Case Study on Rainbow Illusion Assignment

Case Study: Rainbow
Illusion

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................4
TASK...............................................................................................................................................4
1. Strengths of company's system adopted for controlling sales transactions:............................4
2. Problems Rainbow Illusion has avoided by incorporating the strength in system:.................5
3. Situational pressures in companies like Rainbow Illusion which can increase likelihood of
frauds:..........................................................................................................................................5
4. Appropriateness of distributed computer system instead of a centralised system:.................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

EXECUTIVE SUMMARY
The study summaries different aspect of given case study of Rainbow Illusion with aim to
evaluation of its internal control, different processes and risks associated with revenue cycle. It
covers significance of exiting system adopted for controlling sales and relevance of centralised
and distributed computer system.

INTRODUCTION
The primary aim of a strategic information system is to react to businesses and numerous
company projects. They are being used to give the organisation the highest competitive
advantage. The company may supply a service or item that is distinguished at a reduced cost and
primarily focuses on a challenging or creative industry. This study discuss about key strengths of
system for controlling sales transactions, situational pressures and why companies should choose
to adopt a distributed computer system instead of centralised system in context of Rainbow
Illusion.
TASK
1. Strengths of company's system adopted for controlling sales transactions:
As given in case study of Rainbow Illusion, following are key strengths of company's
existing system to control and manage sales transactions, as discussed below:
Attractive and cost effective wage payment policy: As given in case study company
provides hourly wages plus amount of commission based on sales volume. Following this policy
of wages and emoluments will provide assistance in controlling sales expenses and also payment
of commission as per sales volume is key step to encourage employees to enhance company's
sale graph.
Proper Recording of sales: Another strength of this company's system is proper
recording of sales made by company. Since as provided in case study salesperson of company
manually enters employee number as well as transaction details like clothes, description, class,
unit price and quantity etc. and than totals all the sales invoice. He also computes discount if
proper, sales tax and pre-pares grand total.
Proper Maintenance of Sales records: This system also facilitates proper maintenance
of records of sales. As company's salesperson after recording sales handover sales invoice to
cashier after holding one copy of invoice in sales book (Chin, Simpson and Traynor, 2012).
Centralisation of Powers: Company's system centralise the power by giving more than
tasks to single personnel within entity. Since company's cashier not only reviews invoice and
inputs sale but also responsible for getting credit approval on charge sales and approving sales
paid by cheque.

Regular daily rechecking: It is most considerable strength of system to avoid any error
or omission. In company at day-end, company's cashier in sequential manner orders all sales
invoices than make totals in cash register, cheque sales, cash, bankcard and credit card returns.
Such totals are being reconciled by assistant manager to return slips, total of consecutively
numbered sales invoices and cash register tapes.
Effective Internal Control: Company's sales transactions are authorised at different
levels. Firstly salesperson authenticate sales by recording, then cashier review such recorded
sales and lastly managers analyse daily reconciliation report of whole transactions (Züerl, Busch
and Fotteler, 2012).
2. Problems Rainbow Illusion has avoided by incorporating the strength in system:
Following are the problem has been resolved by above discussed strength of system, as
discussed below:
1. Due to attractive and cost effective wage payment policy company has resolved
problem of inefficiency in working of staff and lack of self motivation in
employees.
2. With proper Recording of sales company has controlled any manipulation, error
and omission in recording of sales.
3. By proper maintenance of sales record, company has solved problem of misplace
and lost of essential sales records and tampering with records (McAlhaney and
Prairie Pacific Holdings LLC, 2013).
4. Centralisation of power has assisted company in maintaining accountability in
whole sale processing system.
5. Through regular daily rechecking of sales transaction company has controlled
deliberate mistakes or accounting fraud related to sales processing.
6. Effective internal control helped respective company to over come the problem of
delay in sale processing and delay in generating sales results and outcomes.
3. Situational pressures in companies like Rainbow Illusion which can increase likelihood of
frauds:
Following are two major situational pressures which can lead to increase the chances of
frauds, as discussed below:

1. Financial Pressure due to companies bonus plan and incentive policies, such
as in Rainbow Illusion’s commission is paid by company based on sales volume.
These kind of extra payments are part of most of employee's salary and wages so
they can increase sales volume figure by adopting manipulative and fraudulent
manner to get such extra payment of commission. It some time negatively
encourage employees to commit frauds in company.
2. Weak or non-existence of internal accounting control: This another crucial
situational pressure which open doors for employees and working staff to commit
fraud. A weak internal control system upon accounting process can enhance the
chances of fraud within entity. For employees it is easy to take advantages of
loopholes in internal accounting control. While absence of internal accounting
control can lead to serious accounting frauds in company (Gupta, Seetharaman
and Raj, 2013).
4. Appropriateness of distributed computer system instead of a centralised system:
In a centralised system whole or major authorities, access and administration powers are
assigned to single person or division, that provides quickness in processes. Whereas a distributed
computer system provides allocation of duties and responsibilities within different levels and
divisions. A distributed system provides accountability in organisational processes.
Responsibilities fixation is easy in a distributed computer system. So adoption of a distributed
computer-system is more effective for companies as it provides more benefits as compare to
centralised systems and also overcome the problems of distributed system (Rittinghouse and
Ransome, 2017).
CONCLUSION
From above study it has been evaluated that an effective accounting system help
organisation to effectively manage organisational tasks. In long it provides financial benefits by
increasing operational efficiencies. Management should adopt distributed computerised system
to ensure accountability within entity's business operations.

REFERENCES
Books and Journals:
Gupta, P., Seetharaman, A. and Raj, J.R., 2013. The usage and adoption of cloud computing by
small and medium businesses. International Journal of Information Management, 33(5),
pp.861-874.
Rittinghouse, J.W. and Ransome, J.F., 2017. Cloud computing: implementation, management,
and security. CRC press.
Chin, J., Simpson, R. and Traynor, D., eBay Inc, 2012. Sales system with buyer price selection.
U.S. Patent 8,108,277.
Züerl, R., Busch, H. and Fotteler, C., SAP SE, 2012. System and method for using sales patterns
with markdown profiles. U.S. Patent 8,219,444.
McAlhaney, D., Prairie Pacific Holdings LLC, 2013. Comprehensive online bidding and sales
management system for merchant processing services. U.S. Patent 8,364,544.