a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. Describe the IT controls that should be in place in this system. e. (Optional) Prepare a system flowchart of a rede- signed computer-based system that resolves the control weaknesses that you identified. Explain your solution.
a. Create a data flow diagram of the current system. b. Create a system flowchart of the existing system. c. Analyze the physical internal control weaknesses in the system. d. Describe the IT controls that should be in place in this system. e. (Optional) Prepare a system flowchart of a rede- signed computer-based system that resolves the control weaknesses that you identified. Explain your solution.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I want to know the answer for question number 5.
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Transcribed Image Text:power supply in both civil and private disaster situa-
flooding and other natural disasters. GRU also
materials including bearings, copper wire, and insu-
CHAΡTER5
The Expenditure Cycle Part I: Purchases and Cash Disbursements Procedures
247
nower supply in both civil and private disaster situa-
tions. GRU's primary customers are disaster recov-
ery companies that assist home owners following
flooding and other natural disasters. GRU also
sells to building contractors, municipalities, and
rental companies. The company purchases its raw
sent to the vendor, and a copy is sent to cash disbur-
sements, where it is filed. Next, the system adds a
record to the check register file and removes the lia-
bility in the AP subsidiary ledger. Finally, the system
automatically updates the GL accounts.
lating materials inventory directly from the manufac-
tures. GRU's headquarters and manufacturing
facilities are in Dallas, Texas, where they employ
125 manufacturing and clerical staff.
GRU uses a centralized computer system with
distributed terminals in its various departments.
Recently they have experienced operational pro-
blems with their system and GRU management has
hired your auditing firm to assess its operations and
internal control procedures.
Required
a. Create a data flow diagram of the current system.
b. Create a system flowchart of the existing system.
c. Analyze the physical internal control weaknesses
in the system.
d. Describe the IT controls that should be in place in
this system.
e. (Optional) Prepare a system flowchart of a rede-
signed computer-based system that resolves the
control weaknesses that you identified. Explain
your solution.
Purchasing System
When an inventory item falls to the reorder point, a
purchase requisition is automatically created and
printed on the terminal in the purchasing depart-
ment. The clerk in the department selects suppliers
and prepares a purchase order. A copy of the PO is
sent to the vendor, and a copy is sent to the receiving
department. Then, the clerk adds a record to the
open/closed purchase order file through an update
program in the data processing department.
When the receiving clerk receives the inventories,
he reconciles the goods with the packing slip and the
purchase order. After the reconciliation, the receiv-
ing clerk prepares a hard-copy receiving report
recording the quantity and quality of the goods
received. A copy of the receiving report accompanies
the goods to the warehouse, and a copy is filed in the
receiving department. Using the department termi-
nal, the receiving clerk adds a record to the digital
receiving report file. The system then automatically
closes the purchase order. Upon receiving the inven-
tories, the warehouse clerk updates the inventory
subsidiary ledger through the terminal in the
warehouse.
6. OUTDOOR ADVENTURE: WHITE
WATER AND CAMPING SUPPLIES
(NETWORKED COMPUTER SYSTEM
AND MANUAL PROCEDURES)
Outdoor Adventure is a Montana-based wholesaler
of rafting and camping equipment that serves out-
door sports camping retailers throughout the north-
west. You have been hired by Outdoor Adventure to
evaluate its processes, risks, and internal controls.
The following paragraphs describe Outdoor Adven-
ture's expenditure cycle procedures.
Purchases System
The process begins when the purchasing clerk checks
the inventory subsidiary ledger on his computer ter-
minal each morning. When an item is deemed to be
too low, the clerk selects a vendor from the valid
vendor file and prepares a digital purchase order.
The clerk prints two hard copies: one copy is sent
to the vendor, and the other is filed in the depart-
ment. Digital purchase order record is added to the
PO File.
When the supplier's invoice arrives, the AP clerk
adds a record to the supplier invoice file, which trig-
gers the system to automatically set up a liability in
the AP subsidiary ledger based on the financial infor-
mation contained in the invoice. The system then
automatically updates all affected GL accounts.
When the goods arrive in the receiving depart-
ment, the receiving clerk inspects them and recon-
ciles the items against the information in the digital
PO and the packing slip. The clerk then manually
prepares two hard copies of the receiving report.
One of these accompanies the goods to the inventory
warehouse, where the clerk shelves the goods and
updates the inventory subsidiary ledger from his ter-
minal. The clerk then files the receiving report in the
department. The other copy of the receiving report is
Cash Disbursements System
Each day, the system scans the AP ledger for items
due to be paid and prints the checks. The check is

Transcribed Image Text:One
the
the 5. GENERATORS R US (CENTRALIZED
SYSTEM WITH DISTRIBUTED
use
TERMINALS)
om
Generators R Us (GRU) is a leading manufacturer
iles
of partible electric generators used for emergency
the
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