Description
One control that is applicable for almost any system is “enter data close to the originating source”. A customer entering a purchase into an online sales system (such as at Amazon.com) is an excellent example of this control.
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Chapter 9:
Controlling Information Systems: Business
Process and Application Controls
ACCOUNTING INFORMATION SYSTEMS
11e
Gelinas ►Dull ► Wheeler ► HILL
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service
or otherwise on a password-protected website for classroom use.
Learning Objectives
1. Describe the steps required to build a control matrix.
2. Prepare a control matrix.
3. Write explanations that describe how the business
process and application controls introduced in this
chapter accomplish control goals.
4. Describe the importance of business process and
application controls to organizations with enterprise
systems and those engaging in e-business.
2
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
SYNPOSIS
This chapter:
•Discusses the conceptual framework for the analysis of
controls in business processes.
•Applies the control framework by describing business
process and application controls that may be found in any
business process.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Introduction
Controls are categorized and documented using a control
matrix, to help ensure that the proper controls are in place to
prevent (or detect or correct) the data quality issues that arise
due to process weaknesses.
Tools are used to implement the control matrix.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Implementing the Control
Framework
•The control framework provides a structure for
understanding, analyzing, and assessing the internal controls
of business organizations.
•To make the framework functional, tools are used for
implementing the framework.
•One of these tools is the control matrix.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
The Control Matrix
•A control matrix is a tool designed to assist in analyzing the
effectiveness of controls in a particular business process by
matching control goals with their associated control plan.
•PCAOB Auditing Standard Number 5 calls this “Effectiveness
of Control Design.”.
•Provides a means to explain and analyze the controls that
have been annotated on a systems flowchart.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
Four elements of the control
matrix are:
(a) Control goals
(b) Recommend
control plans
(c) Cell entries
(d) Explanation of cell
entries
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
STEPS IN
PREPARING THE
CONTROL
MATRIX
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a
certain product or service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
Step I. Specify control goals.
1. Identify operations process control goals:
a.
b.
c.
Effectiveness goals describe measures of success for the
operations process and are unique to an organization.
Efficiency goals relate to ensuring resources used in the business
process are being employed in the most productive manner.
Security goals relate to protecting entity resources from loss,
destruction, disclosure, copying, sale, or other misuse.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
2. Identify information process control goals:
a.Input goals of the information process relate to ensuring input
validity (IV), input completeness (IC), and input accuracy (IA) with
respect to all business process data entering the system.
b.Update goals of the information process relate to ensuring the
update completeness (UC) and update accuracy (UA) of the business
process input data.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
II. Step II. Identify recommended control plans.
1.
Identify “present” control plans and annotate them on the
systems flowchart:
a. Place P-1, P-2, through P-n beside all present controls, starting
at the upper-left column.
2. Evaluate “present” control plans:
a. Place the number and name of the plan on the control matrix,
enter the control plan number in the matrix cells, and explain
how each control addresses each control goal.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
3.
Identify and evaluate “missing” control plans:
a. Examine the control matrix to see if there are any control goals
not being addressed with the present plan. If so, develop a
control plan and explain the nature and extent of the missing
plan.
b. Analyze the systems flowchart for further risk exposures for
which you would recommend adding additional or
strengthening existing controls.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
Completed matrix and annotated systems flowchart
Identifies the control strengths and weaknesses of a
particular system.
Facilitates evaluation from the perspectives of:
Control effectiveness (Are all control goals achieved?).
Control efficiency (Do individual plans address multiple goals?).
Control redundancy (Are too many goals directed at the same
goal?).
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Steps in Preparing the Control Matrix
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Sample Control Plans for Data Input
Two methods for processing input data:
1. Manual and automated data entry.
2. Data entry with batches of input data.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Problem 9.4
The following slides are associated with problem 9.4 in the
textbook.
The descriptions for each item are taken from PCAOB Auditing
Standards Section AU 326 and provide brief descriptions of
different financial statement assertions. Please identify which
input control goals are associated with each assertion. More
than one goal may be associated with each assertion. Input
control goals are:
Input Validity
Input Completeness
Input Accuracy
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Problem 9.4 A
Existence or occurrence: Assets or liabilities of the entity exist
at a given date (existence) or recorded transactions have
occurred during a given period (occurrence). For example,
management asserts that finished goods inventories in the
balance sheet are available for sale. Similarly, management
asserts that sales in the income statement represent the
exchange of goods or services with customers for cash or other
considerations.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Problem 9.4 B
Completeness: Transactions and accounts that should be
presented in the financial statements are so included. For
example, management asserts that all purchases of goods and
services are recorded and are included in the financial
statements. Similarly, management asserts that notes payable
in the balance sheet include all such obligations of the entity.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Problem 9.4 C
Rights and Obligations: Assets are the rights of the entity and
liabilities are the obligations of the entity at a given date. For
example, management asserts that amounts capitalized for
leases in the balance sheet represent the cost of the entity’s
rights to leased property and that the corresponding lease
liability represents an obligation of the entity.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Problem 9.4 D
Valuation or Allocation: Asset, liability, equity, revenue, and
expense components have been included in the financial
statements at appropriate amounts. For example,
management asserts that property is recorded at historical
cost and that such cost is systematically allocated to
appropriate accounting periods. Similarly, management
asserts that trade accounts receivable included in the balance
sheet are stated at net realizable value.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Problem 9.4 E
Presentation and Disclosure: Particular components of the
financial statements are properly classified, described, and
disclosed. For example, management asserts that obligations
classified as long-term liabilities in the balance sheet will not
mature within one year. Similarly, management asserts that
amounts presented as extraordinary items in the income
statement are properly classified and described.
© 2018 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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