Strategic Information Systems for Business
Week 6
Authorization of transactions: There is unclear subordination in Central Production Limited. As a result, this risks entering the same transaction multiple times due to the unclear subordination (Turner & Weickgenannt, 2013). To avoid this risk, all employees must strictly adhere to the set guidelines when authorizing various transactions; for example, following a fixed price list, to reduce the scope of error. Also, Central Production should designate a few personnel and entrust them with the critical tasks related to their departments. In this case, production clerk, who has the responsibility to update the online bill of material and route sheet files to reduce the occurrence of human error. In the case of Central Production Limited, the conversion process needs express authorization in the areas of (1) initiation of production orders, (2) issuance of production materials in the process of production, and (3) transfer of finished products to shipping zones and the warehouse (Brandy, 2006).
Segregation of duties: In the company’s conversion cycle, tasks are not adequately segregated. As a result, the company is put into a higher risk of fraud and risk of human error (Ogneva, 2017). The manner in which the conversion cycle of the company gets triggered and run until the final result is achieved is very complex, and lacks proper segregation of duties. Fraud risk can easily occur when sending an online work order to the supervisor and the accounts clerk. Usually, accounting works efficiently under a limited scope of individuals. According to (Turner & Weickgenannt, 2013), accounting for stock and cost of sales must be treated as separate accounts. Failure to do this increases the chances of not meeting the objectives of the country’s internal control system. For Central Production Limited, there is a need for adequate duties segregation to lower risk of human errors and fraud by requires that different employees process different accounts in the conversion cycle.
Week 7
Reconciliations: In Olive Limited, the accounting clerk, Richard Palm, is tasked of reconciling the subsidiary accounts until they balance to their control accounts in the company’s general ledger (Turner & Weickgenannt, 2013). Periodic reconciliation is an essential principle of an internal control system that can potentially affect Olive Limited performance. Risks association with reconciliation in internal control include underappreciating of control. Other risks include material misstatements and material weaknesses that can result in reconciliation errors. In Olive’s case, purchase orders, supplier invoices, and sales invoices might have misstatements. Richard Pal needs to understand which items have cleared to uncover any errors and fraud. Besides, doing regular reconciliations and ensuring continuous improvement can help avoid these risks.
No oversight and review: One of the widely used internal accounting control is asset audits. In Olive Limited, financial checks in cash reconciliations are not regularly performed to verify the actual figures shown in the subsidiary accounts when creating the general ledger. Neglect to perform basic review can potentially develop differences and lead to inaccurate financial reports for the company (Dain & Matthew, 2017). Richard Palm needs to ensure routine checks and conduct asset audits for this would improve accuracy and avoid errors and fraud in the company’s system of accounts and accounting controls.
Trial balances: In Olive Limited, errors and fraud can potentially occur in its double-entry system of accounting (Haynes, 2014). Richard Paul is using double-entry accounting system to ensure that the company’s books are balanced. Using a general ledger, the subsidiary accounts are balanced to their control accounts. In this company, the general ledger is adding reliability into the company system of internal control. Since there is a proper description of roles and responsibilities, the accounts clerk is held responsible in case any error or fraud occurs in the company’s accounting system. The company should not overlook the importance of this internal control.
Week 8
Resources, Events, Agents (REA) model explains how accounting systems may get re-engineered for the computer age. Proposed by William E. McCarthy in 1982, the REA model explains the concepts of resources, events, and agents (William, 1982). As an ISO standard, the REA model assures reliability and quality. In the context of Elegant Limited, the three-factor “R”, “E”, and “A” can be applied to understand the REA model:
R- Resource: In the field of accounting, resources are considered s those events or objects under the economic agent’s jurisdiction (William, 1982). For example, economic resources include things like obligations, goods, rights, services, and claims. In the case of Elegant Limited; therefore, the economic resources available are the restored classic cars which the company is selling.
E – Event: According to (Rosli & Mohamad, 2009), events including and not limited to transactions and the circumstances surrounding the transactions, and other phenomena that transform economic resources from production, sales, distribution, and consumption; must be stored in a secure and safe place. In the case of Elegant Limited, for example, the transaction which occurred between private car purchasers, who buy cars for themselves, and the investors who buy the multiple cars for resale purposes, and Elegant Limited itself amount to REA model’s events. However, since all classic car sales are made in cash, these amount to business resources.
A – Agent: In the REA model, agents are defined as those identifiable parties that acquire, use, or dispose of their obtained economic resources (Laurier, et al., 2018). In the case of Elegant Limited, for example, the agents are the parties who are purchasing the classic cars from the company. Thus, private buyers are the first agent who buys private vehicles for private use. The other agent is investors or business people, who buy multiple classic cars from Elegant Limited and hold them for resale to other people or customers.
Week 9
The audit agreement needs to be accepted when the auditor is free to discharge his audit roles diligently. According to (Abu Bakar & Shiratuddin, 2011), auditors are supposed to act independently, and nobody should instil pressure or try to manipulate their audit work. In this case, the phrase “pressure” does not depict the professional pressure but the pressure imposed by the management to compel the auditor to act in their favour or to make changes in the audit report that suit the self-interest or the senior management. If the auditor accepts to be compromised, this is against the general interest and objectivity of audit report.
In response to the management’s proposal, the auditor has to act diligently and independently. Here, the auditor should conduct analytical and substantive tests in a manner that he collects sufficient and appropriate information for the audit. For this company, a data warehouse store serves various purposes, one of which is for audit purposes. The aim of doing analytical reviews is to certify the authenticity and reliability of the system which the management is proposing (Tricker & Robert, 2015). If the system has errors and fraud, the auditor should boldly inform the administration that this cannot be adopted for it is against the general interest of the stakeholders.
As a professional, who discharges his/her duties in utmost integrity, competence, objectivity, and independence, the auditor should decline the proposed system by the management. The auditor must stick to the use of operational data for it acts as an excellent internal control system especially in auditing creditors report, suppliers’ records, and customers’ information (Miloslavskaya & Tolstoy, 2016). Also, sticking to the use of operational data will enable the auditor to ensure real-time reporting and avoid the large volumes of data which are common in a data warehouse and easily amounts to errors and fraud. Since the information is stored every week, an operational data store is the most appropriate approach for the company.
Week 10
Requirement a.
According to the conversation between the CIO and the MD of Illustrious Limited, the MD’s position is more relatable. Typically, organizations struggle to fight the resistance to change (Hon, et al., 2014). The best way to change the company’s information system would be to list all requirements, spend enough time to determine the actual uses of the new system and to engage the team in determining the weak areas that need improvement.
In my opinion, Illustrious Limited needs to rely on experience when it comes to the introduction of a new system. As per the MD, they have tried the same project before in vain. The idea that the company modifies its old system version to meet the requirements and all team needs is the best to the company (Chenhall & Euske, 2017). Since a new system is needed, I sympathize with the MD’s idea that the existing system needs to be appropriately analyzed for them to identify the pain points that make the company fail in this project.
Besides, the MD looks set to value teamwork and employee effort in the change process. Analyzing the project needs would help the company collect employee viewpoints on the kind of system they want, the flaws with the current system, and the reasons why they have been resisting the introduction of a new system (Chenhall & Euske, 2017).
Requirement b.
Use of old system parts: In this perspective, using the old system will allow the company enough time to understand the next move guided by teamwork, and cut losses associated with project failure. In the past, the company has tried to introduce the new system which the CIO is proposing again, but this has failed (Avgerou, 2016). I recommend that Illustrious Limited modify the old system parts for purposes of system analysis, and this would help them generate a list for the new system’s requirements, understand team needs on the new system, and do the right thing for the company. Launching a new system is costly, and with the experience of failure, then old system parts should be modified first.
References
Abu Bakar, M. S. & Shiratuddin, N., 2011. Conceptual design model using operational data store (CoDMODS) for developing business intelligence applications. International Journal of Computer Science and Network Security (IJCSNS), 11(3), pp. 161-169.
Avgerou, C., 2016. The significance of context in information systems and organizational change. Information Systems Journal, 11(1), pp. 43-63.
Brandy, J. V., 2006. Account Reconciliation: An Underappreciated Control. Journal of Accountancy, 9(4), pp. 1-9.
Chenhall, R. H. & Euske, K. J., 2017. The role of management control systems in planned organizational change: An analysis of two organizations. Accounting, Organizations and Society, 32(8), pp. 601-637.
Dain, D. C. & Matthew, E. S., 2017. Internal Control Weaknesses and Financial Reporting Fraud. A Journal of Practice, 36(3), pp. 45-69.
Haynes, S., 2014. 10 Common Internal Control Deficiencies Found in Small Businesses. Accounting Control System, 6(3), pp. 2-10.
Hon, A. H., Bloom, M. & Crant, J. M., 2014. Overcoming resistance to change and enhancing creative performance. Journal of Management, 40(3), pp. 919-941.
Laurier, W., Kiehn, J. & Polovina, S., 2018. REA 2: A unified formalization of the Resource-Event-Agent ontology. Applied Ontology, 13(3), pp. 201-224.
Miloslavskaya, N. & Tolstoy, A., 2016. Big data, fast data and data lake concepts. Procedia Computer Science, 88(63), pp. 300-305.
Ogneva, M. K., 2017. Internal control weakness and cost of equity: Evidence from SOX Section 404 disclosures. The Accounting Review, 82(5), pp. 55-97.
Rosli, K. & Mohamad, L., 2009. Resource-Event-Agent REA Modelling in Revenue Information System RiS Development: Smart Application for Direct-Selling Dealers and SMEs. Accounting Research, 5(2), pp. 5-15.
Tricker, R. B. & Robert, T. I., 2015. Corporate governance: Principles, policies, and practices. Oxford: Oxford University Press.
Turner, L. & Weickgenannt, A., 2013. Accounting Information Systems: The Processes and Controls, 2nd ed. Boston: Wiley.
William, M. E., 1982. The REA Accounting Model: A Generalized Framework for Accounting Systems in a Shared Data Environment. The Accounting Review, 57(3), pp. 554-578.