provide it with current information regarding which new customers have issued payment for systems, which customers have not yet paid for their product, and how sales forecasts are measuring up against actual performance. Because the company's product sells for as much as $100,000, it is generally not paid for in one installment. Instead, the company receives 30% when the contract is signed, another 30% when the software is installed, and the remaining 40% when the software has been operational for 90 days. While this is the contractual agreement, the actual payment schedule sometimes varies, with customers withholding payment of the last installment if there is trouble with the system or if they are dissatisfied for other reasons. If customers withhold payment past 30 days, they are placed on credit hold and no additional service is given to them until the issue is resolved with the accounting department.
Other users of the system include customers, who depend on the system for accurate invoices and statements, and vendors, who depend on the system to generate payment in an appropriate and timely manner.
The overriding objective of ABC's accounting system is to translate transaction data into decision and control information. Mere bookkeeping systems could generate invoices and statements, and issue checks on a regular basis. ABC expects that its accounting system will take the information from these transactions and render it useful for making future decisions. Budgets, hiring decisions, sales forecasts and similar decisions are based on information contained in the accounting system. Similarly, the accounting system also provides information that can be used to determine whether prices and rates need to be adjusted since profit margins can be gauged from transaction information.
The boundaries of the ABC system are, in some cases, well-defined and implemented, while in other cases, they are ill-defined. The controls ...