Accounting Information Systems: The Processes and Controls, 2nd Edition

ELECTRONIC DATA INTERCHANGE (EDI) SYSTEMS AND THE RISKS AND CONTROLS (STUDY OBJECTIVE 7)

Electronic data interchange is the inter-company, computer-to-computer transfer of business documents in a standard business format. Three parts of this definition highlight the important characteristics of EDI. Inter-company refers to two or more companies conducting business electronically. The computer-to-computer aspect of the definition indicates that each company's computers are connected via a network. A standard business format is necessary so that companies can interact and trade with a variety of vendors and sellers using EDI. The standard business format allows all vendors and sellers to “speak the same language.” The American National Standards Institute (ANSI) has developed standard formats for the usual documents needed in a sales process, including purchase orders, sales invoices, price quotations, and shipping schedules. The standard in the United States is ANSI X.12.

ANSI X.12 standards divide EDI data transmissions into three parts: header and trailer data, labeling interchanges, and data segments. Header data contain information about the file or transmission being sent. The header identifies the beginning and end of a particular transaction data set. Trailer data also contain data about the file or transmission and identify the end of a particular transaction data set. Labeling interchanges identify the type of transactions in the set, such as a set of sales invoices.