B-114365(2), NOV 25, 1970

B-114365(2), NOV 25, 1970

SUBJECT: RESTATEMENT OF CERTAIN PRINCIPLES AND STANDARDS RELATING TO EXECUTIVE AGENCY ACCOUNTING SYSTEMS

HEADS OF FEDERAL DEPARTMENTS AND AGENCIES:

WE ARE AMENDING OUR INSTRUCTIONS REGARDING THE DEVELOPMENT AND IMPROVEMENT OF AGENCY ACCOUNTING SYSTEMS TO EFFECTUATE THE CHANGES IN GENERAL ACCOUNTING OFFICE REVIEW AND APPROVAL POLICIES ANNOUNCED IN MY LETTER TO YOU DATED OCTOBER 16, 1969, SUBJECT "GENERAL ACCOUNTING SYSTEMS."

THE CHANGES BEING MADE ARE DESIGNED TO PROVIDE MORE COMPLETE GUIDANCE IN THE DEVELOPMENT AND APPROVAL OF FEDERAL AGENCY ACCOUNTING PRINCIPLES AND STANDARDS AND ACCOUNTING SYSTEMS DESIGNS. AN ADVANCE COPY OF THE REVISED PERTINENT PARTS OF SECTION 27, ENTITLED "IMPROVEMENT OF ACCOUNTING SYSTEMS," OF TITLE 2 - ACCOUNTING - OF THE GENERAL ACCOUNTING OFFICE POLICY AND PROCEDURES MANUAL FOR GUIDANCE OF FEDERAL AGENCIES IS ENCLOSED.

27.2 GENERAL ACCOUNTING OFFICE ASSISTANCE

REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE WILL COOPERATE WITH THE AGENCIES IN THE DEVELOPMENT AND IMPROVEMENT OF THEIR ACCOUNTING SYSTEMS THROUGH ESTABLISHMENT OF SOUND ACCOUNTING PRINCIPLES AND STANDARDS AND SYSTEM DESIGNS. COOPERATIVE ASSISTANCE WILL INCLUDE DISCUSSING PROBLEM AREAS AND WORKING WITH AGENCY STAFFS IN THEIR SOLUTION, INFORMALLY REVIEWING DRAFTS OF ACCOUNTING PRINCIPLES AND STANDARDS AND SYSTEM DESIGNS, PROVIDING TECHNICAL ADVICE AND SUGGESTIONS AS APPROPRIATE, AND IDENTIFYING SPECIFIC AREAS IN WHICH IMPROVEMENTS ARE BELIEVED TO BE NEEDED.

THE COOPERATIVE ASSISTANCE OF THE GENERAL ACCOUNTING OFFICE, TO BE EFFECTIVE, MUST BE ON THE BASIS OF A JOINT EFFORT WITH THE AGENCIES IN DISCHARGING THEIR RESPONSIBILITY FOR DEVELOPING IMPROVED ACCOUNTING SYSTEMS. A SOUND WORKING RELATIONSHIP THROUGHOUT ALL STAGES OF ACCOUNTING SYSTEMS DEVELOPMENT FACILITATES THE CURRENT IDENTIFICATION AND RESOLUTION OF ISSUES. SUCH A RELATIONSHIP PROVIDES THE BEST ASSURANCE THAT THE AGENCY'S PRINCIPLES AND STANDARDS AND SYSTEM DESIGN WILL BE APPROVED.

TO FURTHER ASSIST AGENCIES IN IMPROVING THEIR FINANCIAL MANAGEMENT THROUGH BETTER ACCOUNTING, GAO REPRESENTATIVES ALSO WILL PROVIDE COOPERATIVE ASSISTANCE IN THE IMPLEMENTATION OF APPROVED SYSTEM DESIGNS, INCLUDING THEIR AUTOMATION, UPON REQUEST AND TO THE EXTENT STAFF RESOURCES PERMIT.

27.3 STAGES OF SYSTEM DEVELOPMENT

APPROVAL BY THE COMPTROLLER GENERAL OF AGENCY ACCOUNTING SYSTEMS WILL BE REQUESTED IN TWO STAGES:

1. AGENCY STATEMENTS OF PRINCIPLES AND STANDARDS ESTABLISHED TO GOVERN THEIR ACCOUNTING SYSTEMS.

2. DESIGNS OF THE ACCOUNTING SYSTEMS.

THE FOUNDATION OF SYSTEM DEVELOPMENT AND IMPROVEMENT IS A THOROUGH STUDY OF THE TOTAL FINANCIAL MANAGEMENT NEEDS OF A MANAGEMENT ENTITY (SEC. 11.1) AND THE ESTABLISHMENT OF AN OVERALL PLAN FOR A FINANCIAL MANAGEMENT SYSTEM (SEC. 27.1). THE NEXT STEP SHOULD CRYSTALLIZE (1) THE MANNER OF APPLICATION OF GAO PRINCIPLES AND STANDARDS TO THE PARTICULAR OPERATIONAL FEATURES OF THE ENTITY, AND (2) THE DESIGN CONCEPT OF AN ACCOUNTING SYSTEM THAT WILL INTEGRATE WITH THE OVERALL FINANCIAL MANAGEMENT PLAN AND BE RESPONSIVE TO THE FINANCIAL MANAGEMENT NEEDS OF THAT ENTITY. DEVELOPMENT OF A GLOSSARY OF TERMS IS DESIRABLE AS PART OF THESE PROCESSES.

IT IS ESSENTIAL, ALSO, THAT THE METHOD OF INFORMATION PROCESSING BE CAREFULLY CONSIDERED AT THIS AND LATER STAGES OF ACCOUNTING SYSTEMS DEVELOPMENT. THE ACTUAL DESIGN DEVELOPMENT MAY BE SO CLOSELY WEDDED TO AUTOMATED DATA PROCESSING THAT MANY ESSENTIAL DESIGN ELEMENTS, ESPECIALLY IN THE CONTROL AND AUDIT TRAIL AREAS, EXIST ONLY IN THE AUTOMATION OF THE SYSTEM.

IN SUCH SITUATIONS, THE MACHINE APPLICATION CONSTITUTES AN ESSENTIAL PART OF THE ACCOUNTING SYSTEM DESIGN AND INVOLVES THE ESTABLISHMENT OF ALL IMPORTANT ELEMENTS OF THE SYSTEM DESIGN IN THE ADP ENVIRONMENT, AS DESCRIBED IN ITEM #6, UNDER SUBSECTION 27.5, BELOW. UNDER THESE CONDITIONS, EARLY COOPERATIVE IDENTIFICATION AND RESOLUTION OF ISSUES REGARDING THE APPLICATION OF PRINCIPLES AND STANDARDS AND DESIGN CONCEPTS BECOME DOUBLY IMPORTANT BECAUSE OF THE NECESSITY OF TRANSLATING THE DECISIONS INTO THE MACHINE APPLICATION.

ACCOMPLISHMENT OF THESE ACTIONS SHOULD PERMIT THE AGENCY TO SECURE APPROVAL OF ITS PRINCIPLES AND STANDARDS WHILE PROVIDING THE FRAMEWORK FOR THE SECOND-STAGE ACCOUNTING SYSTEM DESIGN. THE SPECIFIC PATTERN OF DEVELOPMENT TO BE FOLLOWED IN EACH AGENCY SHOULD BE WORKED OUT WITH THE GAO FINANCIAL MANAGEMENT STAFF.

27.4 STATEMENTS OF ACCOUNTING PRINCIPLES AND STANDARDS

STATEMENTS SETTING FORTH THE ACCOUNTING PRINCIPLES AND STANDARDS TO BE APPLIED SHOULD BE (1) CONSISTENT WITH THE PRINCIPLES AND STANDARDS SET FORTH IN CHAPTER 2 OF THIS TITLE WHICH ARE APPLICABLE BROADLY TO ALL EXECUTIVE AGENCIES AND (2) EXPRESSED IN TERMS WHICH ADEQUATELY PORTRAY THE MANNER IN WHICH THOSE PRINCIPLES AND STANDARDS APPLY TO THE INDIVIDUAL MANAGEMENT ENTITIES OF THE AGENCY. THE STATEMENTS SHOULD INCLUDE REFERENCES TO PERTINENT PROVISIONS OF LAWS, EXECUTIVE ORDERS, OFFICE OF MANAGEMENT AND BUDGET AND TREASURY/DEPARTMENT INSTRUCTIONS, AND OTHER APPLICABLE REGULATIONS.

AGENCY STATEMENTS MUST BE SUFFICIENTLY DEFINITIVE AND EXPLICIT TO ASSURE THAT THE DISTINCTIVE FINANCIAL MANAGEMENT ASPECTS ARE PROVIDED FOR SPECIFICALLY. GUIDES THAT PROVIDE FOR ACCOUNTING RECOGNITION OF FINANCIAL EVENTS ONLY "IF NEEDED," "AS APPROPRIATE," "IF CONSIDERED SIGNIFICANT," OR "IF USEFUL TO MANAGEMENT" SHOULD BE AVOIDED.

THE ACCOUNTING PRINCIPLES AND STANDARDS MAY BE FOR AN ENTIRE DEPARTMENT OR AGENCY, FOR INDIVIDUAL SYSTEMS WITHIN A DEPARTMENT OR AGENCY, OR FOR APPROPRIATE GROUPINGS OF INDIVIDUAL SYSTEMS. THE POINT OF DIMINISHING RETURN FOR DEFINITION AND SPECIFICATION IN A SINGLE SET OF PRINCIPLES AND STANDARDS SHOULD BE DETERMINED BY THE EXTENT TO WHICH ENTITIES HAVING DISTINCTIVELY DIFFERENT FINANCIAL MANAGEMENT ASPECTS EXIST IN THE DEPARTMENT OR AGENCY. HOWEVER, THERE MAY BE INSTANCES IN WHICH A SUBSTANTIALLY HOMOGENEOUS GROUP OF ACTIVITIES LEND THEMSELVES TO A SINGLE SET OF BASIC PRINCIPLES AND STANDARDS WITH RELATIVELY FEW VARIATIONS REQUIRING SPECIFICATION.

SUBMISSION OF AGENCY PRINCIPLES AND STANDARDS MAY BE IN THE FORM OF STATEMENTS OF (1) COMPLETE PRINCIPLES AND STANDARDS OR (2) AMENDMENT OF PREVIOUSLY APPROVED PRINCIPLES AND STANDARDS. ALL SUCH STATEMENTS SHOULD IDENTIFY CHOICES MADE AMONG ALTERNATIVES THAT ARE PERMITTED BY THE GAO PRINCIPLES AND STANDARDS. THESE CHOICES MAY INCLUDE (1) VARIATIONS IN METHODS OF SUBSTANTIVE ACCOUNTING FOR SUCH MATTERS AS DEPRECIATION, ANNUAL LEAVE, AND OTHER UNFUNDED COSTS, AND HANDLING AND STORAGE COSTS, AND (2) THE USE OF DEVICES SUCH AS COST FINDING OR ESTIMATING TECHNIQUES, ANALYSES AND PERIODIC SUMMATIONS OF DOCUMENTARY DATA IN LIEU OF FORMALLY RECORDING IN THE ACCOUNTING SYSTEM EACH SIGNIFICANT AND ACCOUNTABLE ASPECT OF FINANCIAL TRANSACTIONS.

ALL ACCOUNTABLE ASPECTS OF TRANSACTIONS, E.G., RECORDING REVENUE, RECEIPTS, OBLIGATIONS, ACCRUED EXPENDITURES (INCLUDING ASSET ACQUISITIONS), DISBURSEMENTS AND APPLIED COSTS ARE SIGNIFICANT IN PRINCIPLE. FROM THE PRACTICAL STANDPOINT, HOWEVER, SIGNIFICANCE IS A RELATIVE TERM. THEREFORE, EXCEPTIONS TO THE BASIC REQUIREMENTS MUST BE SUPPORTED BY AN EXPLANATION RELATING THE EXCLUSION TO THE NEEDS IN THE MANAGEMENT DECISIONMAKING PROCESSES. SUCH EXPLANATIONS SHOULD INCLUDE

1. WHY THE DIFFERENCE IN THE FINANCIAL INFORMATION RESULTS IS INCONSEQUENTIAL AND HOW THE FORMAL RECORDING OF EACH ACCOUNTABLE ASPECT OF TRANSACTIONS AS THEY OCCUR WOULD IMPOSE A SUBSTANTIALLY INCREASED WORK LOAD WITH NO COMMENSURATE BENEFITS, AND

2. HOW THE PROPOSED ALTERNATIVE METHODS REASONABLY PROVIDE FOR COMPLETE, ACCURATE, TIMELY, AND RELIABLE DATA FOR MANAGEMENT NEEDS ON A BASIS AFFORDING AN ADEQUATE EQUIVALENT, IN THE PARTICULAR CIRCUMSTANCES, OF THE CONTROLS AND OTHER DISCIPLINES OF MORE CONVENTIONAL ACCOUNTING METHODS.

THE IMPORTANCE OF THE PRINCIPLES AND STANDARDS PHASE OF SYSTEM DEVELOPMENT CANNOT BE OVERSTATED. A DEFINITIVE AND SPECIFIC STATEMENT, PREPARED WITH CAREFUL PLANNING AND FORETHOUGHT, CAN RESOLVE MANY PROBLEMS AT THIS EARLY STAGE AND THUS AVOID DIFFICULTIES AT THE DESIGN STAGE.

27.5 SYSTEM DESIGN

THE SYSTEM DESIGN SHOULD BE SUBMITTED FOR APPROVAL WHEN THE AGENCY, IN ADDITION TO MAKING THE MAJOR DECISIONS REGARDING THE APPLICATION OF PRINCIPLES AND STANDARDS TO ITS ACTIVITIES, HAS ESTABLISHED ALL OF THE IMPORTANT ELEMENTS OF THE SYSTEM DESIGN AS DESCRIBED BELOW.

SYSTEM DESIGNS MAY BE SUBMITTED FOR COMPLETE ACCOUNTING SYSTEM ENTITIES (SEC. 11.1) OR FOR INDIVIDUAL SEGMENTS OF A SYSTEM SUCH AS PROPERTY ACCOUNTING OR PAYROLL ACCOUNTING. WHEN SYSTEMS OR DESIGNS HAVE BEEN PREVIOUSLY APPROVED, ONLY SIGNIFICANT REVISIONS NEED BE SUBMITTED. WHERE THE SEGMENTED APPROACH IS TAKEN, THE DESIGN PRESENTATION SHOULD SHOW THE RELATIONSHIP OF THE PARTICULAR SEGMENT TO THE AGENCY'S OVERALL ACCOUNTING SYSTEM.

SYSTEM DESIGNS MAY BE SUBMITTED IN THE FORM OF EITHER SYSTEM DESIGN PACKAGES OR FULLY DEVELOPED MANUALS. USE OF THE SYSTEMS DESIGN PACKAGE WILL FACILITATE REVIEW AND APPROVAL PROCESSES. A MANUAL IS ACCEPTABLE PROVIDED (1) THE MATERIAL IS ARRANGED TO DISTINGUISH BETWEEN AND SEGREGATE, INSOFAR AS PRACTICAL, THE DESIGN INFORMATION AND THE DETAILED OPERATING PROCEDURES AND INSTRUCTIONS, AND (2) IT IS ACCOMPANIED BY A DOCUMENT THAT LISTS THE DESIGN REQUIREMENTS AS DETAILED BELOW AND IDENTIFIES THE SECTION OF THE MANUAL THAT RESPONDS TO EACH REQUIREMENT.

THE TERM "GENERAL SYSTEM DESIGN" AS APPLIED TO ACCOUNTING SYSTEMS EXCLUDES DETAIL OF PROCEDURES AND INSTRUCTIONS FOR USE BY EMPLOYEES IN OPERATING AN ACCOUNTING SYSTEM. SYSTEM DESIGN PRESENTATIONS TO THE COMPTROLLER GENERAL FOR APPROVAL SHOULD CONSIST OF A CONCISE BUT COMPREHENSIVE EXPOSITION, BY COMBINATION OF DESCRIPTION, CHART, DIAGRAM, AND EXAMPLE OF ALL OF THE ESSENTIAL ELEMENTS OF THE SYSTEM DESIGN SUBMITTED FOR APPROVAL.

THE DESIGN PRESENTATION SHOULD CONSTITUTE A DEMONSTRATION THAT THE SYSTEM, IN ALL OF ITS ESSENTIAL ELEMENTS, CONFORMS TO THE AGENCY'S APPROVED PRINCIPLES AND STANDARDS AS THEY PERTAIN TO THE MANAGEMENT ENTITY AND SHOULD INCLUDE THE ITEMS LISTED BELOW. EACH ITEM SHOULD BE CONSIDERED AS INVOKING ALL OF THE PRINCIPLES AND STANDARDS THAT ARE PERTINENT TO THE ITEM AND AS REQUIRING DEMONSTRATION THAT IT IS APPROPRIATELY APPLIED TO THE ENTITY INVOLVED. FOR EXAMPLE, THE ACCOUNT STRUCTURE SHOULD MAKE CLEAR THE INTEGRATION OF BUDGETARY AND PROPRIETARY ACCOUNTING AND ITS COGNIZANCE OF PROGRAM, ORGANIZATION, AND RESPONSIBILITY STRUCTURES.

1. A GENERAL DESCRIPTION OF THE ACCOUNTING SYSTEM

A. THE OVERALL DESIGN CONCEPT OF THE ACCOUNTING SYSTEM.

B. THE RELATIONSHIP OF THE ACCOUNTING SYSTEM TO -

(1) THE AGENCY'S PROGRAM, BUDGET, AND ORGANIZATIONAL STRUCTURES'

(2) THE MISSIONS, FUNCTIONS, AND FINANCIAL MANAGEMENT NEEDS OF THE ENTITY, AND

(3) THE AGENCY'S TOTAL MANAGEMENT INFORMATION SYSTEM.

D. THE INTERFACE OF THE ACCOUNTING SYSTEM WITH OTHER ACCOUNTING SYSTEMS IN OPERATION OR UNDER DEVELOPMENT IN THE DEPARTMENT OR AGENCY.

2. THE FINANCIAL REPORTS TO BE PRODUCED

A. A DESCRIPTION, SUPPORTED BY A CHART, OF THE OVERALL RECURRENT REPORTING PLAN OF THE ENTITY (E.G., PYRAMIDAL REPORTING) IN REGARD TO BOTH

(1) ITS INTERNAL OPERATIONS, INCLUDING LOWER MANAGEMENT ECHELONS, AND

(2) EXTERNAL REPORTING RESPONSIBILITIES.

B. A LISTING BY TITLE (AND FORM NUMBER, IF ASSIGNED) OF RECURRING INTERNAL REPORTS PRESCRIBED BY THE SYSTEM, INCLUDING FOR EACH REPORT THE FREQUENCY AND THE PERIOD COVERED, OR "AS OF" DATES.

C. FOR EACH RECURRING INTERNAL REPORT PRESCRIBED BY THE SYSTEM -

(1) THE TYPES OF FINANCIAL INFORMATION TO BE PROVIDED THE VARIOUS LEVELS OF MANAGEMENT.

(2) A SAMPLE OF THE FORMAT SHOWING ILLUSTRATIVE DATA ELEMENTS (COLUMNAR HEADINGS AND STUB CAPTIONS), WITH PRO-FORMA DATA INSERTED.

D. A LISTING BY TITLE AND FORM NUMBER OF EXTERNAL REPORTS TO BE PRODUCED OR PARTIALLY PRODUCED BY THE SYSTEM.

3. THE ACCOUNTING RECORDS TO BE MAINTAINED

A. A LISTING OF THE GENERAL LEDGER ACCOUNTS BY TITLE AND NUMBER.

B. A DEFINITION OF EACH GENERAL LEDGER ACCOUNT INCLUDING THE INTENDED ACCOUNT CONTENT, CONTROL FUNCTIONS IN RESPECT TO SUBSIDIARY LEDGERS AND IDENTIFICATION OF CONTRA ACCOUNTS.

C. A LISTING OR AN OUTLINE OF THE SUBSIDIARY ACCOUNTS TO BE MAINTAINED.

D. A DESCRIPTION OF THE BOOKS OF ORIGINAL ENTRY (TRANSACTION FILES IN THE CASE OF ADP APPLICATIONS) AND THEIR FUNCTIONS IN REGARD TO THE AGENCY'S GENERAL LEDGER AND SUBSIDIARY ACCOUNT STRUCTURE.

E. A DESCRIPTION OF THE LOCATIONS AND ORGANIZATIONAL LEVELES AT WHICH ACCOUNTS AND SUPPORTING DOCUMENTATION WILL BE MAINTAINED AND AT WHICH ACCOUNTING ACTIVITIES WILL BE PERFORMED.

4. THE MAJOR ACCOUNTING PROCESSES

A. CHARTS DEPICTING THE FLOW OF DOCUMENTARY DATA THROUGH THE PRINCIPAL ACCOUNTING PROCESSES, SUPPLEMENTED BY SUFFICIENT DESCRIPTION TO ENABLE RELATING THE ACTIONS CHARTED TO THE ACCOUNTING OBJECTIVES, RECORDS, INTERNAL CONTROLS, AND FINANCIAL REPORTING REQUIREMENTS INCLUDED IN THE DESIGN PRESENTATION. B. AN EXPLANATION OF METHODS TO BE USED IN DETERMINING AND RECORDING THE AMOUNTS OF AND ACCOUNTING FOR ACCRUED EXPENDITURES AND REVENUES AND COSTS.

5. ACCOUNTING FOR COSTS

A DESCRIPTION OF THE MANNER IN WHICH COSTS ARE ACCOUNTED FOR IN ACCORDANCE WITH SECTION 16, IN REGARD TO EACH FUNCTIONAL AREA, INCLUDING

A. THE ROLE OF COST ACCOUNTING, IN TERMS OF RESOURCES CONSUMED, WHETHER FUNDED OR UNFUNDED, IN RELATION TO THE PROGRAM AND OPERATION.

B. THE DEGREE OF REFINEMENT OF OPERATIONAL CLASSIFICATIONS FOR COST ACCOUNTING PURPOSES.

C. THE RATIONALE AND CRITERIA BY WHICH ACCRUED EXPENDITURES FOR PERSONAL SERVICES, MATERIALS AND SUPPLIES, EQUIPMENT, AND OTHER PURPOSES WILL BE CHARGED AS COSTS IN THE OPERATIONAL CLASSIFICATIONS.

D. THE ROLE OF COST CENTERS OR OTHER ACCOUNTS FOR ALLOCATING, CHARGING AND ACCUMULATING COSTS.

E. AN EXPLANATION OF THE CODING STRUCTURE USED AS A BASIS FOR DISTRIBUTING AND SUMMARIZING COSTS BY ACTIVITY.

F. THE EXTENT OF ASSOCIATION OF QUANTITATIVE DATA WITH COSTS.

G. THE RELATIONSHIP OF THE COST ACCOUNTS TO THE AGENCY'S COST-BASED BUDGETING.

H. WHETHER ALL ELEMENTS OF COST ARE INCLUDED OR ONLY SIGNIFICANT ELEMENTS OF COST AND, IF THE LATTER,

(A) WHAT ELEMENTS OF FUNDED AND UNFUNDED COST WILL BE INCLUDED AND EXCLUDED, AND

(B) WHETHER DISTINCTION WILL BE MADE BETWEEN CONTROLLABLE AND UNCONTROLLABLE COSTS.

I. THE AREAS WHERE COST-FINDING TECHNIQUES WILL BE USED IN LIEU OF COST ACCOUNTS.

6. THE EXTENT AND NATURE OF MECHANIZATION AND AUTOMATION

IN A SYSTEM EMPLOYING ADP EQUIPMENT, ADEQUATE DOCUMENTATION VARIES ACCORDING TO THE CIRCUMSTANCES INVOLVED BUT IT IS NECESSARY FOR THE SUCCESS OF ANY OPERATION. THE TYPES OF DOCUMENTATION SPECIFIED BELOW ARE DEEMED TO BE NECESSARY TO PROVIDE AN UNDERSTANDING OF THE DESIGN OF THE SYSTEM. PROGRAMMED INSTRUCTIONS AND OPERATOR INSTRUCTIONS ARE NOT REQUIRED TO BE SUBMITTED FOR APPROVAL OF THE ACCOUNTING SYSTEM DESIGN.

A. THE PLANNED USE OF ADP AND OTHER MECHANICAL EQUIPMENT INCLUDING THE FOLLOWING:

(1) A STATEMENT OF OBJECTIVES PERTAINING TO THE USE OF AUTOMATION AND THE DEGREE TO WHICH THE SYSTEM WILL BE AUTOMATED.

(2) AN OVERALL NARRATIVE DESCRIPTION AND ACCOMPANYING FLOW CHART OF THE GENERAL FLOW OF INFORMATION THROUGH THE SYSTEM. THIS SHOULD TIE IN WITH THE GENERAL DESCRIPTION OF THE ACCOUNTING SYSTEM.

(3) A DESCRIPTION OF THE EQUIPMENT CONFIGURATION AND CAPABILITIES, AND THE COMPUTER LANGUAGES WHICH WILL BE UTILIZED IN PROGRAMMING THE PROCESSING OPERATIONS. WHERE SPECIFIC EQUIPMENT HAS NOT BEEN SELECTED, THE DESCRIPTION SHOULD INCLUDE A STATEMENT OF THE GENERAL EQUIPMENT REQUIREMENTS FOR PROCESSING AND STORAGE AND ASSOCIATED PERIPHERAL OPERATIONS, AND A STATEMENT OF THE PRIMARY COMPUTER LANGUAGE TO BE USED.

B. THE DESIGN SPECIFICATIONS WHICH DESCRIBE THE LOGIC OF THE PROPOSED ADP SYSTEM, INCLUDING

(1) FLOW CHARTS SHOWING THE SEQUENCE OF OPERATIONS TO BE PERFORMED BY EACH PROPOSED COMPUTER RUN.

(2) FOR EACH PROPOSED COMPUTER PROGRAM, A BRIEF DESCRIPTION OF THE FUNCTIONS TO BE PERFORMED, PROCESSING FREQUENCY, TYPE OF INPUT, AND THE RESULTING PRODUCTS.

(3) DESCRIPTIONS OF THE PHYSICAL CHARACTERISTICS OF THE DATA ELEMENTS TO BE CONTAINED IN THE TRANSACTION RECORDS AND DATA FILES, INCLUDING THE MEDIA (PUNCHED CARD, MAGNETIC TAPE, ETC.) TO BE USED.

(4) DESCRIPTIONS OF CONTROLS TO BE PROVIDED OVER DATA

(A) INPUTS, INCLUDING THE TYPES AND PURPOSES OF EDIT AND OTHER PURIFICATION OR VALIDATION ROUTINES;

(B) PROCESSING, INCLUDING THE PLAN FOR BACK-UP OPERATIONS;

(C) STORAGE, INCLUDING THE PLANS FOR RECONSTRUCTION OF THE DATA FILES; AND

(D) OUTPUTS.

(5) IDENTIFICATION OF AUDIT TRAILS IN THE AUTOMATED SYSTEM WITH SPECIAL ATTENTION GIVEN TO SYSTEMS IN WHICH CONVENTIONAL AUDIT TRAILS (SEE ITEM 7 BELOW) WILL BE OBSCURED IN THE PROCESSING OPERATIONS AND ALTERNATIVE PROCEDURES WILL BE NECESSARY.

7. THE INTERNAL CONTROLS TO BE MAINTAINED

A. A DESCRIPTION OF THE MANNER IN WHICH FINANCIAL, MANPOWER, AND PROPERTY RESOURCES ARE CONTROLLED AND SAFEGUARDED BY THE REGULAR AUTHORIZATION, APPROVAL, DOCUMENTATION, RECORDING, RECONCILING, REPORTING, AND RELATED ACCOUNTING PROCESSES.

B. AN OUTLINE OF CONTROLS OVER QUANTITY, TIMELINESS, RELIABILITY, AND ACCURACY OF INPUTS, PROCESSING, AND OUTPUTS (WHETHER FOR MANUAL, AUTOMATED, OR MECHANICAL SYSTEMS), SUFFICIENT TO DEMONSTRATE REASONABLE ASSURANCE OF ACCURATE RECORDING OF TRANSACTIONS AND REPORTING OF THEIR EFFECTS IN THE ACCOUNTING PERIOD IN WHICH THEY OCCUR.

C. A STATEMENT OF THE BASIS FOR AUDITABILITY OF THE SYSTEM IN TERMS OF RESULTS OF OPERATION AND CURRENT CONDITION, AND IDENTIFICATION OF THE AUDIT TRAILS THROUGHOUT THE SYSTEM. THIS INCLUDES A DESCRIPTION OF THE MANNER IN WHICH A PARTICULAR ELEMENT OF DATA THAT EXISTS IN THE FILES CAN BE TRACED BACKWARD TO THE SOURCE OF THE TRANSACTION THAT CREATED IT AND FORWARD TO ITS POSITION IN A REPORT.

8. THE PLANS FOR IMPLEMENTING THE ACCOUNTING SYSTEM

A. THE PROPOSED CONVERSION PROCESS INCLUDING PLANS FOR TRAINING AND A TENTATIVE SCHEDULE FOR IMPLEMENTATION.

B. A BRIEF DESCRIPTION OF THE PLANNED METHODS FOR TESTING THE LOGIC AND RELIABILITY OF THE SYSTEM.