1. © 2009 by SAP AG. All rights reserved. / SAP University Alliances Page 1 Learning Objectives Review a typical purchasing cycle of transactions while observing how a highly integrated ERP system (SAP) handles them Observe the integration between the materials management (MM) module and financial accounting (FI) module Work through a test of transactions (similar to part of an auditors’) Investigate various types of application controls in an ERP system Learn how a suspense account (the Goods Received/ Invoice Received account) is used Accounting Information Systems

2. Purchasing Cycle Cash Availability Verified Invoice Verified & Processed Issue Payment (AP zeroed) Goods Receipt (creates accrued liability) Purchase Order Select Vendor(s) Check Budget Availability Purchase Requisition Purchasing Exp & Funds Mgmt Materials Mgmt Accounts Payable Idea for Chart taken from Univ. of Toronto Accounting Information Systems

3. Professions, Purchasing, and SAP Materials Management Accounting & Finance AuditingAccounts Payable IT-Data base with data integrity Inventory levels adequate Product Quality Budgeting and Cash Flow Projections Daily Cash Flow Decisions General Ledger Account Review Oversight of Accounts Payable Process Invoices Payment Priorities Survey of Controls – including IT Tests of Controls Tests of Transactions Tests of Account Balances Accounting Information Systems

4. © 2009 by SAP AG. All rights reserved. / SAP University Alliances Page 4 Test of Transactions A test of transactions is an audit procedure used for compliance testing A normal business transaction is followed through all of the steps in the business process, including: The ERP system – Checking for unusual vendors and unusual amounts – Verifying sequential control is maintained – Attempting to input invalid vendor numbers – Year end period timing, including suspense account review – Proper approvals Adequate supporting documentation For each step in the transaction, the auditor checks all affected accounts to verify the transaction is processed properly: inventory levels and GL accounts Accounting Information Systems

5. © 2009 by SAP AG. All rights reserved. / SAP University Alliances Page 5 Review of Application Controls There are two categories of controls dealing with computerized environments: Application Controls – Controls programed into the computer applications General controls – Controls that are not application controls (i.e. All other controls) Following is a list of application controls: Field check Sign check Limit check Range check Size (or capacity) check Completeness check Validity check Reasonableness test The assignment asks you to classify specific application controls in SAP Accounting Information Systems

6. © 2009 by SAP AG. All rights reserved. / SAP University Alliances Page 6 Suspense Accounts Suspense Accounts provide for timing differences in the real world In academia, goods and invoices arrive at the same time, making one entry to Inventory and AP possible, however this does not happen in business In a real time system, if you delay recording the inventory received until the invoice is received, inventory (and accrued liabilities) will be misstated So a suspense account entry is made to “hold“ the transaction until the rest of the transaction‘s data can be resolved If the goods are received first, then the entry is: Goods InventoryXXX Goods Received/Invoice ReceivedXXX Then when the invoice is received, the following entry is made: Goods Received/Invoice ReceivedXXX Accounts PayableXXX The GR/IR account should zero out when all the information for the transaction is entered Accounting Information Systems

7. © 2009 by SAP AG. All rights reserved. / SAP University Alliances Page 7 Information Records – The link between two “many to many” relationships SAP uses the term information record to denote the linking relationship between two different entities, such as in this assignment between vendors and goods This is not standard terminology, but this linking is a standard (and necessary) practice in accounting information systems From a technical perspective, since a vendor can provide many products and a product can be provided by many vendors, this necessitates the use of a separate database table to store the information While a transaction can be completed without an information record, the information stored in the information record is very important It allows us to compare prices, delivery conditions, minimum and normal order quantities, etc. for a given product for multiple vendors With this information we may use one vendor for normal purchases because of a lower price and a different vendor for rush orders because of shortened delivery times Accounting Information Systems

8. © 2009 by SAP AG. All rights reserved. / SAP University Alliances Page 8 Steps in the Assignment Following are the steps you will do in the assignment: 1. Examine the chart of accounts 2. Examine the account settings for financial accounting use 3. Create a material master, vendor master, and linking information record 4. Check the inventory and accounting records after you record each of these transactions: – Create a purchase order for the material (a purchase requisition is not included in this assignment) – Receive the material – Receive the invoice from the vendor – Make payment to the vendor Accounting Information Systems