Download Accounting Information Systems, 9/e

Transaction Processing and
the Internal Control Process
Chapter 2
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–1
Learning Objective 1
Understand the nature
of control exposures.
Understand the broad objectives
of transaction cycles.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–2
Controls and Exposures
Controls are needed to reduce exposures.
An exposure consists of the potential
financial effect of an event multiplied
by its probability of occurrence.
Controls rarely affect the causes of exposures.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–3
Common Exposures
Excessive
costs
Business
interruption
Inaccurate
accounting
Deficient
revenues
EXPOSURES
Fraud and
embezzlement
Loss of
assets
Statutory
sanctions
Competitive
disadvantages
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–4
Fraud and White-Collar Crime
What is white-collar crime?
Grouping of illegal activities that are differentiated
from other illegal activities in that they occur
as part of the occupation of the offender.
It often involves the entry of fictitious
transactions into an accounting system.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–5
Fraud and White-Collar Crime
Employee theft
Employee-outsider theft
Management fraud
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–6
Fraud and White-Collar Crime
White-collar crime may result in
fraudulent financial reporting.
Corporate crime is a white-collar crime that
benefits a company or organization rather
than the individuals who perpetrate the fraud.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–7
Fraud and White-Collar Crime
What is forensic accounting?
Forensic accounting is one of several terms
used to describe the activities of persons
who are concerned with preventing and
detecting fraud and white-collar crime.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–8
Computer Processing
and Exposures
Computer processing can increase
the risk and/or potential
dollar loss of exposures.
Mechanical processing of data
Mechanical data storage
Complexity of processing
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4–9
Control Objectives
and Transaction Cycles
Most organizations experience the
same types of economic events.
These events generate transactions that
may be grouped according to four
common cycles of business activity.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 10
Transaction Cycles
Expenditure
cycle
Conversion
cycle
Revenue
cycle
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 11
Relationship between Transaction Cycles
Labor
FG
Plant
Expenditure
cycle
Purchasing/Accounts Payable
Cash Disbursements
Payroll; Fixed Assets
Conversion
cycle
Production Planning &
Control
Cost Accounting
Cash
Customers
Materials
Revenue
cycle
Sales Order Processing
Cash Receipts
Finished Goods
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 12
Control Objectives
and Transaction Cycles
Vendors should be authorized in accordance
with management’s criteria.
Employees should be hired in accordance
with management’s criteria.
Access to personnel, payroll, and disbursement records should
be permitted only in accordance with management’s criteria.
Compensation rates and payroll deductions should be
authorized in accordance with management’s criteria.
Amounts due to vendors should be accurately and
promptly classified, summarized, and reported.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 13
Control Objectives
and Transaction Cycles
Customers should be authorized in accordance
with management’s criteria.
Prices and terms of goods and services should be
authorized in accordance with management’s criteria.
All shipments of goods and services provided
should result in a billing to the customer.
Billings to customers should be accurately and
promptly classified, summarized, and reported.
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 14
Control Objectives
and Transaction Cycles
The production plan should be authorized in
accordance with management’s criteria.
Cost of goods manufactured should be
accurately and promptly classified,
summarized, and reported.
* Finance Cycle
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 15
Transaction Processing Controls
Transaction processing controls
General controls
Application controls
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 16
Transaction Processing Controls
The plan of data processing organization
General operating procedures
Equipment control features
Equipment and data-access controls
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 17
Transaction Processing Controls
Input
Processing
Output
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 18
Transaction Processing Controls
Preventive
Detective
Corrective
 2004 Prentice Hall Business Publishing, Accounting Information Systems, 9/e, by Bodnar/Hopwood
4 – 19