Reference no: EM133189349

HI5019 Strategic Information Systems for Business and Enterprise - Holmes Institute

Assessment: Analysing an Accounting Information System

LO 1: Critically evaluate the purpose and role of accounting information systems in today's business environment [ULO 1].
LO 2: Articulate the various transaction cycles, financial reporting, management reporting systems, and e-commerce to technical and non-technical stakeholders [ULO 2].
LO 3: Appraise the risks inherent in computer-based systems/ERP, including the role of ethics and the various internal control processes that need to be in place [ULO 4].

The first four interactive tutorials of the Strategic Information System for Business and Enterprise HI5019 T2 2022 provide sufficient background knowledge to understand accounting information systems and analyse the revenue cycle of a company. In particular, the revenue cycle is a recurring set of business activities and related information processing operations associated with providing goods and services to customers and collecting cash in payment for those sales. Information about revenue cycle activities also flows to other accounting cycles. The general ledger and reporting functions use information produced by the revenue cycle to prepare financial statements and financial reports.

The head of the accounting department of ASSIST Limited is concerned about business activities and related information processing operations associated with their revenue cycle. You recently joined ASSIST Limited. During the first week, the head of the department requested you to analyse the revenue cycle. The sales order and cash receipts procedures of ASSIST Limited are elaborated below.

1. Sales Order Procedures
The revenue process activities of ASSISTare initiated when a customer places an order either online, by mail or through a telephone representative. These orders are generally categorised at the department level into two types: (1) online orders and (2) offline orders. In terms of accounting theory, there is a significant difference between these two types of orders.Online orders are entered automatically by the system, mail and phone orders are manually entered. The system automatically performs an online credit check when the customer order is entered. If credit is approved, the sales process continues. If credit is denied, the process is terminated, and the customer is notified of the automatic rejection.

Conversely, offline sale orders are received via mail or through a telephone representative. In most cases, these orders are unstandardised sales [we have discussed the unstandardised orders in detail in our interactive tutorials]. The sales clerk first converts the unstandardisedorder into the standardised one. For this purpose, the sales representative requests the missing information, if any. When the order is received, the sales clerk checks the customer's creditworthiness from his computer terminal. Three years ago, the sales clerk requested the accounting department provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the customers' creditworthiness. The sales clerk is using the same procedure to check the creditworthiness of the new customers. The customer's order is rejected if the customer's credit is not verified. The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardised sales order in the sales order system through his computer terminal.

The clerk manually prepares four hard copies of each sales order for both types of approved orders (online sales orders and offline sales orders). The clerk then enters the sale into the digital sales journal from his terminal and files one copy of the sales order in the sales department. A second copy is sent to the billing department, where it is further processed. The warehouse receives the third copy. A final copy is sent to the customer as a receipt stating that the order has been received and processed.

It might be essential to note that the warehouse clerk uses the sales order as a stock release document to pick up the requested items from the shelves. The clerk then manually prepares a bill of lading and packing slip, which accompany the goods to the carrier. The warehouse clerk then accesses the computer terminal and creates a digital shipping notice for the billing department. Finally, the clerk files the stock release hard copy in the warehouse. The billing department clerk reconciles the hard-copy sales order and the digital shipping notice displayed on his or her terminal. He or she then prints two hard copies of an invoice. One copy is sent to the customer as a bill, and the other is sent to the accounts receivable department. The clerk then files the sales order copy in the department.

Upon receiving the hard copy invoice, the accounts receivable clerk creates a digital record in the accounts receivable subsidiary ledger from his terminal. The clerk then files the invoice copy in the department.

2. Cash Receipts Procedures
The case receipt processes of ASSIST Limited can be broadly categorised into four types:

1. First, customer payments and remittance advice come into the mailroom. A clerk separates the documents and sends the remittance advice to accounts receivable and the checks to the cash receipts department.

2. Second, upon receipt of the remittance advice, the accounts receivable clerk accesses the customer's account in the accounts receivable subsidiary ledger from a terminal and adjusts the balance accordingly. The clerk files the remittance advice in the department.

3. Third, the cash receipts clerk receives the checks and posts them to the cash receipts journal from his or her terminal. The clerk then manually prepares a hard-copy deposit slip and sends it with the cash to the bank.

4. Finally, at the end of each day, the system prepares batch totals of all sales and cash receipts transactions and posts them automatically to the control accounts in the digital general ledger.

Required
Based on the above information, prepare a report for the chief financial officer of ASSIST Limited to evaluate their revenue cycle. In your report, you need to include the following items:

1. Processing of online and offline sales order have different accounting implications. Discuss this statement in the light of the existing revenue cycle of ASSIST Limited.

2. In the light of our discussion during interactive tutorials, describe potential internal control weaknesses in the sales order procedures and cash receipts procedures of ASSIST Limited.

3. In the light of our discussion during interactive tutorials, discuss the potential risks associated with the internal control weaknesses identified in requirement number two above.

4. Based on requirement number three above, what types of frauds are possible. Hint: we have discussed different types of frauds in the interactive tutorial and lectures. Your discussion should be based on these contents.

Attachment:- Strategic Information Systems for Business and Enterprise.rar