Activity | Usually conducted by | Activity description | Typical risks encountered | Common controls | Degree of exposure | Common controls | |
2.1 | Extract and validate data | Computer | Once processing in the subsidiary ledgers has been successfully completed, the revenue, expenditure, production, and HR management and payroll cycles send a notification to the financial cycle. The summarised details from all the subsidiary transaction systems created by these other cycles are then able to be extracted for posting into the general ledger | Incomplete data |
Batch totals and hash totals Using ledger control accounts that detail totals posted from each ledger and allow comparison of those totals |
High risk (As the financial statements are negatively effected if the data is incomplete) | Control totals can be compared to ensure that the data is right. However, any errors in the base data (data in subsidiary ledgers) cannot be identified or detected using this control |
Inaccurate data | Automated system exception reports that identify any problems encountered during extraction and validation | High risk (As the financial statements are negatively effected if the data is inaccurate) | This
control can be used to identify errors or problems in extraction
and validation. The errors or inaccuracies in the base data cannot be detected |
||||
2.2 | Post transactions | Computer | The verified summarised transaction data are posted to the relevant general ledger accounts. Once transactions have been successfully posted to the relevant accounts the transactions contained in the subsidiary ledger data stores are updated with a status code to indicate that they have been posted to the general ledger accounts | Inaccurate updating |
Batch totals and hash totals Regular control account reconciliations |
High risk (As the financial statements are negatively effected if the data is incorrectly posted) | This control helps in ensuring that there are no errors in posting |
Short note to management:
The process of posting the transactions to general ledger is an
important one as it directly affects the financial
statements.
Any error or mistake in the base data will result in misstatements
in the financial statements.
The general ledger has to be updated automatically once the
subsidiary ledgers are updated to avoid mistakes in posting of
transactions (the same is being currently followed).
As the financial statements are directly effected, the internal
controls for this process should be implemented comprehensively.
The internal controls implemented should be able to detect if there
are any errors or inaccuracies in the base data i.e. subsidiary
ledgers. The information updated in those should automatically be
posted to general ledger. A periodic reconciliation of control
totals must be prepared to ensure posting of all the
transactions.
In the given situation, the common controls listed in the table
help in detecting if there are any errors while posting. However,
the errors in the base data or subsidiary ledgers cannot be
identified or prevented. Hence, controls related to the same have
to be implemented.
13.7 please 13.7 Table 13.3 (page 602) identifies three risks typically encountered when updating the general ledger Required (a) Analyse the degree of exposure to each of these risks for...
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