the sales order into the system
Processing shipping orders
-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
Legacy System Procedures
-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
Edit run program, checking and correcting errors
-Field checks
-Limit tests
-Range tests
-Price times quantity extensions
Sort run on batches by A/R account number
-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
A/R update and billing run
-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
Resort by inventory item?
-To update inventory items
-Based on the field that you are going to be updating
Inventory update run
-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
Batch cash receipts system with direct access files
-Discrete events that naturally fit the batch approach
Batch cash receipts system with direct access files - Mail room
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
Batch cash receipts system with direct access files - Cash receipts department
-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
Batch cash receipts system with direct access files - A/R department
-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
Batch cash receipts system with direct access files - Data Processing Department
-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
Real-Time sales order entry and cash receipts - Sales Procedures
-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
Real-Time sales order entry and cash receipts - Warehouse procedures
-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
Real-Time sales order entry and cash receipts - Shipping Procedures
-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
Real-Time sales order entry and cash receipts - Billing Procedures
-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
Real-Time sales order entry and cash receipts - Cash Receipts Procedures
-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
Features of Real-Time Processing
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
Features of Real-Time Processing (Advantages)
-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
Point of Sale Systems
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
Management Assertions and Revenue Cycle Objectives
-Existence/Occurrence
-Completeness
-Accuracy
-Rights and Obligations
-Valuation or Allocation
-Presentation and Disclosure
Existence/Occurrence
-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
Completeness
-Determine all amounts owed to the organization are included in A/R
-Verify Shipped goods, services rendered, and/or returns and allowances
Accuracy
-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
Rights & Obligations
-Determine if organization has a legal right to its A/R
-Verify that accounts sold or factored have been removed from A/R
Valuation or Allocation
-Determine A/R balance stated in net realizable value
-Establish allocation for uncollectible accounts is appropriate
Presentation and Disclosure
-Verify that A/R and revenues for the period are properly described and classified
Input Controls - Purpose
-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
Input Controls - Data Validation Controls
-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
Missing data checks
Presence of blank fields
Numeric/Alphabetic data checks
Correct form of data
Limit checks
Value does not exceed max for the field
Range checks
Data is within upper and lower limits
Validity checks
Compare actual values against known acceptable values
Check digit
Identify keystroke errors by testing internal validity
Internal Controls - Testing Data Validation Controls
-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
Internal Controls - Batch Controls
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
Internal Controls - Testing Data Validation Controls
-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.
Process Controls
-Computerized procedures for file updating
-Restricting access to data
Process Controls Techniques
-File update controls
-Transaction code controls
-Sequence check controls
-Testing file update controls
File update controls
Run-to-run batch control data to monitor data processing steps
Transaction code controls
To process different transactions using different programming logic
Sequence check controls
Sequential files, proper sorting of transaction files is required
Testing file update controls
-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
Access Controls
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
Testing Access Controls
-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
Physical Controls
-Segregation of duties
-Supervision
-Independent verification
-Testing physical controls
Segregation of Duties
-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
Supervision
-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
Independent Verification
-Review the work of others at critical points in the business process
-Purpose: to identify errors or possible fraud
Testing Physical Controls
-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
Output Controls
Purpose - information is not lost, misdirected, or corrupted; that the system output process is functioning properly
Output Controls
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
Testing Output Controls
-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
Substantive tests of revenue cycle accounts
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
Substantive tests of revenue cycle accounts
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
Substantive Tests - Understanding Data
-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
Substantive Tests - Accuracy/Completeness Assertion
-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
Substantive Tests - Existence Assertion
-Confirmation of A/R
Substantive Tests - Valuation/Allocation
Corroborate or refute A/R is stated at reasonable Net Realizable Value