§ Chapter 2 Introduction to Transaction Processing

A Financial Transaction
- an economic event that affects the assets and equities of the firm, is reflected in its accounts,
and is measured in monetary terms.
Similar types of transactions are grouped together into three transaction cycles:
§ the expenditure cycle
§ the conversion cycle
§ the revenue cycle
Each Cycle has Two Primary Subsystems:
Expenditure Cycle: time lag between the two due to credit relations with suppliers:
physical component (acquisition of goods)
financial component (cash disbursements to the supplier)
Conversion Cycle:
the production system (planning, scheduling, and control of the physical
product through the manufacturing process)
the cost accounting system (monitors the flow of cost information related to
production)
Revenue Cycle: time lag between the two due to credit relations with customers :
physical component (sales order processing)
financial component (cash receipts)

Manual System Accounting Records

Source Documents - used to capture and formalize transaction data needed for
transaction processing
Product Documents - the result of transaction processing
Turnaround Documents - a product document of one system that becomes a source
document for another system
Journals - a record of chronological entry
special journals - specific classes of transactions that occur in high frequency
general journal - nonrecurring, infrequent, and dissimilar transactions
Ledger - a book of financial accounts
general ledger - shows activity for each account listed on the chart of accounts
subsidiary ledger - shows activity by detail for each account type

Computer-Based Systems
The audit trail is less observable in computer-based systems than traditional manual systems.
The data entry and computer programs are the physical trail.
The data are stored in magnetic files.
Computer Files
§ Master File - generally contains account data (e.g., general ledger and subsidiary file)
§ Transaction File - a temporary file containing transactions since the last update
§ Reference File - contains relatively constant information used in processing (e.g., tax
tables, customer addresses)
§ Archive File - contains past transactions for reference purposes

Documentation Techniques
Documentation in a CB environment is necessary for many reasons.
Five common documentation techniques:
 § Entity Relationship Diagram
§ Data Flow Diagrams
§ Document Flowcharts
§ System Flowcharts
§ Program Flowcharts

Entity Relationship Diagram (ERD)

- A documentation technique to represent the relationship between entities in a system.
- The REA model version of ERD is widely used in AIS. REA uses 3 types of entities:
§ resources (cash, raw materials)
§ events (release of raw materials into the production process)
§ agents (inventory control clerk, vendor, production worker)
Cardinalities
- Represent the numerical mapping between entities:
§ one-to-one
§ one-to-many
§ many-to-many
Data Flow Diagrams (DFD
- use symbols to represent the processes, data sources, data flows, and entities in a system
- represent the logical elements of the system
- do not represent the physical system
System Flowcharts
- illustrate the relationship among processes and the documents that flow between them
- contain more details than data flow diagrams
-clearly depict the separation of functions in a system
System Flowcharts…
- are used to represent the relationship between the key elements--input sources, programs, and
output products--of computer systems
- depict the type of media being used (paper, magnetic tape, magnetic disks, and terminals)
- in practice, not much difference between document and system flowcharts

Modern Systems versus Legacy Systems

Modern systems characteristics:
§ client-server based and process transactions in real time
§ use relational database tables
§ have high degree of process integration and data sharing
§ some are mainframe based and use batch processing
Some firms employ legacy systems for certain aspects of their data processing.
§ Accountants need to understand legacy systems.
Legacy systems characteristics:
§ mainframe-based applications
§ batch oriented
§ early legacy systems use flat files for data storage
§ later legacy systems use hierarchical and network databases
§ data storage systems promote a single-user environment that discourages information
integration

Database Backup Procedures

- Destructive updates leave no backup.
- To preserve adequate records, backup procedures must be implemented
 - The master file being updated is copied as a backup.
- A recovery program uses the backup to create a pre-update version of the master file.

Computer-Based Accounting Systems

Two broad classes of systems:
§ batch systems
§ real-time systems

Batch Processing
- A batch is a group of similar transactions that are accumulated over time and then processed
together.
- The transactions must be independent of one another during the time period over which the
transactions are accumulated in order for batch processing to be appropriate.
- A time lag exists between the event and the processing.
Steps in Batch Processing/Sequential File
§ Keystroke - source documents are transcribed by clerks to magnetic tape for processing later
§ Edit Run - identifies clerical errors in the batch and places them into an error file
§ Sort Run - places the transaction file in the same order as the master file using a primary key
§ Update Run - changes the value of appropriate fields in the master file to reflect the transaction
§ Backup Procedure - the original master continues to exist, and a new master file is created

Advantages of Batch Processing

- Organizations can increase efficiency by grouping large numbers of transactions into batches
rather than processing each event separately.
- Batch processing provides control over the transaction process via control figures.

Real-Time System
- process transactions individually at the moment the economic event occurs
- have no time lag between the economic event and the processing
- generally require greater resources than batch processing since they require dedicated
processing capacity; however, these cost differentials are decreasing
- oftentimes have longer systems development time

Why Do So Many AIS Use Batch Processing?

§ AIS processing is characterized by high-volume, independent transactions, such are recording
cash receipts checks received in the mail.
§ The processing of such high-volume checks can be done during an off-peak computer time.
§ This is one reason why batch processing maybe done using real-time data collection.

Uses of Coding in AIS

§ Concisely represent large amounts of complex information that would otherwise be
unmanageable
§ Provide a means of accountability over the completeness of the transactions processed
§ Identify unique transactions and accounts within a file
§ Support the audit function by providing an effective audit trail

Sequential Codes
§ Represent items in sequential order
§ Used to prenumber source documents
§ Track each transaction processed
 § Identify any out-of-sequence documents
Disadvantages:
§ arbitrary information
§ hard to make changes and insertions
Block Codes
§ Represent whole classes by assigning each class a specific range within the coding
scheme
§ Used for chart of accounts
§ The basis of the general ledger
§ Allows for the easy insertion of new codes within a block
§ Don’t have to reorganize the coding structure
Disadvantage:
§ arbitrary information
Group Codes
§ Represent complex items or events involving two or more pieces of data using fields with
specific meaning
§ For example, a coding scheme for tracking sales might be 04-09-476214-99
Alphabetic Codes
§ Used for many of the same purposes as numeric codes
§ Can be assigned sequentially or used in block and group coding techniques
§ May be used to represent large numbers of items
§ Can represents up to 26 variations per field
Disadvantage:
§ arbitrary information
Mnemonic Codes
§ Alphabetic characters used as abbreviations, acronyms, and other types of combinations
§ Do not require users to memorize the meaning since the code itself is informative – and
not arbitrary
§ NY = New York
Disadvantages:
§ limited usability and availability

§ Chapter 3
Ethics, Fraud, and Internal Control
§ Objectives for Chapter 3
§ Broad issues pertaining to business ethics
§ Ethical issues related to the use of information technology
§ Distinguish between management fraud and employee fraud
§ Common types of fraud schemes
§ Key features of SAS 78 / COSO internal control framework
§ Objects and application of physical controls
§ Business Ethics
 Why should we be concerned about ethics in the business world?
§ Ethics are needed when conflicts arise—the need to choose
§ In business, conflicts may arise between:
§ employees
§ management
§ stakeholders
§ Litigation
Business ethics involves finding the answers to two questions:
§ How do managers decide on what is right in conducting their business?
§ Once managers have recognized what is right, how do they achieve it?\

Four Main Areas of Business Ethics

Computer Ethics
- concerns the social impact of computer technology (hardware, software, and
telecommunications).
What are the main computer ethics issues?
§ Privacy
§ Security—accuracy and confidentiality
§ Ownership of property
§ Equity in access
§ Environmental issues
§ Artificial intelligence
§ Unemployment and displacement
§ Misuse of computer

Legal Definition of Fraud

§ False representation - false statement or disclosure
§ Material fact - a fact must be substantial in inducing someone to act
§ Intent to deceive must exist
§ The misrepresentation must have resulted in justifiable reliance upon information, which
caused someone to act
§ The misrepresentation must have caused injury or loss
2008 ACFE Study of Fraud
§ Loss due to fraud equal to 7% of revenues—approximately $994 billion
§ Loss by position within the company:
Position % of Frauds Loss $
Owner/Executive 23% $834,000
Manager 37% 150,000
Employee 40% 70,000

§ Other results: higher losses due to men, employees acting in collusion, and employees with
advance degrees

Enron, WorldCom, Adelphia Underlying Problems

§ Lack of Auditor Independence: auditing firms also engaged by their clients to perform
nonaccounting activities
§ Lack of Director Independence: directors who also serve on the boards of other companies,
have a business trading relationship, have a financial relationship as stockholders or have
received personal loans, or have an operational relationship as employees
§ Questionable Executive Compensation Schemes: short-term stock options as compensation
result in short-term strategies aimed at driving up stock prices at the expense of the firm’s
long-term health
§ Inappropriate Accounting Practices: a characteristic common to many financial statement
fraud schemes
§ Enron made elaborate use of special purpose entities.
§ WorldCom transferred transmission line costs from current expense
accounts to capital accounts.
Sarbanes-Oxley Act of 2002
Its principal reforms pertain to:
§ Creation of the Public Company Accounting Oversight Board (PCAOB)
§ Auditor independence—more separation between a firm’s attestation and
non-auditing activities
§ Corporate governance and responsibility—audit committee members must
be independent and the audit committee must oversee the external auditors
§ Disclosure requirements—increase issuer and management disclosure
§ New federal crimes for the destruction of or tampering with documents,
securities fraud, and actions against whistleblowers
§
Employee Fraud
§ Committed by non-management personnel
§ Usually consists of: an employee taking cash or other assets for personal gain by
circumventing a company’s system of internal controls
Management Fraud
§ Perpetrated at levels of management above the one to which internal control structure
relates
§ Frequently involves using financial statements to create an illusion that an entity is
healthier and more prosperous than it actually is
§ Involves misappropriation of assets, it frequently is shrouded in a maze of complex
business transactions

Fraud Schemes
Three categories of fraud schemes according to the Association of Certified Fraud Examiners:
A. fraudulent statements B. corruption C. asset misappropriation
A. Fraudulent Statements
§ Misstating the financial statements to make the copy appear better than it is
§ Usually occurs as management fraud
§ May be tied to focus on short-term financial measures for success
§ May also be related to management bonus packages being tied to financial statements
B. Corruption
§ Examples:
§ bribery
§ illegal gratuities
§ conflicts of interest
§ economic extortion
§ Foreign Corrupt Practice Act of 1977:
§ indicative of corruption in business world
§ impacted accounting by requiring accurate records and internal controls
C. Asset Misappropriation
§ Most common type of fraud and often occurs as employee fraud
§ Examples:
§ making charges to expense accounts to cover theft of asset (especially cash)
§ lapping using customer’s check from one account to cover theft from a
different account
§ transaction fraud: deleting, altering, or adding false transactions to steal
assets
Internal Control Objectives According to AICPA SAS
1. Safeguard assets of the firm
2. Ensure accuracy and reliability of accounting records and information
3. Promote efficiency of the firm’s operations
4. Measure compliance with management’s prescribed policies and procedures

Modifying Assumptions to the Internal Control Objectives

§ Management Responsibility
- The establishment and maintenance of a system of internal control is the responsibility of
management.
§ Reasonable Assurance
- The cost of achieving the objectives of internal control should not outweigh its benefits.
§ Methods of Data Processing
- The techniques of achieving the objectives will vary with different types of technology.

Limitations of Internal Controls

§ Possibility of honest errors
§ Circumvention via collusion
§ Management override
§ Changing conditions--especially in companies with high growth

Exposures of Weak Internal Controls (Risk)

§ Destruction of an asset
§ Theft of an asset
 § Corruption of information
§ Disruption of the information system

The Internal Controls Shield

Preventive, Detective, and Corrective Controls

SAS 78 / COSO
Describes the relationship between the firm’s…
§ internal control structure,
§ auditor’s assessment of risk, and
§ the planning of audit procedures
How do these three interrelate?
- The weaker the internal control structure, the higher the assessed level of risk; the higher the risk, the
more auditor procedures applied in the audit.

Five Internal Control Components: SAS 78 / COSO

1. The Control Environment
§ Integrity and ethics of management
§ Organizational structure
§ Role of the board of directors and the audit committee
§ Management’s policies and philosophy
§ Delegation of responsibility and authority
§ Performance evaluation measures
§ External influences—regulatory agencies
§ Policies and practices managing human resources

2. Risk Assessment
§ Identify, analyze and manage risks relevant to financial reporting:
§ changes in external environment
§ risky foreign markets
§ significant and rapid growth that strain internal controls
§ new product lines
§ restructuring, downsizing
§ changes in accounting policies
3. Information and Communication
§ The AIS should produce high quality information which:
§ identifies and records all valid transactions
§ provides timely information in appropriate detail to permit proper
classification and financial reporting
§ accurately measures the financial value of transactions
§ accurately records transactions in the time period in which they occurred
§ Auditors must obtain sufficient knowledge of the IS to understand:
§ the classes of transactions that are material
• how these transactions are initiated [input]
• the associated accounting records and accounts used in
processing [input]
§ the transaction processing steps involved from the initiation of a transaction
to its inclusion in the financial statements [process]
§ the financial reporting process used to compile financial statements,
disclosures, and estimates [output]
4. Monitoring
- The process for assessing the quality of internal control design and operation
[This is feedback in the general AIS model.]
§ Separate procedures—test of controls by internal auditors
§ Ongoing monitoring:
§ computer modules integrated into routine operations
§ management reports which highlight trends and exceptions from normal
performance
 5. Control Activities
§ Policies and procedures to ensure that the appropriate actions are taken in response to
identified risks
§ Fall into two distinct categories:
§ IT controls—relate specifically to the computer environment
§ Physical controls—primarily pertain to human activities
Two Types of IT Controls
§ General controls—pertain to the entitywide computer environment
§ Examples: controls over the data center, organization databases, systems
development, and program maintenance
§ Application controls—ensure the integrity of specific systems
§ Examples: controls over sales order processing, accounts payable, and
payroll applications
Six Types of Physical Controls
§ Transaction Authorization
§ Segregation of Duties
§ Supervision
§ Accounting Records
§ Access Control
§ Independent Verification
1. Transaction Authorization
§ used to ensure that employees are carrying out only authorized transactions
§ general (everyday procedures) or specific (non-routine transactions) authorizations
2. Segregation of Duties
§ In manual systems, separation between:
§ authorizing and processing a transaction
§ custody and recordkeeping of the asset
§ subtasks
§ In computerized systems, separation between:
§ program coding
§ program processing
§ program maintenance
§ Physical Controls
3. Supervision
§ a compensation for lack of segregation; some may be built into computer systems
4. Accounting Records
§ provide an audit trail
5. Access Controls
§ help to safeguard assets by restricting physical access to them
6. Independent Verification
§ reviewing batch totals or reconciling subsidiary accounts with control accounts

Physical Controls in IT Contexts

Transaction Authorization
§ The rules are often embedded within computer programs.
§ EDI/JIT: automated re-ordering of inventory without human intervention
Segregation of Duties
§ A computer program may perform many tasks that are deemed incompatible.
§ Thus the crucial need to separate program development, program operations, and program
maintenance.
Supervision
§ The ability to assess competent employees becomes more challenging due to the greater
technical knowledge required.
Accounting Records
§ ledger accounts and sometimes source documents are kept magnetically
§ no audit trail is readily apparent
Access Control
§ Data consolidation exposes the organization to computer fraud and excessive losses from
disaster.
Independent Verification
§ When tasks are performed by the computer rather than manually, the need for an
independent check is not necessary.
§ However, the programs themselves are checked.

Chapter 4: The Revenue Cycle

§ Objectives for Chapter 4
§ Tasks performed in the revenue cycle, regardless of the technology used
§ Functional departments in the revenue cycle and the flow of revenue transactions through the
organization
§ Documents, journals, and accounts needed for audit trails, records, decision making, and
financial reporting
§ Risks associated with the revenue cycle and the controls that reduce these risks
§ The operational and control implications of technology used to automate and reengineer the
revenue cycle
Revenue cycle subsystem
1. Sales order
2. Credit/customer service
3. Shipping
4. Billing/accounts receivables
5. Cash receipts/collections
6.
Journal Vouchers/Entries
How do we get them?
§ Billing Department prepares a journal voucher:
Accounts Receivable DR
Sales CR
§ Inventory Control Dept. prepares a journal voucher:
Cost of Goods Sold DR
Inventory CR
§ Cash Receipts prepares a journal voucher:
Cash DR
Accounts Receivable CR
Revenue Cycle Databases
§ Master files
§ customer master file
§ accounts receivable master file
§ merchandise inventory master file
§ Transaction and Open Document Files
§ sales order transaction file
• open sales order transaction file
§ sales invoice transaction file
§ cash receipts transaction file
• Other Files
– shipping and price data reference file
– credit reference file (may not be needed)
– salesperson file (may be a master file)
– Sales history file
– cash receipts history file
– accounts receivable reports file

Sales Order Processing

§ Begins with a customer placing an order
§ The sales department captures the essential details on a sales order form.
§ The transaction is authorized by obtaining credit approval by the credit department.
§ Sales information is released to:
§ Billing
§ Warehouse (stock release or picking ticket)
§ Shipping (packing slip and shipping notice)
§ The merchandise is picked from the Warehouse and sent to Shipping.
§ Stock records are adjusted.
§ The merchandise, packing slip, and bill of lading are prepared by Shipping and sent to the
customer.
§ Shipping reconciles the merchandise received from the Warehouse with the
sales information on the packing slip.
§ Shipping information is sent to Billing. Billing compiles and reconciles the relevant facts
and issues an invoice to the customer and updates the sales journal. Information is
transferred to:
§ Accounts Receivable (A/R)
§ Inventory Control
§ A/R records the information in the customer’s account in the accounts receivable subsidiary
ledger.
§ Inventory Control adjusts the inventory subsidiary ledger.
§ Billing, A/R, and Inventory Control submits summary information to the General Ledger
dept., which then reconciles this data and posts to the control accounts in the G/L.

Sales Return Journal Entry

G/L posts the following to control accounts:
Inventory—Control DR

Sales Returns and Allowances DR

Cost of Goods Sold CR

Accounts Receivable—Control CR

Cash Receipts Processes

§ Customer checks and remittance advices are received in the Mail Room.
 § A mail room clerk prepares a cash prelist and sends the prelist and the
checks to Cash Receipts.
§ The cash prelist is also sent to A/R and the Controller.
§ Cash Receipts:
§ verifies the accuracy and completeness of the checks
§ updates the cash receipts journal
§ prepares a deposit slip
§ prepares a journal voucher to send to G/L
§ A/R posts from the remittance advices to the accounts receivable subsidiary ledger.
§ Periodically, a summary of the postings is sent to G/L.
§ G/L department:
§ reconciles the journal voucher from Cash Receipts with the summaries from
A/R
§ updates the general ledger control accounts
The Controller reconciles the bank accounts.

Summary of internal controls

Authorization Controls
§ Proper authorization of transactions (documentation) should occur so that only valid
transactions get processed.
§ Within the revenue cycle, authorization should take place when:
§ a sale is made on credit (authorization)
§ a cash refund is requested (authorization)
§ posting a cash payment received to a customer’s account (cash pre-list)
Segregation of Functions
Three Rules
1. Transaction authorization should be separate from transaction processing.
 2. Asset custody should be separate from asset record-keeping.
3. The organization should be so structured that the perpetration of a fraud requires
collusion between two or more individuals.
§ Sales Order Processing
§ credit authorization separate from SO processing
§ inventory control separate from warehouse
§ accounts receivable sub-ledger separate from general ledger control account
§ Cash Receipts Processing
§ cash receipts separate from accounting records
§ accounts receivable sub-ledger separate from general ledger
Supervision
§ Often used when unable to enact appropriate segregation of duties.
§ Supervision of employees serves as a deterrent to dishonest acts and is particularly
important in the mailroom.
Accounting Records
§ With a properly maintained audit trail, it is possible to track transactions through the
systems and to find where and when errors were made:
§ pre-numbered source documents
§ special journals
§ subsidiary ledgers
§ general ledger
§ files
Access Controls
§ Access to assets and information (accounting records) should be limited.
§ Within the revenue cycle, the assets to protect are cash and inventories and access to
records such as the accounts receivable subsidiary ledger and cash journal should be
restricted.
Independent Verification
§ Physical procedures as well as record-keeping should be independently reviewed at various
points in the system to check for accuracy and completeness:
§ shipping verifies the goods sent from the warehouse are correct in type and
quantity
§ warehouse reconciles the stock release document (picking slip) and packing
slip
§ billing reconciles the shipping notice with the sales invoice
§ general ledger reconciles journal vouchers from billing, inventory control,
cash receipts, and accounts receivable

Automating the Revenue Cycle

§ Authorizations and data access can be performed through computer screens.
§ There is a decrease in the amount of paper.
§ The manual journals and ledgers are changed to disk or tape transaction and master files.
§ Input is still typically from a hard copy document and goes through one or more
computerized processes.
§ Processes store data in electronic files (the tape or disk) or prepare data in the form of a
hardcopy report.
§ Revenue cycle programs can include:
§ formatted screens for collecting data
§ edit checks on the data entered
§ instructions for processing and storing the data
§ security procedures (passwords or user IDs)
§ steps for generating and displaying output
 § To understand files, you must consider the record design and layout.
§ The documents and the files used as input sources must contain the data necessary to
generate the output reports.

Computer-Based Accounting Systems

§ CBAS technology can be viewed as a continuum with two extremes:
§ automation - use technology to improve efficiency and effectiveness
§ reengineering – use technology to restructure business processes and
firm organization
Reengineering Sales Order Processing Using Real-Time Technology
§ Manual procedures and physical documents are replaced by interactive computer terminals.
§ Real time input and output occurs, with some master files still being updated using batches.
§ Real-time - entry of customer order, printout of stock release, packing slip
and bill of lading; update of credit file, inventory file, and open sales orders
file
§ Batch - printout of invoice, update of closed sales order (journal), accounts
receivable and general ledger control account
Advantages of Real-Time Processing
§ Shortens the cash cycle of the firm by reducing the time between the order date and billing
date
§ Better inventory management which can lead to a competitive advantage
§ Fewer clerical errors, reducing incorrect items being shipped and bill discrepancies
§ Reduces the amount of expensive paper documents and their storage costs
Reengineered Cash Receipts
§ The mail room is a frequent target for reengineering.

§ Companies send their customers preprinted envelopes and remittance advices.

§ Upon receipt, these envelopes are scanned to provides a control procedure against theft.
§ Machines are open the envelopes, scan remittance advices and checks, and separate the
checks.
§ Artificial intelligence may be used to read handwriting, such as remittance amounts and
signatures.
Point-of-Sale Systems
§ Point of sale systems are used extensively in retail establishments.
§ Customers pick the inventory from the shelves and take them to a cashier.
§ The clerk scans the universal product code (UPC). The POS system is connected to an
inventory file, where the price and description are retrieved.
§ The inventory levels are updated and reorder needs can immediately be
detected.
§ The system computes the amount due. Payment is either cash, check, ATM or credit card
in most cases.
§ No accounts receivables
§ If checks, ATM or credit cards are used, an on-line link to receive approval is necessary.
§ At the end of the day or 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 and under must be recorded

Reengineering Using EDI

§ EDI helps to expedite transactions.
§ The customer’s computer:
§ determines that inventory is needed
§ selects a supplier with whom the business has a formal business agreement
§ dials the supplier’s computer and places the order
 § The exchange is completely automated.
§ No human intervention or management

Reengineering Using the Internet

§ Typically, no formal business agreements exist as they do in EDI.
§ Most orders are made with credit cards.
§ Mainly done with e-mail systems, and thus a turnaround time is necessary
§ Intelligent agents are needed to eliminate this time lag.
§ Security and control over data is a concern with Internet transactions.

CBAS Control Considerations

§ Authorization - in real-time systems, authorizations are automated
§ Programmed decision rules must be closely monitored.
§ Segregation of Functions - consolidation of tasks by the computer is common
§ Protect the computer programs
§ Coding, processing, and maintenance should be separated.
§ Supervision - in POS systems, the cash register’s internal tape or database is an added form
of supervision
§ Access Control - magnetic records are vulnerable to both authorized and unauthorized
exposure and should be protected
§ Must have limited file accessibility
§ Must safeguard and monitor computer programs
§ Accounting Records - rest on reliability and security of stored digitalized data
§ Accountants should be skeptical about the accuracy of hard-copy printouts.
§ Backups - the system needs to ensure that backups of all files are
continuously kept
§ Independent Verification – consolidating accounting tasks under one computer program
can remove traditional independent verification controls. To counter this problem:
§ perform batch control balancing after each run
§ produce management reports and summaries for end users to review

PC-Based Accounting Systems

§ Used by small firms and some large, decentralized firms
§ Allow one or few individuals to perform entire accounting function
§ Most systems are divided into modules controlled by a menu-driven program:
§ general ledger
§ inventory control
§ payroll
§ cash disbursements
§ purchases and accounts payable
§ cash receipts
§ sales order
PC Control Issues
§ Segregation of Duties - tend to be inadequate and should be compensated for with
increased supervision, detailed management reports, and frequent independent verification
§ Access Control - access controls to the data stored on the computer tends to be weak;
methods such as encryption and disk locking devices should be used
§ Accounting Records - computer disk failures cause data losses; external backup methods
need to be implemented to allow data recovery