Accounting Systems Essay

This essay has a total of 1657 words and 10 pages.

Accounting Systems

In accounting systems, certain controls are needed to ensure that employees are doing
their jobs properly and ensure that the system runs properly. These checks are in the best
interest of the organization. These controls come in the form of internal and external
controls for the system. The internal controls are the checks that are placed in the
system by the company's own management and directors. Today more and more companies are
moving from the manual accounting systems to computerized accounting information systems.
The advantages of a computerized system are increases in the speed and accuracy of
processing accounting information. However, as systems become computerized, the internal
controls for that system has to be adapted accordingly. This is because computerized
systems bring with them certain unique problems that can only be removed or minimized by
adapting the present controls and adding new controls.

In a manual system there is a paper trail for the internal auditor to follow. All records
and transactions are kept on paper and so an auditor has clear and documented proof of
what has transpired. Computerized systems rarely have a clear paper trail to follow. Since
computers do all of the sorting of the information the company rarely sorts the source
documents. Also the computer does most of the calculations and processing so there would
not be the amount of documentation that there would be in a manual system.

Another problem of computer systems is the fact that there can be difficulty in
determining who entered the data. In a manual system the identity of the person entering
the data can be identified possibly by the person's handwriting. This cannot be done in a
computerized system. This makes it very difficult to determine who is responsible for
errors or fraud. Since the computers do all calculations and processing errors can occur
due to bad design of the program. This can be difficult to detect especially if the error
does not occur frequently and only does so under particular conditions. Computer systems
also offer new opportunities for fraud. If a computerized system is not set up properly
and certain checks not put in then the computer system can be used to defraud the company.
The fact that it is difficult to trace who enters the data only adds to the magnitude of

In order to minimize the risks of errors or fraud occurring in the computer system

certain controls have to be put into place. Some of these controls include the following:

Administrative Controls

Administrative controls are those controls are those controls that are placed on the

system to ensure the proper organization and processing of data.

Division of duties.

Duties are assigned to different individuals in the organization. This is done in such a
way that no one person can have full control over a transaction. This ensures that an
individual cannot have full control over the creation and operating of the system. One
reason for this division is having one person controlling the system can result in fraud
if that person is not completely trustworthy. Another reason for the division of duties
is to prevent the organization from becoming totally dependent on the person controlling
the computer system. If this person were to leave then the organization would have no one
to run the system. The division of duties ensures that employees can leave without having
any major effect on the system.

Operation Controls

Operation controls are necessary controls since they since they determine what the
computer systems and the employees using the system have been doing. These controls can
come in the form of

rotation of shifts
duty logs
a manual of operating instructions
attendance controls
computer logs

These controls can allow an auditor to track the exact actions of the computer systems and
employees. This documentation allows the to easily spot any errors or improper actions
that have occurred.

Hardware Security

The computer hardware is not only important to the processing of the information but is
also a valuable fixed asset for the company. Therefore controls for the protection of the
hardware must be put into place. Computer hardware must be placed in a secure area where
the access to it is limited only to those who need to use it. Certain levels of security
must me maintained e.g.

only the systems administrator can have access to the CPU and storage systems. The
computer system must also be placed in a control environment to protect it from
environmental hazards e.g. dust and humidity. Arrangements should be made to protect the
computer against fires and power fluctuations. There should also be some controls in place
to recover the system in case the hardware fails. These controls would ensure that the
breakdown of the hardware would not have a serious effect on the company.


One important control is standardization. These consist of various standards that are laid
down by management for the design and development of the system. These standards include
the complete documentation of the development of the system. These standards would not
only benefit in the correcting of problems and updating of the system, the documentation
would allow the auditor to get a better idea of how the system works. This would help the
auditor in spotting possible problems in the system.

Involvement of Management

The involvement of the organizations management in the development of the system is an
important control. With these controls, management must have documentation such as
feasibility studies, budgets and performance evaluations. These documents would allow
management to decide if the system being developed would be viable and cost effective.
Without such controls, expensive projects can be started and never finished, costing the
organization a great deal in time and money. These managerial controls force the
development team to do a thorough job since they are accountable to management..


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