ACCT425 – V1WW

Assignment 9-1: Discussion Questions Week 9

2. Discuss the various sources of data for the FRS output and how these data are processed
into output and how these data are processed into information (output) for the different
external users.

The various data sources of data for the FRS output comes from the cash receipts journal, sales
journal, purchases journal, and other transactions that come from the different departments
through transaction processing. As the transactions are entered into the system by the different
departments, it provides FRS output. After the data is entered into the system, the subsidiary and
general ledgers are updated, and then reviewed for corrections or adjustments. The financial
statements are then prepared and utilized by end users.

Example: In my current place of employment, a couple of my responsibilities are to enter

vendor invoices into the system and bill our clients every month. Along with other transactions
entered throughout the month by me and other departments, the system automatically updates all
the journals and ledgers. The finance supervisor then reviews all the ledgers for any errors,
corrections, and makes any necessary adjustments before closing each financial period or month.
After the month end closing, the finance supervisor and director utilizes all the data from the
ledgers to create preliminary financial statements for each month. These reports are then utilized
by the executive management team to analyze profit, expenses, budgets, and other necessary
financial information that may be pertinent in making decisions for the company.

4. Ultimately, is the purpose of an audit trail to follow a transaction from its input through
its processing and finally to the financial statements, or vice versa? Explain your answer.

Ultimately, the purpose of an audit trail is to be able to follow and trace transactions back to the
source documents. Conversely, the audit trail also needs to be traced from the source documents
to the financial statements to ensure that the data is accurately reflected. To verify the accuracy
of data, the financial statement balances are traced back to the source documents. To verify the
completeness of data, it is traced from the source documents to its reflection on the financial
statements.

Example: Recently, my company had an audit conducted last month. During the course of the
audit, I had to provide source documents for the auditors at various times. Since I am pursuing
degrees in the accounting field, I asked them several questions. The first time I pulled source
documents, they were verifying the accuracy of the data in the financial statements by following
the audit trail from the financial statement accounts to the data entered in the accounting system
and all the way back to the source documents. They were verifying all the source documents to
ensure they were accurately reflected in the financial statement accounts. On another occasion,
they requested source documents to follow the audit trail to the financial statements. At that time,
they were verifying that the data was entered correctly and completely. The auditors were tracing
the source documents to verify the effect on the accounts that were reported on the financial
statements. (I’m not sure if the auditors were from the company’s bank or our regular yearly
auditors. I’ve worked with auditors before but don’t recall anyone every verifying source
documents from both directions, unless it was because I didn’t know to ask them.)

19. Comment on the following statement: “More information is always preferred to less;
you can never have too much information.”

The statement is not always true. Sometimes, too much information can be inefficient and
unproductive, which can waste time. Filtering through unnecessary data to find what is truly
relevant can hinder productivity. Information overload can also cause decisions to be made that
may be suboptimal and dysfunctional.

Example: In a previous company I had worked at, financial consultants were reviewing reports
and were attempting to find the reason a sales representative was paid a particular amount of
commission for several of his orders since the sales totals and commission amount did not agree.
They had asked the VP of the sales and marketing department to research the matter since fraud
was suspected. The VP had requested data from the AP specialist in the accounting department.
The AP specialist had provided the VP with several different reports. After the VP had spent
almost two weeks reviewing all the data, he then provided his findings to the consultants. The
consultants weren’t confident with the findings and then asked me to look into the matter. After
only ten minutes, I provided them with my findings and details. Needless to say, they were
shocked that I was able to provide them with the information in such a short time, especially
since they had been waiting almost two weeks for an answer. It was discovered that the AP
specialist had provided too much information and unnecessary reports to the VP, who had
reviewed all the reports, which resulted in an incorrect analysis. Since I invoiced all the
company’s clients, I was familiar with the circumstances and was able to pull only the necessary
data. In this case, the VP was provided too much information that was unnecessary and
irrelevant, which resulted in inefficiency, lack of productivity, and an incorrect assessment. Since
it was found that the amount of commission was indeed correct, the consultants did not proceed
with their recommendation to terminate the sales representative.