Chapter 12 Solutions Administrative Processes and Controls
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Turner/Accounting Information Systems, 2e
Solutions Manual
Chapter 12
Concept Check
1. c
2. d
3. b
4. b
Discussion Questions
11. (SO 1) What characteristics of administrative processes are different from the
characteristics of revenue, expenditure, or conversion processes?
The characteristics of administrative processes that are different from revenue,
expenditure, or conversion processes are the frequency of occurrence and the
extent of management authorization. Whereas revenue, expenditure, and
12. (SO) How do other processes (revenue, expenditure, conversion) affect the general
ledger?
Revenue, expenditure and conversion processes affect the general ledger
13. (SO 2) How would you describe capital?
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14. (SO 2) Describe the nature of the authorization of source of capital processes.
Source of capital processes are those processes that authorize the raising of capital,
the execution of raising capital, and the proper accounting of that capital. Because
15. (SO 2) How does the specific authorization and management oversight of source of
capital processes affect internal controls?
16. (SO 3) Describe when an organization would have a need to undertake investment
processes.
17. (SO 3) Why is the monitoring of funds flow an important underlying part of
investment processes?
The monitoring of funds flow is an important part of the investment process because
funds should be invested only if management has no immediate plans for their use.
Therefore, future cash needs of the organization should be monitored regularly in
comparison with cash balances to determine if there are excess funds available for
investment.
18. (SO 3) How are IT systems potentially useful in monitoring funds flow?
19. (SO 4) Explain how cash resulting from source of capital processes may be handled
differently than in revenue processes.
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20. (SO 4) What advantages would motivate management to conduct fraud related to
source of capital processes?
21. (SO 4) Why are internal controls less effective in capital and investment processes?
Internal controls are not as effective in this area because of their non-regular
occurrence and their dependence on close scrutiny by top management and the
auditors. The opportunity is greater for management to perpetrate fraud in this
process than for other more routine processes.
22. (SO 5) How is a special journal different from a general journal?
23. (SO 5) How is a subsidiary ledger different from a general ledger?
A subsidiary ledger is a detailed record of routine transactions, with an account
24. (SO 5) In what way are subsidiary ledgers and special journals replicated in
accounting software?
Subsidiary ledgers and special journals are replicated in accounting software as they
25. (SO 6) Within accounting software systems, what is the purpose of limiting the
number of employees authorized to post to the general ledger?
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Limiting the number of employees authorized to post to the general ledger allows
26. (SO 6) In a complex IT system, how may a customer actually “authorize” a sale?
A customer may actually authorize a sale in a complex IT environment when their
inventory systems interact. For example, When a customer’s inventory levels fall
below an establish reorder point, the IT system may authorize a transfer of products
27. (SO 6) To properly segregate duties, what are the three functions that general ledger
employees should not do?
28. (SO 6) In an IT accounting system, which IT controls assure the security of the
general ledger?
In an IT accounting system where the records are electronic file images, access to
the system is limited through the use of user IDs, passwords, and resource authority
tables. These general controls establish which employees have access to specific
records or files.
29. (SO 7) Describe the nature of reports for external users.
Since external users do not need detailed balance information on every existing
account in the general ledger, certain accounts may be combined or “rolled up” into
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30. (SO 7) Does the general ledger provide all information necessary for internal
reports?
The general ledger does not provide all information necessary for internal reports.
Internal reports often rely on information from various parts of the organization. For
instance, manufacturing, retail, service, and charitable organizations would each use
31. (SO 7) How would operational internal reports differ from financial internal reports?
Operational internal reports focus on non-financial details of operations, such as
machine hours, down-time, inventory and sales units, headcounts for human
32. (SO 7) How does time horizon affect the type of information in internal reports?
33. (SO 8) Why are managers, rather than employees, more likely to engage in
unethical behavior in capital and investment processes?
There are three main reasons why management may be more likely to engage in
unethical behavior in the capital and investment processes:
• Employees typically do not have access to the assets or records in the
capital and investment processes. These assets and records are
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much easier to hide within the volumes of transactions in the routine
processes like revenues, expenditures, etc.
34. (SO 8) How do processes with large volumes of transactions make fraudulent
behavior easier?
35. (SO 8) Explain the importance of full disclosure in source of capital processes.
Full disclosure is extremely important in the source of capital processes so that
Brief Exercises
36. (SO 2) Describe the steps in source of capital processes and explain how top
management is involved.
When the need for capital arises, the Board of Directors is consulted for approval
and for determination of whether debt of equity capital will be pursued. If equity
capital is chosen, a stock underwriter will be contracted to sell the shares of stock
and collect the proceeds. The company will need to determine whether or not to pay
37. (SO 3) Describe the steps in investment processes and explain how top
management is involved.
When excess funds are identified, they are to be evaluated in comparison with
upcoming needs of the organization. If it is decided that the excess should be
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38. (SO 4) Explain the internal control environment of source of capital and investment
processes.
For both source of capital and investment processes, the important control is the
specific authorization and oversight by top management. The very close supervision
of these transactions helps prevent risks related to the theft or misuse of the cash
that is related to capital and investment processes. In addition, the large sums of
39. (SO 5) Describe the steps in a manual accounting cycle.
When a transaction occurs, it must be identified as either routine or non-routine.
40. (SO 6) Describe why it is true that there may be two authorizations related to sales,
revenue, and conversion processes before they are posted to the general ledger.
41. (SO 8) For each report below, indicate whether the report is likely to be for internal
or external users (some reports may be both), and whether data would come
exclusively from the general ledger. The format would be:
Report Name Internal or External Exclusively G/L Data?
The reports are:
Income statement External Yes
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Problems
42. (SO 1, SO 2) Compare the source of capital processes to sales processes in terms
of: a. The frequency of transactions
b. The volume of transactions
c. The magnitude in dollars of a single transaction
d. The manner of authorization
Compared with the sales processes, (a. and b.) source of capital processes
occur much less frequently and in smaller volumes. Whereas sales transactions
43. (SO 1, SO 3) Compare the investment processes to sales processes in terms of:
a. The frequency of transactions
b. The volume of transactions
c. The magnitude in dollars of a single transaction
d. The manner of authorization
Compared with the sales processes, (a. and b.) investment processes occur
44. Exhibit 12-9 shows a screen capture from Great Plains accounting software. The
following modules in Great Plains are shown:
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Financial
Sales
Purchasing
Inventory
Payroll
Manufacturing
Fixed Assets
For each of the transactions listed, explain which module would you choose and
why.
a. Entering an invoice received from a supplier.
a. Entering an invoice received from a supplier- this would fall under the
Purchasing module. The purchasing module is appropriate because it
would record the purchase or expenditure in the purchases journal, as well
as the related payable to the supplier in an accounts payable subsidiary
ledger.
d. Posting a batch of sales invoices to the general ledger – this would fall
under the Financial module. The financial module is appropriate because
it includes all accounting cycle functions, including the summarization of
special journals and their posting to the general ledger.
45. Enderle Sound, Inc. internal control weaknesses.
Weakness 1: Stefan prepares and posts journal vouchers. Journal vouchers
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should be prepared by the personnel in the other processes of revenue,
expenditures, payroll, and conversion. Those journal vouchers should be
forwarded to Stefan for posting.
Weakness 2: The journal vouchers are not prenumbered. Journal vouchers
should be prenumbered and the sequence should be accounted for. Any missing
numbers in sequence should be reconciled or explained.