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The CEO of Luxurious firm, Mr. Alex, believes that the current accounting information systems is inadequate for the developing needs of the business. He asked you to do a number of things for him in your ‘new role’ as the Accounting Information Systems Development Officer.

  1. He asked you to write a brief report identifying the role that would be expected of the management team in the development and design of a new accounting information system. The underlying issue is really the role you would expect Alex “your boss” to play. 
  2. Would you expect that the people who will use the new system should have a role in any analysis leading up to, in the selection of and implementation of the new accounting information system should one be selected?
  3. Write a clear and comprehensive report on what would be involved in the adoption of a life cycle approach to adopting a new accounting information system. Specifically identify the stages that would need to be engaged in, and staff likely to be involved.

Part 2:

Luxurious firm performs its expenditure cycle activities using its integrated ERP system as follows:

  • Employees in any department can enter purchase requests for items they note as being either out of stock or in small quantity.
  • Occasionally, special items are ordered that are not regularly kept as part of inventory, from a specialty supplier who will not be used for any regular purchases. In these cases, an accounts payable clerk creates a one-time supplier record.
  • Each day, employees in the purchasing department process all purchase requests from the prior day. To the extent possible, requests for items available from the same supplier are combined into one larger purchase order in order to obtain volume discounts. Purchasing agents use the Internet to compare prices in order to select suppliers. If an Internet search discovers a potential new supplier, the purchasing agent enters the relevant information in the system, thereby adding the supplier to the approved supplier list. Purchase orders above $10,000 must be approved by the purchasing department manager. Electronic Data Interchange is used to transmit purchase orders to most suppliers, but paper purchase orders are printed and mailed to suppliers who are not Electronic Data Interchange capable.
  • Receiving department employees have read-only access to outstanding purchase orders. Usually, they check the system to verify existence of a purchase order prior to accepting delivery, but sometimes during rush periods they unload trucks and place the items in a corner of the warehouse where they sit until there is time to use the system to retrieve the relevant purchase order. In such cases, if no purchase order is found, the receiving employee contacts the supplier to arrange for the goods to be returned.
  • Receiving department employees compare the quantity delivered to the quantity indicated on the purchase order. Whenever a discrepancy is greater than 5%, the receiving employee sends an email to the purchasing department manager. The receiving employee uses an online terminal to enter the quantity received before moving the material to the inventory stores department. 

Required:

Identify weaknesses in Luxurious firm existing expenditure cycle procedures, explain the resulting problems, and suggest as solution.

Part 3:

The following table presents the results of the Luxurious firm’s ERP system for revenue cycle activities. It shows the number of times each employee performed a specific task.

 

 

 

 

Take Order

 

Approve

Credit

 

Ship

Inventory

 

Maintain

A/R

Issue Credit Memo

 

Bill Customer

Deposit

Customer

Remittances

Reconcile

Bank

Account

Employee A

250

5

 

 

 

15

 

 

Employee B

305

 

 

 

 

100

 

 

Employee C

275

 

 

10

 

 

 

 

Employee D

 

85

 

 

10

 

5

 

Employee E

 

 

400

 

 

25

 

 

Employee F

 

 

430

 

 

 

 

 

Employee G

 

 

 

 

 

600

 

 

Employee H

 

 

 

400

 

 

20

 

Employee I

 

15

 

430

25

 

 

 

Employee J

 

 

 

 

 

 

650

1

Required: Identify five examples of improper segregation of duties and explain the nature of each problem you find.

Weaknesses in Expenditure Cycle Procedures

  1. He asked you to write a brief report identifying the role that would be expected of the management team in the development and design of a new accounting information system. The underlying issue is really the role you would expect Alex “your boss” to play. 

            The roles of the Accounting Information System include the following. First, we have the financial accountants who are responsible for the organization of financial records for exterior resolution according to the General Accepted Accounting Principles (GAAP). Secondly, there is the managerial accountant responsible for doing the assembling in regard to the financial record for domestic assessments (Ismail, & King, 2014).

Thirdly, there are auditors who would be estimating the powers to serve as clear evidence on the financial assessments quality. Fourthly, the accounting managers will be in charge of commanding all accounting commotion of business entity. Fifthly, the tax consultants will be expanding the information that reproduces the commitments of tax of the business entity. Finally, we have the mentors who will come up with the Accounting Information System (AIS). To conclude, the assumption made on Alex is that he will be the Accounting Manager. This is because the authority over the other activities and the commanding of other functionalities is kept by the Accounting Manager.

  1. Would you expect that the people who will use the new system should have a role in any analysis leading up to, in the selection of and implementation of the new accounting information system should one be selected?

            Yes. There are many reasons that support the need for the people using this new system play a role in the analysis that leads to the implementation of the new accounting system. For instance, there is change in the market and its value from time to time (Kumar, 2018). Because of these changes having a working staff that is dedicated for the implementation of AIS (Accounting Information System) is of great benefit.

In order to stay up the mark and make satisfaction of the ever fast growing industrial advancements, one’s focus has to be made on current features of the legacy Accounting System (AIS) and a recommendation must be made on the updating of the current Accounting System in the market. In conclusion, it is possible with the assistance of a professional who is hired and dedicated to keep informed to the management with regard to the upgrades in the Accounting Information System (Laudon & Laudon, 2016).

  1. Write a clear and comprehensive report on what would be involved in the adoption of a life cycle approach to adopting a new accounting information system. Specifically identify the stages that would need to be engaged in, and staff likely to be involved.

Required:

Identify weaknesses in Luxurious firm existing expenditure cycle procedures, explain the resulting problems, and suggest as solution.

Weaknesses

            There is no cross checking of the orders/purchase requests made before the final copy is submitted to the suppliers. Failure to double check the orders can result to making of unnecessary orders when they are still available (Simkin, Norman, & Rose, 2014). This is wastage of resources to the firm. The products requested to be purchased should be reviewed by manager of the departments where they are originating before being approved for processing.

Solutions to Expenditure Cycle Weaknesses

             In the firm there is no use of the formal inventory control system (EOQ, MRP, or JIT).  The formal inventory control system prevents excess inventory and shortages. Failing to use these, results in both excess inventory and shortages. The planning and purchasing should make the use of formal inventory control system in order to minimise the cost of ordering, excess inventory and stock outs.

            We also find that there is no use of periodic physical inventory counts. Due to this, inaccuracy of perpetual records of inventory might become inaccurate with time. It might also become difficult when detecting inventory theft in a timeline manner. Conducting of regular physical counts of inventory is needed (Tadesse & Murthy, 2018). Also prompt investigation on the discrepancies with perpetual inventory is also needed.

             A purchasing agent might add supplier that are new to the supplier master file without consulting. This might result to unreliable suppliers. This can be protected by application of restriction rules on the people by identifying people capable of making changes to the supplier list and print a report of the changes and review the periodically to assure they have all been approved.

            Also you find that suppliers are selected based on their product prices. This might result into purchasing of low quality products to the firm. This will lead cause cost increase because of warranty repairing, scrap and also rework. The method of supplier selection should be base on the product quality and the reliability of the supplier. The configuration of the system should be able to track the performance of the supplier and the promises on the delivery dates (Pizzol, Weidema, Brandão, & Osset, 2015).

            The employees that receive the orders purchased in the receiving department have the quantities of products ordered. This may cause them not to count the quantities delivered but only to look at them without counting especially during busy hours which may result into them making errors. To solve this weakness, the firm needs to configure their systems so that they do not permit access to the quantity ordered information by the reception department.

            Other times you get to find the receiving department employees offloading products without confirming if they were among the ordered commodities. This may lead to time wastage when offloading and loading again and contacting the supplier to return the products. This problem can be solved by creating a policy that requires them to confirm valid orders before doing the offloading or accepting delivery. They should also publish and make enforcement on the effects of violating those policies (Thompson, Ravindran, & Nicosia, 2015).

The Importance of AIS

            When there are discrepancies between the received quantities and the ordered quantities greater than 5%, the employees may fail to resolve then on time especially during buy times. This may result into the employees forgetting and then fail to resolve them in future (Hall, 2015). When removing the inventory from the storeroom, there is no identity of the employee who did so. Therefore this makes it hard to know exactly the cause of the discrepancies between the inventory actual count and the count recorded. This can be solved by ensuring that the employee identification is known. Applying the use of swiping of ID badges or by entering a userID on an online terminal can be of great help to the firm.

            Sometimes the clerks responsible for making payment to the suppliers may create a one-time supplier record for paying the suppliers. This might result into possible fraudulent disbursement of money (Gutesman, Etchegoyen, Müller, & Rapisardi, 2016). The voucher also doesn’t have an indication whether it is cancelled or paid. Thus, it becomes easy for probability of payment being made twice to the same person. This can be solved by configuring the system to print a list of one-time suppliers and reviews on the list should be made at regular times to confirm if the suppliers being paid are in existence. Also the payable accounts should not be in a position to create any new supplier records. Instead, this should be done by the manager in-charge of purchases.

            Another weakness is when returning a cheque to payable accounts for mailing them to the suppliers. This process provides a good opportunity for the cheque to be intercepted and be altered (Collier, 2015). This can be solved by ensuring that the cheque is mailed by the cashier or the cashier assistance.

             There is also the existence of treasurers who make authorization of cheques payments through EFT. This process provides an opportunity where fraud might occur and the cover up the discrepancies by the reconciliation altering (Bogere, & Mukaaru, 2016). This can be solved by using someone else other than the ashier or the treasurer to reconcile the bank account statement

Part 3:

The following table presents the results of the Luxurious firm’s ERP system for revenue cycle activities. It shows the number of times each employee performed a specific task.

Take Order

Approve
Credit

Ship Inventory

Maintain

A/R

Issue Credit Memo

Bill Customer

Deposit

Customer

Remittances

Reconcile

Bank

Account

Employee A

250

5

15

Employee B

305

100

Employee C

275

10

Employee D

85

10

5

Employee E

400

25

Employee F

430

Employee G

600

Employee H

400

20

Employee I

15

430

25

Employee J

650

1

Required: Identify five examples of improper segregation of duties and explain the nature of each problem you find.

  1. Employee A takes orders and approves credit – could order for personal benefit.
  2. Employee B takes orders and bills customer – can bill customer for personal gain.
  3. Employee I maintains maintain A/R and Approve credit – can submit and approve credit from fictitious suppliers.
  4. Employee D issues credit memo and approves credit – could approve credit to self.
  5. Employee H maintains A/R and deposits customer remittances – by doing so he might deposit money to fictitious suppliers.

References

Bogere, G., & Mukaaru, J. A. (2016). Assessing Public Expenditure Governance: A Conceptual and Analytical framework.

Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.

Gutesman, E. D., Etchegoyen, J. P. P., Müller, P., & Rapisardi, J. (2016). U.S. Patent Application No. 14/923,491.

Hall, J. A. (2015). Information technology auditing. Cengage Learning.

Ismail, N. A., & King, M. (2014). Factors influencing the alignment of accounting information systems in small and medium sized Malaysian manufacturing firms. Journal of Information Systems and Small Business, 1(1-2), 1-20.

Kumar, A. (2018). Business process management. Routledge.

Laudon, K. C., & Laudon, J. P. (2016). Management information system. Pearson Education India.

Pizzol, M., Weidema, B., Brandão, M., & Osset, P. (2015). Monetary valuation in life cycle assessment: a review. Journal of Cleaner Production, 86, 170-179.

Simkin, M. G., Norman, C. S., & Rose, J. M. (2014). Core concepts of accounting information systems. John Wiley & Sons.

Tadesse, A. F., & Murthy, U. S. (2018). Nonprofessional investor perceptions of the partial remediation of IT and non-IT control weaknesses: An experimental investigation. International Journal of Accounting Information Systems, 28, 14-30.

Thompson, N., Ravindran, R., & Nicosia, S. (2015). Government data does not mean data governance: Lessons learned from a public sector application audit. Government information quarterly, 32(3), 316-322.

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