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CHAPTER 12
12.1 Customer relationship management systems hold great promise, but their usefulness
is determined by the amount of personal data customers are willing to divulge. To
what extent do you think concerns about privacy-related issues affect the use of
CRM systems?
The basic issue concerns the willingness of consumers to divulge the kind of information
that would allow companies to personalize the sales interaction versus concerns that such
information would be misused or sold to other parties. In addition, with the growing
problem of identity theft, consumers are becoming increasingly concerned about the
safety and security of their personal information. Companies that wish to collect this data
will most likely have to demonstrate the need for this information to the consumer as well
as the companys ability to keep this information secure.
12.2 Some products, like music and software, can be digitized. How does this affect each
of the four main activities in the revenue cycle?
Digitized products do not change the four basic business activities of the revenue cycle.
For all products, whether digitized or not, an order must be taken, the product shipped,
the customer billed, and cash collected.
The only thing that digitized products change is inventory management as products do
not need to be removed from a warehouse to be delivered. However, a copy of a product
must be shipped (usually electronically, but in some cases it may need to be burned on a
DVD and then shipped).
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12.3 Many companies use accounts receivable aging schedules to project future cash
inflows and bad-debt expense. Review the information typically presented in such a
report (see Figure 12-8). Which specific metrics can be calculated from those data
that might be especially useful in providing early warning about looming cash flow
or bad-debt problems?
The accounts receivable aging report shows dollar amounts outstanding by number of
days past due by customer and by invoice. The following metrics can provide useful
early warnings about looming cash flow or bad-debt problems.
The percentage of total accounts receivable categorized by days past due would alert
management of categories that are increasing. This could also be reported by
customer and by invoice. This way if a particular invoice was not being paid, the
company could more quickly identify the invoice, contact the customer, and
potentially resolve any problems or disputes about the particular invoice.
Reporting by customer can help to identify chronic slow paying customers so that
corrective action could be taken such as offering discounts for quick payment,
changes in terms, and notifying the credit manager to restrict credit for this particular
customer.
The company may have a threshold for each category of past due accounts either in
percentages or absolute dollars. A metric could be calculated and presented that
highlights the categories exceeding that threshold.
12.4 Table 12-1 suggests that restricting physical access to inventory is one way to reduce
the threat of theft. How can information technology help accomplish that objective?
Possibilities include:
12.5 Invoiceless pricing has been adopted by some large businesses for B2B transactions.
What are the barriers, if any, to its use in B2C commerce?
Many companies are trying to incent their customers to sign up for automatic bill-pay.
The primary barrier is consumer resistance to or fear of online bill payment in general.
However, there are also problems on the seller side particularly in regards to billing
disputes. A related issue is the threat of asset misappropriation how easily can the seller
attempt to recover items sold to the consumer?
12.6 The use of some form of electronic cash that would provide the same kind of
anonymity for e-commerce that cash provides for traditional physical business
transactions has been discussed for a long time. What are the advantages and
disadvantages of electronic cash to customers? To businesses? What are some of the
accounting implications of using electronic cash?
Any form of electronic or digital cash has the same audit risks as physical cash:
susceptibility to theft and loss of an audit trail. In addition, digital cash also has risks
associated with the durability of the store of value to what extent can the cash be
recovered if the storage media becomes defective?
Another issue concerns the potential loss of privacy, because the digital currency can be
marked in a manner that enables tracing its path through the economy.
Finally, there is the question of how to provide and maintain an adequate audit trail to
prevent unscrupulous businesses from skimming digital cash sales and thereby under-
reporting sales for tax purposes.
12-3
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1. __d__ CRM system a. Document used to authorize reducing the balance in a customer
account
2. __g_ Open-invoice b. Process of dividing customer account master file into subsets
method and preparing invoices for one subset at a time
3. __a__ Credit memo c. System that integrates EFT and EDI information
4. __h__ Credit limit d. System that contains customer-related data organized in a
manner to facilitate customer service, sales, and retention
5. __b__ Cycle billing e. Electronic transfer of funds
6. __c___ FEDI f. Method of maintaining accounts receivable that generates one
payments for all sales made the previous month
7. _n__ Remittance advice g. Method of maintaining customer accounts that generates
payments for each individual sales transaction
8. _j__ Lockbox h. Maximum possible account balance for a customer
9. _k__ Back order i. Electronic invoicing
10. _m__ Picking ticket j. Post office box to which customers send payments
11. _l__ Bill of lading k. Document used to indicate stock outs exist
l. Document used to establish responsibility for shipping goods via
a third party
m. Document that authorizes removal of merchandise from
inventory
n. Turnaround document returned by customers with payments
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12.2 What internal control procedure(s) would provide protection against the following
threats?
a. Theft of goods by the shipping dock workers, who claim that the inventory
shortages reflect errors in the inventory records.
Inventory clerks should count and document goods (on paper or by computer) as they
leave inventory storage. Shipping personnel should be required to count and
document receipt of goods from the finished goods storeroom to acknowledge
responsibility for custody of the goods transferred.
Counting goods when they are received and when they are sent to inventory storage
as well as when goods leave inventory storage and are sent to shipping helps maintain
control over inventory. Reconciling the two sets of counts makes it more difficult for
employees to steal inventory as it is received and shipped.
b. Posting the sales amount to the wrong customer account because a customer
account number was incorrectly keyed into the system.
If the transactions are being entered online, closed loop verification could be used.
The system could respond to the operator entering the account number by retrieving
and displaying the customer's name for the operator to review.
If the transactions are being entered in batches, redundant data such as the first five
characters of the customer's name could be included in each input record; after
finding a match on customer account number, the system would also verify that the
name characters match before posting the transaction.
Note that a validity check would only tell you if a valid customer number was
entered, not if the correct valid customer number was entered. Likewise, check digit
verification could tell you if the customer number existed, but not if it was the right
customer number.
c. Making a credit sale to a customer who is already four months behind in making
payments on his account.
Up-to-date credit records must be maintained to control this problem. During the
credit approval process, the credit manager should review the accounts receivable
aging schedule to identify customers with past-due balances to prevent additional
sales to those customers. Alternatively, the computer system could be programmed to
determine if the customer had any past due balances over a specified length of time
(such as 60 days). If not, the sale would be approved. If they had a past-due balance,
a notice could be sent to the credit manager who could review the sale and make a
decision about extending additional credit.
12-5
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A credit limit check would not be sufficient, because a customer could have a balance
below the credit limit but be past due. A computer system could be programmed to
check both credit limit and past due accounts and authorize sales. Sales not passing
either the credit limit or the past due test would be sent to the credit manager for a
decision.
d. Authorizing a credit memo for a sales return when the goods were never actually
returned.
A receiving report should be required before a credit for sales returns is issued. The
system should be configured to block issuance of credit memos without the required
documentation that the goods have been returned.
The problem usually occurs because the same individual writes off accounts and
processes cash payments. Therefore, the best control procedure to prevent this
problem is to separate the function of authorizing write-offs of uncollectible accounts
from the function of handling collections on account.
f. Billing customers for the quantity ordered when the quantity shipped was
actually less due to back ordering of some items.
Shipping personnel should be required to record the actual quantity shipped on the
order document and/or enter the quantity shipped into the accounting system, in order
that bills can be prepared based upon the quantity shipped rather than the quantity
ordered. The system should be configured to generate invoices automatically based
on the quantity shipped.
g. Theft of checks by the mailroom clerk, who then endorsed the checks for deposit
into the clerks personal bank account.
In order to cover up this theft, the mailroom clerk has to be able to alter the accounts
receivable records. Otherwise, a customer who is subsequently notified that they are
past due will complain and provide proof that they sent in payment. Therefore, the
critical control is to segregate duties so that whoever opens the mail does not have the
ability to maintain customer accounts.
If accounts receivable updates the records based on a cash receipts pre-list instead of
the actual checks, the mailroom clerk could conceivably lap payments. To prevent
this, the cash receipts pre-list could be compared to the checks before the list is sent
to accounts receivable. The checks should not be sent to accounts receivable as the
accounts receivable clerk could perform the lapping.
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Other deterrents used to deter theft of checks by the mailroom clerk include having
two people open the mail, using video cameras to tape the check opening process, and
utilizing a bank lockbox.
h. Theft of funds by the cashier, who cashed several checks from customers.
In order to cover up this theft, the cashier has to be able to alter the accounts
receivable records. Otherwise, a customer who is subsequently notified that they are
past due will complain and provide proof that they sent in payment. Therefore, the
critical control is to segregate the duties of handling cash and making deposits from
the maintenance of accounts receivable records.
One way to control cash receipts is shown below. The mailroom creates a cash
prelist, sends a copy to a 3rd party, and sends the checks to the cashier. The cashier
prepares duplicate deposit slips, sends the original to the bank with the checks, and
sends a copy to the 3rd party. When the checks are deposited, the bank sends a copy
of the validated deposit slip to the 3rd party, who compares all three documents to
make sure all cash is deposited.
12-7
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i. Theft of cash by a waiter who destroyed the customer sales ticket for customers
who paid cash.
In a manual system, all sales tickets should be prenumbered and accounted for so
management can detect missing sales tickets.
In many restaurant systems, waiters cannot get food out of the kitchen without
entering a customer order into the system. The system creates a prenumbered sales
document that must be cleared by the waiter that day. This prevents the waiter from
destroying sales tickets and giving people free food.
These systems also are capable of some reasonableness tests such as:
The ending inventory of food is counted and compared to the projected ending
inventory to determine if food items are missing. This check is most frequently used
for expensive items of food like steak, shrimp, lobster, etc.
To prevent this from happening by accident, the system needs to automatically bill
customers for shipments. The system should also be configured to periodically
reconcile all shipments with a billing and generate reports of unbilled shipments for
management review and corrective action.
k. Lost sales because of stockouts of several products for which the computer
records indicated there was adequate quantity on hand.
Regular physical inventory counts need to be made, the results compared to recorded
amounts on hand, and needed adjustments to inventory quantities made.
Access to customer information should be restricted using User IDs, passwords, and
an access control matrix.
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Employees given such access need to be trained to follow the organizations privacy
policies.
m. Loss of all information about amounts owed by customers in New York City
because the master database for that office was destroyed in a fire.
n. The companys Web site was unavailable for seven hours because of a power
outage.
A UPS can power a system for a time, but most are unlikely to be able to power a
system for seven hours.
Backup power generators capable of running the web site for seven hours
Real-time mirroring, with the system switching over to the other site when the
system went down.
o. Interception and theft of customers credit card numbers while being sent to the
companys Web site.
Encryption of credit card information prior to transmitting over the Internet. Typically
this involves using SSL.
p. A sales clerk sold a $7,000 wide-screen TV to a friend and altered the price to
$700.
Use of barcodes and RFID tags to identify the product and sales price
A system configured to give sales clerks read-only access to pricing data to prevent
them from changing the price.
12-9
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Supervisor approvals for any needed changes or discounts to the listed price
q. A shipping clerk who was quitting to start a competing business copied the
names of the companys 500 largest customers and offered them lower prices
and better terms if they purchased the same product from the clerks new
company.
Access (and attempted access) to customer records should be logged and reports
reviewed to verify that only authorized employees see that information.
r. A fire in the office next door damaged the companys servers and all optical and
magnetic media in the server room. The company immediately implemented its
disaster recovery procedures and shifted to a backup center several miles away.
The company had made full daily backups of all files and stored a copy at the
backup center. However, none of the backup copies were readable.
Periodically practicing and testing the backup and restoration process would verify its
effectiveness.
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12.3 For good internal control, which of the following duties can be performed by the
same individual?
1. Approve changes to customer credit limits
2. Sales order entry
3. Shipping merchandise
4. Billing customers
5. Depositing customer payments
6. Maintaining accounts receivable
7. Issuing credit memos
8. Reconciling the organizations bank accounts
9. Checking inventory availability
Cells with an X indicate duties that can be performed by the same individual:
Duty 1 2 3 4 5 6 7 8 9
1
2
3
4
5
6 X
7
8
9 X
For sound internal control, most of these duties need to be performed by different people.
There are two exceptions:
The same person can take customer orders and check inventory availability because
this combination does not provide any way to commit and conceal a theft.
The same person can create invoices (bill customers) and maintain accounts
receivable.
Approving changes to customer credit and sales order entry. If both duties are
performed by the same person, they could authorize sales to friends that are
subsequently not paid.
Shipping and billing. If the same person performs both duties, they could ship
merchandise to friends without billing them.
12-11
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Depositing customer payments and issuing credit memos. If the same person
performs both duties, they could steal payments and create a credit memo to cover up
the theft and adjust the customers account so that they do not complain about a
missing credit.
Depositing customer payments and reconciling the bank account. If the same
person did both duties, they could steal cash and cover up the difference by listing
fraudulent bank expenses to adjust the cash balance.
Maintaining accounts receivable and issue credit memos. If the same person
performed both tasks, they could write off their friends accounts.
The remaining combinations are not desirable because they involve tasks that require
significantly different skills and knowledge, so would be unlikely to be efficiently
performed by the same person.
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12-13
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12.4 EXCEL PROJECT. (Hint: For help on steps b and c, see the article Dial a Forecast, by James A. Weisel, in the
December 2006 issue of the Journal of Accountancy. The Journal of Accountancy is available in print or online at the
AICPAs Web site: www.aicpa.org
Required:
a. Create a 12-month cash flow budget in Excel using the following assumptions:
Initial sales of $5,000,000 with forecasted monthly growth of 1%
40% of each months sales for cash; 30% collected the following month; 20% collected 2 months later; 8%
collected 3 months later; and 2% never collected
Initial cash balance of $350,000
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Formulas (the formulas for June December are similar to those shown in the column for April and May)
12-15
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b. Add a spinner to your spreadsheet that will enable you to easily change forecasted monthly sales growth to range
from 0.5% to 1.5% in increments of 0.1%.
A spinner is a tool that enables the user to easily alter the values of a variable by clicking on the spinner rather than
having to type in a new value. The spinner tool then displays how changing that variable changes the spreadsheet. As
shown below, if you search for the word spinner in the built-in Excel help function, you will be directed to help for
creating and using either a scroll bar or a spin button. Clicking on either the Add a spin button or Add a scroll bar
entries in the Help Screen will walk you through the steps for how to add these tools to your spreadsheet.
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In part b, we will create a spin button to change the assumed sales growth rate.
Step 1: Click on the Developer tab and then click on the Insert button as shown:
Step 2: In the drop-down menu that appears when you click on Insert, click on the Spin button option from the Active X controls
choices (move your mouse over the various Active X choices to reveal their names the Spin button is the larger pair of arrows)
12-17
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Then click on a cell that is two cells to the right of the one that contains your initial assumption for the sales growth rate (i.e., cell F5)
which will result in the following:
Step 3: Now we have to link the spin button tool to the cell that we wish to manipulate. In this case, the objective is to be able to vary
the sales growth rate (in cell D5) from 0.5% to 1.5%. However, the spin button tool can only increment variables in whole units,
not percents. Therefore, we will change the value of the cell containing the monthly sales growth rate (cell D5) so that it equals
cell E5 divided by 1000. Then we will be able to use the spin button to vary the sales growth rate from 5 to 15, which when
divided by 1000 yields 0.5% to 1.5% as desired. After entering the value of 10 in cell E5 the spreadsheet will now look like this:
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Step 4: Now right-click on the spin button, then select Properties and enter the following values:
Linked cell = E5
Max = 15
Min = 5
Smallchange = 1
12-19
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Step 5: Click the Design Mode option in the tool bar to exit Design Mode. You can now click on the spin button and change the
value of the sales growth rate. Notice how all of the values in the spreadsheet change simply by clicking the spin button arrows no
need to repeatedly type in the new sales growth rate value.
c. Add a scroll bar to your spreadsheet that will let you modify the amount of initial sales to vary from $4,000,000 to
$6,000,000 in increments of $100,000.
A scroll bar is another spinner tool. The difference between a scroll bar and a spin button is that a scroll bar has a space between its
arrows. This allows you to see how close you are to the upper and lower limits for the variable you are manipulating. The process of
creating a scroll bar is very similar to that for creating a spin button.
Step 1: In Developer Tab, click on Design Mode to get back into Design Mode. Then click on Insert. Select the scroll bar option from
the Active X choices that appear. (As before, moving your mouse over the choices reveals their names. The scroll bar option is the
smaller pair of arrows). Move to cell F4 and click to enter the scroll bar there. Your spreadsheet should now look like this:
12-21
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Step 2: Click on one corner of the scroll bar and drag it so that it fills cell F5 horizontally. Your spreadsheet should now look like this:
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Step 3: As with the spin button, we have to link the scroll bar to the cell that will display the values we wish to vary. Our goal is to
vary sales from $4,000,000 to $6,000,000 in increments of $100,000. The spinner tool, however, cannot work with such large values.
Therefore, we will change cell D5 so that it equals our cell E5 times 1000. After changing the value of cell D5 and entering the value
of 5000 in cell E5, your spreadsheet should now look like this:
12-23
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Step 4: Now right-click on the scroll bar tool in cell F5, select properties, and enter the following values:
LinkedCell = E4
Max = 6000
Min = 4000
SmallChange = 100
Step 5: You can now click on the left and right arrows in the scroll bar to vary the amount of initial sales and see the effects ripple
through the spreadsheet without having to retype new initial sales values.
12-25
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d. Design appropriate data entry and processing controls to ensure spreadsheet accuracy.
Chapter 10 describes the various data input validation controls that can be used. In this problem, students should be instructed to set
reasonable range checks on the allowable values for the percentage of sales that are cash sales and what percentage of credit sales is
never collected.
Excels built-in Data Validation tool can be used to create such range checks. For example, cell D6 contains the assumption for
percentage of cash sales. To restrict the range of permissible values, click on that cell, then select the Data Validation option from
the Data tab, and enter the allowable limits of the range check. Repeat the process for cell D10 (percent sales never collected).
In addition, user data entry should be restricted to the cells that contain the initial assumptions. All other cells in the spreadsheet
should be locked.
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12.5 For each of the following activities identify the data that must be entered by the
employee performing that activity and list the appropriate data entry controls:
Note: All other fields on the sample sales order entry screen (see Figure 12-6) can be
completed by the system.
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Note: All other fields on the sample bill of lading (see Figure 12-11) can be completed by
the system.
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12.6 Create a questionnaire checklist that can be used to evaluate controls for each of the
four basic activities in the revenue cycle (sales order entry, shipping, billing, and
cash collections).
a. For each control issue, write a Yes/No question such that a No answer
represents a control weakness. For example, one question might be Are
customer credit limits set and modified by a credit manager with no sales
responsibility?
Question Yes No
1. Is access to master data restricted?
2. Is the master data regularly reviewed and all changes investigated?
3. Is sensitive data encrypted while stored in the database?
4. Does a backup and disaster recovery plan exist?
5. Have backup procedures been tested within the past year?
6. Are appropriate data entry edit controls used?
7. Are digital signatures required for online orders?
8. Are physical counts of inventory taken regularly and used to adjust the
perpetual inventory records?
9. Are the credit approval and sales order entry tasks performed by
separate individuals?
10. Are picking list quantities compared to sales orders?
11. Is physical access to inventory controlled?
12. Are reports of open sales orders regularly created and reviewed?
13. Are shipping documents reconciled with sales orders?
14. Are the shipping and billing functions performed by different
individuals?
15. Are monthly statements mailed to customers?
16. Are the functions of processing customer payments and maintaining
accounts receivable performed by separate individuals?
17. Is the bank account reconciled by someone other than the person who
processes customer payments?
18. Are lockbox arrangements used?
19. Are customer credit limits set and modified by a credit manager with no
sales responsibility?
12-29
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Customers place orders on the companys website, by fax, or by telephone. All sales
are on credit, FOB destination. During the past year sales have increased
dramatically, but 15% of credit sales have had to written off as uncollectible,
including several large online orders to first-time customers who denied ordering or
receiving the merchandise.
Customer orders are picked and sent to the warehouse, where they are placed near
the loading dock in alphabetical sequence by customer name. The loading dock is
used both for outgoing shipments to customers and to receive incoming deliveries.
There are ten to twenty incoming deliveries every day, from a variety of sources.
The increased volume of sales has resulted in a number of errors in which customers
were sent the wrong items. There have also been some delays in shipping because
items that supposedly were in stock could not be found in the warehouse. Although
a perpetual inventory is maintained, there has not been a physical count of
inventory for two years. When an item is missing, the warehouse staff writes the
information down in log book. Once a week, the warehouse staff uses the log book to
update the inventory records.
The system is configured to prepare the sales invoice only after shipping employees
enter the actual quantities sent to a customer, thereby ensuring that customers are
billed only for items actually sent and not for anything on back order.
12-31
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12.8 Parktown Medical Center, Inc. is a small health care provider owned by a publicly
held corporation. It employs seven salaried physicians, ten nurses, three support
staff, and three clerical workers. The clerical workers perform such tasks as
reception, correspondence, cash receipts, billing, and appointment scheduling. All
are adequately bonded.
Most patients pay for services rendered by cash or check on the day of their visit.
Sometimes, however, the physician who is to perform the respective services
approves credit based on an interview. When credit is approved, the physician files
a memo with one of the clerks to set up the receivable using data the physician
generates.
The servicing physician prepares a charge slip that is given to one of the clerks for
pricing and preparation of the patients bill. At the end of the day, one of the clerks
uses the bills to prepare a revenue summary and, in cases of credit sales, to update
the accounts receivable subsidiary ledger.
The front office clerks receive cash and checks directly from patients and give each
patient a prenumbered receipt. The clerks take turns opening the mail. The clerk
who opens that days mail immediately stamps all checks for deposit only. Each
day, just before lunch, one of the clerks prepares a list of all cash and checks to be
deposited in Parktowns bank account. The office is closed from 12 noon until 2:00
p.m. for lunch. During that time, the office manager takes the daily deposit to the
bank. During the lunch hour, the clerk who opened the mail that day uses the list of
cash receipts and checks to update patient accounts.
The clerks take turns preparing and mailing monthly statements to patients with
unpaid balances. One of the clerks writes off uncollectible accounts only after the
physician who performed the respective services believes the account will not pay
and communicates that belief to the office manager. The office manager then issues
a credit memo to write off the account, which the clerk processes.
The office manager supervises the clerks, issues write-off memos, schedules
appointments for the doctors, makes bank deposits, reconciles bank statements, and
performs general correspondence duties.
12-33
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Identify at least three control weaknesses at Parktown. Describe the potential threat
and exposure associated with each weakness, and recommend how to best correct
them. (CPA Examination, adapted)
1. Weakness: The employees who perform services are permitted to approve credit
without an external credit check.
Control: Someone other than the physician performing the services (probably the
office manager) should do a credit check. Credit limits should be established and used
to control the amount of credit offered.
2. Weakness: The physician who approves credit also approves the write-off of
uncollectible accounts.
Threat: Accounts receivable could be understated and bad debts expense overstated
because write-offs of accounts could be approved for accounts that are, in fact,
collectible. Accounts receivable could be overstated and bad debt expense
understated because write-offs may not be initiated for accounts that are uncollectible.
Control: Separate the duties of approving credit and approving the write-off of
accounts receivable.
3. Weakness: The employee who initially handles cash receipts also prepares billings
and maintains accounts receivable.
Threat: Theft by lapping could occur. Fees earned and cash receipts or accounts
receivable could be understated because of omitted or inaccurate billing.
4. Weakness: The employee who makes bank deposits also reconciles bank statements.
Threat: The cash balance per books may be overstated because all cash is not
deposited (i.e. theft).
5. Weakness: The employee who makes bank deposits also issues credit memos.
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Threat: The office manager could steal cash and cover up the shortage by issuing a
credit memo for the amount stolen.
Control: Cash deposits should be made by an employee who does not have authority
to issue credit memos and who also does not maintain accounts receivable.
6. Weakness: Trial balances of the accounts receivable subsidiary ledger are not
prepared independently of, or verified and reconciled to, the accounts receivable
control account in the general ledger.
Threat: Any of fees earned, cash receipts, and uncollectible accounts expense could
be either understated or overstated because of undetected differences between the
subsidiary ledger and the general ledger. Also, fees earned and cash receipts or
accounts receivable could be understated because of failure to record billings, cash
receipts, and write-offs accurately.
12-35
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12.9 Figure 12-18 depicts the activities performed in the revenue cycle by the Newton
Hardware Company. (CPA Examination, adapted)
12-37
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On-line data entry by sales staff. The system should include credit checks on
customers as well as check inventory availability
A variety of input edit checks (limit checks, range checks, reasonableness tests,
etc.) to ensure completeness of data entry and accuracy
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12.10 The Family Support Center is a small charitable organization. It has only four full-
time employees: two staff, an accountant, and an office manager. The majority of its
funding comes from two campaign drives, one in the spring and one in the fall.
Donors make pledges over the telephone. Some donors pay their pledge by credit
card during the telephone campaign, but many prefer to pay in monthly
installments by check. In such cases, the donor pledges are recorded during the
telephone campaign and they are then mailed pledge cards. Donors mail their
contributions directly to the charity. Most donors send a check, but occasionally
some send cash. Most donors return their pledge card with their check or cash
donation, but occasionally the Family Support Center receives anonymous cash
donations. The procedures used to process donations are as follows:
Sarah, one of the staff members who has worked for the Family Support
Center for 12 years, opens all mail. She sorts the donations from the other
mail and prepares a list of all donations, indicating the name of the donor (or
anonymous), amount of the donation, and the pledge number (if the donor
returned the pledge card). Sarah then sends the list, cash, and checks to the
accountant.
The accountant enters the information from the list into the computer to
update the Family Support Centers files. The accountant then prepares a
deposit slip (in duplicate) and deposits all cash and checks into the charitys
bank account at the end of each day. No funds are left on the premises
overnight. The validated deposit slip is then filed by date. The accountant
also mails an acknowledgment letter thanking each donor. Monthly, the
accountant retrieves all deposit slips and uses them to reconcile the Family
Support Centers bank statement. At this time, the accountant also reviews
the pledge files and sends a follow-up letter to those people who have not yet
fulfilled their pledges.
1. Weakness - Sarah opens all mail and prepares a list of donations (cash and
checks). Sarah could misappropriate anonymous cash donations.
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Control - Mail should be opened by both Sarah and the other staff member. The
use of lockboxes would also eliminate this problem, but would cost the charity
money to implement.
2. Weakness - The donations and donation list are sent to the accountant for
recording and to prepare the bank deposit. Therefore, the accountant has custody
of the donation and records the donation.
Control - The donations should be sent to the office manager for deposit and the
donation list sent to the accountant for recording. This corrects both weaknesses.
3. Weakness - Each employee has full access (create, read, update, delete) to the
accounting system.
Control - Only the accountant and the office manager should have full access to
the accounting system.
b. Describe the IT control procedures that should exist in order to protect the
Family Support Center from loss, alteration, or unauthorized disclosure of data.
The weekly back-up should be stored off-site, not in the manager's office.
The files both on-site and off-site should be password protected and encrypted to
guard against alteration and unauthorized disclosure.
12.11 Match the threats in the first column to the appropriate control procedures in the
second column (more than one control may address the same threat).
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a. Create a spreadsheet with the following data about targeted emails, click ads,
and unit sales:
Emails Clicks Unit Sales 130000 125 13000
150000 100 12000 100000 85 12000
155000 105 12500 110000 100 9000
125000 75 10000 120000 135 10000
130000 150 14000 130000 140 13500
135000 125 12500 140000 125 13400
120000 100 10000 130000 115 12750
125000 125 10900 120000 105 12750
130000 135 11500 100000 95 10000
130000 110 12500 130000 145 9000
120000 95 10500 150000 150 15000
100000 75 10750 140000 120 12000
110000 100 10000 125000 100 13500
100000 80 9500 110000 95 11000
140000 130 13500 130000 140 13500
120000 110 11500
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c. Create a scattergraph to illustrate the relationship between click ads and unit
sales. Display the regression equation and the R2 between the two variables on
the chart.
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d. Which variable (targeted emails or click ads) has the greater influence on unit
sales? How do you know?
Targeted emails have a greater effect on unit sales than do click ads as shown by the
higher R2 for the regression formula.
e. Use the =Forecast function to display the forecasted sales for 200,000 targeted
emails and for 200 click ads.
12.13 Give two specific examples of nonroutine transactions that may occur in processing
cash receipts and updating accounts receivable. Also specify the control procedures
that should be in place to ensure the accuracy, completeness, and validity of those
transactions.
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b. Discusses the control implications. Refer to Table 12-1 and explain how the new
procedure changes the threats and appropriate control procedures for
mitigating those threats.
Be sure that the report addresses the portions of Table 12-1 affected by the changes
discussed in the article.