1
Running Head: ACC 675 a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a
6-1 Final Project Milestone Three: Comparative Systems Report
ACC675
SNHU
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The draft comparative systems report gives an insight into Trinity Industries’ electronic
data processing system. Based on substantive testing, the accuracy of its financial information has
been checked, and suitable recommendations have been made to strengthen its internal controls.
IV. Bottom-Up Approach
Strengths and Weaknesses
The main strength of the bottom-up approach that was adopted by Trinity in the first year
was that the insight of organizational members as taken regarding the controls and processes. It
gave the management a ground-level insight into the measures that were in place. However, the
main weakness of the bottom-up approach for internal control was the over-cost relating to SOC
compliance. In the context of Trinity, none of the identified control gaps (265 gaps) had been
identified as high priority, based on the bottom-up approach. The approach was effective since
there existed no weakness of material in the initial year relating to SOX compliance.
Recommendations
In Year 1, the main thing that the company could have done differently was to use the top-
down approach. It would have helped Trinity Industries to have better control over the existing
control mechanisms. It is an ideal alternative since it would have enabled the company to
minimize the workload while reducing the expenses relating to SOX compliance. It would have
helped to understand the overall risk pertaining to internal control over financial reporting
(Viewpoint : PWC. Viewpoint, 2022).
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Comparison with top-down risk approach
The top-down approach is a risk-based approach that focuses on allocating resources on
the specific areas where there is a probability of higher risk. A thorough understanding of a firm’s
financial reporting risks is of high importance (Deloitte Us: Audit, Consulting, advisory, and Tax
Services. Deloitte United States, 2021). This simple method relies on historical data. A major
weakness is that it creates differences between the team members and decision-makers. The
bottom-up approach considers every risk to be of equal importance, so it is not possible to
prioritize risks. In order to give a comprehensive insight into a risk, the process takes a
considerable amount of time and resources.
Compliance project
In the first year, the adoption of the bottom-up approach was more appropriate for
completing the compliance project successfully. As the SOX compliance requirement was a fairly
new concept for the business, such a detailed process worked well for the company and helped it
to get familiar with the new set of regulations, i.e., the Sarbanes-Oxley Act (SOX) (Bottom-up
approach for compliance: The master position. emmanuel . W3, 2009).
Impact on the internal control structure
When the top-down approach is adopted to manage internal controls, the senior
management has the responsibility to develop suitable internal controls. These controls do not lie
within the normal or general perception relating to normal controls. Their involvement is critical
to impact the effectiveness of the internal control structure (Save Money on Sarbanes-Oxley
Section 404(a) Compliance. Marmann & Associates, P.C. - Certified Public Accountants &
Consultants, 2021). When the bottom-up approach is adopted, the role of leaders is restricted
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since they are not directly involved in formulating the internal control structure. The teams and
organizational members are the ones that deploy control measures and are responsible for framing
the internal control structure that is adopted in organizations.
Chief insights
The pilot project that was conducted at Trinity Industries was highly insightful. It shed
light on the gaps that existed relating to the internal controls. By conducting the pilot study, the
business was able to ascertain that there existed several control gaps at diverse levels within the
organization. It also revealed that there existed gaps between the AS-IS practices and the
SOXcompliant manner of operating. It served as a foundation for conducting an in-depth gap
analysis. Testing processes
The specific testing processes that were carried out by Trinity to ensure compliance
included analytical tests, inquiry and observations, tests of transactions, and tests of balances. The
role of each of these substantive tests was of paramount importance since they helped to locate
loopholes that existed in the existing processes and protocols. While performing the tests, Trinity
started with the initial transactions and then moved upwards toward the financial statements of the
company. Based on the bottom-up approach, it was able to identify a total of 265 gaps that needed
to be filled to improve the internal controls. The company failed to take appropriate approach
measures in designing the controls since, in June 2004, 1573 of its control activities broke down.
The most useful testing process
The most useful testing process that was carried out by the company, which helped in
assessing its accounting system was gap analysis. By performing a detailed gap analysis, the
company was able to identify 1249 control activities along with 265 gaps. It further shed light on
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the fact that out of the 265 gaps, 172 were related with documentation, and none of the gas had
been categorized as high priority risks.
Recommendations
To: Trinity Industries management
From: Auditing team
Date: December 13, 2022
Subject: Results of the first year of testing and recommendations
The results of the first year of testing at Trinity Industries shows that there exists
considerable gas relating to internal controls. It can affect its ability to comply with the SOX
regulations and requirements in the future. Although the bottom-up approach was suitable in the
first year, in the subsequent years, it might not help the company to have an effective control over
its internal controls.
Based on the in-depth analysis, the recommendation that has been made for Trinity is that
it must adopt a top-down risk approach in subsequent years. This approach will help the company,
especially its leaders, to develop robust internal controls that can help in identifying gaps that may
diminish the effectiveness of the internal controls.
Thank You
V. SOX-related expenses
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Recommendations for further reducing SOX-related expenses
For reducing the SOX-related expenses in the year 2008, Trinity must replace its four
general ledger packages with Oracle Financials. It has been estimated that the Oracle solution will
enable the business to save $ 0.5 million on SOX compliance expenses. Centralization of
accounting transactions can help to have better control over the financial aspects. The manual
SOX controls must be replaced with an automated solution. Although it can increase the cost
burden for Trinity, in the long run, it would generate favourable results. The business must try to
reduce its costs relating to its current IT system and BPCS so that the activities can be carried out
in a centralized and standardized manner.
Major sources of cost
One of the major sources of the cost that Trinity will have to incur relating to its
compliance maintenance and testing relates to the Oracle initiative, which is worth $ 28 million.
Similarly, the business has to maintain and test diverse control environments, including business
specific applications and IT support in Europe and Mexico. This would also act as a major source
of cost for the company. As BPCS operates in seven diverse locations, the development,
maintenance and testing of the controls in each of the locations would lead to the magnification of
the business costs to a significant extent.
Ranking of main sources of cost
The main sources of cost in the context of Trinity Industries’ in terms of value include:
• Oracle initiative
• Accounting Service Center (ASC) project
• Maintenance and testing
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Comparison of the software system
Oracle has been selected as the ultimate software system that can be introduced in Trinity
Industries.’ However, its advantages and disadvantage have been compared with that of two other
systems including SAP and Microsoft solutions.
Oracle
SAP
Microsoft
Reporting
Improved
reporting
effectiveness
Good reporting
control
Robust
reporting
mechanisms
Time efficiency
Timely
closure
of books
The book closure
process can be
manually changed
Time-efficient
procedures
Information
Better availability of
financial information
High information
availability
High information
availability
Cost
Affordable cost
High cost
High cost
Selection of Oracle
Based on the comparison between diverse software systems that can be introduced in the
business context, Oracle has been identified as the ideal software system for Trinity Industries.’ It
can play a vital role in managing the accounting transactions of the business as well as the
accuracy of the financial details that are reported in a cost-efficient manner. One of the main
reasons for identifying Oracle is ta t eh innovative system is aligned with the exact needs of the
business. Another vital reason for choosing Oracle is that it is a much more affordable option as
compared to the alternative options that are available in the market and the current system that the
company has in place to control its accounting transactions as well as processes. It is a suitable
system that can meet the business needs effectively.
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References
Bottom-up approach for compliance: The master position. emmanuel . W3. (2009). Retrieved
December 13, 2022, from https://www.w3.org/2009/policy-ws/papers/Pigout.pdf
Deloitte Us: Audit, Consulting, advisory, and Tax Services. Deloitte United States. (2021).
Retrieved December 13, 2022, from https://www2.deloitte.com/
Save Money on Sarbanes-Oxley Section 404(a) Compliance. Marmann & Associates, P.C. -
Certified Public Accountants & Consultants. (2021). Retrieved December 13, 2022, from
http://www.marmanngroup.com/news/print_mm_analysis.html
Viewpoint : PWC. Viewpoint. (2022, December 8). Retrieved December 13, 2022, from
https://viewpoint.pwc.com/us/en.html
