Chapter 9 - The Acquisition Cycle.pdf

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Accounting & Financial Management
AFM 341
Clark Hampton

Arwa Naalwala Chapter 9 - The Acquisition Cycle - Purchasing and University of Waterloo Receiving Saturday, August 03, 2013 1:31 PM 2 important transaction cycles : a. Acquisition cycle b. Revenue Cycle Summary of Acquisition Cycle : Acquisition cycle refers to process of purchasing, receiving and paying for goods or services Include the following operations : 1) Consult with suppliers 2) Process requisitions - prepared by employee, approved by supervisor. Used by Purchasing department to place order. 3) Develop agreements with suppliers to purchase goods or services in the future 4) Receive goods or services from the supplier 5) Recognize claim for goods and services rendered 6) Select invoices for payment 7) Write checks 2,3,4 focus of this chapter Overview of Purchasing and Receiving Functions Documenting ELEBRE's Purchasing and Receiving Process Refer to ex 9.1 on Pg. 357 to follow narrative. • Use AIS tools to document understanding of the process • Captures flow of events Identification of events in a process -> Annotated Narrative -> Workflow table -> Overview activity diagram -> Detailed activity diagram Identification of Events in a process • Similar to learnt before. • New event occurs when a. Responsibility for processing shifts to a new internal agent b. There is a significant passage of time between one activity and the next, even if by same agent See example 9.2 on Pg. 359 for Identification of events, annotated narrative and workflow table for ELEBRE Annotated Narrative • Narrative separated according to event • Activities indicated with superscripts Workflow Table • The numbers of the activities in this workflow table is based on the superscript numbers in the annotated narrative ( Example 9.2C - Pg. 359) Overview Activity Diagram Example 9.3 Pg. 361 • Shows each event • The internal agent responsible • The flow of information for all events listed in the table • Easy to read • valuable for identifying workflow controls used by the organization Detailed Activity Diagram • Provides more detail as to the activities in one or more events • i.e. the activities identified in step 1 as well as the superscripts activities listed in the annotated narrative • The detailed activity diagram outlines the detail for each event ex. If overview event is Prepare requisition, then > detailed overview will list out [ Prepare requisition --> Give Requisition to supervisor ] --> all of it under Requestor Documenting ELEBRE's Data Design Events and Tables used --> UML Class Diagram --> Record Layouts Events and Tables used • Events in the example : 1) Prepare requisition 2) Approve requisition 3) Record requisition 4) Prepare purchase order 5) Receive goods Chapter 9 - The Acquisition Cycle.pdf Page 1 5) Receive goods • First two events, not entered into computer system. Data tables not required • When secretary enters the data, first time use of computer. • Record added to requisition table • Master tables used for employee data and supplier information • See Ex. 9.5A - Events and Tables used for ELEBRE UML Class Diagram • Provides graphical representation of the relationship between tables needed for the purchasing and receiving processes Record Layouts • Record attributes in each table • Helps to visualize and see what is included in each table Risk and Controls in Purchasing and Receiving Execution Risks • Actual receiving of goods or services and the payment and handling of cash • Two execution objective s: 1) To ensure proper receiving of goods/services 2) To ensure proper payment and handling of cash Recording Risks • Represent the risk that event information is not captured accurately in an organization's information system • Can be quite serious • Improper recording can result in misleading reports and financial statements Controls over Purchasing and Receiving • Input controls • Workflow controls • General controls • Ensures that objectives are achieved and risks are minimized Types of Workflow Controls • Activity diagram ideal document to identify existing workflow controls and the need for any more. 1) Segregation of Duties 2) Use of information from prior events to control activitie ○ Computer can check if an record in master table exists while recording an event 3) Required sequence of events ○ The sequence in which file maintenance and other events occur is important to consider in designing an AIS ○ These maintenance activities must occur before events such as requisitions - key to controlling acquisition cycle activities 4) Follow up on events 5) Sequence of pre-numbered documents 6) Recording of internal agent(s) accountable for an event in a process 7) Limitation of access to assets and information ○ Limit access to a few individuals 8) Reconciliation of records with physical evidence of assets ○ A periodic physical count of inventory is an important control used by organizations Using Workflow controls to reduce risk • Important to limit access to only authorized employees • Supervisor review current inventory status to prevent unauthorized purchase • Required sequence of events - ensure that purchases are made from authorized suppliers Types of Input Controls • Used to improve accuracy and validity of data entry Application Menu for Purchasing and Receiving • Available to the system user for recording orders and receipts • Consists of five sections : 1) Maintain 2) Record event 3) Display/print reports 4) Query 5) Exit • Provides an overview of the activities in the information system • Arranged according to the normal sequence of activities • Maintain and Record event are critical because recording occurs before processing and reporting Using Accounting Applications: Purchasing and Receiving Supplier Table Maintenance • Before requisitions can be recorded, supplier records need to be established Chapter 9 - The Acquisition Cycle.pdf Page 2 Data Entry Screen and Record Layout • See example 9.10 Pg.372 in the textbook • The field in gray cannot be used for data entry in Supplier File Maintenance, • Supplier maintenance plays an important role in controlling the acquisition process Using Supplier File Maintenance to Control Execution Risks - Unauthorized goods or services received; purchase was from wrong supplier • Organizational units have authorization to order from supplier who are already in the list of approved suppliers in the Supplier File - Wrong Quantity, quality, or price • Contracts only approved from reliable suppliers • Therefore, they are already in the Supplier File • More effective if controls are established in subsequent events to ensure pr
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