Accounting Information Systems Case Study: Adam & Co Analysis

This case study examines the accounting information systems of Adam & Co, a wholesaler based in Perth, focusing on its purchases, cash disbursements, and payroll systems. The analysis identifies internal control weaknesses within each system, including issues like overstocking, lack of order tracking, and inadequate supplier selection in the purchases system; improper controls, accountability issues, and adaptation problems in the cash disbursement system; and data entry errors, processing division, and insufficient audits in the payroll system. The report assesses the associated risks, such as fraud, errors, and operational inefficiencies, and provides system flowcharts for each area. The study emphasizes the importance of maintaining robust internal controls to mitigate risks and ensure the reliability of financial reporting and operational effectiveness. The study aims to provide a comprehensive analysis of accounting information systems and their importance in business operations.

ACCOUNTING FOR INFORMATION SYSTEM
Accounting for Information System
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EXECUTIVE SUMMARY
Adam & Co is the wholesaler of the industrial supplies based in Perth. Its inventory is sourced
from the manufacturers in Vietnam, Thailand and China. This company comprises of a central
accounting system containing the networked terminal at various locations. There are various
procedures of expenditure cycle of this company comprising of the purchases system, cash
disbursements system and the payroll system. The weaknesses of the internal control for each of
the three systems that is purchases system, cash disbursement system as well as the payroll
system has been evaluated. The risks associated along with all the identified weaknesses of the
internal control has also been discussed along with flow charts for each of the systems. The
internal control should always be maintained in all of these systems.

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Table of Contents
Introduction......................................................................................................................................3
Body.................................................................................................................................................3
Purchases System.........................................................................................................................4
Risks associated with the purchases system................................................................................6
Cash Disbursements Systems......................................................................................................7
Internal control weaknesses in the cash disbursements system.................................................10
Risks associated with the cash disbursements system...............................................................10
Payroll System...........................................................................................................................11
Internal control weaknesses in the payroll system....................................................................13
Risks associated with the payroll system...................................................................................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................15

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Introduction
Adam & Co is the wholesaler of the industrial supplies based in Perth. Its inventory is
sourced from the manufacturers in Vietnam, Thailand and China. This company comprises of a
central accounting system containing the networked terminal at various locations (Huang et al.
2019). There are various procedures of expenditure cycle of this company comprising of the
purchases system, cash disbursements system and the payroll system. The report aims to discuss
the weakness related to the internal control of each of the mentioned systems in related to this
company. This report also focuses on detecting the possible risks that is associated with the
weakness that has been identified for each of the mentioned systems (Sagala et al. 2016). The
processes as well as risks attached to the internal controls will also be evaluated in this report.
Body
In terms of auditing as well as accounting, the term internal control is a method for
satisfying the goals or the achievements of the objectives and aims of the organization in terms
of operational efficiency and effectiveness, its compliance with the laws, certain rules, policies,
regulations and a financial reporting that must be reliable in nature. Everything regarding the risk
control to the organizations is included in the internal control (Zakaria et al. 2016). The internal
control plays a role in the form of channel through which all the resources of an organization are
monitored, measured as well as directed. An essential part is played by it in prevention and
detection of frauds along with the protection of the resources of the organization (Apple 2017).
The resources might be both intangible like intellectual property in the form of trademarks,
reputation to name a few and physical like properties and machineries of the organization.
Purchases System
A purchases system is an essential part involved in the accounting system and is a
method for buying the services as well as the products surrounding the purchases from the
requisition and the order of the purchase through the receipt of the product along with the
payment. This type of systems forms a key constituent for managing the inventory in an effective
way (Appelbaum et al. 2017). In the inventory management is where the existing stocks are
monitored and the companies are assisted in determining what goods should be purchased, when

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the goods should be purchased and how much goods should be purchased (Morris et al. 2016).
The purchases systems might be dependent on the models that are related to economic order
quantity. In addition to this, a very important role is played by the purchases systems for
controlling the cash outflows of the organizations. It also helps in ensuring that the necessary as
well as much needed purchases are made and that at justifiable costs (Shin et al. 2017). The
weakness present in the internal control of the purchases system has been mentioned further.
The system flowchart for purchases system:

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Internal control weaknesses in the purchases system
The internal control weakness in the purchases system are as follows:
 The internal control systems present in the purchases system are it is not checked with the
stock with respect to the requisition of the purchases by the individuals who are
accountable for the purchases system which might lead to overstock (Shareef et al. 2016).
 The order sequence as well as the orders that are cancelled are not accounted which
might lead to the misplacement of the orders along with no occurrence of the transaction
for the purchases.
 The selection of the suppliers takes place on the basis of the reputation of the suppliers
instead of the other essential factors like the terms provided by the supplier, duration of
the delivery of the suppliers along with the prices of the materials supplied by them.
 Various incoming goods like the assets that are fixed are never cleared through the
receiving department or the goods inwards.
 The good inwards manager only has the right to approve any sort of discrepancy occurred
between the delivery docket and the order (Kelly et al. 2016). Except the goods inward
manager, nobody has the right or is authorized for approving the occurred discrepancies
if the manager is absent.
The purchases systems should be checked on a regular basis for the reduction of the risks of
the occurrence of the frauds or certain errors in the process of transactions (Loishyn et al. 2019).
The various risks associated with the identified weaknesses in the purchases system are
mentioned below.
Risks associated with the purchases system
The risks associated with the above identified weaknesses of the internal control in the
purchases system are as follows:
 Irregular check- up of the stocks lead to overstock and can hamper the quality as
well as the delivery of the tasks.
 The order sequence as well as cancelled orders are not accounted and leads to the
misplacements of all the orders.
 The selected suppliers with no reputation can harm the quality of the goods and
can commit frauds.

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 The fixed assets are not cleared by the receiving department and this might result
in the overstock.
 The right to approve the discrepancy is given to only one person and if that person
is absent, then nobody will be able
Cash Disbursements Systems
A cash disbursement system is simply termed as the paid cash outflow in exchange of the
provision of the services as well as goods. A cash disbursement system can be utilized for
refunding a customer that in turn is recorded in the form of a sales reduction. The other form of
the cash disbursement system is the dividend payment which is again recorded in the form of a
corporate equity reduction (Sari 2017). The process of cash disbursement can be executed with a
single check, coins or bills or with the electronic funds transfer. The scenario here can be like
any payment is made in the form of a check, a delay of some days will occur before the
withdrawal of the funds from the checking account of the organization because of the severe
impacts of the processing float as well as the mail float (Oro et al. 2016). The cash
disbursements are generally done by the means of the accounts payable system. The other
method by which the funds can also be disbursed is by the means of petty cash or the payroll
system that will be discussed next. In simple words, the system of the cash disbursement can be
described in terms of the money payment or the outflow of cash for settling up of the various
obligations like the expenses of operating, interests regarding the loan payments along with the
accounts receivable for carrying out the activities related to the business for a certain amount of
time (Sari 2018). It is executed through the plastic money, checks, cash, electronic funds transfer
as well as warrants.
In other words the cash disbursement is the delivery of the funds from the other funds or
bank accounts (Griffin et al. 2017). This is a payment which is done by the company in the form
of equivalents of cash or actual cash during a fixed amount of time like yearly, quarterly or even
in three months.
The system flowchart of cash disbursement system :

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Internal control weaknesses in the cash disbursements system
 Improper internal controls forms one of the reason behind the weaknesses in the internal
control of the cash disbursement system.
 Next is the missing of the controls as well as certain circumstances
 Accountability refers to a major internal weakness in the internal control of cash
disbursement system.
 The continuous issues related to adaptation also forms a major weakness.
Risks associated with the cash disbursements system
The risks associated with the cash disbursement system are as follows:
 The decisions taken regarding the internal controls are not always appropriate (Rodgers
et al. 2015). The controls can be questionable in some areas which might lead to the
various concerns related to security that might lead to inappropriate delays in funding as
well as consumes a lot of time.
 Some of the essential controls might be skipped if the internal controls will not be
regulated by the authorities outside like a business might face a loss regarding a new
program due to incomplete creation of rules because of certain problems like this.
 The secured internal controls are referred by accountability along with the capabilities of
avoiding the misuse as well misconduct of the internal control of the cash disbursement
system.
 In context of the adaptation issues, the internal controls might not be able to change very
quickly as well as easily by leaving certain organizations that are in turn lagging behind
and it tries and aims for meeting the modern and advanced requirements with the
strategies that have become outdated.
Payroll System
A payroll system is responsible for calculating the total amount that are owed to the
employees by the organization. This is executed on the basis of certain factors like the duration
of their work in the organization, their salaries or wages per hour and also on the basis of the
vacation leave or holiday time taken by them at the time of their payment period (Rozzani et al.
2016). The gross pay is adjusted by the system by the process of subtracting as well as
calculating the taxes along with other amount that are withheld regarding the taxes related to

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payroll like the social security taxes, state income taxes, medical care taxes and federal income
taxes if they are applicable and are needed.
The system flowchart for payroll system

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