ACC00718: Accounting Information Systems Procedures and Checks Report

This report analyzes two scenarios related to accounting information systems and fraud. Scenario A focuses on a public company overpaying a promotions company due to inflated response numbers. The report identifies five procedures and checks, including inspection, external confirmation, recalculation, analytical procedures, and existence testing, to mitigate such risks. Scenario B examines an American company's Australian subsidiary, where high freight and travel expenses raised concerns. The report highlights internal controls like segregation of duties, documentation, updated internal control programs, regular inspections, and monitoring controls to prevent fraud. Additionally, the report identifies audit procedures that could have alerted the auditor to the fraud, such as inspection, documentation, completeness testing, occurrence testing, and breach of duties and obligations. The report also includes a list of relevant references.

ACCOUNTING INFORMATION SYSTEMS & PROCESSES
ACCOUNTING INFORMATION SYSTEMS AND PROCESSES
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ACCOUNTING INFORMATION SYSTEMS & PROCESSES
Scenario A
Procedure Explanation
Inspection This is a procedure that involves examination of accounting
documents in various forms i.e. whether in electronic or paper
form and reconciling them with their respective supporting
documents (AUASB, 2013). This procedure aims at testing the
authenticity and validity of figures by comparing with the
corresponding figures in the support documents. The Australian
Public Company should have inspected both manual and
electronic database of the promotions company to establish the
true figure of respondents received against the invoiced figure.
This would have unearthed unusual transactions and
manipulated figures in the invoice. Therefore the Australian
Company should implement this inspection procedure to
prevent fraud by promotions firm.
External
Confirmation
This is a procedure that involves outsourcing the audit
practices to a third party. The third party is independent
and should verify the validity of the figures. The
auditor expresses an opinion in accordance with the
auditor’s findings, and the opinion states whether the
financial statements are prepared, in all material
respects, in accordance with the applicable financial
reporting framework. (McGraw-Hill Education, 2010).
Any unusual figures is a sign of fraud. This will aid in
ensuring that transactions are authorized by the relevant
personnel as well as ensure that all transactions are
accurately recorded. The Australian Public Company
should under terms and conditions while contracting the
promotions company have allowed an external
confirmation of the records before any payments are
done. This would have prevented loss of money through
inflation and fraud.
Recalculation This is a procedure that involves re-performing mathematical
checking of figures for transactions already done so as to
ascertain if there is a difference between the client work and the
audit’s work. The Australian Public Company should put in
place a policy that allows for records cross-checking on
promotions company and reconciles them with the sent invoice.
This will help capture any unusual figures in the transactions
and ensure that accurate records are presented for billing. This

ACCOUNTING INFORMATION SYSTEMS & PROCESSES
will prevent inflation of figures by greater measure and save the
Australian Company from incurring losses from inflated figures.
Analytical
Procedures
This is an audit procedure that involves a critical analysis of
financial statements through reconciliation and ratio analysis
techniques to asses any suspicious and unusual transaction in
the records that will necessitate the application of other audit
procedures. This generally involves analyzing the records in the
computer and reconciling them with the manual copies. This
would establish if the statements or records give a true and fair
state of affairs. The difference between manual copies and the
records sent via invoice by the promotions company was
enough evidence that the invoiced figures did not represent the
true and fair state of affairs.
Existence Testing This is an audit procedure that involves checking the existence
of a transaction (AUASB, 2015). . This procedure aims at
establishing if indeed the transaction in question happened or
exists The Australian Public Company should put in place
measures that ensure the before payments are made to the
promotion firm, the existence of customer responses on whose
invoice is being drawn should first be established to exist. This
would save the company from incurring losses due to
malpractices such as figure inflation.
Scenario B
Internal control refers to policies that are implemented by the company to promote the integrity
of financial statements, prevent fraud and promote accountability. The company should have
implemented internal controls to prevent fraud like the one committed by the cashier. Some of
the internal controls that ought to be implemented by the company include:
1. Segregation of duties- This control ensures that different responsibilities lie with different
people for the purposes of accountability and accuracy in recording a transaction. It,
therefore, limits responsibilities held by one person (AUASB, 2015). . For instance, the
payables clerk should not hold the signatory authority of authorizing payments. He/she
should be acting on instructions from the controller or supervisor or whoever is envisaged
to authorize payments.

ACCOUNTING INFORMATION SYSTEMS & PROCESSES
2. Documentation- This control ensures that all transactions done by the organization should
be well documented for future reference so that if any queries are raised concerning a
particular transaction, references can be made on the available records. For example, all
transactions done by the cashier should have been well documented and make sure all
checks and invoices are numbered sequentially for future references.
3. Employ internal control programs that are up to date in terms of technological advances.
These programs have capabilities of fraud detection (AUASB, 2015). . The aid of this
program in monitoring money transfers and raises a red flag when certain amounts are
exceeded in certain areas. For example, the amount of money spent on freight and travel
expenses whose entries were posted to the general ledger were examined and it was
found that whereas normal expenses would be $10,000 to $12,000 for a particular month,
they were, in fact, $33,442.19. In this scenario, an internal control program would have
raised concerns when it exceeded the normal range of expenditure.
4. Regular inspections- This control ensures that all transactions done are well verified. The
company can hire an independent inspector to be verifying transactions to ensure no
fraud is committed (AUASB, 2013). . This is achieved by reconciling records with bank
statements. For example, the amount paid by the payables clerk and which he/she
purported to claim to have financed privately, should have been captured through
inspection.
5. Monitoring controls- These controls help in drawing comparisons on what was recorded
and what was paid. These comparisons should be drawn on a daily basis based on bank
statements (Stanleigh, Micheal, 2009). This mitigates fraud practices within the
organizations. For example, all the transactions done by the payables clerk should have
been monitored and the company could not have incurred many losses.
The procedures that could have alerted the auditor to the fraud include:
1. Inspection- This is an audit procedure that examines the financial statements and records
in various forms to determine their accuracy and existence (APESB, 2010). For example,
the cheque drawn by the clerk to travel company raised alerts to the auditor especially
when the clerk claimed to have financed individually. Again an upward rise in the
amount of money spent on freight and travel expenses whose entries were posted to the
general ledger were examined and it was found that whereas normal expenses would be
$10,000 to $12,000 for a particular month, they were, in fact, $33,442.19 clearly signaled
a fraud.

ACCOUNTING INFORMATION SYSTEMS & PROCESSES
2. Documentation- This procedure ensures that all the relevant documents are well
documented sequentially to aid for reference whenever queries are raised concerning
certain transactions (AUASB, 2013). In the scenario given, the payables clerk had not
documented all statements of all transactions she had done one being the statements
regarding the cheque drawn for the travel company.
3. Completeness testing- This procedure aims to check whether there are missing
transactions (AUASB, 2013). The auditor can obtain a bank reconciliation statement and
check to ensure that all payments done are recorded. Missing transactions are a sign of
fraud like the cheque drawn to travel company.
4. Occurrence testing- This test aims to test if all transactions recorded pertain the entity
(AUASB, 2013). Transactions that do not pertain an entity are a sign of fraud. For
example payments authorized to fund a personal trip was a clear sign that fraud was
being perpetrated.
5. Breach of duties and obligations. The signatories presented to the bank to authorize
payments were forged. Best practices require that a specific responsibility such as
payment authorization should be vested in one person (Clarke. K, Walsh. K & Flanagan.
J, 2015). This malpractice alerted the auditor to the fraud.

ACCOUNTING INFORMATION SYSTEMS & PROCESSES
References
Accounting Professional & Ethical Standards Board Limited (“APESB”) (2010). APES
110 Code of Ethics for Professional Accountants.
AUASB. (2013). Auditing Standard ASA 102 Compliance with Ethical Requirements
when Performing Audits, Review, and Other Assurance Engagements.
AUASB. (2015). Auditing Standard ASA 200 Overall Objectives of the Independent
Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards.
Clarke. K, Walsh. K & Flanagan. J (2015). "How prevalent are post-completion audits in
Australia. Accounting, Accountability & Performance". Accounting, Accountability &
Performance.
Clarke. K, Walsh. K & Flanagan. J (2015). "How prevalent are post-completion audits in
Australia. Accounting, Accountability & Performance". Accounting, Accountability &
Performance.
Gay, G. and Simnett, R. (2015). Auditing and assurance services in Australia. 6th ed.
Melbourne: McGraw-Hill Education (Australia) Pty Ltd.
Stanleigh, Micheal (2009). "UNDERTAKING A SUCCESSFUL PROJECT
AUDIT" (PDF). PROJECT SMART. Retrieved 18 May 2016

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