Question

12-27 (Objectives 12-2, 12-7) Most grocery stores use bar code scanning technologies that interface with cash registers used to process customer purchases. Cashiers use the scanners to read bar code labels attached to each product, which the system then uses to obtain unit prices, calculate transaction totals, including sales taxes, and update perpetual inventory databases. Similarly, cashiers scan bar codes on coupons or member discount cards presented by the customer to process discounts. Along with the scanning technologies, groceries use point-of-sale technologies that allow customers to swipe debit and credit cards for payment, while still maintaining the ability for customers to pay with cash.

Required

1. Which financial statement accounts are impacted by the use of these technologies in a typical grocery store?

2. Identify risks inherent to this business process in a grocery store that might affect the financial statement accounts identified in part a. For each risk, describe how these technologies help reduce the inherent risk.

3. How might an auditor use technology to test the operating effectiveness of a bar code scanner–based check-out system?

Answer 1

a. Using bar code scanners for recording sales primarily will impact Revenue (ie Sales) accounts, Inventory (mechandise), Cost of Goods sold a/c, Sales Tax payable a/c, Cash a/c. Moreover member discount cards and coupons will impact Sales discount accounts too. Goods returned may be scanned and the Sales Returns accounts will be impacted.

b.

Business process	Impacted Accounts	How can technology help
1. Inaccurate reduction in inventory	Cost of Goods sold a/c , Inventory a/c	Bar code reader can track movement of goods sold and make corresponding changes in the inventory and cost of goods sold ledgers.
2. Improper discounts and coupon usage	Sales discounts, Cash a/c	Code reader reads the coupon and matches it with the discount masterfile, thus assurance of right discount rates and amount can be made
3. Unit Price may be wrongly inputted	Sales a/c, Cash a/c	Code reader reads the bar code and matches it against the master file which stores data related to the price. Hence, Right amount of unit price will be recorded.
4. Computation of Tax Rates may be erroneous	Sales taxes payable a/c, Cash a/c	Manual input of tax rates or tax amount may be erroenous. bar code can scan and match the bar code with the taxation master file in the syetme and ensure correct amount of tax is computed.

c.

• Auditor can manually compute selling values by choosing individual products and scan them using bar scanner. He can now compare the values and check for any discrepencies. He can also compute coupons and discounts manually and can these coupons and the, compare both and verify for any differences.
• Auditor can use audit softwares to test the accuracy for sale transactions and the revenue summaries generated by these code readers.
• Auditor can use audit softwares to understand and test the algorithm and working of matching of barcodes with that of the masterfiles to output the sales value.
• Auditor need to verify the system and test especially on occassion of sales returns and also how accounts are updated.
• Auditor should test the algorithms on how inventory masterfiles are updated when code reader scans the product's bar code at Point of sale.