Question #1 (20 points) As you know, there are several ways to migrate from one system to another. First, describe each of the methods that can be used.
When change accounting systems organizations have two options which are applicable to implement the change as they anticipate it to be. The company can choose;
i) Complete change, here they are required to throw away the old system and implement the new one. Under this method, the operations are brought to a standstill as they implement it.
ii) Phase by phase change, here the organization is required to do it as per department. They are required to select a pilot project. This is done to test whether the system being selected is suitable and can deliver as per their plans. This helps in developing the systems before they are put in place.
Secondly, describe the advantages of each method. Next, describe the disadvantages to each method.
Advantages of complete change
1. It helps in consistency of operations.
2. It saves on time and cost associated with Change period.
Disadvantages of complete change
1. Operations are stopped during the implementation of the
2. In case the system fails to work the operations are affected
3. Low productivity due lack of training and low competence of the new system
Advantages of phase by phase
1. It allows time for testing the suitability of the system before its implemented to all departments
2. It allows time for staff training as they implement it in each department.
3. It reduces the stoppage time in case of breakdown as opposed to when implemented across the whole company systems.
Disadvantages
1. In case it fails it, the department is left behind as they try to reintroduce the old systems
2. It consumes a lot of time before its put in place in the entire company systems.
Finally, identify and discuss the pros & cons of purchasing a commercial-off-the-shelf accounting system vs building one from scratch.
The advantages of a commercial-off-the-shelf accounting system include
:
Cost: since the off the shelf product is produced for market, the economies of scale dictate that it will be less expensive to acquire than a custom system.
Customer support: Many commercial-off-the-shelf systems come from reputable companies that provide customer support to clients. Previous clients might have experienced certain common problems which will be logged with the company. This will ensure fast resolution of nay arising difficulties.
Reliability: Before gaining federal approval, commercial-off-the-shelf products undergo rigorous testing to ensure they fulfill all the requirements set out for the programs. This is particularly important as there will be no time wasted on resolving development glitches that affect all new software.
Although there are a lot of advantages to commercial-off-the-shelf there are also some disadvantages. These include:
Failure to meet specific needs: Unlike custom built systems, commercial-off-the-shelf tend to focus mainly on areas of commonality. Since they are made with a wide range of clientèle, commercial-off-the-shelf will most likely lack company specific aspects that might be required.
Security concerns: With most commercial-off-the-shelf systems existing in the market, there is a high risk of the system being compromised. Not all who acquire such systems have the intention to use them as intended. Criminals and competitors can become too familiar with an off the shelf system hence compromising the system.
Question #2 (20 points) For each item, identify & describe at least three internal control procedures that would reduce the following risks in a manual system:
1. The purchasing department not being notified when goods need to be purchased.
Creating a purchase schedule; where the use of the product can easily be determined, the purchase department in conjunction with other departments can come up with re-order levels and thus have a regular date for restocking.
Establishing clear communication lines: Having proper communication lines between all departments that consumer products brought in and the purchase department will ensure timely notification of the purchase department.
Having a center to aid in the tracking of goods; The consumption rate for different products is likely to vary greatly. A control center will enable the purchasing department get regular updates on the amount of stock that is available and determine when to order more.
2. Purchase orders being prepared based on unauthorized requisitions.
Restricting access to purchase order documentation: by ensuring there is a designate person who is to do the purchase orders and requisitions, there will be greater accountability and ease of tracking on all purchase orders.
Better coordination: opening the communication lines between those who are authorized to do requisitions and those involved in preparing purchase orders will ensure there are different levels of scrutiny before an order is processed.
3. Payments may be made for items not received.
Implementing cash on receipt policy: To ensure all goods are paid for only when received, payments should be made once goods change hand. This will ensure no disparity between purchases and stock.
Renegotiating with supplier: Getting suppliers to accept their cash on delivery will ease the need to follow up on whether goods were delivered or not.
Having proper documentation; Simple documents like delivery notes that can be counter checked against purchase orders, and invoices will greatly reduce chances of payments being made before goods are delivered.
Question #3 (20 points) In order to understand an existing system, you must collect data about the system. There are several methods (at least three) that can be used to help you to collect data about the system so that you will have an understanding of it. Identify & describe each collection method and identify at least three strengths / weaknesses for each method.
i) Random sampling
This where one moves across the market and tries to gather information from different companies who are using the system to carry the duties as those you intend the system for. This method is effective as details come from those who have actually used the system in their operations. However this posse a great risk to the success of the company since no competitor can give the right details of the system in case they found it best or they deceive you that the system is not suitable.
ii) Surveys
An organization can do survey in the market by looking from the shops the best system for their operations. This is actually done by experts who are familiar of what they are actually interested in carrying out. This comes with the advantage of making tremendous improvement in the operating and having the intended results if all goes well. However, this is not the best method as sellers are out to make money and they can’t tell the truth in relation to the systems as their business is to make sales.
iii) Secondary sources
An organization can make their changes by starting to research on the intended changes from the documented changes which are actually effective for decision making. The secondary sources can be from journals, websites and other published sources. These sources are not that reliable as some data might mislead the decisions the firm is taking. According to experts views it’s crucial for the firm to make decisions on the basis of their knowledge and experts experience.
Question #4 (20 points) We know how information technology can greatly enhance the processing of transactions and distribution of output from an AIS. For the Revenue & Expenditure cycles, identify at least three specific ways (tools) that information technology can be used to improve each of these processes. Next, you will need to identify & describe three internal control methods that is needed for each item
i) check registers
ii) sales orders
iii) customer billing statements
iv) sales analysis reports
v) purchase requisitions
vi) vendor invoices
Controls
The internal controls of an AIS are the security measures it contains to protect sensitive data. These can be as simple as passwords or as complex as biometric identification. An AIS must have internal controls to protect against unauthorized computer access and to limit access to authorized users which includes some users inside the company. It must also prevent unauthorized file access by individuals who are allowed to access only select parts of the system.
AIS contain confidential information belonging not just to the company but also to its employees and customers. This data may include Social Security numbers, salary information, credit card numbers, and so on. All of the data in AIS should be encrypted, and access to the system should be logged and surveilled. System activity should be traceable as well.
Question #5 (20 points) You have been hired by SEC to present information on the effectiveness of SOX (Sarbanes-Oxley Act of 2002). Using what we learned about usefulness of information, identify and describe SOX , using the characteristics of useful information. Be sure that you provide a definite of each of the characteristics of ‘useful information’ when presenting your information.
Sarbanes-Oxley Act of 2002 is an act that was passed in 2002 by the American Congress that mandated strict reforms to improve financial disclosure from corporations and prevent
accounting fraud. The Financial Accounting Standards Advisory Board (FASB) established and maintains generally accepted accounting principles (GAAP) which set the qualities and standards of accounting information. These qualities aid auditors verify a company's records. These characteristics include:
Relevance
When accounting information is relevant it is predictive and there is feedback value. Investors must be able to review accounting information and asses its financial worthiness, this is the relevance bit. If management cannot use this information to make decisions on business operation, then the information fails the feedback test.
Timeliness
If accounting information is not available in a timely manner, its usefulness is diminished or completely eliminated. This requires recording of appropriate financial transactions in the right period and generating reports as soon as all data is available so as to solve any issues before they escalate.
Reliability
To meet GAAP standard for reliability, the information must be verifiable(paper trail for all entries in the general ledger). Information recorded need only to meet GAAP standards and not altered to reflect better on the company's financial performance.
Consistency
For accounting information to be useful, it must be recorded consistently I.e, the same treatment applied to a given type of accounting data. Recording the same monthly expense in different expense accounts skews the expense categories making it harder to determine the actual expense in any one category.
Comparability
Inability to compare accounting information from one period to another makes it impossible to derive useful information in order to make operational decisions. Without consistency then comparison is useless.
Question #6 (20 points) There are several ways to collect and manage your customers’ debt (Billing & A/R). First, describe each of the methods that can be used (note: the techniques to collect & manager the debt are NOT the same). Secondly, describe the advantages of each method. Next, describe the disadvantages to each method.
Question #7 (20 points)
You have been hired by the AICPA to develop guidelines that should be when creating general-ledger accounts in accounting systems. First, describe at least four guidelines that should be in place for designing coding systems to support the creation & maintenance of these accounts. Secondly, describe the problems that can occur when firms do not follow these guidelines.
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