Chapter 10
THE ACQUISITION
CYCLE—
PURCHASE
INVOICES AND
PAYMENTS
Overview of the Process
for Recording Invoices
and Making Payments

Documenting the process
for recording invoices and
making payments:
Identification of Events
 Record supplier invoice
 Select invoices for
payment
 Approve payment
 Prepare checks
 Sign checks
 Complete payment
Overview of the Process
for Recording Invoices
and Making Payments


Documenting the process
for recording invoices
and making payments:
Annotated narrative and
workflow table
Overview and detailed
activity diagrams
Overview of the Process
for Recording Invoices
and Making Payments
Documenting the data design:
 Events and tables used
 Data design
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Execution risks
 Unauthorized payment
 Cash not paid or paid late
 Wrong amount paid
 Wrong supplier paid
Overview of the Process
for Recording Invoices
and Making Payments
Risks and controls in
recording invoices and
making payments:
 Information system risks
- Recording risks:
 Recorded an event that
never occurred
 Event not recorded,
recorded late, or
unintended duplication of
recording
 Event data item not
recorded correctly
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Information system risks
- Recording risks:
 Wrong type of product
or service recorded
 Wrong quantity or price
recorded
 Wrong external or
internal agent recorded
 Wrong recording of
other data items that
are stored in event
records
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Information system risks
- Update risks:
 Update of master record
omitted or unintended
duplication of update
 Update of master record
occurred at the wrong time
 Summary field updated by
wrong amount
 Wrong master record
updated
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Controls:
 Workflow controls
 Segregation of duties
 Use of information from
prior events to control
activities
 Required sequence of
events
 Follow-up on events
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Controls:
 Workflow controls
 Sequence of prenumbered
documents
 Recording of internal
agent(s) accountable for
an event in a process
 Limitation of access to
assets and information
 Reconciliation of records
with physical evidence of
assets
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Controls:
 Input controls
 Drop-down or look-up
menus
 Record checking of data
entered
 Confirmation of data
entered
 Referential integrity
controls
 Format checks to limit
data
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Controls:
 Input controls
 Validation rules to limit
the data
 Defaults from data
entered in prior sessions
 Restriction against
leaving a field blank
 Field established as a
primary key
Overview of the Process
for Recording Invoices
and Making Payments

Risks and controls in
recording invoices and
making payments:
Controls:
 Input controls
 Computer-generated
values entered in
records
 Batch control totals
taken before data entry
compared to printouts
after data entry
 Review for errors before
posting
 Exception reports
Using Accounting
Applications for
Recording Invoices and
Making Payments
Record purchase invoice:
 Process
Step 1: Accumulate a batch
of invoices
Step 2: Enter each invoice
Step 3: Print an edit report
Step 4: Review report and
make corrections
Step 5: Post the batch
Using Accounting
Applications for
Recording Invoices and
Making Payments
Record purchase invoice:
 Risks and controls
 Recorded an event that
never occurred
 Vendor invoice is not
recorded, recorded late,
or recorded twice
 Invoice data item is not
accurate
 Invoice recording and
execution risks
Using Accounting
Applications for
Recording Invoices and
Making Payments
Select invoices for payment:
 Process
Step 1: Print an open
payables report
Step 2: Select invoices for
payment
Step 3: Print a cash
requirements report
 Execution risks
Using Accounting
Applications for
Recording Invoices and
Making Payments
Prepare checks:
 Controlling risks
 Segregation of duties
 Required sequence of
events
 Limitation of access to
assets and information
 Sequence of
prenumbered
documents
 Positive pay system
 Efficiency
Using Accounting
Applications for
Recording Invoices and
Making Payments
Complete payment
process—signing and
mailing checks
End of period activities:
 Print accounts payable
ledger
 Purge records
KEYTERMS
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Accounts payable ledger
Audit trail
Bank reconciliation
Cash payments journal
Cash requirements report
Journal
Open payables report
Purchase invoice
Purchases journal