Transferring Accounts to a Computerised Accounting System (Cambridge International A-Level Accounting)

Spec point — the process of transferring the business accounts to a computerised accounting system ways in which the integrity of the accounting data can be ensured during the transfer to a computerised accounting system

Transferring accounts to a computerised accounting system

What is the transfer process?

• The transfer process occurs when a business moves from a manual accounting system to a computerised accounting system
• All the existing account balances and records must be transferred to the new system accurately and completely

What are the stages of a transfer process?

Stage 1 (Planning)

• Choose an appropriate accounting software for the needs of the business

• Agree a changeover date for when the new system will go live

  • All transactions up to and including the changeover date will be recorded using the old manual system
  • All transactions after that date will be recorded in the new computerised system

• Appoint a skilled person to oversee the migration

  • For example, an IT specialist or an accountant with experience of computerised systems

Stage 2 (Setting up the chart of accounts)

• A chart of accounts is the list of all nominal ledger account codes in the new system

• Recreate each account in the manual system in the new system with a corresponding code

  • No account must be omitted
  • Otherwise, balances will be lost during transfer

• The structure must reflect the same categories used in the financial statements

  • Such as non-current assets, current assets, liabilities, income, expenses, etc.

Stage 3 (Entering opening balances)

• Use the trial balance from the last day of the manual system as the source of all opening balances
• Enter each balance from the trial balance into the corresponding account in the new system
• The opening balances must be entered by an authorised member of staff only

Stage 4 (Verifying the opening balances)

• Extract a trial balance from the new system

• This must agree to the trial balance from the manual system on the same date

• Investigate any discrepancies and correct them before the new system is used to record live transactions

• An independent person should check the entries

  • This should be different to the person who entered the balances initially

Stage 5 (Parallel Running)

• Operate both the manual system and the computerised system simultaneously for a trial period

• Record transactions in both systems and compare the outputs

  • Such as financial statements and control accounts

• If the results agree, the business can be confident the new system is working correctly

• Once the directors are satisfied, the manual system is discontinued

How do businesses ensure data integrity during the transfer process?

• Data integrity means that the accounting data in the new system is accurate, complete, and consistent with the records held in the manual system
• The table shows various methods that are used to ensure data integrity

What are the consequences of poor data integrity during the transfer process?

• Financial statements might be inaccurate

  • Assets, liabilities, income or expenses may be overstated or understated

• Directors face personal liability

  • They sign the financial statements and are legally responsible for their accuracy
  • Even if errors arose during an IT migration

• Auditors may issue a qualified report

  • If auditors cannot verify figures because balances were lost, omitted, or corrupted during transfer, they cannot confirm the statements give a true and fair view

• Management decisions based on incorrect data

  • For example, reporting a higher profit than actually exists could lead to unaffordable dividend payments

Worked Example Some ledger accounts for non-current assets were accidentally deleted from the computerised accounting system by a junior member of staff during the transfer process.

State one implication of this for each of:

(i) the directors

(ii) the auditors.

Answer:

(i)

Directors are personally liable as they sign the financial statements. If the figures cannot be verified, they are responsible for inaccurate statements.

(ii)

Auditors will struggle to verify the figures in the financial statements as the records are no longer available. They may issue a qualified report.