Accounting Info Systems MP121: Luxurious Firm Case Study S2 2018

This case study solution analyzes the accounting information systems of Luxurious Firm, addressing issues raised by the CEO regarding the inadequacy of the current system. Part 1 outlines the roles of the management team, particularly the accounting manager, in developing a new AIS, emphasizes the importance of user involvement in the analysis and implementation phases, and details the life cycle approach to adopting a new AIS. Part 2 identifies weaknesses in the firm's expenditure cycle procedures, such as lack of cross-checking, absence of a formal inventory control system, and potential for fraudulent disbursements, along with suggested solutions. Part 3 identifies five examples of improper segregation of duties within the revenue cycle, explaining the potential risks associated with each. The solution provides actionable recommendations for improving the accounting information systems and internal controls at Luxurious Firm. Desklib offers this solution and many more solved assignments for students.

Running Head: ACCOUNTING INFORMATION SYSTEMS CASE STUDY 1
ACCOUNTING INFORMATION SYSTEMS CASE STUDY
Name
Institution

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 2
Part 1:
1. He asked you to write a brief report identifying the role that would be expected of the
management team in the development and design of a new accounting information system. The
underlying issue is really the role you would expect Alex “your boss” to play.
The roles of the Accounting Information System include the following. First, we have the
financial accountants who are responsible for the organization of financial records for exterior
resolution according to the General Accepted Accounting Principles (GAAP). Secondly, there is
the managerial accountant responsible for doing the assembling in regard to the financial record
for domestic assessments (Ismail, & King, 2014). Thirdly, there are auditors who would be
estimating the powers to serve as clear evidence on the financial assessments quality. Fourthly,
the accounting managers will be in charge of commanding all accounting commotion of business
entity. Fifthly, the tax consultants will be expanding the information that reproduces the
commitments of tax of the business entity. Finally, we have the mentors who will come up with
the Accounting Information System (AIS). To conclude, the assumption made on Alex is that he
will be the Accounting Manager. This is because the authority over the other activities and the
commanding of other functionalities is kept by the Accounting Manager.
2. Would you expect that the people who will use the new system should have a role in any
analysis leading up to, in the selection of and implementation of the new accounting information
system should one be selected?
Yes. There are many reasons that support the need for the people using this new system
play a role in the analysis that leads to the implementation of the new accounting system. For
instance, there is change in the market and its value from time to time (Kumar, 2018). Because of

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 3
these changes having a working staff that is dedicated for the implementation of AIS
(Accounting Information System) is of great benefit. In order to stay up the mark and make
satisfaction of the ever fast growing industrial advancements, one’s focus has to be made on
current features of the legacy Accounting System (AIS) and a recommendation must be made on
the updating of the current Accounting System in the market. In conclusion, it is possible with
the assistance of a professional who is hired and dedicated to keep informed to the management
with regard to the upgrades in the Accounting Information System (Laudon & Laudon, 2016).
3. Write a clear and comprehensive report on what would be involved in the adoption of a life
cycle approach to adopting a new accounting information system. Specifically identify the stages
that would need to be engaged in, and staff likely to be involved.
Part 2:
Required:

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 4
Identify weaknesses in Luxurious firm existing expenditure cycle procedures, explain the
resulting problems, and suggest as solution.
Weaknesses
There is no cross checking of the orders/purchase requests made before the final copy is
submitted to the suppliers. Failure to double check the orders can result to making of
unnecessary orders when they are still available (Simkin, Norman, & Rose, 2014). This is
wastage of resources to the firm. The products requested to be purchased should be reviewed by
manager of the departments where they are originating before being approved for processing.
In the firm there is no use of the formal inventory control system (EOQ, MRP, or JIT).
The formal inventory control system prevents excess inventory and shortages. Failing to use
these, results in both excess inventory and shortages. The planning and purchasing should make
the use of formal inventory control system in order to minimise the cost of ordering, excess
inventory and stock outs.
We also find that there is no use of periodic physical inventory counts. Due to this,
inaccuracy of perpetual records of inventory might become inaccurate with time. It might also
become difficult when detecting inventory theft in a timeline manner. Conducting of regular
physical counts of inventory is needed (Tadesse & Murthy, 2018). Also prompt investigation on
the discrepancies with perpetual inventory is also needed.
A purchasing agent might add supplier that are new to the supplier master file without
consulting. This might result to unreliable suppliers. This can be protected by application of
restriction rules on the people by identifying people capable of making changes to the supplier

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 5
list and print a report of the changes and review the periodically to assure they have all been
approved.
Also you find that suppliers are selected based on their product prices. This might result
into purchasing of low quality products to the firm. This will lead cause cost increase because of
warranty repairing, scrap and also rework. The method of supplier selection should be base on
the product quality and the reliability of the supplier. The configuration of the system should be
able to track the performance of the supplier and the promises on the delivery dates (Pizzol,
Weidema, Brandão, & Osset, 2015).
The employees that receive the orders purchased in the receiving department have the
quantities of products ordered. This may cause them not to count the quantities delivered but
only to look at them without counting especially during busy hours which may result into them
making errors. To solve this weakness, the firm needs to configure their systems so that they do
not permit access to the quantity ordered information by the reception department.
Other times you get to find the receiving department employees offloading products
without confirming if they were among the ordered commodities. This may lead to time wastage
when offloading and loading again and contacting the supplier to return the products. This
problem can be solved by creating a policy that requires them to confirm valid orders before
doing the offloading or accepting delivery. They should also publish and make enforcement on
the effects of violating those policies (Thompson, Ravindran, & Nicosia, 2015).
When there are discrepancies between the received quantities and the ordered quantities
greater than 5%, the employees may fail to resolve then on time especially during buy times.
This may result into the employees forgetting and then fail to resolve them in future (Hall, 2015).

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 6
When removing the inventory from the storeroom, there is no identity of the employee who did
so. Therefore this makes it hard to know exactly the cause of the discrepancies between the
inventory actual count and the count recorded. This can be solved by ensuring that the employee
identification is known. Applying the use of swiping of ID badges or by entering a userID on an
online terminal can be of great help to the firm.
Sometimes the clerks responsible for making payment to the suppliers may create a one-
time supplier record for paying the suppliers. This might result into possible fraudulent
disbursement of money (Gutesman, Etchegoyen, Müller, & Rapisardi, 2016). The voucher also
doesn’t have an indication whether it is cancelled or paid. Thus, it becomes easy for probability
of payment being made twice to the same person. This can be solved by configuring the system
to print a list of one-time suppliers and reviews on the list should be made at regular times to
confirm if the suppliers being paid are in existence. Also the payable accounts should not be in a
position to create any new supplier records. Instead, this should be done by the manager in-
charge of purchases.
Another weakness is when returning a cheque to payable accounts for mailing them to the
suppliers. This process provides a good opportunity for the cheque to be intercepted and be
altered (Collier, 2015). This can be solved by ensuring that the cheque is mailed by the cashier or
the cashier assistance.
There is also the existence of treasurers who make authorization of cheques payments
through EFT. This process provides an opportunity where fraud might occur and the cover up the
discrepancies by the reconciliation altering (Bogere, & Mukaaru, 2016). This can be solved by
using someone else other than the ashier or the treasurer to reconcile the bank account statement

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 7
Part 3:
The following table presents the results of the Luxurious firm’s ERP system for revenue cycle
activities. It shows the number of times each employee performed a specific task.
Take
Order
Approve
Credit
Ship
Inventory
Maintain
A/R
Issue
Credit
Memo
Bill
Customer
Deposit
Customer
Remittances
Reconcile
Bank
Account
Employee A 250 5 15
Employee B 305 100
Employee C 275 10
Employee D 85 10 5
Employee E 400 25
Employee F 430
Employee G 600
Employee H 400 20
Employee I 15 430 25

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 8
Employee J 650 1
Required: Identify five examples of improper segregation of duties and explain the nature of
each problem you find.
1. Employee A takes orders and approves credit – could order for personal benefit.
2. Employee B takes orders and bills customer – can bill customer for personal gain.
3. Employee I maintains maintain A/R and Approve credit – can submit and approve credit from
fictitious suppliers.
4. Employee D issues credit memo and approves credit – could approve credit to self.
5. Employee H maintains A/R and deposits customer remittances – by doing so he might deposit
money to fictitious suppliers.
References

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 9
Bogere, G., & Mukaaru, J. A. (2016). Assessing Public Expenditure Governance: A Conceptual
and Analytical Framework.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Gutesman, E. D., Etchegoyen, J. P. P., Müller, P., & Rapisardi, J. (2016). U.S. Patent
Application No. 14/923,491.
Hall, J. A. (2015). Information technology auditing. Cengage Learning.
Ismail, N. A., & King, M. (2014). Factors influencing the alignment of accounting information
systems in small and medium sized Malaysian manufacturing firms. Journal of
Information Systems and Small Business, 1(1-2), 1-20.
Kumar, A. (2018). Business process management. Routledge.
Laudon, K. C., & Laudon, J. P. (2016). Management information system. Pearson Education
India.
Pizzol, M., Weidema, B., Brandão, M., & Osset, P. (2015). Monetary valuation in life cycle
assessment: a review. Journal of Cleaner Production, 86, 170-179.
Simkin, M. G., Norman, C. S., & Rose, J. M. (2014). Core concepts of accounting information
systems. John Wiley & Sons.
Tadesse, A. F., & Murthy, U. S. (2018). Nonprofessional investor perceptions of the partial
remediation of IT and non-IT control weaknesses: An experimental
investigation. International Journal of Accounting Information Systems, 28, 14-30.

ACCOUNTING INFORMATION SYSTEMS CASE STUDY 10
Thompson, N., Ravindran, R., & Nicosia, S. (2015). Government data does not mean data
governance: Lessons learned from a public sector application audit. Government
information quarterly, 32(3), 316-322.