Accounting Information Systems

What items are used to prepare a bank reconciliation?(5)(BRDCP)

1. Bank statement 2. Cash receipts journal 3. Cash disbursements journal 4. cash-in-bank general ledger account 5. prior months bank reconciliation

Materiality of risk

How significantly will risk affect the firm's financial statements What are the chances of this going wrong and how much might I lose

What are special journals used for?(5) (SCCPP)

They summarize similar, repetitive types of transactions -sales -cash receipts -purchases -cash disbursements -payroll Provide chronological listings and monthly summaries of the related transactions.

SOX Section 404

requires management to assess internal control effectiveness and auditor must attest and report on management evaluation of internal control

What does REA stand for

resources, events, agents

Responsibilities of management

- establishing and maintaining internal controls for financial reporting - reports must include assessments of the effectiveness of the internal controls and the financial reporting procedures. -risk assessment

Responsibilities of auditors

-provide quarterly certification of financial statements and attest to completeness and accuracy -disclose any material weakness in internal control

What are the red flags discussed in the videos

-financial pressures -personality changes -poor money management -living beyond means -outside business interests -poor internal control -rising business costs -too much trust in key employees -failure to pre-screen employees

4 examples of subsidiary ledgers

1. A/R 2. A/P 3. fixed asset 4. employee earnings

COSO framework (CRIME)(5 Components)

1. Control activities- policies in place to prevent error/fraud 2. Risk assessment- what internal and external risks might allow fraud/errors 3. Information and communication- financial statements and policy manuals 4. Monitoring- checking to see if everything is working as well as it should 5. control Environment- tone/culture of the organization

Limitations of Internal Control (3)

1. Errors: unintentional mistakes due to misunderstanding or carelessness 2. Fraud: intention; management override allows for controls to be avoided. 3. Collusion: people may work together

What are the five ITGC control areas

1. IT management 2. System development 3. Data security 4. Change management 5. Business continuity planning

COSO 3 Categories of Objectives

1. Operations: effectiveness and efficiency of operations (including operational performance, financial performance, safeguarding of assets) 2. Reporting: internal & external, financial & non-financial (including reliability, timeliness, transparency characteristics) 3. Compliance: follow applicable laws & regulations

3 types of controls

1. Preventive- controls focus on preventing an error 2. Detective- control focuses on identifying when an error occurred. 3. Corrective- controls focus on recovering from, repairing the damage from, or minimizing the cost of an error

Steps in the accounting process

1. Transactions Occur 2. Prepare Documents 3. Record in Journals 4. Post to Ledgers 5. Prepare Unadjusted General Ledger Trial Balance 6. Prepare and Post Adjusting Entries 7. Prepare Adjusted Trial Balance 8. Prepare Financial Statements 9. Prepare Closing Entries

3 audit issues for NOS controls as well as application software

1. User account settings- passwords, logon and logout settings, special consideration for sensitive users 2. Group account settings- do group members have accurate job responsibilities and are access permission updated when job responsibilities change? 3. Policies- companies should have a policy statement that may be compared with what the NOS actually enforces.

Which of these is an example of an economy risk?

A change in the financial market

Which of these is an example of an enterprise risk?

A merger with or acquisition of another enterprise

Internal controls

A system of interrelated components established by management and/or those charged with governance to mitigate the risk of loss while gaining the advantages afforded by risky or opportunistic activity a process, affected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

What identifies the functions each user is allowed to perform and specifies which data and programs the user can access after gaining access to the system?

Access control matrix

After WHAT are closing entries prepared

After all the transactions and adjusting entries are posted to the general ledgers

How are cash receipts controlled?

After receiving a check, it is restrictively endorsed and then entered on the cash receipts prelist.

Which of the following can best be described as a master file?

An accounts payable subsidiary ledger

What accounts need to be closed and when?

At the end of each year (annually) All revenue accounts to income summary All expense accounts to income summary The income summary to stock holders equity

Who does PCAOB AS#2201 require to evaluate the effectiveness of publicly traded companies' internal control over financial reporting?

Auditors

One difference between BPMN diagrams and flowcharts is:

BPMN diagrams may have multiple points of view, whereas flowcharts always have an internal point of view

In which processing method does processing occur after a group of transaction data is collected?

Batch

What does BPMN stand for

Business Process Modeling and Notation

SOX Section 302

CEO and CFO certify and take responsibility for accuracy of F/S and disclosure of materiality

What is a master file

Contain balances that are updated with event or activity data ex. customer, employee, inventory, fixed assets, supplier master files

What 3 factors interact to influence the likelihood of fraud and how do they interact?

Financial pressure Opportunity (due to low - weak - internal control) Integrity If financial pressure is high, opportunity is high, and integrity is low, fraud is very likely

In BPMN, the element that shows either a divergence control of branching or forking or a convergence control of merging and joining is a

Gateway

Each closing entry is posted individually to the _______ ______ account

General ledger

The right to be forgotten portion of the General Data Protection Regulation means what?

Individuals may request data controllers to erase their personal data, stop distributing data, and may have third parties stop processing their data

Which of these risks are associated primarily with recording, maintaining, and reporting information about resources, events, agents and relationships among them?

Information Process risks

Inputs/outputs for computer processes

Inputs: Single document, input device, disk storage, and magnetic tape storage Outputs: Single document, display ,disk storage, magnetic tape storage

In a system flowchart, which symbol should be used to represent a backup of the general ledger master file that can only be accessed sequentially?

Magnetic tape storage symbol

How do fraud perpetrators rationalize their acts?

Most fraud perpetrators rationalize it as a loan they intend to pay back.

What does NOS stand for?

Network Operating System

What is posted from the specialized journals to the general ledger?

Only the monthly totals for each account

In BPMN, the grouping tasks into areas of responsibility is done with

Pools and lanes

How are the financial statements prepared and what is the role of the general ledger?

Prepared directly from the income statement and balance sheet and must include a cash flow statement to summarize the transactions in the journals by account balances. Includes the net total of all the transactions since the inception of the company

What kind of control is bonding? (i.e. buying insurance to protect against theft by cash-handling employees)

Primarily corrective

Systems flowcharts combine these three simple graphical elements to represent various types of physical information flows and processes:

Symbols, flow lines, and areas of responsibility

What is the common subject of all twenty principles of the COSO ERM framework?

Risk

The control environment component of the COSO Internal Control Integrated framework is also called

Tone at the top

Flow of relationships among financial statements, trial balances, ledgers, journals, documents, and transactions (8)

Transactions -> documents -> journals ->* general ledger accounts -> unadjusted trial balance -> adjusting entries -> adjusted trial balance -> financial statements *Most of the time the journals move to subsidiary ledgers and THEN general ledger accounts

IT general controls (ITGC)

Used to ensure the proper development and implementation of applications and the integrity of program, data files, and of computer operations relates to the environment within which computer-based application systems are developed, maintained and operated, and that is therefore applicable to all applications.

when you show data entered into and retrieved from a computer file you need to also show _________ first.

a processing operation (a computer program)

In BPMN, which symbol represents an activity

a rectangle

The subsidiary ledger acts as.... and agrees in total to....

a support to the general ledger and agrees in total to the corresponding general ledger account

Batch processing

accumulates transaction data for a period of time to collect a batch of transaction data. Then all of the transactions in the transaction file are posted to the master file in one processing run.

How do you identify "exception" procedures in a flowchart

annotation symbol

What duties should be segregated in an effort to prevent fraud?

authorization, custody, recording

application controls can....

can mitigate risks of error and fraud by controlling what people can view, add, edit, and delete (included in the software programs that help to ensure that transactional data are authorized, complete and accurate)

What is a transaction file

contain activity data that are used to update balances on master files. ex.cash disbursements, receipts, payroll, etc.

Report-time processing

data needed to generate the requested report is processed as the report is created.

In the flowchart segment, the most likely action to take with the customer remittance advices once they've been keyed into the system, AND the corresponding symbol to replace oval A is

file them by customer number, triangle symbol

Closing entries are recorded initially in the ______ ______ and then the _____ ______

general JOURNAL general LEDGER

All transactions must be transferred and must be posted from the journals to the ________ ,periodically.

general ledger

In posting from journals to ledgers for accounts with subsidiary ledgers, it is necessary to post the same amounts to both the ______ and related ______

general ledger subsidiary ledgers

Types of application controls

input processing output

Inputs/Outputs of Manual Processes

inputs: single document, calculator/register tape outputs: the same as above + files for stored paper

_________ _______ is not an outcome, rather it is an ongoing commitment by management to take actions and ensure objectives are met

internal control

What is a bank reconciliation used for

its used to determine the reasons for the differences between the cash in the bank balance as stated on the bank statement and on the general ledger at a point in time. -can also be used to locate errors and fraud in the accounting records and bank errors.

The net amount transferred into the income summary account equals the __________ that the business incurred during the period.

net profit/ net loss

Single document symbol and explanation

paper documents and reports of all types

Segregation of duties

prohibits one employee from performing two or more of the following: authorizations, custody, recording, or reconciliations

Purpose of ITGC

provide foundation for reliance on information produced

Purpose of application controls

provide incremental reliance on information produced by a specific application

Which type of processing occurs during the course of a business event and provides immediate response to an information users' request

real-time processing

Computer processes

represent tasks that are done by computer systems that results in the modification of data and/or information

Manual Processes

represent the performance by a human of any processing function which causes a change in value, form, or location of information

When general ledger accounts have too much activity and detail to be efficiently used as one general ledger account, detail is usually kept in the _____

subsidiary ledger account

What does the general ledger do?

summarizes the transactions in journals by account balances.

What is collusion

the act of two or more employees acting together to conspire in a fraud

What are general journals used for?(3)

the initial recording of individual transactions -error corrections -adjusting entries -closing entries (non-repetitive transactions)

The purpose of task level modeling in the REA ontology is

to represent the specific workflow activities that combine to form events in a business process, and to document the flow of data through an enterprise

Where do you place document numbers of multiple copies of documents (flow chart)

top right-hand corner

What should the general flow of the flow chart look like?

top to bottom and left to right

Real-time processing

updates the master files as business activities occur, which requires data be entered into the system as the business activities occur. ex. using debt card, affects your account balance immediately

What is a sensitive user

•An account that has universal access to every part of the system •They hold the "keys to the kingdom"