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© Matti Mattila, CPFA, CISA, CIA |
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Basic Functionality
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Accounting systems provide users with control information.
Anyone attempting to keep performance or state of affairs within what is expected,
allowed or accepted needs information about "what is" or "
"what happened" compared to what "what should be" or "what should have happened".
We make such comparisons all the time in our brains, based on what we know and what are our findings.
This biological data processing system is factually an accounting system. It has limitations.
To overcome them organizations establish accounting systems that do one or more of the following tasks:
(1) store information about objectives, plans, restrictions and other such criteria;
(2) gather, store, retrieve and deliver information about actual events and conditions (facts); and
(3) make comparisons between criteria and facts.
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Criteria And Facts
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A prerequisite for control is that we know what we want, i.e. we have set objectives, norms, standards,
time-tables, normal profiles or other expectations.
They are called criteria here.
From the control point of view it is vital that the criteria tell accurately and realistically
what should be or happen and to what degree, by whom and when,
or - in some cases - what should not be or not happen.
Various criteria can have interdependencies, which help in anticipating consequences
- e.g. what happens to profit if gross margin on sales falls 15 per cent below what we expected.
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A criterion is something against which to measure progress towards objectives.
A criterion can be an objective itself, or if the objective cannot be expressed in measurable terms,
an indicator or group of them. Derived from the criteria organizations determine what data to collect.
When objectives are complicated it is worth considering whether to collect information
about both quantitative and qualitative aspects of performance, outputs, results, outcomes
and even unwanted side effects of the performance.
Organizations collect systematically also [control] information
that can that can be valuable e.g. in finding reasons for disturbances and anomalies
- such as events stored in the logs of operating systems and applications
and in the files of cameras that record traffic on areas, where access is forbidden or limited.
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An enterprise should yield satisfactory return to owners.
That's why it must sell [at least] certain amount of products at certain price,
within certain period, not exceeding marketing and other restrictive budgets.
The amount of products sold affects how many products to manufacture or to buy,
which in turn depends on the stock balance and target levels to it.
How much products to manufacture or to buy affects how much to buy factors of production,
and how much to invest e.g. in new equipment.
Sales revenues and costs of factors of production, affect the financial position of the enterprise,
and its financing needs.
The objectives above recorded in various budgets are criteria for internal control.
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Comparison
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The key thing in control is a comparison of facts with criteria.
Computerized systems can help here organizations by providing facts, criteria, and comparison
and any combination of them.
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Systems supplying facts. These systems
(1) serve as an additional or extended “memory and senses” for a human being,
(2) [usually] protect information against unauthorized access and change and
(3) make it possible to inspect attributes of events and course of actions afterwards.
Examples: monitoring and follow-up systems that provide users with information
about level of performance, products, services and results, and realization of risks;
also systems that record and store information about events
- such as security camera systems.
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Systems supplying criteria.
These systems assist in making informed decisions and e.g. in avoiding erroneous actions.
Examples: checklists and; expert systems.
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An expert system, also known as a knowledge based system,
is a computer program that contains some of the subject-specific knowledge of one or more human experts...
The most common form of expert systems is a program made up of a set of rules that analyse information
(usually supplied by the user of the system) about a specific class of problems,
as well as providing mathematical analysis of the problem(s),
and, depending upon their design, recommend a course of user action in order to implement corrections
[23].
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Systems supplying comparison of facts and criteria.
Examples: a many-entry bookkeeping; a time recording system; an access control system;
a project management system; a follow-up system; a password system; and a firewall [22].
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Basic Requirements For Accounting Systems
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Accounting systems can prove economic, effective and efficient elements of internal control
provided that the following things are in order.
There should be, too, possibility to inspect whether input data, processing results,
and data processing of an accounting system are reliable.
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Relevance and quality of the information used by the systems.
One should identify what information is needed, how to collect it, and how to process it.
Accounting systems should have controls to ensure that information will be timely, accurate,
and integer and protected from unauthorized users.
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Correctness of data processing. Users and administrators
should be provided with appropriate guidance, user support, and resources.
Systems should have controls against run errors, and they should report errors when such occur, too.
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Availability of information.
Systems should be compatible, modifiable, and error tolerable,
and they should have processing priorities and continuity plans.
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[22]
E.g. firewalls are not only comparing data with certain rules,
but also automatically collecting, storing and protecting collected data,
and writing a log about relevant events.
[23]
Source: Wikipedia
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