1. What documents support the payment of an invoice?

Discuss where these documents

originate and the resulting control implications.
Response: The payment of an invoice may be supported by the purchase requisition, purchase
order, and receiving report. The purchase requisition originates from inventory control and
represents the inventory requirements. The purchase order originates from the purchasing
department and represents an order placed. The receiving report originates from the receiving
department and represents the quantity and types of goods received. Thus, the accounts
payable must determine that the goods ordered were requested by some department other
than purchasing, that purchasing ordered the goods from a valid vendor, and that the goods
were actually received. If all three conditions are met, the invoice should be paid. Further,
payments should be made for only those goods received in good shape.
2. You are conducting an end-of-year audit. Assume that the terms of trade between a buyer and
a seller are free on board (FOB) destination. What document provides evidence that a liability
exists and may be unrecorded?
Response: The Receiving Report serves as a proof/evidence that the items have been received
and a liability has been realized. By the end of the year, if the invoice did not come in, then the
liability may not have been recognized in the period under review.
3. Discuss the major control implications of batch systems with real-time data input. What
compensating procedures are available?
Response: The first control implication is that a fundamental separation between authorization
and transaction processing no longer exists. The computer programs both authorize and process
the orders and issue checks to the vendors. The compensating control is to provide transaction
listings and summary reports that describe the automated activities taken by the system to
management. In order for these controls to work, the managers must take the time to carefully
review these reports. The second control implication is that the accounting records as well as
the computer programs reside on magnetic disks. These disks should not be accessed by any
individuals not authorized to access them in any fashion. The compensating control is to employ
hardware, software, and procedural controls over the data stores.
4. Discuss some specific examples of how information systems can reduce time lags that
positively affect an organization.
Response: One example is by reducing the time it takes to record the receipt of inventory into
the inventory records that are used to inform customers whether or not their requested item is
available. Also, the inventory levels are also reduced more quickly for those inventories that are
being shipped. With a reduced time lag, the risk of promising to ship an item to another
customer when it is not available is greatly reduced. Further, the automated system will be less
likely to pay an invoice too early, while at the same time not missing the discount period. Thus,
cash management is improved.
5. How does the procedure for determining inventory requirements differ between a basic batch
processing system and batch processing with real-time data input of sales and receipts of
inventory?
Response: A system that employs real-time data entry of sales will have the inventory levels
updated more frequently. Thus, when a sale depletes the inventory level to the reorder point,
 the system will flag it for reorder more quickly than if it had to wait for a batch update of the
inventory records. The sooner the item is ordered, the sooner it will be received. With respect to
the real-time receipt of inventory, the inventory will be updated immediately to show the
accurate amount that is on hand. A customer wishing to know how soon an item will be shipped
will receive more accurate information regarding the status of the firm’s inventory levels. Thus,
the customer benefits from better stocking of inventory and better information regarding the
inventory levels.

Term FOB shipping point:

a. Yes

b. The best evidence is provided by the Purchase Order and Bill of Lading

Purchase Order—is evidence that the item was ordered, but does not indicate when it was shipped.

Bill of Lading—reviewed post-period; will indicate when the goods were shipped

Receiving Report—prepared post-period; establishes possession but may not indicate when goods were
shipped

c. June 15

d. July 10

Term FOB destination:

e. No

f. N/A

g. July 5

h. July 15