Accounting Information Systems and Processes

This document discusses accounting information systems and processes, including procedures and checks that can be implemented to reduce risk to a company. It also explores internal controls that could have prevented fraud and procedures that could have alerted auditors to the fraud. The document provides examples and explanations for each topic.

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Accounting information system and processes
Name
Institution
Submission Date

ACCOUNTING INFORMATION SYSTEMS AND PROCESSES 2
1} Identify five (5) procedures and checks that would have reduced the risk to the
victim company?
Physical safeguards; this is a type of internal control which is used by companies to
mitigate the loss of money which is paid for expenses which are hard to justify. Service expenses
require physical safeguards to act as proof that the service was delivered. The company can
dedicate one of its marketing personnel to be moving around with the marketers and take
pictures of all the respondents that are engaged in the marketing questioneer answering
(Chowdhury, Breznik, Verdnik and Prihavec, Ultra Proizvodnja Elektronskih Naprav doo, 2012).
Through this, all the invoiced report will be easily justified by the use of the videos and the
photos which were taken during the research process. Through this, the company will be able to
reduce their marketing expenses which are inflated by the marketers.
Implementation of an electronic means of recording responses: the company can invest in
the installation of electronic database software which will be used by its promoters during the
process of correcting customers’ responses. Through this, an individual will be limited to give a
single response and the response will be reflected the company accounting or marketing
department automatically (Jans, Van Der Werf, Lybaert and Vanhoof, 2011). Through this, the
inflation of responses buy the promoters who seek to get paid for responses which even never
existed will be totally eliminated. Embracing technology in data correction will be one of the
best procedure and process for the company to reduce the expenses they incur.
Supervision or monitoring of operations: the company can dedicate two or more
employees to be the overseers of response correction. Through this daily reports will be
generated by the employee and emailed or hand-delivered to the managers for easier assessment

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and approval of the information provided by the marketers as well as information that the
company will be receiving from its overseers(Laxman, Randles, and Nair, 2014, pp.49-54). This
will easily mean the division of labor and introduction of a field activity supervisor who will be
responsible for tracking the number of responses recorded daily to enable the company to survive
from inflated invoices by marketers and promoters.
Record retention: this is another procedure which the company can decide to take
whereby all the filled responses are requested from the promoters and the follow-up procedure
follows. The marketing department will be tasked to assess the respondents' details provided by
the promoters and in some cases make random calls to the respondent to prove that the promoters
collected the information from the individuals (Chowdhury, Breznik, Verdnik and Prihavec,
Ultra Proizvodnja Elektronskih Naprav doo, 2012). Through this, the company will be able to
reduce the excess payment which is made to false records from the promoters.
Information technology application control: this can be achieved by a company or an
organization through creating a user or customer portal whereby there is no need to use
promoters and marketers but the responses are aired through the portal (Doyle, and McVay,
2017, pp.193-223). Through this, the company will have sorted the entire problem resulting from
records fraud and inflated records which in return give the company a loss as the response
provided is fake and it is not justifiable. To make the customers' response justifiable the
company should employ electronic information controls which only allows a customer to log in
once and give his reviews.
2} Identify and discuss which internal control could have prevented this fraud and
give five (5) examples

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An effective internal control system in an organization is very crucial for the organization
to successfully achieve its set goals and objectives. An effective internal control system is very
important in the mitigation of fraud and risks (Jans, Van Der Werf, Lybaert and Vanhoof, K.,
2011, p.13351). In the case of this company a detective, internal control would have been used to
control and avoid the fraud that affected the company which was caused by mere mistakes. Such
mistakes which lead to the loss of $64,000 by a clerk could have been prevented through the
following types of detective internal control measures.
Surprise cash count: this is a type of detective internal control which helps a company to
stay up to date with all the financial record and the actual records. Through this control, the
accountants are not sure as to when the cash count can happen and hence no organization money
will be used for a wrong purpose Ashbaugh-Skaife, Collins and Kinney Jr, 2017, pp.162-198).
Moreover, an accountant cannot misuse or misplace the company’s money as a count surprise
can be conducted and held liable.
Internal audit: this means the analysis of all the financial transaction in the company. This
control aims at reducing the instances of cash loss or also any form of corruption that may be
aimed at rooting the company’s’ money. An internal audit would have helped in the
identification of the signature scandal where the signature was not consistent.
Reconciliation: this is a type of internal control which is the detective in nature as it is
aimed at the reconciliation of the entire stated figure in a company cash-flow with the reality of
every transaction that is recorded (Laxman, Randles and Nair, 2014, p123). This type of control
would have helped in the reconciliation of the balance sheet amount as well as the banked cash,

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cash at hand and also the payment of all the expenditure bringing in the monetary harmony I a
company.
Pre-approval of transactions as well as actions: this means e that a proper and well-
defined protocol would have been implemented by the company to prevent every person from
accessing the bank details as well as cash details of the company except the accounting clerk’s
(Zhang, Zhou, and Zhou, 2016, pp300-327). permitting several people with the mandate of
withdrawing cash from bank and signing irresponsibly would had been restricted through this
type of a detective control
Financial documentation which is standardized: the standardization of financial statement
and transactions such as expense receipt, invoices, internal requests, and inventory receipts can
be a very good control to maintain the consistency I the keeping of fair and straight forward
financial records (Nigrini, 2012). This would have been very supportive control as the company
would have a rhyming financial record and the nature of every transaction would be easily
identified through the standardization of all the financial documents starting from the journal
entries to the final cash flow records.
3} Identify and discuss five (5) procedures could have alerted the auditor to the
fraud?
Journal entry testing
As the financial frauds which happen in a company are always associated with figures
adjustment which is made on the company’s financial records, auditors are supposed to test the
journal entries of a company to identify any sign of manipulation of figures. In the case of the
company, the auditor would have used journal entries tests to identify the difference in figures

ACCOUNTING INFORMATION SYSTEMS AND PROCESSES 6
which are recorded in the cash flows and in the journals (Krambia-Kapardis, 2012, pp.266-278).
Through the journal entries test, an auditor would have noticed the inflated recordings as well as
any other fraud that existed in the company. The auditor would have used the journal entry to
countercheck through the use of supporting documents the availability of a fraud case in the
company operations.
Accounting estimates
This is another area or field in the accounting professional where fraud is found.
Accounting estimates are subjective and they can be highly be influenced by the top managers
and hence a manipulation of the financial records is achieved (Pincus, 2014, p.90). There are
two major ways into how auditors look into accounting fraud in accounting estimates, the first
one is the analysis of a look back of whether changes have happened in accounting estimates and
the second one is the evaluation of the overall directionality of the financial estimate.
Significant unusual transactions
A revision of the recent transactions of a company is an accepted principle that requires
the auditor to have all the power to make an assessment of the unusual company transactions
which happens outside the company’s core operations (Krambia-Kapardis, 2012, pp.266-278).
From this audit, the company is expected to outline the rationale for the transactions which the
auditor identified. From the case of the American company branch in Australia, the rationale of
the trip to Tahiti would have been audited and the losses suffered by the company would have
been avoided.
Holding a brainstorming audit session

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A brainstorming meeting is approved and also recognized under the generally accepted
auditing principles, the meeting should be held by the audit engagement team as well as any
person who is familiar with auditing principle (Pincus, 2014, p.90). This meeting is generally
held for creating a professional skepticism in the upcoming audit. During this meeting, several
financial frauds are discussed which may have affected other firms in the same industry with the
firm under audit. In the case of the Australian branch American company, an auditor would have
gotten some ideas of the trending financial fraud in the industry and hence be able to list down
the main focus area for the audit.
Looking at controls
Internal controls are also major fraud detection tools, as they are the critical business
transactions checkpoints. As in internal control, there are stages where transactions need to be
approved, documented and also sent to the respective individuals. Every internal control
checkpoint can be a better way for an auditor to easily detect fraud in an organization. Moreover,
an auditor can use the reports and process of a single department to detect chances of fraud in the
company (Ettredge, Li and Sun, 2016, pp.1-23). Through this, an auditor can detect alteration as
well as forgery signs.

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References
Ashbaugh-Skaife, H., Collins, D.W. and Kinney Jr, W.R., 2017. The discovery and reporting of
internal control deficiencies prior to SOX-mandated audits. Journal of Accounting and
Economics, 44(1-2), pp.166-192.
Chowdhury, A., Breznik, G., Verdnik, K. and Prihavec, B., Ultra Proizvodnja Elektronskih
Naprav doo, 2012. Customer identification and authentication procedure for online
internet payments using mobile phone. U.S. Patent 8,099,077.
Doyle, J., Ge, W. and McVay, S., 2017. Determinants of weaknesses in internal control over
financial reporting. Journal of accounting and Economics, 44(1-2), pp.193-223.
Ettredge, M.L., Li, C. and Sun, L., 2016. The impact of SOX Section 404 internal control quality
assessment on audit delay in the SOX era. Auditing: A Journal of Practice & Theory,
25(2), pp.1-23.
Jans, M., Van Der Werf, J.M., Lybaert, N. and Vanhoof, K., 2011. A business process mining
application for internal transaction fraud mitigation. Expert Systems with Applications,
38(10), pp.13351-13359.
Krambia-Kapardis, M., 2012. A fraud detection model: A must for auditors. Journal of Financial
Regulation and Compliance, 10(3), pp.266-278.
Laxman, S., Randles, R. and Nair, A., 2014. The fight against fraud: internal auditors can use
COSO components to develop and deliver an effective fraud mitigation program. Internal
Auditor, 71(1), pp.49-54.
Nigrini, M.J., 2012. Benford's Law: Applications for forensic accounting, auditing, and fraud
detection (Vol. 586). John Wiley & Sons.

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Pincus, K.V., 2014. Discussion of fraud detection: the effect of client integrity and competence
and auditor cognitive style. Auditing, 13, p.90.
Zhang, Y., Zhou, J. and Zhou, N., 2016. Audit committee quality, auditor independence, and
internal control weaknesses. Journal of accounting and public policy, 26(3), pp.300-327.