SNHU Accounting Cycle Controls Discussion Replies

3 responses with references

Initial information: Research and select an authoritative article regarding one of the accounting cycles covered in this week’s readings (revenue, expenditure, or production). Provide a link to the article and summarize the key points for your peers. Discuss the relevance of the article to the AIS and the influence control has on the selected cycle.

1-The revenue cycle is “a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales” (Romney et al., 2020). The main objective of the revenue cycle is to generate and collect revenue in the most efficient and effective way possible and includes the entire process from the beginning with the client’s initial order to the end with collecting the clients payment, all while maintaining a high level of customer satisfaction and minimizing and potential loss of revenue (Romney et al., 2020).

Being the primary target of fraud, the revenue cycle requires strong and comprehensive internal controls. From the International Business & Economics Research Journal, a checklist is provided to help review the revenue cycle’s internal control of the four elements, sales order entry, shipping, billing, and cash collection, which was developed under the AICPA and PCAOB standards (Heinze et al., 2010). The checklist consists roughly of 45 suggested control activities, seven of which relate mainly to accounting information systems and are listed below.

• The information system restricts to authorized personnel the ability to create, change, or delete sales orders, contracts, and delivery schedules.
• The information system edits and validates order entry transactions on-line.
• The information system restricts to authorized personnel the ability to create, change, or delete sales order return and credit note requests and subsequent credit note transactions.
• The information system does not allow processing of sales orders that exceed customer credit limits.
• The information system reports of invoices issued but not posted in finance are prepared and investigated promptly.
• The information system matches sales order return and credit request transactions to invoices.
• The information system reports of gaps in document numbering are reviewed regularly.

Source: Heinze, T., Kizirian, T., Lees, J.S., & Sandoe, K. (2010). Internal Controls for the Revenue Cycle: A Checklist for the Consumer Products Industry. International Business & Economics Research Journal.

The checklist also ensures that the internal controls adhere to SOX compliance standards as well as assists in the preparation of an external audit. It occurs more often that the Accounting Information System may get overlooked when it comes to internal controls. Applying the checklist to assist in assessing the procedural controls of the AIS would help find any possible gaps that may cause materiality issues and would need to be corrected immediately.

2.-The accounting cycles work collectively to manage and track the various aspects of a company’s operations. According to our text, the production cycle “is a recurring set of business activities and related information processing operations associated with the manufacture of products” (Romney, et.al., 2020). The article that I read this week discusses the importance of digital control, information security, and W. Edwards Deming’s PDCA cycle during production. As modern production is elevated through new technology and designs, the complex, high-performing processes require the formation of equally high-performing control programs (Lontisikh, et.al.,2020).

The PDCA cycle is a problem-solving method for improving upon processes, products, or services. The stages of the cycle can be summarized as follows:

• PLAN: recognize opportunities for improvement and establish goals while developing action plans for achieving them.
• DO: execute the plans while collecting data for analysis.
• CHECK: evaluate the results of the implemented changes
• ACT: take action based on the results – incorporate successful changes into regular practice, or go back to the PLAN stage for further improvements

At each stage, decision-making must be based on risk management. Consideration for improvements must focus not only on current issues but also on potential future problems. It is here that modern digital information technology can provide significant advantages in production as IT can collect, store, and process information related to the entire production life cycle – increasing efficiencies and controls along the way.

3.- For today’s discussion I chose to focus on an article entitled “Extending Financial Control Over The Entire Revenue Cycle” written by Stephen Diorio. In the article the author discusses how many companies are switching their revenue streams away from more traditional sales transactions, but rather into streams with reoccurring revenue such as subscriptions, for example. The author goes on to highlight how this impacts the overall revenue cycle.

Personally, I think this is very important and something that accountants need to be aware of when it comes to AIS because AIS needs to be updated in order to properly account for these revenue cycle changes. I also think that accountants may have a harder time trying to explain to others why companies are making this switch and how this affects accounting when it comes to the revenue cycle. Therefore, it definitely can be a learning curve, but one that will need to be made in order to ensure that the systems run smoothly! That said, I think that it is amazing to see more businesses switching to more passive streams of revenue such as subscriptions because it allows for the consumers to have more options. Which gives the consumer more opportunity and reason to say yes to doing business with these forward thinking companies!