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Cross Regime Skills

Compliance

Computerised Accounting

Computerised Accounting Compliance

2 Version 1.0 - June 2016

Contents

In this book you’ll get an introduction to Computerised Accounting by

asking the following questions.

1. Who uses computerised accounting systems?

2. What is Hardware?

3. What is Software?

4. What are computerised accounting packages?

5. Why use a computerised accounting package?

6. What are accounting package modules?

7. What is an EPoS system?

8. What are integrated packages and interfaced software?

9. How do you set up an accounting package?

10. What are the risks posed by computerised accounting packages?

Reference material

There's some reference material at the end of this guide, which you

can use to increase your knowledge and understanding of the topics

when you need to for your job.


Version 1.0 - June 2016 3

Introduction

Most businesses keep some, or all, of their accounting records

on computer.

Compulsory online filing of VAT and Corporation Tax (CT)

returns has made computerised accounting packages even

more attractive and relevant to businesses.

Many businesses also have internet access, email

communication and e-commerce systems for functions such as

marketing and online sales and ordering.

In this book, we’ll look at some of the hardware and software

businesses use for computerised accounting.



Learning outcomes and study objectives

The following table sets out what you will be able to achieve

after you have successfully studied this book.

Learning outcomes Study objectives

You will To achieve this you need

to be able to

understand how

computerised

accounting systems

are used.

identify the benefits of

computerised

accounting packages

(CAP).

understand the basic

principles of CAPs.

identify the risks

associated with CAPs.

identify the controls

used to counter the

risks.

Time to complete

We estimate it should take you this long to finish the book.

Reading main text 20min

Total 20min



1. Who uses computerised accounting systems?

The diagram below shows the various entities that use

computerised systems. It also indicates how the systems are

used to assist the entities achieve their objectives.

System Users

Sole Trader/Single Director

May run their computerised accounting system on little more than

a PC (either desktop or laptop) and a printer

Proprietor may operate a simple accounting package with minimal or no support

Large Organisations

Can have PCs linked to a network, with file

servers holding business data, may be in one

local office or various UK and overseas offices

May have an in-house computer department

or may have outsourced all or part of its IT requirements to one or more third

party providers

HMRC

Range of Specialists available to help check computer records: Data

Handling Specialist and Large Business

Audit Specialists

Both groups can work with you to:

Help with any general computer related queries

Identify the audit trail

Assist with obtaining information from the

system

Arrange data downloads for interrogation on an

HMRC computer



2. What is Hardware?

Hardware consists of computers, servers and associated devices such

as printers, scanners and bar code readers or hand-held equipment

such as smartphones. It is important to find out which hardware

holds the accounting and business information you need to access.

Har

dw

are

Desktop PCs

Have enough processing and storage capacity to deal with large business accounts

Laptops and Netbooks

Are capable of running accounting software

Have suffiicient capacity to deal with most small to medium businesses

Local Area Network (LAN) and Wide Area Network (WAN)

Enable business computers to share information.

Can consist of two or thousands of computers

Connection will usually be to a local server which in turn is connected to another server "Peer to Peer"

LAN - network of computers in one building

WAN - network of computers linked to local server which is then linked to other servers

Smartphones

Capable of running computer applications, but it is unlikely that a mobile will be used to keep a customer's accounting

records



3. What is Software?

Computer software performs tasks. The computer operating

system works with the computer hardware enabling the

different programs or application software to perform their

particular functions. Businesses may run many different types

of software. Below are some examples of those that may help

you in your compliance checks.

Soft

war

e

Accounting

Accounting package is associated with systems which account for money. Packages vary dependent on how they are used, what they produce and

cost. Examples:

Simple spreadsheets created as required by the user: free accounting packages: Standard accounting packages: Tailor-made or bespoke

accounting packages

Stock Control

Stock control records can be of great interest in a compliance check.

One of the early questions in a check should be whether the stock control is computerised.

Businesses also use computers to record flow of stock.

Design

Some businesses use design software to design consumer goods ranging from motor cars to knitting patterns. This area may potentially be of help

if you need to construct a business model.

Administrative Systems

Keep track of what is happening in the business , e.g.:

Human Resources Systems - info on employees and payroll systems.

Decision support systems

Word Processing software

Customer Relationship Management Systems - track sales reps customer contact

Transport Records

Email, Calendars & Internet

Most businesses routinely communicate by email. They may also use integrated calendar function. In some trade sectors the booking calendar

is a key record - these can be used to check credibility of company records.



4. What are computerised accounting packages?

A simple definition of computerised accounting is the

computerised processing, recording and reporting of

transactions (sales, purchase, stock movements, asset sales

and acquisitions, payroll and many other functions).

The output of these systems are the reports they produce.

A package is made up of a number of accounting modules each

dealing with a particular area of accounting. Eighty per cent

(80%) of the software used in the small and medium business

sector is supplied by ten main software suppliers including

Sage and Quickbooks.

For large businesses the market is dominated by SAP and

Oracle.

The diagram on the next page shows the layout of a basic

computerised financial package.



Reports from all modules

Simple principles of a basic Computer Accounts Package

Nominal Ledger

Assets

Liabilities

Capital

Bank payments/receipts

Cash payments/receipts

Journal Entries

Sales Ledger

Invoices

Credit notes

Receipts

Purchase Ledger

Invoices

Credit notes

Payments

Stock Control

Receipts

Despatches

Purchase Order

Processing

Invoices

Sales Order

Processing

Invoicing

Report Generator

Reports

Trial balance

Profit & Loss

Balance Sheet

Core modules likely to be found in all computerised accounting packages

Non-core modules commonly encountered



5. Why use a computerised accounting package?

Here are some of the benefits for a business that uses a

computerised accounting package.

They can:

manage their business and accounts efficiently

save time as transaction details only need to be keyed

once – the system automatically posts the other side of

the double entry posting to the relevant accounts

reduce the possibility of errors, as the software carries

out validation checks on the data as it is keyed in

access displays or reports which give immediate access

to up-to-date and factual information

have up to the minute (real time) stock records

print documentation, such as delivery notes and

invoices, as part of an automated process

maintain information which allows business wide analysis

and reporting, such as sales by geographic region or

product type

share information readily between various staff members

and departments in the business

easily back up information so that it can be restored if

the computer system fails

be electronically linked directly to suppliers' or

customers' systems, to improve the processing of

orders, for example, e-commerce systems or internet

trading.

make informed management and strategic decisions,

keep close budget and financial control, monitor cash

flow, minimise human error, minimise internal fraud.

Most software carries out a validation check on the plausibility

of the data automatically.

Equally, HMRC validates data as it is entered on line and may

raise a validation check.



6. What are accounting package modules?

Accounting packages come in various types and are made up of

modules. The table below explains how the different packages

are designed and work. Later, we’ll explain what the various

modules do within an accounting package.

HMRC has worked closely with software houses to ensure the

packages work.

Typ

es o

f A

cco

un

rtin

g Pa

ckag

es

Generic

An off the shelf package; minimal set up; handles basic accounting rquirements: Sage, Quickbook, Pegasus or

Quicken are typical examples.

User Defined

More complex and usually used by large businesses operating in a specialised market; acquired direct from software house, via a consultant; allows user to tailor the package to their need: Example - SAP and Oracle

Bespoke

Written by third party to specifically meet the requriements of a particular business

In-House

Similar to Bespoke but developed in-house by business' own staff.

Industry Solutions

Package written for particular business sector, could be generic or user-defined

Other Generic

Sage Payroll, Pegasus Opera Payroll and MYOB payroll -can be run as standalone. Abacus and Alpha Tax -

designed for Corporation Tax. Tax Engine performs complex tax calculations.



Core Modules

These vary from package to package, however there are three

core modules that should always be present.

Co

re M

od

ule

s

Accounts Receivable (AR) or sales Ledger (SL)

In which the business enters its Sales Invoices and money received for Sales

Accounts Payable (AP) or purchase Leger (PL)

in which the business enters its purchase invoices and payments made for sums it owes.

Nominal Ledger (NL) or general ledger (GL)

Deteailed breakdown of all the debits and credits entered on the double entry system - assets, liabilities, income & expenses. This is the

keystone of a bookkeeping system and contains non-personal accounts. It is updated from the

cash book

petty cash book

purchase ledger

purchase day book

sales ledger

sales day book



Non-Core Modules

In addition to the core modules, a business may use one or

more non-core modules. The three most common are Sales

Order Processing, Purchase Order Processing & Stock Control;

there are further examples which have been included below.

No

n-C

ore

Mo

du

les

Sales Order Processing

Records customer orders and may produce sales invoices

Purchase Order Processing

Records orders placed and possibly matches goods received & purchase invoices

Stock Control

Records receipts and dispatches, current stock and stocktaking adj

Expenses

Entries for business related expenses

Payroll

Calculates and tracks wages

Project Management/job costing

Records professional's time worked to enable a charge to be raised

Manufacturing

Controls production processes

Electronic Point of Sale (EPoS)

Gathers information from electronic tills

Logistics

Manges goods flow, transport facilities from point of origin to point of supply



7. What is an EPoS system?

Epos systems and stock control systems have a particular

importance in relation to returns of tax and duty as they record

takings and control the stock that businesses sell. In retail,

catering, entertainment and leisure sectors goods or services

are often coordinated by EpoS systems.

EPo

Suses a till to record sales

uses bar codes for pricing (inc VAT)

handles credit or debit card payments

controls an integrated stock system

automatically records stock

checks sales details prior to issuing refunds

generates kitchen orders for restaurants

gathers information for marketing purposes

can range from a single electronic cash register (ECR) or till, to a large system with hundreds of ECRs

linked to a mainframe computer used by a large retail business

most EPoS systems hold details of all transactions on a computer to which each till is linked, often referred

to as the back office system



8. What are integrated packages and interfaced software?

Inte

grat

ed a

nd

Inte

rfac

ed

IntegratedAn application that Comprises a number of modules which work

together and share data files.

Package works as a whole. There is no need to pass data out of the package

Interfaced

A package that is not restricted to original modules and contains third party software to handle specialist

functions (known as Bolt ons)

Bolted on software is not fully integrated with the main package and

stores the data in its own files. This information then is then interfaced into

the main package

Interface take many forms:

a special program which handles the transfer without human intervention

or

one applicatin may create a file which is then imported to another application

or

data may need to be manually rekeyed.



9. How do you set up an accounting package?

Before a business can use any accounting package it must

input key information into the system. Below you will find the

standard information required for set up.

Sett

ing

up

business name, address & email

those using the system (User Details)

customer, supplier and maybe product details

tax or duty rates

tax rules and rates for example for exports

product or service tax liability

accounting periods

tax periods or special tax periods

Rules about non-deductibility again specific nominal ledger codes such as business entertainment

details of any opening account balances



10. What are the risks posed by computerised accounting

packages?

There are various risks associated with Computerised

Accounting; below are the main identified risks.

Ris

ksHardware Risks

Physical Security of Hardware

Hardware Support

Data backup and recovery

Advances in technology

Software Risks

May not meet needs

Generic - may not meet legal requirements

Change of software

Lack of support from software provider

Set up may be wrong

Insufficient password protection

Problems with interfaces between software applications

User Risks

Poor Staff Training

Out of date procedures or guidance notes

Inadequate support

Assumption that computers are infallible

Bypassing system controls

Posting transactions to suspense accounts

Corrections and deletions

Other Risks

Multi company records

Spreadsheets



Controls

In order to minimise the number of errors made in accounting

systems most businesses have controls in place to prevent

errors occurring; below is a snap shot of those controls.

Co

ntr

ols

Physical

Security and safeguard of equipment

System

Use of passwords

Setting security levels

Validation checks

Duplication checks

Auto generated system reports

Use of control accounts

Interfaces

Setting up checks to test and check interface is behaving correctly



That completes the learning in this guide.

Make a note of anything you didn't understand in the space

below so you can ask your learning or line manager.

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manager, or workplace coach.

Notes

Documents

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