Topic 7 - Accounting Information Systems Flashcards
What are the principles of accounting information systems?
- Cost effectiveness:
Cost versus benefits consideration. - Useful output:
Relevant, reliable, understandable, timely, comparable. - Flexibility:
Technological advances, increased competition, changing accounting principles, organisational growth, government regulation and de-regulation.
What are the four phases in developing an accounting system?
Analysis, Design, Implementation and Follow Up
Why must an accounting system have adequate controls?
- The assets of the business are safeguarded
- To ensure information provided by the system:
Is faithfully represented
Relevant
Timely
What is an internal control?
An essential part of risk management that consists of all the processes used by management and staff to:
- Provide efficient and effective operations and;
- Comply with laws, regulations and internal policies.
What are the two aspects of internal controls?
Administrative controls and accounting controls.
What are administrative controls?
They provide operational efficiency and adherence to policy and procedures
What are accounting controls?
They are the methods and procedures used to protect assets and ensure that transactions are recorded appropriately.
What does corporate governance represent?
Represents the framework of rules, relationships, systems and processes within which authority is exercised within the organisation:
- Internal audit is an element of good corporate governance that involves monitoring the effectiveness of internal controls.
What are the principles of internal control?
- Establishment of responsibility.
- Segregation of duties:
- Related activities.
- Accountability for assets. - Documentation procedures.
- Physical, mechanical and electronic controls.
- Independent internal verification.
Explain establishment of responsibility.
- Assigning specific duties to specific personnel (or positions)
- Assigning appropriate duties for the skill level of the staff members
Explain segregation of duties.
- Separation of operations from accounting
- Separation of the custody of assets from accounting
- Separation of the authorisation of transactions from the custody of related assets
- Separation of duties within the accounting function
Explain documentation procedures.
Documents should be pre-numbered and standardised (e.g. sales invoices)
Explain physical, mechanical and electronic controls.
Fireproof vaults, alarms, video surveillance
Explain independent internal verification.
Internal audit function and board audit committees
What are the limitations of internal control?
- cost versus benefits
- human imperfection
- business size.
What is forensic accounting?
- The application of accounting knowledge and analysis in the context of civil and criminal litigations and investigations.
- Proactive risk reduction strategies.
What are the three phases accounting information systems involve?
- Input
- Processing
- Output
What do accounting systems do?
Raw transactions are transformed into financial statements to provide information for decision making.
What internal control principles are applied in the sales and receivables cycle?
- Segregation of duties – different personnel are involved in the sales transaction to ensure independent verification at each step.
- Documentation procedure – signatures required at certain stages to identify responsible party.
What internal control principles are applied in the purchases and payments cycle?
Establishment of responsibility – appropriate level of skill and knowledge to assess inventory levels.
What are subsidiary ledgers?
Groups of accounts with a common characteristic. Details from subsidiary ledgers are summarised in the general ledger control account.
What are the two common subsidiary ledgers?
- Accounts Receivable (customers) which collects transaction data of individual customers.
- Accounts Payable (suppliers) which collects transaction data of individual creditors.
What are the advantages of subsidiary ledgers?
- Show transactions in a single account providing up to date information.
- Free the general ledger of excessive details.
- Provide effective control.
- Enable segregation of duties.
What are special journals?
Special journals are used to record similar types of transactions.
Examples: Sales Journal Cash Receipts Journal Purchases Journal Cash Payments Journal.
