AIS and XBRL – Designing With Best Practices Overview

AIS 1

John C. Conner II

Professor Acheampong

Accounting Information Systems

18 April 2021

AIS 2

Albright Company is a growing business that deals with manufacturing and supplying

kitchen equipment to the foodservice industry. Its products include coffee processing equipment,

cookers and refrigerators, freezing and icing equipment. It was founded in 2015, and its main

offices are based in California, with the other retail stores based in different parts of the country.

Being a growing business, it has no established accounting information systems for processing,

tracking, and storage of its financial data. Albright Company has a small market share than its

competitors, who are well established and have a more significant market share.

There are prominent areas with potential accounting fraud in a business, especially where a

firm has no established accounting information systems. Accounting fraud can be defined as

manipulating the financial statements intentionally to present a healthy financial status of an entity

(Segal, 1). The main areas include the accounting and finance department, procurement and

storekeeping department, sales department, and the managerial department. The company's

accounts in these four areas may be manipulated to cover up thefts, resulting in accounting fraud.

The accounting and finance department in a business generally deals with accounting

inflows and outflows of cash in a company. Cash larceny and skimming are possible frauds that

can occur in this department. Cash larceny refers to stealing cash that has already been recorded in

the book of accounts, while skimming is the stealing of cash that has not yet been recorded in the

book of accounts. These kinds of fraud lead to cash loss to the firm and are familiar to companies

dealing with large amounts of cash with no well-established record-keeping practices like Albright.

Accountants in Albright can also carry out financial statement frauds whereby they can manipulate

financial statement figures to present better financial health of the company.

AIS 3

Financial statement manipulations can occur in the following items; revenues can be

overstated, primarily where a business operates at a loss or for a company that needs to gain a

market share (Tienu, 2). Overstatement of revenues results in an overall overstatement of a

company's profit and increase in the overall share price hence portraying an excellent performance

to the public. Unrecorded expenses is another form of financial statement manipulation whereby a

company's costs are reduced hence overstating the profits. Overstatement of assets and

understatement of liabilities leads to an overstated net worth of the firm.

The officer can set up a fake supplier for the procurement department and bill the company

for goods and services not provided. An employee can also set up his/her entity to supply goods to

the company at exaggerated prices. An employee can also order goods that are irrelevant to the

business and keep them in store for personal use. An employee can carry out double-check fraud.

One check is written to a supplier for the supply of goods to the company and another to the

employee but recorded in the disbursement system as a payment to the same supplier.

Mangers of Albright Company can also carry out managerial fraud to manipulate financial

statements to either overstate or understate profits. They may overstate profits to portray excellent

financial health to the public hence increasing its market share. In the cases whereby they would

like to evade tax, they may understate profits for tax evasion.

These frauds can be detected by implementing strong internal controls in the accounting

functions (Wells, 3). Segregation of duties could also be significant in detection in that there should

be different people for different related tasks. This would be helpful to the company for reducing

financial statement frauds and cash embezzlement. For example, in the accounting department,

bookkeeping, examination, and cash handling should be done by different people to oversee and

AIS 4

prevent fraud. Frequent random audits should also be done to the financial statements. Bank

reconciliations should be carried out at regular intervals for easy and early detection of frauds.

Sales and return controls can help in the proper and timely recording of sales and sales

returns with the receipts of either cash or checks. This helps reduce errors and prevent any

manipulation that could have occurred if they were to be recorded later. Accounting controls

implementation can help record financial information, detect errors in accounting information and

any illegal activity being practiced. They also help in preventing errors and inaccurate practices by

the management. For example, accounting controls would be established to limit the management's

involvement in preparing financial statements.

Job rotation is a way in internal controls whereby employees are shifted between their areas

of specialization at regular intervals. This can be effective in fraud reduction in that a potential

perpetrator knows that someone else will do his/her work for a given period and can expose the

fraud.

AIS 5

Recommendation

Albright Company is a growing company that needs to implement AIS in its operations to

decrease possible fraud occurrence. With the continued use of the old manual systems, there could

be possible occurrences of fraud which may lead to losses in the company. AIS will make it

possible for the company to be able to track its accounting information and will also help in the

retrieval of the information that is lost. With the six components of AIS, the following can be

improved;

AIS people are the users of the system of a company who are either internal or external

(Gelinas et al.,4). The users include accountants, salespeople, managers, and consultants. For

accountants, salespeople, and the manager, with a well-designed AIS, everyone can access the

same system and retrieve the same information. This system is used by consultants to evaluate the

company's growth trend and advice on the trend. AIS data will have a database structure to help

process and store the company's financial information.

AIS will help reduce the manual processes in a business and transition to the use of

automates software and processes (Romney, 5). It will also help reduce errors as automated

systems ensure precise and accurate calculation of data. AIS is also helpful in delivering real-time

financial information. They are mostly linked to the bank accounts and, hence, up-to-date

information regarding any receipt or withdrawal of money. Also, it provides time for one to work

on his or her company to increase profit margins. This is made possible by the fast and accurate

recording of transactions; hence less time is spent checking on the accounts giving time for profit-

making decisions.

AIS 6

For Albright Company, adopting a relevant AIS is recommended for fast transactions,

digitalized accounting systems for proper record keeping, and fraud detection and prevention.

AIS 7

References.

1. Segal, S. (2016). Accounting frauds–review of advanced technologies to detect and

prevent frauds. Economics and Business Review, 2(4), 45-64.

2. Petraşcu, D., & Tieanu, A. (2014). The role of internal audit in fraud prevention and

detection. Procedia Economics and Finance, 16, 489-497.

3. Wells, J. T. (2017). Corporate fraud handbook: prevention and detection. John Wiley &

Sons.

4. Gelinas, U. J., Dull, R. B., & Wheeler, P. (2014). Accounting information systems.

Cengage learning.

5. B Romney, M. (2018). Accounting information systems. Pearson Education Limited.

6. Badawi, I. M. (2005). Global corporate accounting frauds and action for reforms. Review

of Business, 26(2), 8.

7. Tiscini, R., & Di Donato, F. (2006). The relation between accounting frauds and

corporate governance systems: an analysis of recent scandals. Available at SSRN 1086624.