term 4
1
, Table of Contents
o APPLICATION CONTROLS THEORY ............................................................................. 3
o LESSON 8: Revenue Cycle ......................................................................................... 9
o RECEIPTS CYCLE ...................................................................................................... 33
o INTEREST ON OVERDUE DEBTORS ........................................................................... 56
o INVENTORY CYCLE & INVENTORY COUNT ................................................................ 58
o BANK & CASH CYCLE: BANK RECONCILIATION ......................................................... 63
2
,o APPLICATION CONTROLS THEORY
Chapter 5:
o Introduction to risks and internal controls in a computerized environment
• Computers have a large variety of purposes within a company
• Valuable resource so the company should secure it
• Computers are included in strategic planning
• Different systems have similar generic risks
• Internal controls and principals must be implemented to address risks
• Impacts the following: how business is done, client interactions, financial reporting, operations control
• Not only used for the processing of information
• Supports the decision-making process
o Important concepts:
network = 2 or more connected computers
• LAN = Local Area Network = connected in 1 location eg: a building
• WAN = Wide Area Network = connected in several geographical locations eg: different cities
o Hardware
• Central Processing Unit, Motherboard, RAM, Power cable, Printer, keyboard, screen, etc.
o Software Types:
• Operating / system software:
- Makes sure the hwardware functions and it is the interface between user hardware and software.
- Users are not aware of these activities performed.
è Windows , Linux
• Application software:
- executes specific functions required by the user
è Pastel, Excel , Turbocash
o Database
• Transaction files (transaction details for individual transactions)
• Masterfiles (permanent & cumulative totals/balances)
• Refer figure 5.1 for visual representation
o Transaction files
• Batch processing = Supplier invoice
• Real time processing = Goods receive note (GRN)
• Traction files = capturing of transaction information per individual transaction
• Batch processing = provide instruction to update (many transactions together)
• Master files: permanent info = client name + contact details + inventory description
• Real time processing = updates immediately, one transaction at a time
• Database = master files, information and all transactions
3
, • Columns = where data is stored in fields
• Row = records consisting of various fields
• File = a collection of records
• Database = a collection of all related files
o Evolution of IT
• Internet
- Created opportunities for businesses to transact online
- Interact directly with supplier’s and customer’s computer systems
- Give rise to virtual and extended enterprises
è Each stage of IT evolution gave rise to new risks and required new controls to address these risks
STAGE OF IT RISK
Distributed networks Segregation of duties
Mobility Theft & unauthorised access to confidential information
Open Source Increased areas to exploit
Image processing reduce input errors
(barcode scanning)
Convergence risks increase and similar to computer
(cameras,scanner, data storage, GPS, snapscan)
Cloud computing Disruption of business when internet connectivity is jeopardized,
and data can also be lost or intercepted in communication
o 4th industrial revolution:
• This gave rise to new technological breakthroughs in a number of field
• Digital revolution within society
Future technologies:
• Artificial Intelligence and machine learning
• Blockchain technology
• Big Data and data analytics
• Robotics and autonomous vehicles
o Protect computer information systems
HOW AND WHY?
Advantages of good IT control:
• Company reputation / trust improves (internal and external parties)
• Strategic alignment with IT business objectives = more effective business operations and better competitive
advantage
• Non-IT management personnel are able to understand IT better & have a better decision-making process as a result of
higher quality and timely information being available
• Greater level of compliance with laws and regulations
• Risk management procedures maximised by adequate implementation of IT controls
4
1
, Table of Contents
o APPLICATION CONTROLS THEORY ............................................................................. 3
o LESSON 8: Revenue Cycle ......................................................................................... 9
o RECEIPTS CYCLE ...................................................................................................... 33
o INTEREST ON OVERDUE DEBTORS ........................................................................... 56
o INVENTORY CYCLE & INVENTORY COUNT ................................................................ 58
o BANK & CASH CYCLE: BANK RECONCILIATION ......................................................... 63
2
,o APPLICATION CONTROLS THEORY
Chapter 5:
o Introduction to risks and internal controls in a computerized environment
• Computers have a large variety of purposes within a company
• Valuable resource so the company should secure it
• Computers are included in strategic planning
• Different systems have similar generic risks
• Internal controls and principals must be implemented to address risks
• Impacts the following: how business is done, client interactions, financial reporting, operations control
• Not only used for the processing of information
• Supports the decision-making process
o Important concepts:
network = 2 or more connected computers
• LAN = Local Area Network = connected in 1 location eg: a building
• WAN = Wide Area Network = connected in several geographical locations eg: different cities
o Hardware
• Central Processing Unit, Motherboard, RAM, Power cable, Printer, keyboard, screen, etc.
o Software Types:
• Operating / system software:
- Makes sure the hwardware functions and it is the interface between user hardware and software.
- Users are not aware of these activities performed.
è Windows , Linux
• Application software:
- executes specific functions required by the user
è Pastel, Excel , Turbocash
o Database
• Transaction files (transaction details for individual transactions)
• Masterfiles (permanent & cumulative totals/balances)
• Refer figure 5.1 for visual representation
o Transaction files
• Batch processing = Supplier invoice
• Real time processing = Goods receive note (GRN)
• Traction files = capturing of transaction information per individual transaction
• Batch processing = provide instruction to update (many transactions together)
• Master files: permanent info = client name + contact details + inventory description
• Real time processing = updates immediately, one transaction at a time
• Database = master files, information and all transactions
3
, • Columns = where data is stored in fields
• Row = records consisting of various fields
• File = a collection of records
• Database = a collection of all related files
o Evolution of IT
• Internet
- Created opportunities for businesses to transact online
- Interact directly with supplier’s and customer’s computer systems
- Give rise to virtual and extended enterprises
è Each stage of IT evolution gave rise to new risks and required new controls to address these risks
STAGE OF IT RISK
Distributed networks Segregation of duties
Mobility Theft & unauthorised access to confidential information
Open Source Increased areas to exploit
Image processing reduce input errors
(barcode scanning)
Convergence risks increase and similar to computer
(cameras,scanner, data storage, GPS, snapscan)
Cloud computing Disruption of business when internet connectivity is jeopardized,
and data can also be lost or intercepted in communication
o 4th industrial revolution:
• This gave rise to new technological breakthroughs in a number of field
• Digital revolution within society
Future technologies:
• Artificial Intelligence and machine learning
• Blockchain technology
• Big Data and data analytics
• Robotics and autonomous vehicles
o Protect computer information systems
HOW AND WHY?
Advantages of good IT control:
• Company reputation / trust improves (internal and external parties)
• Strategic alignment with IT business objectives = more effective business operations and better competitive
advantage
• Non-IT management personnel are able to understand IT better & have a better decision-making process as a result of
higher quality and timely information being available
• Greater level of compliance with laws and regulations
• Risk management procedures maximised by adequate implementation of IT controls
4
