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Accounting System Design and Development-Internal Controls
This document discusses internal controls for computerized accounting information systems. It describes general controls that apply across systems, such as policies for access, backup procedures, and segregation of duties. It also discusses application controls that operate within specific systems or processes to ensure proper authorization, recording, completeness and accuracy of transactions. Examples provided include input and output edit checks, sequence checks, and comparison of control totals. Threats to internal controls like fraud or system errors are also mentioned.
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- 1. Aims ofa computerised accounting information systems General and application controls Limitations of controls Threats to internal controls Internal Controls (Part II) Accounting System Design and Development
- 2. Identify 3advantages of computerised application controls.
- 3. Proper authorisationsuch as authoring valid transaction Proper record such as input and output accuracy Completeness Timeliness Consistent execution, authorisation, and application Enforce Completeness More difficult to avoid More timely and efficient to execute More timely reporting and feedback!! …etc
- 4. Some risksapply across a number of areas of the organisation. To address these risks we have GENERAL CONTROLS. General controls effect the overall information system. General controls are established with the aim of providing reasonable assurance that the internal control objectives are achieved. These controls effect all applications Seen as pervasive – these controls will apply across almost all of the information systems in an organisation. Support the effective operation of application controls General Control ◦ Policies/procedures relating to many applications ◦ Support the effective operation of application controls Application Control ◦ Manual or automated ◦ Operate within a business process / application ◦ Relate to the initiation, recording, reporting and processing of events ◦ Deal with the aims of occurrence, authorisation, completeness and accuracy
- 5. custody of ◦Access to systems ◦ Policies and procedures ◦ Data protection Telecommunications Access encryption techniques To data files ◦ Disaster recovery Hardware Physical controls Segregation of duties User access System development procedures User awareness of risks Data storage procedures Organisational Systems Development ◦ Separation of duties ◦ User involvement Design, programming, ◦ Authorisation operations, data entry, ◦ Documentation documentation software restricted Recruitment Termination ◦ Transmission / To computer facilities Other Authorised users ◦ Backup/Off site storage ◦ Monitor and detect failures
- 6. processed, and usesystem output. information needs and then design an information analysts and creates an information system by company’s computer. They ensure that data is right output is produced. corporate databases and files. Systems administration – ensure that the different parts of an information system operate smoothly and efficiently. Network management – ensure that all applicable devices are linked to the organisation’s internal and external networks and that the networks operate continuously and properly. Change management – manage all changes to an organisation’s information system to ensure they are made smoothly and efficiently and to prevent errors and fraud. Users – record transactions, authorize data to be Systems analysis – helps users determine their system to meet those needs. Programming – take the design provided by system writing the computer programs. Computer operations – run the software on the input properly and correctly processed and the Database administration – maintain and manage
- 7. ◦ Virtual privatenetworks ◦ Electronic eavesdropping ◦ Message acknowledgement procedures ◦ What unique risks do microcomputers present to an Wireless technology Wired Networks ◦ Routing verification procedures Microcomputers organisation? Location of computing facility Restrict employee access The use of Biometrics Change management – the person (usually a developer) who makes the IS change should be different from the person who makes the change available to users – the process of making changes available to all users is usually called “migration into production” Why do we need to segregate these functions?
- 8. Fault tolerant/ Built in redundancies Disk mirroring Backups ◦ Hierarchically performed ◦ Where to store backup data? ◦ How often to backup? Uninterruptible power supply Separation of duties ◦ Accounting from other sub-systems ◦ Responsibilities within IT Programming Data management Design / Analysis Testing ◦ Within a process Authorisation, Execution, Custody, Recording Computer accounts / Logins / Access controls
- 9. DRP Considers: ◦Natural disasters ◦ Deliberate malicious acts ◦ Accidental destructive acts… DRP Usually covers: ◦ Staff Employees Customers Suppliers Other Stakeholders… ◦ Physical resources Buildings Equipments Cash… ◦ Information resources Data Information… DRP refers to the strategy an organisation will put into action in the event of a disaster that disrupts normal operations. The aim is business continuity, i.e. to resume operations as soon as possible with minimal loss or disruption to data and information. This plan describes procedures to be followed in the case of an emergency as well as the role of each member of the disaster recovery team.
- 10. Controls overspecific systems/business processes ◦ Relate to the initiation, recording, reporting and processing of events Provide reasonable assurance that the events occurring in a system/process are authorised and recorded, and are processed completely, accurately and on a timely basis and that resources in that system are protected. Examples of systems/processes in an organisation: ◦ Sales system, Accounts receivable system, Purchases system, Payments system, Payroll, Financial Reporting, Inventory… Temporary Site ◦ Hot site ◦ Cold site Staffing ◦ Evacuating threatened staff ◦ Enabling staff to operate in DRP mode Staff need to know their roles Restore relationships ◦ As organisations become integrated the information asset is increasing in importance
- 11. required by theneeds of the business process? Classification based on the stage in the process at which the control occurs ◦ Input controls Designed to ensure data entering the system is valid, complete and accurate ◦ Process controls Detect errors and irregularities in the processing of data ◦ Output controls Protect the outputs of a system Authorisation ◦ Is the person authorised to execute the transaction? Eg: Approvals for a large sale to proceed Recording ◦ Input Validity Is the data of the correct format/type? Does the data represent a valid event? ◦ Input Accuracy Is all data entered correct? Completeness ◦ Has all data about an event been recorded? Transaction level ◦ Have all events been recorded? Business process level Timeliness ◦ Is data captured, processed, stored and available as
- 12. Edit Tests ◦Check validity and accuracy after data has been input Test of content Numeric, Alphabetic, Alphanumeric Test of reasonableness Is the input within a specified range of values Eg Hours worked per week is between 0 and 60 Test of sign (+ive, -ive) Test of completeness Test of sequence Has every document been input? Eg Cheques Requires pre-numbered source documents Test of consistency Check digit calculation Eg: Credit Card – calculate security number from card number Card Number 1234 5678 9012 3456 Security Number: 687 Observation, Recording and Transcription ◦ Feedback mechanism Eg: Customer reviews and signs sales form ◦ Dual observation Eg: Approval from a supervisor, more than one employee in execution of sale ◦ Pre-designed forms Pre-numbered Layout of forms How does a pre-designed form help?
- 13. Invoice 001 Invoice 002 Invoice007 Invoice 002 Invoice 003 Invoice 004 numbered documents missing documents SALES DEPT DATA ENTRY CLERK COMPUTER Invoice 001 Sale occurs and invoice prepared Invoices Missing entered Invoice 006 Invoice 003 Invoice 005 Invoice 004 Invoice 007 Invoice 005 Checks for gaps in the Invoice 006 sequence of pre- The sequence check and alerts Clerk of has identified that Invoice 006 has not been entered – we do not have completeness. Controls for the manipulation of data once it has been input. ◦ Batch control totals ◦ Record counts ◦ Sequence checks ◦ Run to run totals Which aims do they achieve? ◦ Reliable financial reporting Accuracy of data processing / updates Completeness of data processing / updates
- 14. SALES PERSON COMPUTER Sales Order Order Details Capturesales Calculate A/R check total Credit Update Accts Sales Receivable Compare totals The computer takes the daily credit sales data and updates the accounts receivable master balances. The new balance for the accounts receivable should equal the opening balance + credit sales
- 15. 30 They include: Financialcontrol total Hash total Record count
- 16. Judgement error Unexpected transaction Collusion Management override Weak internal controls Conflicting signals Validation of process results ◦ Activity listings Distribution and Use ◦ Who is able to access the outputs? ◦ Where are the outputs printed to? ◦ Has the relevant user got all of the output
- 17. Blair, Band Boyce, G, 2006 (Eds), Accounting Information Systems with Social and Organisational Perspectives, John Wiley, Milton Turner, L. & Weickgenannt, A. (2009) Accounting Information Systems: Controls and Processes, Wiley I wish to acknowledge Dr. Chadi Aoun’s input and material that were incorporated into the lecture slides as well as the supplementary material and sources provided by John Wiley publishers. Management incompetence External factors such as natural disasters Fraud Regulatory environment Information technology such as viruses, email attacks
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