Summary of The Revenue Cycle.

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Summary

This chapter examined conceptually the revenue cycle of a typical merchandising firm and focused on the following areas:

(1) the functional areas and the flow of transaction information that triggers key tasks; (2) the documents, journals, and accounts that support audit trails, decision making, and financial reporting; and (3) the exposure to risks in the revenue cycle and the control techniques that reduce them.

The chapter examined the operational and control implications of different degrees of technology. First, we examined the manual system depicting people, organizational units, and physical documents and files. The purpose of this was to help the reader envision the segregation of duties and independent verifications, which are essential to effective internal control regardless of the technology in place. In the process, we high- lighted inefficiencies intrinsic to manual systems, which gave rise to modern systems using improved technologies and techniques.

Next we examined automated data processing techniques. Even though these systems improve record-keeping efficiency and effectiveness, they do little to advance an organization’s business strategy. We then examined reengineered systems. This involves rethinking traditional business approaches to

achieve competitive advantage by improving operational effectiveness. We then turned to control issues in the digital environment and found that computer processing consolidates many tasks, thus removing some traditional segregation of duties. The integrity of the computer programs that now per- form these tasks becomes a matter of great concern to the organization. Similarly, organization management must control access to digital accounting files and ensure that adequate backup procedures are in place.

Finally, the chapter dealt with the subject of PC accounting systems. The modular design of these systems allows users to tailor the system to their specific needs. This feature has resulted in a tremendous growth in end-user computing that is changing the way many organizations do business. The PC environment poses some unique exposures that accountants must recognize. Three of the most serious exposures are

(1) the lack of properly segregated duties, (2) PC-operating systems that do not have the sophistication of mainframes and expose data to unauthorized access, and (3) computer failures and inadequate backup procedures that rely too heavily on human intervention and thus threaten the security of accounting records.

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