## **Learning Outcomes**

After reading this article, you will be able to describe the purpose and methods of coding, filing, and authorisation in the accounting process. You will understand how these procedures help ensure data accuracy, maintain completeness of records, and provide an effective audit trail. You will also be able to apply these principles when reviewing transaction documentation and recording business data, as required in the ACCA FA1 exam.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand the tools and procedures used to ensure reliability, accuracy, and completeness of accounting records. In this article, focus on the following syllabus points:

- The need for a coding system and its function within bookkeeping and filing
- How coding supports data entry in a double-entry accounting system
- Filing practices for orderly record retention, retrieval, and legal compliance
- The importance of authorisation in transaction approval and control
- How coding, filing, and authorisation support data accuracy, completeness, and the creation of an audit trail

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which of the following is a benefit of using unique account codes in a computerised accounting system?
   a) Reduces the need for audit trails  
   b) Makes data entry less efficient  
   c) Increases the clarity and accuracy of postings  
   d) Removes the need for filing documents

2. When should a business document (such as an invoice or petty cash voucher) be authorised?
   a) After payment is made  
   b) Before it is entered into the accounting records  
   c) At the end of the accounting year  
   d) Only during an audit

3. What is an audit trail and why is it important for complete and accurate financial records?

4. Briefly explain how proper filing supports compliance with legal and audit requirements.

## **Introduction**

Recording financial transactions involves more than just entering data into a system. For records to be reliable and audit-ready, businesses must take care in how they code, file, and authorise documents. These processes ensure the right information is recorded, kept secure, and is accessible when needed. This article explains how coding and filing systems, together with formal authorisation, contribute to the integrity, completeness, and traceability of accounting data—essential requirements for both day-to-day operations and external scrutiny.

> **Key Term: coding system**
> A structured arrangement using unique references or codes to identify accounts, customers, suppliers, or documentation within an accounting system.
>
> **Key Term: audit trail**
> A clear and traceable sequence of documentation and records showing the origin and history of every transaction in the accounting system.
>
> **Key Term: authorisation**
> Approval by a responsible person, such as a manager or supervisor, confirming that a transaction or document is genuine, valid, and should be processed.

## CODING: ENSURING CONSISTENCY AND ACCURACY

Coding is the practice of assigning unique identifiers to accounts, documents, and entities within the accounting records. Codes can be numeric, alphabetic, or alphanumeric and are applied to general ledger accounts, customers, suppliers, inventory items, and documents such as invoices and vouchers.

A well-structured coding system:

- Prevents confusion between similar or identically named accounts
- Speeds up data entry and retrieval
- Facilitates analysis and reporting
- Reduces errors by removing ambiguity

Systems often use block or hierarchical codes (e.g., all expense accounts might begin with '5', customer accounts with 'C', etc.). Significant digit or mnemonic codes may include characters or numbers that reflect the type or owner of the record.

> **Key Term: block code**
> A coding arrangement where sequences of numbers or letters are reserved for specific categories to group related accounts or items logically.
>
> **Key Term: mnemonic code**
> A code using letters or combinations related to a name, making codes more easily recognisable and memorable.

## FILING: ORGANISING AND PROTECTING RECORDS

Appropriate filing systems are essential for the management, retention, and retrieval of business documents. Documents must be stored so that:

- Supporting evidence is available for all transactions entered into the accounting records
- Disputes or queries can be resolved by reference to original paperwork
- Legal and tax requirements for document retention are met

Good filing should be logical and consistent. For instance, sales invoices may be filed in sequential number order, supplier invoices by supplier code and date, and petty cash vouchers by voucher number. Electronic filing follows similar principles, with metadata (such as document codes and authorisation markers) supporting search and compliance.

> **Key Term: document retention**
> The practice of storing accounting documents securely and in a manner that supports access and compliance with legal or regulatory requirements.

## AUTHORISATION: MAINTAINING CONTROL

Authorisation is a core internal control within any accounting system. Before payments are made or entered into records, documents such as purchase invoices, petty cash vouchers, or payroll instructions should be approved by an authorised signature or password. This:

- Confirms the validity of the transaction
- Prevents unapproved or fraudulent spending
- Creates a record of responsibility for decisions

The level of authorisation required often depends on the value or type of transaction, with higher values requiring approval from senior staff.

### **Worked Example 1.1**

A purchase invoice for \$2,500 is received for new office equipment. The accounts clerk codes the asset account appropriately, attaches the delivery note, and submits it for authorisation. The department manager reviews and signs the invoice as approved.

> **Answer:**
> This process ensures the invoice is posted to the correct account, filed with supporting evidence for future reference, and that only valid transactions are processed and paid. The manager’s signature is proof of authorisation.

## THE AUDIT TRAIL: TRACEABILITY FROM START TO FINISH

An audit trail exists when, for every transaction, you can follow a clear path from original documentation (e.g. purchase order and invoice) to entry in the accounting records, including coding, filing, and authorisation steps. This traceability is essential for both internal checking and external audits. Without an audit trail, errors or attempts at fraud could go undetected.

### **Worked Example 1.2**

A petty cash claim is made for local travel expenses. The employee submits a petty cash voucher, attaches train ticket receipts, and signs the voucher. The petty cash officer checks the claim, references the correct expense code, and authorises reimbursement. The voucher is then filed sequentially.

> **Answer:**
> As a result, the transaction can be traced from the initial claim through to accounting system entry and, ultimately, to the business’s financial statements—forming a complete audit trail.

## ACCURACY AND COMPLETENESS: HOW SYSTEMS WORK TOGETHER

By using coded identifiers, reviewing and approving documents, and securely filing originals, businesses guard against omissions and errors in the accounting system. The coding system promotes consistency, the filing system ensures documentation is accessible, and authorisation confirms legitimacy. Together, they protect the accuracy and completeness of data and reduce the risk of undetected mistakes.

### **Exam Warning**

> Coding errors—such as using the wrong account code—can lead to entries being posted to incorrect ledger accounts, distorting financial statements. Always review codes carefully during data entry.

### **Revision Tip**

> Regularly check that coding guidelines and authorisation limits are understood by all staff involved in processing and reviewing documents.

## **Summary**

The integrity of financial records depends on robust coding, controlled authorisation, and systematic filing. Coding provides clarity and accuracy; authorisation enforces control and accountability; proper filing ensures completeness, security, and retrievability. These practices, combined, establish a strong audit trail—a key requirement for accurate financial reporting and compliance.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the purpose of coding in identifying accounts, documents, and transactions
- Describe filing practices used for secure and accessible record retention
- Understand the function of authorisation and its role in transaction control
- Recognise how coding, filing, and authorisation uphold data accuracy and completeness
- Identify the steps in creating and maintaining an effective audit trail

## **Key Terms and Concepts**

- coding system
- audit trail
- authorisation
- block code
- mnemonic code
- document retention

Coding, filing, and authorisation - Data accuracy, completeness, and audit trail