 Hello, and welcome to the session in which we will discuss processing controls. Processing controls are part of the application controls. Here we are talking about accounting information system application control or generally speaking information system or a software application control. Now before you process any transaction in an accounting information system, you have to input the data. You have to feed the data into the system. Then the system will process the data. Now on the prior session we looked at input controls. So how do we avoid bad data from getting into the system in the first place? In this session we're going to be discussing processing controls. Now both input controls and processing controls are part of the application control. Then eventually next we're going to discuss something called output. After the data is processed it's going to spit out some output. It could be a report, a statement, some sort of a record. Well we're going to also have output controls but that will be the next session. So why do we need to learn about processing controls? Because of the input controls that we spoke about in the prior session and remember we spoke about the batch input control and real time or just simply the input control. So we could have two type of input depending on whether the system is a real time, which is online system or we're using batch processing. So it doesn't matter. If the input control failed or did not detect the error or the errors, we hope that the processing controls in here we can catch this error from going to output. We can stop the process. So the purpose of the processing control is to prevent and detect the errors while the transaction are being processed. So as this process going on it's going to hold, it's going to stop and it's going to give us what we call an exception report or an error report telling us something is wrong. Usually processing controls are embedded, are programmed into the software during the development stage. So when the software is being developed we embed, we have those controls programmed inside the system so you cannot really change them. You can change them but sometime it may cost a lot of money. So it provides the essential control when you program it, when you build that program to minimize processing errors by preventing, detecting and correcting the errors. Now bear in mind some of these controls we're going to be discussing next. We're going to be looking at processing control. They overlap, they overlap or similar to input controls because sometime what happens is you may not have the control at the input level, you might have the control inside the processing because when you develop the software you know we did not have this technology. Now you could have this control at the input level so that could happen. So you will see that some of them they might overlap. You might see the same or similar naming and we'll see those. So next we're going to look at our actual processing controls, examples of them. So what are some examples? One is validation test and we look at some sort of a validation test in the input control. Simply put is the transaction appropriate to process. So the system once they start the process the transaction if somehow they find something wrong they would reject it. For example when we purchase inventory if the inventory code item does not match an existing inventory code, if that's not the inventory that we are supposed, we're supposed to have then we cannot process the purchase order. Why? Because it does not match an existing inventory level this is called the validation test. Again this could be done at the input level but let's assume somebody override the system or our input level does not validate, does not have this validation feature. Hopefully the processing controls the soft embedded in the software where this does not pass. We could have something called sequence check or sequence check or sequence test. Well what does that mean? It means transactions or items are in a correct and complete sequence. This also could be done at the input level and here we can talk about the completeness. Also for example you could also have a completeness test inside the processing. Usually usually it's done at the input level that also it could be done at the processing level. So this could be another similar test. Notice some of them they overlap. For example if you're dealing with sequence for example if you're processing checks, well if you see a check is missing it's going to raise a red flag, give you a report that check is missing. Sales order, sales order each one should have a predetermined number. You're looking for any duplicate sales order, you're looking for anyone that's missing. You want to know why it's missing? It could be avoided that's fine but we need to know the system the processing control should tell us look this sales order we went from 1,050 to 1,052. Where is sales order 1,051? Okay same thing for the purchase order. The processing should also have what's called arithmetic test or cross footing. Simply put check in the map and any simple software should do that as long as it's programmed properly. For example it should take the gross wages minus the withholding should give you the net pay or the gross sales minus the sales tax that we need to pay to the government should give us the sales net of tax which has taken the tax out so we know what our sales net of tax is. We could also have inside the processing control something called data reasonableness reasonableness test which is similar to the limit. For example the amount that we produce should not exceed or falls below a predetermined amount. A good example will be for example if we don't pay more than $2,000 per period per pay period wherever that period is weekly or bi-weekly or bi-monthly. So the system should not be able to generate a paycheck that's in access of $2,000. This could be a data reasonableness check or could be a limit test. So if we did not have that limit test at the input level it could be embedded in the processing level. So when we try to process the transaction it will stop. Also we could have matching control and I would say the matching control is pretty unique to the processing control because you will not be able to process the transaction until all documents or whatever all the conditions of the transaction are in the system or met. An example of that will be three-way matching which is basically we don't cut a check unless there's a purchase order a receiving report and a vendor invoice and what happened is since we are dealing with an accounting information system each one of those will have some type of a unique number or unique key that connect them. So as long as all of those exist and they went through the specific internal control whether it's in the purchasing department receiving department or obviously the vendor invoice is easy it's sent by the vendor as long as we don't have those three items available we cannot cut the check. So this is a matching control as part of the processing control. We could also have something called a transaction log controlled this could be considered processing could be considered output I'm going to discuss it a little bit more in the output control what we're going to be discussing next but I just want just want to let you know that the system keeps track of who when what and how it tells you who processed the transaction what time how did they do it which accounts were involved so on and so forth so this is what's called a transaction log again I will discuss this little bit more in the output again this could be considered a processing and this could be considered output because really the transaction log although it's showing you what happened during processing but you look at it after the fact so whether it's when I consider processing or output it doesn't matter you need to know exactly what it is what should you do now whether you are a CPA candidate or an accounting information student go to far hat lectures work additional mcqs look at additional resources that's going to help you understand this topic prepare you for your CPA exam help you in your class invest in your accounting career it's worth it good luck study hard and of course stay safe