Ensuring Accuracy and Integrity in Data Processing Systems

1. Electronic Data Processing Systems Chapter 6

2. Describe how application controls are used in data processing systems to ensure accuracy and integrity. Learning Objective 1

3. Paper-Based Input System In some computerized accounting systems, inputs to the system are based on handwritten or typed source documents. These documents are then collected and forwarded to computer operations for error checking and processing.

4. Preparation and Completionof the Source Document The source document, such as sales orders, are prepared manually. Errors can be minimized if the source document is well designed and easy to understand.

5. User’s departments Data processing Transfer of Source Documentsto Data Processing Batch control totals and data transfer registers controls data transfers.

6. Transfer of Source Documentsto Data Processing Input document control form: Document counts are a simple form of batch control. Batch totals may be taken for all or several numeric fields in the original data file. Data transfer log

7. Transfer of Source Documentsto Data Processing Data entry Key verification Visual verification Program data editing

8. Program Data Editing Techniques Data editing routines may be applied to each of the basic data structures. Character Fields Records Files

9. Program Data Editing Techniques What is a table lookup? It is an editing program that compares the value of a field to the acceptable values contained in a table file.

10. Program Data Editing Techniques Limit test Continuous operations auditing Check digit Valid code check

11. Paperless Input Systems In paperless input systems, sometimes called online input systems, transactions are input directly into the computer network. Problem: Possible loss of segregation of duties and audit trail.

12. Paperless Input Systems Source document Preparation Data entry Performed by the same person

13. Paperless Input Systems Transaction logs or transaction registers are created by logging all inputs to a special file that automatically contains tags to identify transactions.

14. Paperless Input Systems What is tagging? It means that additional, audit-oriented information is included with original transaction data.

15. Paperless Input Systems Examples of paperless input systems: Online manual data entry systems Automatic identification systems

16. Paperless Input Systems Transactions in paperless input systems involving human intervention typically proceed through two phases. 1. Data entry and data editing 2. Transfer to the host application system

17. Paperless Input Systems Completely Automated Transaction Processing: Networked vending machine (NVM) Electronic data interchange (EDI)

18. Characterize the various types of electronic systems used for processing. Learning Objectives 2 and 3 Describe the basic functions of a computerized accounting application.

19. Paper-Based Processing Systems Examples of Batch Processing: Weekly time reports to produce paychecks Groups of checks to update accounts payable master files Processing invoices to update an accounts receivable master file

20. Paper-Based Processing Systems Performing Batch Processing: Sequential file updating Random-access file updating

21. Batch Processing withSequential File Updating Steps: Preparing the transaction file Updating the master file Updating the general ledger Preparing general ledger reports

22. 1 2 Invoices Data terminal Process input 3 Transaction file Batch balance A Sequential File Processing

23. Rejected data Control report Control report 14 Reconcile 13 Control procedure Sequential File Processing 4 5 6 7 Transaction file Edit program Good data file Sort to master file sequence A

24. Control data 10 Master file update Old master 11 12 New master Transaction file Retain for backup 15 Sequential File Processing 8 9 Sorted transaction file Old master file

25. Father Old master file File update Next file update Grandfather Backup master file Son New master file Son–Father–GrandfatherMaster Files

26. Updating the General Ledger There are two major aspects to the operation of a computerized general ledger system. 1. The direct processing of the general ledger programs, most of which takes place on a monthly basis 2. The processing in other computer application systems to prepare the inputs to the general ledger system

27. Journal Voucher Number Month Year ID Accounts Debit Credit Received from: Journal Voucher Format

28. General Ledger File Update As they are released by the general ledger, journal vouchers are used to build a journal voucher file. This file is program data edited to check for the proper journal and account numbers and to determine whether the accounts are correctly associated with their related journals.

29. ...and returned to their originating sources for correction and reentry. General Ledger File Update Invalid data are reported as exceptions...

30. General Ledger File Update The current journal voucher transactions are processed against the previous month’s general ledger master file. The master file is updated and the current period’s general ledger register is produced.

31. Preliminary reports are produced. Step 1 It is a run that produces the final listings and financial schedules. Step 2 General Ledger File Update Computer processing of accounting data is typically a two-step procedure. What are these steps?

32. General Ledger File Update Preparing reports requires a link between the general ledger accounts and the report (s) in which they appear. Line Coding

33. 100601 0 100 03 2 Type of report (e.g., financial) Line location on report Account number (e.g., marketable securities) Report number (e.g., balance sheet) Column location on report Example of a Line Code

34. Batch Processing withRandom-Access File Updating In many systems, indexes are maintained for both the subsidiary and general ledger files. Maintaining these indexes allows users to quickly access a particular account. Random-access file updating is simpler than sequential-access updating.

35. Batch Processing withRandom-Access File Updating The following steps are used: 1. A record is read from the transaction file. 2. The key value of the transaction record is used to randomly access the related record in the master file. 3. The record in the master file is updated in memory and then rewritten back to the data file.

36. Open item accounts receivable Billing data File control summary A Control file File update Review and approve Cash Receipts Application New Invoice Application (Daily)

37. Deposit report C D Control file Activity file Bank summary file Reconcile Bank statement System balancing B (Monthly) Cash Receipts Application System Balancing (Daily)

38. Post office Check remittances Cash receipts total A D Check endorsement Deposit slip Open item accounts receivable Activity file Data entry C B Cash Receipts Application Cash Remittance Processing (Daily)

39. D Deposit register Bank summary file D Cash summary report Review and sign Cash summary report D Cash Receipts Application Cash Remittance Processing (Daily) Data entry Reconcile

40. Paperless Processing Systems Batch processing Real-time or online real-time processing

41. Paperless Processing Systems The main difference between paperless and paper-based batch processing systems is that journal vouchers are replaced by their electronic equivalents, and the general ledger is updated automatically in period batch runs.

42. Paperless Processing Systems A primary advantage of paperless systems is that they make possible real-time processing. The processing of individual transactions as opposed to groups of transactions is called immediate, direct, or real-time processing.

43. Paperless Processing Systems Online, real-time systems (OLRS) process transactions immediately after they are input. These systems can provide immediate output to users. What are some types of real-time processing in OLRS?

44. Paperless Processing Systems Inquiry/response systems Data entry systems File processing systems Full processing systems (transaction processing systems)

45. Paperless Processing Systems Relative disadvantages of OLRS are: • increased costs and complexity of systems operations • sensitivity to hardware and software errors • they are more susceptible to processing errors that arise from erroneous or fraudulent inputs.

46. Real-Time Sales System These systems utilize contemporary information technology to maximize system performance. POS (Point-of-Sale) system Bar coding for automatic identification EDI (Electronic Data Interchange) ordering system

47. Sales Inventory Accounts receivable General ledger Sales slips Customer input via Web browser POS terminals Reports Internet Other terminals Reports Real-Time Point-of-Sale System Processor

48. Vendor EDI Retailer send customer electronic catalog > forecast customer’s sales order receive and translate incoming order < Transaction Processing inReal-Time Sales Systems

49. send order to inventory or production transmit advance shipping notice > ship goods Transaction Processing inReal-Time Sales Systems Vendor EDI Retailer send acknowledgement >

50. The Output System The output system can be paper-based, paperless, or something in between. Most paper-based, batch-oriented systems with sequential file processing produce very large volumes of output. Online, real-time paperless systems tend to produce very little output.