Page 347 - Accounting Information Systems

318 PART II Transaction Cycles and Business Processes

CONTROLS IN THE TRADITIONAL ENVIRONMENT
Recall from previous chapters the six general classes of internal control activities: transaction authoriza-
tion, segregation of duties, supervision, access control, accounting records, and independent verification.
Specific controls as they apply to the conversion cycle are summarized in Table 7-1 and further explained
in the following section.

Transaction Authorization
The following describes the transaction authorization procedure in the conversion cycle.
1. In the traditional manufacturing environment, production planning and control authorize the produc-
tion activity via a formal work order. This document reflects production requirements, which are the
difference between the expected demand for products (based on the sales forecast) and the FG inven-
tory on hand.
2. Move tickets signed by the supervisor in each work center authorize activities for each batch and for
the movement of products through the various work centers.
3. Materials requisitions and excess materials requisitions authorize the storekeeper to release materials
to the work centers.

Segregation of Duties
One objective of this control procedure is to separate the tasks of transaction authorization and transaction
processing. As a result, the production planning and control department is organizationally segregated
from the work centers.
Another control objective is to segregate record keeping from asset custody. The following separations
apply:
1. Inventory control maintains accounting records for RM and FG inventories. This activity is kept sep-
arate from the materials storeroom and from the FG warehouse functions, which have custody of
these assets.
2. Similarly, the cost accounting function accounts for WIP and should be separate from the work cen-
ters in the production process.

TAB L E
7-1 SUMMARY OF CONVERSION CYCLE CONTROLS

Control Class Control Points in the System
Transaction authorization Work orders, move tickets, and materials requisitions.
Segregation of duties 1. Inventory control separate from RM and FG inventory custody.
2. Cost accounting separate from work centers.
3. GL separate from other accounting functions.
Supervision Supervisors oversee usage of RM and timekeeping.
Access Limit physical access to FG, RM stocks, and production processes.
Use formal procedures and documents to release materials into production.
Accounting records Work orders, cost sheets, move tickets, job tickets, materials requisitions,
WIP records, FG inventory file.
Independent verification Cost accounting function reconciles all cost of production.
GL reconciles overall system.