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Learning Objectives

Learning Objectives. Review a typical purchasing cycle of transactions while observing how a highly integrated ERP system (SAP) handles them Observe the integration between the materials management (MM) module and financial accounting (FI) module

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Learning Objectives

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  1. Learning Objectives • Review a typical purchasing cycle of transactions while observing how a highly integrated ERP system (SAP) handles them • Observe the integration between the materials management (MM) module and financial accounting (FI) module • Work through a test of transactions (similar to part of an auditors’) • Investigate various types of application controls in an ERP system • Learn how a suspense account (the Goods Received/ Invoice Received account) is used Accounting Information Systems

  2. Purchasing Cycle Purchase Requisition Check Budget Availability Issue Payment (AP zeroed) Purchasing Exp & Funds Mgmt Materials Mgmt Accounts Payable Select Vendor(s) Cash Availability Verified Purchase Order Invoice Verified & Processed Goods Receipt (creates accrued liability) Accounting Information Systems Idea for Chart taken from Univ. of Toronto

  3. Professions, Purchasing, and SAP • Budgeting and Cash Flow Projections • Daily Cash Flow Decisions • General Ledger Account Review • Oversight of Accounts Payable • Inventory levels adequate • Product Quality • Survey of Controls – including IT • Tests of Controls • Tests of Transactions • Tests of Account Balances • Process Invoices • Payment Priorities Accounting Information Systems

  4. Test of Transactions • A test of transactions is an audit procedure used for compliance testing • A normal business transaction is followed through all of the steps in the business process, including: • The ERP system • Checking for unusual vendors and unusual amounts • Verifying sequential control is maintained • Attempting to input invalid vendor numbers • Year end period timing, including suspense account review • Proper approvals • Adequate supporting documentation • For each step in the transaction, the auditor checks all affected accounts to verify the transaction is processed properly: inventory levels and GL accounts Accounting Information Systems

  5. Review of Application Controls • There are two categories of controls dealing with computerized environments: • Application Controls – Controls programed into the computer applications • General controls – Controls that are not application controls (i.e. All other controls) • Following is a list of application controls: • Field check • Sign check • Limit check • Range check • Size (or capacity) check • Completeness check • Validity check • Reasonableness test • The assignment asks you to classify specific application controls in SAP Accounting Information Systems

  6. Suspense Accounts • Suspense Accounts provide for timing differences in the real world • In academia, goods and invoices arrive at the same time, making one entry to Inventory and AP possible, however this does not happen in business • In a real time system, if you delay recording the inventory received until the invoice is received, inventory (and accrued liabilities) will be misstated • So a suspense account entry is made to “hold“ the transaction until the rest of the transaction‘s data can be resolved • If the goods are received first, then the entry is: Goods Inventory XXX Goods Received/Invoice Received XXX • Then when the invoice is received, the following entry is made: Goods Received/Invoice Received XXX Accounts Payable XXX • The GR/IR account should zero out when all the information for the transaction is entered Accounting Information Systems

  7. Information Records – The link between two “many to many” relationships • SAP uses the term information record to denote the linking relationship between two different entities, such as in this assignment between vendors and goods • This is not standard terminology, but this linking is a standard (and necessary) practice in accounting information systems • From a technical perspective, since a vendor can provide many products and a product can be provided by many vendors, this necessitates the use of a separate database table to store the information • While a transaction can be completed without an information record, the information stored in the information record is very important • It allows us to compare prices, delivery conditions, minimum and normal order quantities, etc. for a given product for multiple vendors • With this information we may use one vendor for normal purchases because of a lower price and a different vendor for rush orders because of shortened delivery times Accounting Information Systems

  8. Steps in the Assignment • Following are the steps you will do in the assignment: • Examine the chart of accounts • Examine the account settings for financial accounting use • Create a material master, vendor master, and linking information record • Check the inventory and accounting records after you record each of these transactions: • Create a purchase order for the material (a purchase requisition is not included in this assignment) • Receive the material • Receive the invoice from the vendor • Make payment to the vendor Accounting Information Systems

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