Accounting Information Systems and Controls,

Assessment: Project 1

Question 1.

Ethical issue

John Smith is preparing the income tax return of a client who has earned more income than expected. On 2 July, the client pays for advertising and asks Finlay to backdate the expense to the preceding financial year, which ends on 30 June. Backdating the deduction would lower the client's immediate tax payments. After all, there is a difference of only two days between 2 July and 30 June. This client is important to Finlay. What should he do?

Required

Use the stakeholder analysis framework described in Chapter 1, to analyse if there is an ethical dilemma for John Smith with reference to accounting standards, disclosure and any laws applicable.

Question 2.

Down Engineering Ltd has hired you to review its system for the purchase, receipt, storage, and issuance of raw materials. You observed the following:

Raw materials, which consist mainly of high-cost electronic components, are kept in a locked storeroom. Storeroom personnel include a supervisor and four clerks. Raw materials are removed from the storeroom only upon written or oral authorisation by a production supervisor.

No perpetual inventory records are kept; hence, the storeroom clerks do not keep records for goods received or issued. To compensate, the storeroom clerks perform a physical inventory count each month.

After the physical count, the storeroom supervisor matches quantities on hand against a predetermined reorder level. If the count is below the reorder level, the supervisor enters the part number on a materials requisition list that is sent to the accounts payable clerk.

The accounts payable clerk prepares a purchase order for each item on the list and mails it to the supplier from whom the part was last purchased.

The storeroom clerks receive the ordered materials upon their arrival. The clerks count all items and verify that the counts agree with the quantities on the bill of lading. The bill of lading is then initialled, dated, and filed in the storeroom to serve as a receiving report.

Required

a. Prepare a system flowchart for Down's Engineering expenditure cycle.

b. Suggest changes to the current system and procedures to overcome any issues noted in part a.

c. Describe how you would implement an integrated ERP system using the latest developments in IT to implement recommendations made in part b.

Question 3.

What internal control procedure(s) would be most effective in preventing the following errors or fraudulent acts?

a. An inadvertent data entry error caused an employee's wage rate to be overstated in the payroll master file.

b. A fictitious employee payroll record was added to the payroll master file.

c. During data entry, the hours worked on an employee's time card for one day were accidentally entered as 80 hours, instead of 8 hours.

d. A computer operator used an online terminal to increase her own salary.

e. A factory supervisor failed to notify the HRM department that an employee had been fired. Consequently, pay cheques continued to be issued for that employee.

The supervisor pocketed and cashed those pay cheques.

f. A factory employee punched a friend's time card in at 1:00 p.m. and out at 5:00 p.m. while the friend played golf that afternoon.

g. A programmer accessed the payroll master file and increased his salary.

h. Some time cards were lost during payroll preparation; consequently, when pay cheques were distributed, several employees complained about not being paid.

i. A large portion of the payroll master file was destroyed when the disk drive containing the file was overwritten when used as a scratch file for another application.

j. The organisation was fined $5000 for making a late quarterly PAYG payment to the Tax Office.