Strategic Information System Assignment: Role of Accounting Information Systems in Business Environment

Question

Task: The questions to be answered in this strategic information system assignment are:
Week 6
The following is a description of the conversion cycle of Central Production Limited:
The conversion cycle of the company is triggered by a report from the warehouse. When the quantity of an inventory item falls below a pre-set minimum level, the warehouse manager sends an online inventory status report to production department advising them to schedule a production batch run for the item.

Upon receipt of the report, the production clerk assesses the digital bill of materials and the route sheet files for the item to be produced and adds the production details to the online production schedule.
The system automatically adds a record to the open work order file and sends an online work order to the work centre supervisor’s computer and to the accounting clerk’s computer.
The work centre supervisor receives the work order from his computer and print hard-copy move tickets and materials requisitions for each production process. Production employees take the materials requisitions to store clerk and receives the materials and subassemblies needed to perform the production tasks. If additional materials beyond the standard amount is needed, the work centre supervisor prepares additional materials requisitions.
Production employees complete job time tickets after completing a production process to record the time spent on the job. The job time tickets are then sent together with the move tickets to the accounting department.

After releasing the materials into production, the store clerk updates the material inventory records and send the materials requisitions to accounting department. The clerk prepares a journal voucher and posts to the general ledger material control account at the end of each day.

The accounting clerk assesses the work orders and set up a work-in-process account for a production batch. Throughout the production period, the clerk also receives move tickets, job tickets, and materials requisitions, which he uses to post to the work-in-process account. At the end of each day, the accounting clerk prepares a digital journal voucher and post it to the general ledger work-inprocess and finished goods control accounts.

Identify the risks exist in the conversion cycle of Central Production Limited.
Week 7
Richard Palm is the accounting clerk of Olive Limited. He uses the source documents such as purchase orders, sales invoices and suppliers’ invoices to prepare journal vouchers for general ledger entries. Each day he posts the journal vouchers to the general ledger and the related subsidiary ledgers. At the end of each month, he reconciles the subsidiary accounts to their control accounts in the general ledger to ensure they balance. Discuss the internal control weaknesses and risks associated with the above process.

Week 8
Elegant Limited sells restored classic cars. Most of its customers are private buyers who buy cars for themselves. However, some of them are investors who buy multiple cars and hold them for resale. All sales of Elegant Limited are for cash.

Depict the association and cardinality for the sales of cars at Elegant Limited based on REA model.

Week 9
You are currently working in a mid-tier accounting firm. In an engagement meeting with a client, the management of your client is concerned that the audit tests that you perform will disrupt operations. Your client has recently implemented a data warehouse and the management suggests that you draw the data for analytical reviews and substantive testing from the data warehouse instead of the operational database. The management points out that operational data are copied weekly into the data warehouse and all data you need are contained there.

Outline your response to the management’s proposal and mention any concerns you might have.

Week 10
The Chief Information Officer (CIO) and the Managing Director (MD) of Illustrious Limited recently had the following conversation regarding the development of a new information system for the company: CIO: The way to go about the analysis is to first examine the old system, such as reviewing key documents and observing the workers performing their tasks. Then we can determine which aspects are working well and which should be preserved. MD: We have been through these types of projects before, and what always ends up happening is that we do not get the new system we are promised. Instead we get a modified version of the old system.

CIO: I can assure you that will not happen this time. My team just want a thorough understanding of what is working well and what is not. MD: I would feel much more comfortable if we first started with a list of our requirements. We should spend more time in determining what exactly we want the system to do upfront. Then your team can come in and determine what portions to salvage if you wish. Just don’t constrain us to the old system! Required:

a) The CIO and MD have different views on how the system analysis should be performed. Comment on whose position you sympathise with the most.
b) What method would you recommend to Illustrious Limited for system analysis? Explain.

Answer

Week 6: Identification of Risks exist in the Conversion Cycle of Central Production Limited
Based on the conversion cycle analysis, it has been identified herein strategic information system assignment that an automated system has been considered by the company for sending orders to the Work Centre Supervisor,to ensure quick delivery of the order. In this case, the error can be faced at the time of the online order-sending process. This is because if the input has not been given properly, the automated system cannot provide the right output. The risk of errors in Bills of Material review has been identified in the conversion cycle of Central Production Limited. Furthermore, the risk in the production level decision is also identified in the conversion cycle as additional materials requisition has been made by Work center supervisors. It is needed to be intimated to the warehouse manager effectively for managing the risk successfully. Otherwise, it reflects a high risk in the production decision-making process of Central Production Limited.

According to the view of Islam et al., (2017, p.11), an automated ordering system has been considered by almost all production organizations throughout the world. However, the knowledgeable person is important activities of the system. If proper input cannot be provided, the result cannot be fruitful and the entire conversion cycle would be hampered. The review of bills of materials is an important matter and if that is not properly considered, the workflow would be damaged. In the case of Central Production Limited, there is a high risk of errors in bills of materials. Actually, the conversion cycle is the step by step process and hence, it is important to consider risk in each step properly. Risk in production level decisions and errors in bills of materials checking are two key risks that can hamper the entire activities of the conversion cycle in the case of Central Production Limited.

Week 7: Internal Control Weakness and Risk associated with the process
The case discussion clearly depicts that the responsibility of the entire activities is vested on one person. The accounting clerk uses various sources including sales invoice, purchase orders, and invoice of suppliers. It is difficult to the accounting clerk to maintain transparency properly considering different types of activities. The internal control system focuses on the delegation of authority to various people to maintain a flow of organizational activities. Hence, in this case, the high risk of errors in journal voucher preparation has been identified. The accounts clerkreconciles subsidiary account to their control accounts and hence, it is clear that too many responsibilities are managed by the clerk. In the entire activity, two types' risks are strongly identified including the operational risk and compliance risk. The error can be identified at any moment in regular accounting activities and furthermore, it is also difficult to consider compliance policies properly by the accounting clerk.

As mentioned by Susanto, (2016, p.5524), the responsibilities of a department are needed to be equally divided among different employees to ensure the quality of the internal control system. Continuing along the same line,Gao and Zhang, (2019, p.131), have stated that the effective internal control system can ensure the elimination of operational and compliance risks of an entity. The case states that entire responsibilities are managed by only one person and hence, in this case, the risk is very high. Actually, consideration of huge manpower ensures automatic checking of accounting records and risk can be reduced easily. This issue has been found in the case of Olive Limited and the company has to manage operational and compliance risk properly to strengthen organizational performance successfully. The development of the internal control system would help the management to eradicate risks associated with the process.

Week 8: Association and Cardinality for Sales of Cars at Elegant Limited (Considering REA model)
As depicted by Ahlawat and Vincelette, (2019, p.2), the REA model mainly focuses on the three different elements including resources, events, and agents. Resources are identified by the organizations to manage events and agents are involved in the entire activities. The association process considers the orders received from customers and processing the same. Subsequently, resources are identified and the third step is cardinality,which completes the entire REA process (Murthy and Geerts, 2017, p.53). In the first step, the order has been taken by Elegant Limited, and subsequently, the resource is identified from the inventory and that is sold to the customers and cash has been received. In terms of cardinality, it can be stated that private buyers and other investors purchase cars from the company to resale. Hence, the company has a huge customer base and good relationship with customers. It has helped the entity to enhance performance in the market.

The overall analysis of cardinality and association of Elegant Limited, it has been identified that the REA model is applied properly by the management. The order has been received from customers and the same has been tracked properly. After that inventory has been considered to sale and cash is received while the product is delivered. The cardinality measurement has been done through numeric figures including 0 and 1. Based on the case analysis, it can be stated that the cardinality of Elegant Limited is 0 and it reveals that the company has good prospective customers. Some buyers purchase cars for own personal use and some purchases cars for resale purpose. Hence, there is consistency in the performance of Elegant Limited and it has helped to maintain good customer relationships. The ultimate matter in the REA model is proper resource identification and it can help to complete the sale successfully.

Week 9: Response to the Proposal of the Management
The management has stated that the audit test would disrupt the operational activities and this is why the client organization has considered a data warehouse. This statement cannot be accepted by anyone as an audit test can never hamper the operational activities of an entity. The suggestion has been provided by the client firm that the data warehouse is needed to be considered for the purpose of audit and substantive tests. In this case, the main question that would arise is the independence of the auditor in the auditing process. The client firm does not want to disclose all activities of the organization in the audit process. It can hamper the image of the entity and this is why the client form has provided suggestions in the data accessing and verification process.

The suggestion is not acceptable at all as the auditor would make the plan independently to conduct a substantive test properly. Hence, it can be said that the detail accounting information checking is important to the auditor to identify the true and fair view of the accounting activities of the client entity. As stated by Junaidiet al.,(2016, p.331), the independence of an auditor is a crucial matter to verify the operational activities of a business entity, and hence, it is important to consider all types of records of client firm at the time of verification. Hence, it can be concluded that the response to the proposal of the management is negative and this has no logic to accept without proper verification of operational activities. Special concern is needed to be given to the transparency of operating activities of the business and the independence of an auditor. It would ensure the quality of the verification and true picture of organizational performance can be shown easily.

Week 10: a) Analysis of Different Views of CIO and MD
Based on the overall analysis of CIO and MD’s conversation, it has been identified that the CIO has focused on the analysis of old systems to identify right and wrong things. On the other hand, MD has stated to list requirements before starting the project and after that effective steps would be considered. In this case, the managing director and chief information officer both have provided suggestions logically but one can sympathize with CIO as he has considered two key factors including analysis of the old system and findings of faults in the entire activities. As the old system is already running within the organization, it can be clearly stated that verification of details of the old system can provide effective results to undertake the project. Actually, after verifying functions of the old system list of requirements for the project is needed to be considered by the company. It would help to adopt the right policy to implement the project successfully.

b) Recommendation to the Illustrious Limited
Based on the entire discussions between CIO and MD, it can be stated that the consideration of the old upgraded system can provide an effective result to the company rather than installing a new version. The reason is in the case of old updated software, the cost of the project can be reduced and it would increase the profitability of the company. On the contrary, if the new system has been considered by the management of Illustrious Limited, the initial investment would be increased and the company has to obtain a good return on investment. In this context, it can be said that cost control is an important matter in the competition and that can be done by considering an updated old system.

References
Ahlawat, S. and Vincelette, J., 2019.Enhancing Knowledge Integration with REA Modeling in an AIS Project. Journal of Information Systems Education, 23(2), p.2.

Gao, P. and Zhang, G., 2019. Accounting manipulation, peer pressure, and internal control. The Accounting Review, 94(1), pp.127-151.

Islam, K., CH, A.R., Bilal, A.R. and Ilyas, M.U.H.A., 2017.Accounting information systems: traditions and future directions (by using AIS in traditional organizations). Strategic information system assignmentThe Journal of Internet Banking and Commerce, 22(2), pp.1-13.

Junaidi, J., Hartono, J., Suwardi, E., Miharjo, S. and Hartadi, B., 2016. Does auditor rotation increase auditor independence?. GadjahMada International Journal of Business, 18(3), pp.315-336.

Murthy, U.S. and Geerts, G.L., 2017.An REA Ontology-Based Model for Mapping Big Data to Accounting Information Systems Elements. Journal of Information Systems, 31(3), pp.45-61.

Susanto, A., 2016. The effect of internal control on accounting information system. International Business Management, 10(23), pp.5523-5529.