Chapter 10 THE ACQUISITION CYCLE— PURCHASE INVOICES AND PAYMENTS

Overview of the Process for Recording Invoices and Making Payments Documenting the process for recording invoices and making payments: Identification of Events Record supplier invoice Select invoices for payment Approve payment Prepare checks Sign checks Complete payment

Overview of the Process for Recording Invoices and Making Payments Documenting the process for recording invoices and making payments: Annotated narrative and workflow table Overview and detailed activity diagrams

Overview of the Process for Recording Invoices and Making Payments Documenting the data design: Events and tables used Data design

Overview of the Process for Recording Invoices and Making Payments Risks and controls in recording invoices and making payments: Execution risks Unauthorized payment Cash not paid or paid late Wrong amount paid Wrong supplier paid

Overview of the Process for Recording Invoices and Making Payments Risks and controls in recording invoices and making payments: Information system risks - Recording risks: Recorded an event that never occurred Event not recorded, recorded late, or unintended duplication of recording Event data item not recorded correctly

Overview of the Process for Recording Invoices and Making Payments Risks and controls in recording invoices and making payments: Information system risks - Recording risks: Wrong type of product or service recorded Wrong quantity or price recorded Wrong external or internal agent recorded Wrong recording of other data items that are stored in event records

Overview of the Process for Recording Invoices and Making Payments Risks and controls in recording invoices and making payments: Information system risks - Update risks: Update of master record omitted or unintended duplication of update Update of master record occurred at the wrong time Summary field updated by wrong amount Wrong master record updated

Overview of the Process for Recording Invoices and Making Payments Risks and controls in recording invoices and making payments: Controls: Workflow controls Segregation of duties Use of information from prior events to control activities Required sequence of events Follow-up on events

Overview of the Process for Recording Invoices and Making Payments Risks and controls in recording invoices and making payments: Controls: Workflow controls Sequence of prenumbered documents Recording of internal agent(s) accountable for an event in a process Limitation of access to assets and information Reconciliation of records with physical evidence of assets

Overview of the Process for Recording Invoices and Making Payments Risks and controls in recording invoices and making payments: Controls: Input controls Drop-down or look-up menus Record checking of data entered Confirmation of data entered Referential integrity controls Format checks to limit data

Risks and controls in recording invoices and making payments: Controls: Input controls Validation rules to limit the data Defaults from data entered in prior sessions Restriction against leaving a field blank Field established as a primary key Overview of the Process for Recording Invoices and Making Payments

Risks and controls in recording invoices and making payments: Controls: Input controls Computer-generated values entered in records Batch control totals taken before data entry compared to printouts after data entry Review for errors before posting Exception reports

Using Accounting Applications for Recording Invoices and Making Payments Record purchase invoice: Process Step 1: Accumulate a batch of invoices Step 2: Enter each invoice Step 3: Print an edit report Step 4: Review report and make corrections Step 5: Post the batch

Using Accounting Applications for Recording Invoices and Making Payments Record purchase invoice: Risks and controls Recorded an event that never occurred Vendor invoice is not recorded, recorded late, or recorded twice Invoice data item is not accurate Invoice recording and execution risks

Using Accounting Applications for Recording Invoices and Making Payments Select invoices for payment: Process Step 1: Print an open payables report Step 2: Select invoices for payment Step 3: Print a cash requirements report Execution risks

Using Accounting Applications for Recording Invoices and Making Payments Prepare checks: Controlling risks Segregation of duties Required sequence of events Limitation of access to assets and information Sequence of prenumbered documents Positive pay system Efficiency

Using Accounting Applications for Recording Invoices and Making Payments Complete payment process—signing and mailing checks End of period activities: Print accounts payable ledger Purge records

K E Y T E R M S Accounts payable ledger Audit trail Bank reconciliation Cash payments journal Cash requirements report Journal Open payables report Purchase invoice Purchases journal