Accounting Information Systems

This document discusses the existing acquisition and payment system in Oriental Traders and internal control weaknesses in Chipps' accounting information system.

Running head: ACCOUNTING INFORMATION SYSTEMS
Accounting Information Systems
Name of the Student:
Name of the University:
Authors Note:

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ACCOUNTING INFORMATION SYSTEMS
Contents
Part A:..............................................................................................................................................2
Part B:..............................................................................................................................................3
References:....................................................................................................................................10

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ACCOUNTING INFORMATION SYSTEMS
Part A:
On the basis of interaction with the purchasing manager of Oriental Traders an effort has been in
this document to draw an effective flow chart to document the existing acquisition and payment
system in Oriental Traders. The flow chart is drawn below.
Acquisition flow chart:
Payment flowchart:
Preparation of purchase requisition
Invitation of tender from suppliers
Tender verification on the basis of quality and price
Selection of most suitable supplier / suppliers after verification
Placing orders with the selected suppliers.
Receiving goods from supplier and inspection of goods with purchase order
Storing goods in a safe and secure place

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ACCOUNTING INFORMATION SYSTEMS
Part B:
The appointment of the accountant in Chipps is mainly to ensure that a proper accounting
information system is in place within the organization and is operating effectively throughout the
period to correctly record financial transactions in the books of accounts of the entity. Taking
into consideration the scenario provided about the inventory management accounts receivable
and accounts payable system of Chipps the following table has been prepared.
Internal control weaknesses Impact of these internal
control weaknesses
Measures and steps to be
taken to control these internal
weaknesses
Purchasing department lacks
segregation of duties.
The segregation of duties is
absolutely essential for the
internal control of an
organization. Lack of
It is absolutely important to
segregate different
responsibilities amongst
different employees within an
Receieving the
Purchase requisition
Verifying the bill with
teh purchase
requisition and order
Entering the details
in accoutning
information system
Making payment to
the suppliers after
verification

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ACCOUNTING INFORMATION SYSTEMS
segregation of responsibilities
results in overlapping of
different works. In case of
purchase department in
Chipps there are five clerks
who have been given the
responsibility of verification
of purchase requisitions
without fixing their specific
responsibilities. As a result
the no specific purchasing
clerk can be identified to fix
responsibilities in case there
is any mistake in verification
of purchase requisitions.
organization. Purchasing
clerks shall be given separate
responsibilities to ensure that
the verification of purchase
requisitions are properly
accounted for. Specific clerks
shall be given specific duties
to fix responsibilities in the
future in case of any mistake.
There is no standard
procedure in place to select
appropriate vendors to place
orders. The procurement
department has no standard
procedure to follow while
placing purchase orders with
As a result improper
procedure to select vendors to
purchase required goods the
quality and price of goods
both can be adversely
affected. The quality of goods
is very important for any
organization and thus, the
The procurement department
must follow the following
standard procedure to procure
required goods in the future.
Firstly, the management
should invite tenders from
suppliers and vendors.

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ACCOUNTING INFORMATION SYSTEMS
the vendors. procurement strategy of an
organization must ensure that
proper quality of goods is
procedure at lowest possible
price. Since Chipps place
such purchasing orders to the
suppliers on the basis of
previous records the
organization lacks a standard
procurement strategy.
Secondly, the tenders shall be
verified by the management
to decide which tender suits
the requirement of the
organization at optimal level.
Finally, the most suitable
tender is selected and the
vendor is given the order to
provide required materials.
The above procedure will
help the organization to
reduce the prices of materials
as well as in improving the
quality of materials (Stoel &
Muhanna, 2011).
Inefficient and ineffective
communication from goods
receiving department to
clerks at the purchasing
department.
Once the goods are received
by the receiving department it
is the responsibility of the
department to communicate
the same to the purchasing
department effectively.
However, the goods receiving
The goods receiving
department is under strict
obligation to document the
goods received with proper
details such as quality of
goods, quantity of goods,
prices of goods, etc. The

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ACCOUNTING INFORMATION SYSTEMS
department verbally
communicates the matter of
goods receipt to the clerks in
purchasing department. As a
result there could be serious
mistake in verification and
inspection of actual goods
received and goods orders.
same written document shall
be copied and forwarded to
the purchasing clerks to
ensure there is proper
communication between the
receiving and purchasing
department. The verification
and inspection of goods
received shall be effectively
done only if the
communication between
different departments within
an organization regarding
then materials procedure is
effective and efficient.
Ineffective and inefficient
communication between
requisitioning and purchasing
departments.
Once the goods purchase
order is stamped by the
requisitioning department it is
verbally notified by the
department to the purchasing
department. However, the
fact that goods have been
received is notified verbally
It is imperative for the
requisitioning department to
maintain proper document for
goods received and the same
shall be copied and forwarded
to the purchasing department
to ensure that the goods
received are properly

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ACCOUNTING INFORMATION SYSTEMS
can create number of serious
issues including lack of
details about the quality of
goods received, the quantity
of goods received will not be
property verified by the
purchasing department.
inspected and verified. Thus,
written communication is
must between requisitioning
and purchasing department to
ensure there is no weakness
in the internal control system
(Eutsler, Nickell & Robb,
2016).
Improper and unsafe way to
keep purchase orders by the
accounts payable clerk.
The accounts payable clerk
subsequent to the receipt of
POs keep these in open desks.
This could create serious
problems for the organization
as firstly, these can be
misplaced and lost and then
there is also possibility of
making improper and
unauthorized changes to these
POs to inflate or deflate the
amount recorded in these
orders for the narrow benefits
of different stakeholders at
the expense of the
The purchase orders must be
stored in a safe and secure
place, preferably in a locker
to reduce the risk of
misplacement, lost and
unauthorized changes in these
orders. The account payable
clerks should also record the
information in accounting
systems as soon as possible
once the POs are received.

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ACCOUNTING INFORMATION SYSTEMS
organization.
Verification of vendor
invoices by accounts payable
clerk.
Verification of vendor
invoices by accounts payable
clerk increases the risk of
manipulation in the account
payables ledger as the person
is responsible for the
recording entries in the
accounts payable ledger.
A different person shall be
responsible for verification of
invoices of vendors and not
the accounts payable clerk.
Segregation of cheques with
$5000 and above $5000 for
manual and automatic
signatures`.
It is absolutely improper to
segregate the cheques on the
basis of amount that too
under and above $5000. It is
better to ensure all cheques
are manually signed by the
signatory authority as there is
huge risk in using cheque
signature machine as the
person responsible to
maintain such machine will
have the opportunity to fraud
the organization.
Cheques shall be signed
manually in order to avoid the
risk of fraud.

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ACCOUNTING INFORMATION SYSTEMS
Cashier should not be given
any other responsibilities
apart from handling cash
however, the cashier of
Chipps is responsible to
maintain the cheque key
signature machine.
A cashier is responsible to
disburse cash and receive
cash. He shall not be allowed
to handle cheque signature
machine as this will create
conflict of interests. In this
case the confliction of interest
with the cashier maintaining
the cheque signature machine
key is quite apparent in
Chipps.
The cashier shall be given the
responsibilities of handling
cash only. Neither he should
be allowed to maintain
accounting records nor shall
he given the responsibility to
maintain the key of cheque
signature machine (Norman,
Rose & Rose, 2010).
It is important to note here that the above table has been prepared after considering the
information about the inventory and accounts payable management of Chipps as provided in the
documented. Thus, there could be number of others internal control weaknesses within the
organization in other facets of the organization but since no other information has been provided
about the internal operations of Chipps hence, it is not possible to comment on other facets of
organizational operation.

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ACCOUNTING INFORMATION SYSTEMS
References:
Eutsler, J., Nickell, E., & Robb, S. (2016). Fraud Risk Awareness and the Likelihood of Audit
Enforcement Action. Accounting Horizons, 30(3), 379-392. doi: 10.2308/acch-51490
Norman, C., Rose, A., & Rose, J. (2010). Internal audit reporting lines, fraud risk decomposition,
and assessments of fraud risk. Accounting, Organizations And Society, 35(5), 546-557. doi:
10.1016/j.aos.2009.12.003
Stoel, M., & Muhanna, W. (2011). IT internal control weaknesses and firm performance: An
organizational liability lens. International Journal Of Accounting Information
Systems, 12(4), 280-304. doi: 10.1016/j.accinf.2011.06.001