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CHAPT E R 4 The Revenue Cycle 191

Segregation of Duties
PC systems tend to have inadequate segregation of duties. A single employee may be responsible for
entering all transaction data, including sales orders, cash receipts, invoices, and disbursements. In a man-
ual system, this degree of authority would be similar to assigning accounts receivable, accounts payable,
cash receipts, and cash disbursements responsibilities to the same person. The exposure is compounded
when the individual is also responsible for programming or tailoring the application he or she runs.
Often little can be done in small companies to avoid such conflicts of duties. Controlling the PC envi-
ronment requires a high degree of supervision, adequate management reports (such as detailed listings of
all transactions), and frequent independent verification. For example, the supervisor should reconcile
daily transaction details with the affected subsidiary and control accounts.

Access Control
PC systems generally provide inadequate control over access to data files. Although some applications
achieve modest security through password control to files, accessing data files directly via the operating
system can often circumvent this control. Solutions for dealing with the problem include data encryption,
disk locks, and physical security devices.

Accounting Records
Data losses that threaten accounting records and audit trails plague the PC environment. Computer disk
failure is the primary cause of data loss. When this happens, recovery of data stored on the disk may be
impossible. Formal procedures for creating backup copies of data files and programs can reduce this
threat considerably. In the mainframe environment, backup is provided automatically. Backup of PC data
files relies on a conscious action by the users, who too often fail to appreciate its importance.

Summary

This chapter examined conceptually the revenue cycle of a achieve competitive advantage by improving operational effec-
typical merchandising firm and focused on the following areas: tiveness. We then turned to control issues in the digital envi-
(1) the functional areas and the flow of transaction informa- ronment and found that computer processing consolidates
tion that triggers key tasks; (2) the documents, journals, and many tasks, thus removing some traditional segregation of
accounts that support audit trails, decision making, and finan- duties. The integrity of the computer programs that now per-
cial reporting; and (3) the exposure to risks in the revenue form these tasks becomes a matter of great concern to the
cycle and the control techniques that reduce them. organization. Similarly, organization management must control
The chapter examined the operational and control implica- access to digital accounting files and ensure that adequate
tions of different degrees of technology. First, we examined backup procedures are in place.
the manual system depicting people, organizational units, and Finally, the chapter dealt with the subject of PC accounting
physical documents and files. The purpose of this was to help systems. The modular design of these systems allows users to
the reader envision the segregation of duties and independent tailor the system to their specific needs. This feature has
verifications, which are essential to effective internal control resulted in a tremendous growth in end-user computing that
regardless of the technology in place. In the process, we high- is changing the way many organizations do business. The PC
lighted inefficiencies intrinsic to manual systems, which gave environment poses some unique exposures that accountants
rise to modern systems using improved technologies and must recognize. Three of the most serious exposures are
techniques. (1) the lack of properly segregated duties, (2) PC-operating
Next we examined automated data processing techniques. systems that do not have the sophistication of mainframes
Even though these systems improve record-keeping efficiency and expose data to unauthorized access, and (3) computer
and effectiveness, they do little to advance an organization’s failures and inadequate backup procedures that rely too
business strategy. We then examined reengineered systems. heavily on human intervention and thus threaten the security
This involves rethinking traditional business approaches to of accounting records.