Control in
Accounting A review
Information
System
l The second function of a well-designed AIS is to
provide adequate controls to ensure that the following
objectives are met:
Transactions are properly authorized.
Recorded transactions are valid.
Control Valid, authorized transactions are recorded.
Objectives Transactions are recorded accurately. Assets (cash,
inventory, and data) are safeguarded from loss or theft.
Business activities are performed efficiently and
effectively.
REVIEW:
WHAT SOME THREATS, EXPOSURE,
CONTROL PROSEDURES IN GENERAL
LEDGER CYCLE
What are some threats?
– errors in updating the general ledger
inaccurate/incomplete journal entries
inaccurate/incomplete posting of journal entries
– unauthorized access to the general ledger
– loss or destruction of general ledger data
CONTROL OBJECTIVES,
THREATS, AND PROCEDURES
l What are some exposures?
– inaccurate records and reports, resulting in
bad decisions based on erroneous information
– leak of confidential data
– corruption of general ledger
– cover-up of theft
– loss of data
– loss of assets
CONTROL OBJECTIVES,
THREATS, AND PROCEDURES
What are some control procedures?
– input, edit, and processing controls
– reconciliations and control reports
– access controls
– adequate audit trail
– proper backup procedures
– disaster recovery plan
CONTROL OBJECTIVES,
THREATS, AND PROCEDURES
REVIEW:
WHAT SOME THREATS, EXPOSURES,
CONTROL PROCEDURES IN REVENUE
CYCLE
l What are some threats?
credit sales to customers with poor credit
Control shipping errors
Objectives, theft of cash and inventory
Threats, and failure to bill customers
Procedures billing errors
loss of data
l What are some exposures?
uncollectible sales and losses due to bad debts
Control customer dissatisfaction
Objectives, loss of assets and overstated assets
Threats, and loss of revenue and inventory
Procedures incorrect records and poor decision making
loss of confidential information
l What are some control procedures?
credit approval by credit manager and sales function
Control reconciliation of sales order with picking ticket and
Objectives, packing slip
Threats, and restriction of access to inventory and data
Procedures lockbox arrangement
segregation of duties
REVIEW:
WHAT SOME THREATS, EXPOSURES,
CONTROL PROCEDURES IN EXPENDITURE
CYCLE
Control Objectives,
Threats, and Procedures
l The second function of a well-designed AIS is to provide
adequate controls to ensure that the following objectives are
met:
l Transactions are properly authorized.
l Recorded transactions are valid.
l Valid, authorized transactions are recorded.
l Transactions are recorded accurately.
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Control Objectives,
Threats, and Procedures
l Assets (cash, inventory, and data) are safeguarded from loss or
theft.
l Business activities are performed efficiently and effectively.
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Control Objectives,
Threats, and Procedures
l What are some threats?
– stockouts
– purchasing too many or unnecessary goods
– purchasing goods at inflated prices
– purchasing goods of inferior quality
– purchasing from unauthorized vendors
– kickbacks
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Control Objectives,
Threats, and Procedures
– receiving unordered goods
– errors in counting goods
– theft of inventory
– failure to take available purchasing discounts
– errors in recording and posting purchases and payments
– loss of data
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Control Objectives,
Threats, and Procedures
l What are some exposures?
– production delays and lost sales
– increased inventory costs
– cost overruns
– inferior quality of purchased goods
– inflated prices
– violation of laws or import quotas
– payment for items not received 13 - 16
Control Objectives,
Threats, and Procedures
– inaccurate inventory records
– loss of assets
– cash flow problems
– overstated expenses
– incorrect data for decision making
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Control Objectives,
Threats, and Procedures
l What are some control procedures?
– inventory control system
– vendor performance analysis
– approved purchase requisitions
– restricted access to blank purchase requisitions
– price list consultation
– budgetary controls
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Control Objectives,
Threats, and Procedures
– use of approved vendor lists
– approval of purchase orders
– prenumbered purchase orders
– prohibition of gifts from vendors
– incentives to count all deliveries
– physical access control
– recheck of invoice accuracy
– cancellation of voucher package 13 - 19
REVIEW:
WHAT SOME THREATS, EXPOSURES,
CONTROL PROCEDURES IN PAYROLL
CYCLE
Control Objectives,
Threats, and Procedures
l The second function of the AIS in the
HRM/payroll cycle is to provide adequate
internal controls to ensure meeting the
following objectives:
– payroll transactions are properly authorized
– recorded payroll transactions are valid
– authorized payroll transactions are recorded
– payroll transactions are accurately recorded
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Control Objectives,
Threats, and Procedures
– applicable government regulations regarding remittance of
taxes and filing of payroll and HRM reports are met
– assets (both cash and data) are safeguarded from loss or theft
– HRM/payroll cycle activities are performed efficiently and
effectively
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Control Objectives,
Threats, and Procedures
l What are some threats?
– hiring of unqualified or larcenous employees
– violation of employment law
– unauthorized changes to the master payroll file
– inaccurate time data
– theft or fraudulent distribution of paychecks
– loss or unauthorized disclosure of payroll data
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Control Objectives,
Threats, and Procedures
l What are some exposures?
– increased expenses
– lower productivity
– theft
– fines and civil suits
– inaccurate records and reports
– over/underpayment of employees
– reduced morale
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Control Objectives,
Threats, and Procedures
What are some control procedures?
– sound hiring practices (verification of job applicant’s skills,
references, and employment history)
– thorough documentation of hiring procedures
– segregation of duties
– batch totals and other application controls
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Control Objectives,
Threats, and Procedures
– direct deposit
– paycheck distribution by someone independent of payroll
process
– investigation of all unclaimed paychecks
– separate payroll checking account
– access control
– backup procedures
– encryption
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REVIEW:
WHAT SOME THREATS, EXPOSURES,
CONTROL PROCEDURES IN PRODUCTION
CYCLE
Control Objectives,
Threats, and Procedures
The second function of a well-designed AIS is to provide
adequate controls to ensure that the following objectives are
met:
1 All production and fixed asset acquisitions are properly
authorized.
2 Work-in-process inventories and fixed assets are safeguarded.
3 All valid, authorized production cycle transactions are
recorded.
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Control Objectives,
Threats, and Procedures
4 All production cycle transactions are recorded accurately.
5 Accurate records are maintained and protected from loss.
6 Production cycle activities are performed efficiently and
effectively.
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Control Objectives,
Threats, and Procedures
What are some threats?
– unauthorized transaction
– theft or destruction of inventories and fixed assets
– recording and posting errors
– loss of data
– inefficiencies and quality control problems
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Control Objectives,
Threats, and Procedures
What are some exposures?
– overproduction and excess inventories
– obsolescence
– underproduction, stockouts, and lost sales
– excess investment in fixed assets
– loss of assets
– overstated inventory records
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Control Objectives,
Threats, and Procedures
– ineffective scheduling and planning
– decision errors
– increased expenses and taxes on fixed assets that are
incorrectly valued
– ineffective decision making
– loss of customer goodwill and future sales
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Control Objectives,
Threats, and Procedures
What are some control procedures?
– accurate sales forecasts and inventory records
– authorization of production
– restricted access to production planning program and to blank
production order documents
– review and approval of capital asset expenditures
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Control Objectives,
Threats, and Procedures
– documentation of all internal movements of inventory
– proper segregation of duties
– source data automation
– on-line data entry edit controls
– backup and disaster recovery procedures
– regular performance reports
– cost of quality control measurement
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