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Accounting Information Systems
(TCO A) With the explosion of technological advances in the last 15 years, AIS skills are important for career success in accounting. Provide three reasons or benefits of AIS skills to any accounting-related career
(TCO C) Several years ago a ring of foreign-based hackers broke into South Pacific Bank’s system and stole $ 15 million from its customers’ accounts. Discuss how systems can become vulnerable to computer crimes and then evaluate controls that strengthen those weaknesses. (a) Provide at least three weaknesses of AIS that hackers can exploit for gain and then (b) suggest at least one control for each weakness.
(TCO D) Describe typical credit approval procedures.
(TCO E) The owner of a small family-owned business prepares his own payroll but rapid expansion is making demands for his time in other areas. He hires you to design payroll procedures with the proper internal controls that a small payroll department can handle. Design (using words) how payroll data should flow within the company, and in your design, make sure you address the control objectives.
(TCO F) Identify what tools are used to assess organizational performance and explain they are used.
(TCO G) Discuss redundancy as it applies to database design, and explain how redundancy can be reduced.
(TCO H) Provide an argument in support of a company’s decision to outsource its information system.
Fourteenth Edition
Chapter 13
The Expenditure Cycle: Purchasing to Cash Disbursements
Copyright © 2018 Pearson Education, Inc. All Rights Reserved
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Learning Objectives (1 of 2)
Discuss the basic business activities and related information processing operations in the expenditure cycle, explain the general threats to those activities, and describe the controls that can mitigate those threats.
Explain the process and key decisions involved in ordering goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats.
Explain the process and key decisions involved in receiving goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats.
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Learning Objectives (2 of 2)
Explain the process and key decisions involved in approving supplier invoices, identify the threats to those activities, and describe the controls that can mitigate those threats.
Explain the process and key decisions involved in cash disbursements to suppliers, identify the threats to those activities, and describe the controls that can mitigate those threats.
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Basic Expenditure Cycle Activities
Order materials, supplies, and services
Receive materials, supplies, and services
Approve supplier (vendor) invoice
Cash disbursement
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Key decisions
What is the optimal level of inventory?
Which suppliers provide the best quality at the best price?
How can IT be used to improve efficiency and accuracy of logistics?
How can we take advantage of vendor discounts?
How can we maximize cash flow?
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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General Threats and Controls
Threats
Control
Inaccurate or invalid master data
Unauthorized disclosure of sensitive information
Loss or destruction of data
Poor performance
1 a. Data processing integrity controls
1 b. Restriction of access to master data
1 c. Review of all changes to master data
2 a. Access controls
b. Encryption
3 a. Backup and disaster recovery procedures
4 a. Managerial reports
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Order Goods (Materials/Supplies) or Services Processing Steps
Identify what, when, and how much to purchase
Source document: purchase requisition
Choose a supplier
Source document: purchase order
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Ordering Goods/Services (1 of 2)
Threats
Controls
Stockouts and excess inventory
Purchasing items not needed
Purchasing items at inflated prices
Purchasing goods of poor quality
1 a. Perpetual inventory system
b. Bar-coding, RFID
c. Periodic physical counts
2 a. Perpetual inventory systems
b. Review and approval of purchase requisitions
c. Centralized purchasing
3 a. Price lists
b. Competitive bids
c. Review purchase orders
4 a. Use approved suppliers
b. review and approve purchases from new suppliers
c. Monitor product quality by supplier
d. hold purchasing managers responsible for rework and scrap cost
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Ordering Goods/Services (2 of 2)
Threats
Controls
Unreliable suppliers
Purchasing from unauthorized suppliers
Kickbacks
5 a. Monitor supplier performance
b. Require quality certification
6 a. Purchase from approved suppliers
b. Review approval from purchases of new suppliers
c. EDI specific controls
7 a. Supplier audits
b. Prohibit gifts
c. Job rotation & mandatory vacations
d. Required disclosure of financial and personal interests in suppliers
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Receiving Process
Goods arrive
Verify goods ordered against the purchase order (what, how much, quality)
Source document: receiving report
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Receiving Goods or Services
Threats
Controls
Accepting unordered items
Mistakes in counting
Verifying receipt of services
Inventory theft
1 a. Authorized purchase orders needed before receiving goods
2 a. Bar codes or RFID
b. Receiving employees sign receiving report
c. Do not inform receiving of quantity ordered
3 a. Budget controls and audits
4 a. Restrict physical access to inventory
b. Document all inventory transfers
c. Segregate custody vs. receiving of inventory
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Approve Supplier Invoice and Cash Disbursements
Match the supplier invoice to:
Purchase order
Receiving report
supplier invoice + purchase order + receiving report = voucher
Approve supplier invoice for payment
Source document: disbursement voucher
Pay vendor
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Approve Supplier Invoice
Threats
Control
Errors in supplier invoice
Mistakes in posting to accounts payable
1 a. Verify invoice accuracy
b. Require detailed receipts for p-cards
c. Restrict access to supplier master data
2 a. Data entry edit controls
b. Reconcile detailed accounts payable records to the general ledger accounts payable account
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Cash Disbursements
Threats
Controls
Failure to take discounts
Pay for items not received
Duplicate payments
Theft of cash
Check alteration
Cash flow problems
1 a. File invoices by due date to take advantage of discounts
2 a. Match supplier invoice to supporting documents (purchase order, receiving report)
3 a. Pay only original invoices
b. Cancel supporting document when payment is made
4 a. Physical security of checks
b. Separation of duties
c. Reconcile bank accounts
5 a. Check Protection machines
b. special inks / papers
6 a. Cash flow budget
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Key Terms
Expenditure cycle
Economic order quantity (EOQ)
Reorder point
Materials requirement planning (MRP)
Just-in-time (JIT) inventory system
Purchase requisition
Purchase order
Blanket purchase order/blanket order
Vendor-managed inventory (VMI)
Kickbacks
Receiving report
Debit memo
Voucher package
Nonvoucher system
Voucher system
Disbursement voucher
Evaluated receipt settlement (ERS)
Procurement card
Imprest fund
Copyright © 2018 Pearson Education, Inc.
Chapter 13: The Expenditure Cycle: Purchasing to Cash Disbursements
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Copyright © 2018 Pearson Education, Inc.
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