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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.
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It would have helped to understand the overall risk pertaining to internal control over
financial reporting (Viewpoint : PWC. Viewpoint, 2022).
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
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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 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
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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 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
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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
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.
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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
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
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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.
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
