Page 199 - Accounting Information Systems

170 PART II Transaction Cycles and Business Processes

2. Access to sales order documents may permit an unauthorized individual to trigger the shipment
of a product.
3. An individual with access to both cash and the general ledger cash account could remove cash
from the firm and adjust the cash account to cover the act.

Independent Verification
The objective of independent verification is to verify the accuracy and completeness of tasks that other
functions in the process perform. To be effective, independent verifications must occur at key points in
the process where errors can be detected quickly and corrected. Independent verification controls in the
revenue cycle exist at the following points:

1. The shipping function verifies that the goods sent from the warehouse are correct in type and
quantity. Before the goods are sent to the customer, the stock release document and the packing slip
are reconciled.
2. The billing function reconciles the original sales order with the shipping notice to ensure that custom-
ers are billed for only the quantities shipped.
3. Prior to posting to control accounts, the general ledger function reconciles journal vouchers and
summary reports prepared independently in different function areas. The billing function summarizes
the sales journal, inventory control summarizes changes in the inventory subsidiary ledger, the cash
receipts function summarizes the cash receipts journal, and accounts receivable summarizes the
AR subsidiary ledger.
Discrepancies between the numbers supplied by these various sources will signal errors that need to be
resolved before posting to the general ledger can take place. For example, the general ledger function
would detect a sales transaction that had been entered in the sales journal but not posted to the customer’s
account in the AR subsidiary ledger. The journal voucher from billing, summarizing total credit sales,
would not equal the total increases posted to the AR subsidiary ledger. The specific customer account
causing the out-of-balance condition would not be determinable at this point, but the error would be
noted. Finding it may require examining all the transactions processed during the period. Depending on
the technology in place, this could be a tedious task.

Physical Systems

In this section we examine the physical system. This begins with a review of manual procedures and then
moves on to deal with several forms of computer-based systems. The inclusion of manual systems in this
age of computer technology is controversial. We do so for three reasons. First, manual systems serve as a
visual training aid to promote a better understanding of key concepts. Manual (document) flowcharts
depict information as the flow of physical documents. Their source, routing, destination, and sequence of
events are visually discernable from the flowchart. In computer-based systems, flows of digital docu-
ments are not easily represented on flowcharts and may be difficult for novice accounting information
systems students to follow.
Second, manual system flowcharts reinforce the importance of segregation of duties through clearly
defined departmental boundaries. In computer-based systems, these segregations are often accomplished
through computer programming techniques and password controls that cannot be represented visually on
a flowchart. Indeed, a single box (program icon) on a system flowchart may consolidate tasks of many
different organizational units.
Finally, manual systems are a fundamental component of the framework for viewing technology inno-
vations. The shortcomings and failings of current generation technology become the design imperative
for the next. The first generation of computer technology emerged out of the manual environment. An
argument can be made that understanding what used to be state of the art improves one’s understanding
of what led us to where we are now.
For these reasons, some instructors prefer to teach manual systems before moving on to computer
applications. Others favor moving directly to computer-based systems. This section has been organized