Computerised accounting and the auditor – connecting the dots

Introduction and objective

From September 2023, Financial Accounting (FA) has increased its coverage of computerised accounting systems and so the context of the examination has changed to incorporate this.

This will also impact Foundations in Audit (FAU) from December 2023 and, at Applied Skills, Audit and Assurance (AA) from September 2024.

The change in context will be seen, predominantly, in:

  • Recording Financial Transactions (FA1)
  • Maintaining Financial Records (FA2), and
  • Financial Accounting (FA/FFA)

Technical articles have already been published addressing these changes, in the context of financial accounting, and can be found using the Study support resources.

This technical article considers FA and FAU (with a similar impact on AA) together throughout the various business processes within a computerised accounting system. The objective of this article is to coordinate the impact of changes across both financial accounting and audit subject areas.

From solely the perspective of financial accounting, sales and purchases have already been considered under Sales and purchases in a computerised accounting system.

Business processes and integration

Sales and purchases systems will always be integrated to the computerised accounting system. Bank and cash will not be integrated. This is discussed in Process for preparing financial statements.

The following business processes appear in both subject areas:
 

Process

Systems integration

Sales of goods and services on credit

Always fully integrated with the computerised accounting system. Briefly, this means that any credit sales invoice for goods and services raised in the sales ‘module’, ‘programme’ or ‘system’ will be automatically recognised in the general ledger and in the customer’s account within the detailed listing of customer balances. This is because the customer details will be entered when the invoice is generated in the accounting system.

Note: In an exam question, terms (eg ‘module’ and ‘system’) can be used interchangeably to refer to the part of the accounting system which the user inputs information to. An exam question may, instead, simply refer to ‘the accounting system’ without specific reference to the exact part of that system the information is entered.

Purchases of goods and services on credit

Always fully integrated with the computerised accounting system. Briefly, this means that any credit purchase invoice for goods or services input to the purchases ‘module’, ‘programme’ or ‘system’ will be automatically recognised in the general ledger and in the supplier’s account within the detailed listing of supplier balances. This is because the supplier details will be entered as part of inputting the purchase invoice to the accounting system.

Disposals/ Purchases of non-current assets

Disposals/ Purchases of non-current assets are a manual process in the context of ACCA Qualifications, meaning that a manual journal entry is required to recognise a disposal/ purchase in the general ledger. Manual changes would also be required to the non-current asset register.

Bank and cash

Bank and cash (terms will be used interchangeably) are a manual process in the context of ACCA Qualifications, meaning that a manual journal entry is required for any bank/ cash receipts and payments – this includes both cash sales and cash purchases. Manual changes would also be required to the detailed customer/ supplier accounts within the detailed listings for receipts from customers/ payments to suppliers.

Payroll

Payroll is a weekly/ monthly manual process in the context of ACCA Qualifications, meaning that a manual journal entry is required for wages and salaries paid. This means that payroll reports are not automatically reconciled to the general ledger.

Inventories

Generally, inventories will be considered a manual process in the context of ACCA Qualifications, meaning that a manual journal entry is required to transfer ‘Purchases’ to ‘Cost of sales’ and, ultimately, ‘Inventories’.

An exam question may specify that the inventories system is integrated, meaning that sales/ purchases orders automatically check inventories levels and that any changes to the inventories system (i.e., in the warehouse) are replicated in the computerised accounting system (i.e., in the accounts department). This is especially relevant when considering errors in FA and controls/ control deficiencies in FAU/ AA.

Even in an integrated inventories system, the ‘Purchases’, ‘Cost of Sales’ and ‘Inventories’ transfers are still manual.

Next, we can consider these processes in more detail.

Credit sales and purchases (goods) – fully integrated

A detailed technical article has already been written for Sales and purchases in a computerised accounting system, including the impact on T-accounts. Here, we will summarise the process to allow consideration from both a financial accounting and an audit perspective – emphasising the documentation throughout the process which an accountant may issue and an auditor may review.

Sales

Stage

Process and documentation

Accounting system

Customer order

A sales order is created within the sales module and the order is placed with the warehouse

No entries

Goods despatched to customer

Warehouse staff create a goods despatched note (GDN) in the sales module and a two-way match is automatically performed by the system

No entries

Sales invoice sent to customer

Accounting staff create a sales invoice in the sales module once delivery is confirmed – a three-way match is automatically performed by the system

Automatically, the system recognises the sale, trade receivable and related sales tax in the general ledger accounts – the individual customer account in the detailed listing of customers is automatically updated with this same data

Receipt from customer

Accounting staff receive remittance advice from the customer and manually check the bank statement for receipt

As bank is not integrated, a manual journal entry is processed to update trade receivables and bank – the individual customer account in the detailed listing of customers is manually updated using the same data

Request to return goods

A returns form is received from the customer

No entries

Goods received from customer

On accepting and then receiving the return from the customer, warehouse staff create a goods received note (GRN) in the sales module and a match is automatically performed to the original sale

No entries

Supplier accepts return

On receipt of goods, accounting staff will issue a credit note from the sales module and a match is automatically performed to the GRN and original sale

Automatically, the system recognises the sale return, reduction in trade receivables and related sales tax in the general ledger accounts – the individual customer account in the detailed listing of customers is automatically updated with this same data

Refund (instead of credit)

On receipt of instructions from the customer, the accounting staff will issue a refund and send remittance advice

As bank is not integrated, a manual journal entry is processed to update trade receivables and bank – the individual supplier account in the detailed listing of customers is manually updated using the same data

Purchases

Stage

Process and documentation

Accounting system

Request for goods

A purchase requisition is prepared and authorised within the purchases module

No entries

Order sent to supplier

A purchase order is prepared and authorised within the purchases module and the order is placed with the supplier

No entries

Goods received from supplier

Warehouse staff create a goods received note (GRN) in the purchases module and a two-way match is automatically performed by the system

No entries

This may lead to the creation of a goods received not invoiced accrual but we will not consider this for FA/ FAU

Supplier invoice received from supplier

Accounting staff take the purchase invoice and input to the purchases module – a three-way match is automatically performed by the system

Automatically, the system recognises the purchase, trade payable and related sales tax in the general ledger accounts – the individual supplier account in the detailed listing of suppliers is automatically updated with this same data

Payment to supplier

Accounting staff make payment and send remittance advice to supplier

As bank is not integrated, a manual journal entry is processed to update trade payables and bank – the individual supplier account in the detailed listing of suppliers is manually updated using the same data

Request to return goods

A returns form is prepared and sent to the supplier

No entries

Goods despatched to supplier

On acceptance of the return by the supplier, warehouse staff create a goods despatched note (GDN) in the purchases module and a match is automatically performed to the original purchase

No entries

Supplier accepts return

On delivery of goods, the supplier will issue a credit note which accounting staff can input to the purchases module and a match is automatically performed to the GDN and original purchase

Note: A credit note received is sometimes referred to as a ‘debit note’

Automatically, the system recognises the purchase return, reduction in trade payable and related sales tax in the general ledger accounts – the individual supplier account in the detailed listing of suppliers is automatically updated with this same data

 

Refund (instead of credit)

On receipt of instructions from accounting staff, the supplier will issue a refund and send remittance advice

As bank is not integrated, a manual journal entry is processed to update trade payables and bank – the individual supplier account in the detailed listing of suppliers is manually updated using the same data

Other processes

Generally, other systems will not be integrated with the computerised accounting system. Briefly, we will consider elements of non-current assets and bank/ cash.

Non-current assets

Stage

Process and documentation

Accounting system

Disposals

Accounting staff manually issue a sales (disposals) invoice on delivery of the asset to the customer – there is no input to the sales module as it is not a sale in accordance with IFRS® Accounting Standards

The receipt from a customer is treated in the same way as for credit customers (sale of goods – see above)

As non-current assets are not integrated, a manual journal entry is processed to update the:

- trade receivable (credit transaction)/ bank (cash transaction)

- non-current assets cost and accumulated depreciation

- gain/ loss on disposal

The non-current asset register is manually updated using the same data

Purchases

Accounting staff manually recognise a non-current asset on receipt, using the purchase invoice received – there is no input to the purchases module as it is not a purchase of goods or services in accordance with IFRS® Accounting Standards

The payment to the supplier is treated in the same way as for credit suppliers (purchase of goods – see above)

As non-current assets are not integrated, a manual journal entry is processed to update the:

- trade payable (credit transaction)/ bank (cash transaction)

- non-current assets cost

The non-current asset register is manually updated using the same data

The asset is depreciated once ready for use

Bank/cash

Stage

Process and documentation

Accounting system

Receipts

Accounting staff recognise cash receipts as notified via remittance advice and evidenced to the bank statement (physical or electronic) or internet banking records

As bank/ cash is not integrated, a manual journal entry is processed to update the bank/ cash and corresponding general ledger account (eg trade receivables, sales or non-current assets – see above)

Payments

Accounting staff recognise cash payments as remittance advice/ payments are issued/ instructed (physical or electronic)

As bank/ cash is not integrated, a manual journal entry is processed to update the bank/ cash and corresponding general ledger account (eg trade payables, purchases, other expenses or non-current assets – see above)

Summary

Students should review all relevant technical articles for the change to computerised accounting systems. Detail has already been provided on these changes but, in this article, we have expanded on the impact of integrated systems in the context of business processes for both financial accounting and audit subject areas.

Written by members of the Financial Reporting and Audit examining teams