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This Report Elucidates In Detail Different Factors At SCU

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Discuss about This report elucidates in detail different factors at SCU ?
 
 

Answer:

Introducation

This report elucidates in detail different factors at SCU that need to be taken into account in the process of assessment of the effectiveness of the control environment with special reference to the operations of SCU. Moving further, this study expounds five effectual internal controls that are present in the current system and determines the risk that can be controlled using the internal control processes. In addition to this, this study also detects and discusses diverse weaknesses in the present internal control of the company SCU for sales as well as trade receivables. This study hereby outlines the necessity of the IT functions in the accounting system for development of efficiency of the accounts receivables processes. In addition to this, this study also outlines the importance of IT functions for detection of internal control risks that can affect the business and the way the present internal control can mitigate diverse identified risks.

 

Identification factors at SCU that need to be taken into consideration

 The management of SCU Limited (SCU) needs to take into consideration effectiveness as well as efficiency of operations, preservation of reliability of financial reporting and maintenance of compliance with laws as well as regulations. In order to attain success, the unit management needs to acquire knowledge as well as support concerning institutional controls, implement practical as well as effectual internal controls that are specific to a definite unit. In essence, five different factors that SCU needs to take into account include control environment, risk assessment, control activities, information and communication and monitoring (Romney and Steinbart 2012). Different components of the control environment that need to be examined include integrity as well as ethical values, commitment to competence, philosophy as well as operating style of the management, structure of the organization, consignment of authority as well as responsibility (Du and Huddart 2016). The assessment of control environment of SCU Limited include proper administration of the goal of preservation of mechanization, proper establishment of application programs, effective management of bonus and salary and many others.

The factor of risk assessment under internal control involves appraisal of organizational goals, identification of risks and prioritization, management of change, management of supervision. In addition to this, assessment of risk also includes appraising outside sources, assessment of response mechanisms and self-assessment mechanisms (Stair and Reynolds 2013). Thereafter, the management of the corporation also needs to take into account and undertake certain control activities that are part of internal control. These control activities include written policies as well as procedures, control procedures in addition to controls over information system (Drury 2013). In addition to this, internal control also include appraisal of information as well as communication that includes assessment of accessibility to information and determination of different communication patterns (Rainer et al. 2013). Other than this, the component of monitoring includes human resource policies as well as practices.

 

Identification of five effective internal controls in the system

There are certain effective internal controls in the entire system as can be understood from the internal control manual.

  • Essentially, the use of stock code while entering the total quantity delivered in the computer system can be considered to be very effective. This is because it helps in automatic retrieval of stock code price from particularly the master file of the selling price. Thus, this coding of stock can be considered to be an effective system of internal control that can help in setting price against the goods sold automatically.

The use of the stock code at different delivery notes as well as at time of entering quantity delivered can help in the process of proper maintenance of identification of products and proper quoting of price of the products. Thus, this system of effective control can help in averting the risk of improper identification of a unique product and this stock code can act as an identification label for individual items (Simkin et al. 2014). Again, proper quoting of prices of the products is also possible only with accurate identification of the products having stock code.

  • In addition to this, the use of the corporation’s volume rating system can also be considered to be effective system of internal control. The process of receiving authorization from the sales director before application of discounts to valued customers can also be considered to be an effective internal control.

The process of obtaining approvals from the sales director before doling out discounts to customers can help in mitigating the risk of allotting discounts to customers who are not qualified and fit for the offer (Mahama et al. 2016). Thus, use of sales volume analysis report for volume rating can help in identification of valued customers that can aversion of the risk of selling products at discounts to non-entitled customers. Also, this process of acquiring approval from the director can also help in averting the risk of improper updating of customer discounts.

  • The process of producing computer generated analysis at the end of each month grounded on invoices that are entered into the computer system can also be regarded an effective internal control.

This computer generated system of analysis can help in mitigating the risk of presence of any kind of inaccuracies in the system of trade receivable as well as sales in the business process. This system can check whether the entire process has a working potential, help in processing as well as storing the information as regards the sales as well as trade receivables (Grabara et al. 2014). The digitally implanted information from invoice therefore can be used for generation of analysis that again can be used for arriving at business decisions. Thus, risk of inaccuracy in processing, storing and interpreting information can be avoided by using this particular computer generated system.

  • The system of preparation of reconciliation of trade receivables ledger to particularly the debtors’ control account present in general ledger can help in effective control of sales and trade receivables (Collier 2015). Again, the system of analysis of the trade receivables account at the month end and assessment of amounts outstanding for over 90 days by financial controller of the firm SCU can also be regarded to be effective system of internal control.

The process of preparation of reconciliation statement can be regarded to be an effective system that can help in proving as well as documenting the fact that the account balance are essential in agreement. Thus, this process helps in mitigation of the risk of imbalances by proper reviewing of documents as well as assessment of analytics (Muhammad and Kusuma 2014).

  • Again, the implementation of an action plan for the purpose of internal control can help in registering all the details as regards the amounts that needs to the provided to different doubtful debtors. Proper follow up of the designed action plan is also undertaken for the purpose of internal control. This in turn can help in proper monitoring as well as control of trade receivables and sales (Guragai et al. 2014).

The use of the action plan can help in the process of listing all the tasks that need to be accomplished in a bid to attain organizational objectives. Thus, this system of implementation of action plan and periodic monitoring of the same can help in mitigating the receivable risk by maintenance of balancing act, anticipate and at the same time prevent late or no payments, monitor receivables at regular basis, run particular credit checks (Dwivedi et al. 2015). Thus, the proper follow up of the action plan can help in periodic monitoring of different accounts receivable thoroughly that permits in quick recognition of trends in behaviour of payments.

 

Identification and discussion of ten weaknesses in internal control

There are weaknesses that can be observed in the system of internal control for sales and trade receivables.

Analysis of the internal control manual of SCU Limited (SCU) reflects the fact that the company uses manual delivery notes for the shipment of its product tiles to its customers from the department of despatch. The manual delivery notes are essentially raised from the sales order recording forms. This system of manual delivery notes can be considered to be a weakness of the internal control system as this might include human error and lead to erroneous financial recording (Wood 2016). Furthermore, this delivery note can get tampered in course of transaction or else can be manipulated by individuals. Addition to this, record of unfinished delivery file is also maintained in which the delivery note is registered as held for invoice where products are partially delivered. This file is supervised by the department of despatch and incomplete deliveries for over a month is checked. This system of monitoring the deliveries can also be a considered to be a weakness of the system as it fails to timely monitor the unfinished deliveries. Thus, there needs to be effect of technology in the process of keeping account. However, this requires use of computers, printers, faxes as well as scanners (Heidari and Loucopoulos 2014). Also, accounting professionals also need to appreciate the application of effective software. In addition to this, the company uses a particular application program that has been examined and strict password control are there for gaining access to different programs, however, passwords are necessary for the gaining admittance to different databases. However, this non-existence of passwords for the accessing databases can be considered to be a weakness in the process. Thus, proper information technology is necessary for maintenance of accounting security and this can limit admittance to specific confidential information.

The internal control manual also states that the return of good owing to breakages, inaccurate specifications, poor quality or else oversupply are essentially received by department of despatch of SCU. Thereafter, details of the returned goods are noted by individuals from the despatch department. Staff members also take note of the reason for the goods return and passes this document to respective trade receivable official who thereafter raises a credit note and sends the same to the customers. This process of receiving and noting the goods returned by person and remarking on the reasons for the return can be regarded to be flawed (Olson 2014). This is because this procedure might include human error, miscalculation, and inaccuracy and can affect the trade receivables of the company.

Internal control system also bears mention about the fact that the office copy for a particular manual delivery note is essentially forwarded to the trade receivable official for generation of specific invoices by computer system. Thus, inaccuracy can be present in the manual delivery note that forms the basis of the invoices (Chen et al. 2014). Again, this invoice is essentially raised by entering the entire quantity of specific quantity distributed. Inaccuracy and inaccuracy can be present in the process of inputting or entering the quantity delivered.

Another weakness in the internal control system of the corporation is the way of offering discounts to customers. The manual for internal control mentions that the company provides discounts based on a volume rating that is updated after every six months after the preparation of a report on sales volume analysis of target consumers. This report is also approved by the sales director before updating the discounts. However, this process of updating the records every six months might perhaps lead to inaccurate analysis of customers that again in turn affect the receivables of the company (Otley and Emmanuel 2013). A more efficient and rationalized process of analysis of valued customers that can evaluate customers on a more frequent basis can be used before allowance of the discounts to the customers.

However, internal control manual also mentions that sales journal summarises all the sales invoices every month that is again used by the trade receivable official for necessarily posting the same to the general ledger. Although the process of summarising of sales journals from all the sales invoices are done by a computerised system, this system can be carried out more frequently instead of every month to help in understanding the sales trajectory of the company (Olson 2014).

Analysis of internal control manual reflects the fact that receipts from debtors are essentially sent to the trade receivables official. Then the trade receivable official prepares a list of all the receipts that is received from particularly the debtors. This list is then used for the preparation of the bank deposit slip. Again, this list prepared by the official is used as the basis for entering the debtor’s payment on the computer system. This bank deposit slip prepared by the trade receivable official, therefore, need to be more stringently checked properly as inaccuracy or manipulation on the part of the trade receivable officer might lead to imbalance and flaws in the debtors’ account and the bank deposit slip (Collier 2015).

In addition to this, the internal control manual also states that a trade receivable official also prepares a reconciliation of trade receivables ledger to particularly the debtors control in specifically the general ledger at the end of every month. This process need to include necessary corrections as well as adjustments that need to be made based on the difference in the trade receivable ledger and the debtor control account present in the ledger in order to be more effective (Simkin et al. 2014).  

 


Again, as mentioned in the internal control manual, financial controller of the firm SCU Limited trade receivable aged analysis at the end of every month and appraises diverse outstanding amounts of over and above the period of 90 days. This analysis can be conducted on a more frequent basis for checking trends in behaviour of payments, determining late payments that can become a red flag as well as erratic habits of payments. A more frequent analysis can help in detection of the problems of receivable risk and help in averting the adverse effects of the same. Again, the trade receivable is also accountable for identifying the reasons for delayed payments by diverse outstanding debtors that need to be discussed with the financial controller (Mahama et al. 2016). This illustration of the reasons for delay in payments entirely depends on the information collected and the research conducted by the trade receivable official, therefore, needs to be cross checked before taking into consideration. Thus, it can be hereby stated that use of proper processing and implementation of the information is necessary in order to make the system of accounting more reliable.

As per the internal control system, there needs to be proper follow up of an established action plan. This include proper participation of collectors of debt and appropriate processing of information from them. In addition to this, as and when necessary, the specific financial controller needs to register details of accounts that need to be dispensed for doubtful debtor. This can be considered as a weakness in a process of processing of information. This information in order to be accurate requires proper use of IT function for processing of the accounting information (Romney and Steinbart 2012).

In conclusion, it can be said that the above mentioned study helps in gaining deep understanding different factors that need to be taken into consideration for assessment of effectiveness of control environment of SCU. This factors mainly include control environment, risk assessment, control activities, information and communication and monitoring. This study also helps in gaining deep overview of the current internal control system of SCU and help in analytical assessment of effectiveness and weaknesses in the same. 

 

References

Beynon-Davies, P., 2013. Business information systems. Palgrave Macmillan.

Chen, Y., Wang, Y., Nevo, S., Jin, J., Wang, L. and Chow, W.S., 2014. IT capability and organizational performance: the roles of business process agility and environmental factors. European Journal of Information Systems, 23(3), pp.326-342.

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

Drury, C.M., 2013. Management and cost accounting. Springer.

Du, K. and Huddart, S., 2016. Accounting Information Systems, Investor Learning, and Stock Return Regularities.

Dwivedi, Y.K., Wastell, D., Laumer, S., Henriksen, H.Z., Myers, M.D., Bunker, D., Elbanna, A., Ravishankar, M.N. and Srivastava, S.C., 2015. Research on information systems failures and successes: Status update and future directions. Information Systems Frontiers, 17(1), pp.143-157.

Grabara, J., Kolcun, M. and Kot, S., 2014. The role of information systems in transport logistics. International Journal of Education and Research, 2(2), pp.28-36.

Guragai, B., Hunt, N., Neri, M. and Taylor, E.Z., 2014. Accounting Information Systems and Ethics Research: Review, Synthesis, and the Future. Journal of Information Systems.

Heidari, F. and Loucopoulos, P., 2014. International Journal of Accounting Information Systems. International Journal of Accounting Information Systems, 15, pp.193-223.

Mahama, H., Elbashir, M.Z., Sutton, S.G. and Arnold, V., 2016. A further interpretation of the relational agency of information systems: A research note. International Journal of Accounting Information Systems, 20, pp.16-25.

Muhammad, R. and Kusuma, H., 2014. The Need for Accounting Information System to Facilitate Partnership Contracts in Islamic Microfinance Institutions: The Case of Baitul Maal wa Tamwil (BMT) in Indonesia. International Journal of Academic Research in Business and Social Sciences, 4(7), p.592.

Olson, D., 2014. Information systems project management. Business Expert Press.

Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer.

Rainer, R.K., Cegielski, C.G., Splettstoesser-Hogeterp, I. and Sanchez-Rodriguez, C., 2013. Introduction to information systems. John Wiley & Sons.

Romney, M.B. and Steinbart, P.J., 2012. Accounting information systems. Boston: Pearson.

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

Stair, R. and Reynolds, G., 2013. Principles of information systems. Cengage Learning.

Wood, D.A., 2016. Comparing the publication process in accounting, economics, finance, management, marketing, psychology, and the natural sciences. Accounting Horizons, 30(3), pp.341-361.

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