Assessment Details and Submission Guidelines
Unit Code H15019
Unit Title Strategic Information Systems for Business and Enterprise
Assessment Type Individual assignment
Assessment Title Case Study — Paradise Industries Purpose of the assessment (with ULO Mapping)
Students are required to: • Critically evaluate the purpose and role of accounting information systems in today's business environment (ULO 1). • Articulate the various transaction cycles, financial reporting, management reporting systems and e-commerce systems to technical and non-technical stakeholders (ULO 2). • Appraise the risks inherent in computer-based systems/ERP, including the role of ethics and the various internal control processes that need to be in place (ULO 4).
Weight 20% of the total assessments
Total Marks 20
Word limit Not more than 2,500 words
Background After working at several accounting and consultancy firms for more than a decade, you have recently decided to start your own consultancy business. A friend of your wife introduces you to Paradise Industries, a manufacturer of high-precision machine tools based at Adelaide. Paradise Industries employs a centralised computer system with distributed terminals in the departments. The company recently have a number of operational problems and the managing director of the company has engaged you to assess its systems and processes.
When an inventory item falls to the recorder point, a purchase requisition is automatically generated and printed on the terminal in the purchasing department. The purchasing clerk select suppliers and prepare a purchase order. One copy of the purchase order is sent to the supplier and another copy is sent to the receiving department. The purchasing clerk then adds a record to the open/closed purchase order file through an update program in the data processing department.
When the receiving clerk receives the delivery from the supplier, the clerk reconciles the items with the packing slip and the purchasing order. After the reconciliation, the receiving clerk prepares a hard-copy receiving report recording the quantity and quality of the goods received. One copy of the receiving report accompanies the items to the warehouse and another copy is filed in the receiving department. Using the department terminal, the receiving clerk adds a record to the digital receiving report file. The system then automatically closes the purchase order. Upon receiving the items, the warehouse clerk updates the inventory subsidiary ledger through the terminal in the warehouse.
When the supplier's invoice arrives, the accounts payable clerk adds a record to the supplier invoice file, which in turn triggers the system to automatically set up a liability in the accounts payable subsidiary ledger based on the financial information contained in the invoice. The system then automatically updates all affected general ledger accounts.
The computer system scans the accounts payable subsidiary ledger every day for items due to be paid and print the cheque. The cheque is sent to the supplier and a copy is sent to cash disbursements where it is filed. The system then adds a record to the cheque register file and removes the liability in the accounts payable subsidiary ledger. Finally, the system automatically updates the general ledger accounts.
The production process is triggered by a quarterly forecast of expected sales, which goes to the production planning and control clerk. From the clerk's terminal, the production planning and control clerk updates the digital production schedule to include the batches of products to be produced during the next quarter. Drawing upon the bill of materials and routing sheet files, the system automatically prepares the digital work orders move tickets and material requisitions and sends them to the work centre supervisor's terminal on a weekly basis.
The work centre supervisor accesses the digital documents and print hard-copy work orders, move tickets and material requisitions. The supervisor distributes the move tickets and two copies of the material requisitions to each work centre in the production process.
Staff members submit the two copies of material requisitions to the warehouse in exchange for the materials. If additional materials are needed beyond the standard quantity, the supervisor issues additional material requisitions. As the production is completed in each work centre, the staff members send the move ticket to cost accounting to the mark the completion of that phase of the production batch. Staff members also record labour time spent on each batch on hard-copy job cards, which they send to cost accounting. Finally, upon completion of the batch, the work centre supervisor closes the open work order file.
The warehouse clerk files one copy of the material requisition and updates the materials inventory file from the terminal in the warehouse office. The clerk then sends a second copy of the material requisition to cost accounting. At the end of the day, the clerk prepares a digital journal voucher and posts it to the general ledger control accounts.
The cost accounting clerk accesses the digital work orders and set up a work-in-process account for the production batch. The clerk also receives move tickets, job tickets, and material requisitions throughout the production process and use the documents to post in work-in-process subsidiary ledger. At the end of each day, the cost accounting clerk prepares a digital journal voucher and posts to general ledger control accounts to reflect the status of work-in-process and to record transfers of work-in-process to finished good inventory.
Prepare a report to the managing director of Paradise Industries to evaluate the processes, risks and internal controls for Giant Eggplant's expenditure and conversion cycle. In your report, you need to include the following items: • System flow chart of expenditure cycle • System flow chart of conversion cycle • Analysis of physical internal control weaknesses in the expenditure cycle • Analysis of the risks exist in the conversion cycle and the changes needed to reduce the risks
Assignment Structure The report should include the following components: • Assignment cover page clearly stating your name and student number • A brief introduction of what the report is about • Body of the report with appropriate section headings • Conclusion • List of references
The report should be grounded on relevant literature and all references must be properly cited and included in the reference list.
Purchasing flow Chart
With the ramified economic changes, every organization needs to follow the particular work process and the issues in the identified process is done with a view to manage the business process. In this report, there is a discussion of strategic information system for business and enterprise. The strategic information system and implication of the flow chart is used to assess the business process. The strategic information system is so information system strategy is a crucial feature in this digital and upgrading corporate world. It is used for giving more advantage of competition to the organisation. With the help of information system strategy an organization can store, process data and transfer the data and information they build and receive. Strategic information system is a type of bridge between the latest information technology and demand of organization. With the help of this an organisation can efficiently withstand in the corporate world by utilizing information technology to overcome its challenging requirement to the continuous variation. It is an essential aspect of an organization for its growth and expansion. In the current case of paradise industries group, the company is emerging in manufacturer of the machine tools located at Adelaide. This case study is all about the accounting information system in the organisation. This study shows the current expenditure and conversion cycle of the organization.
Expenditure cycle of Paradise Industries group
With the changes in process, there is need to set up strong expenditure cycle to control the cash inflows and outflow from the business. The Paradise Company needs to manage its flows of the cash and expenditure by setting up the internal control system to verify the cash which went outflow from the business there are three business activities in the expenditure cycle such as ordering goods, supplies and services, receiving and storing goods, supplies and services, paying for goods, supplies and services, when an inventory item falls to the recorder point then a purchase requisition is automatically generated and printed on the terminal in the purchasing department., complete task is divided into 4 department of the organization, purchase department, receiving department, account payable department, cash disbursement department with the changes in business process, the particular chain pattern is followed by each department means every department is depending upon the data which submitted by clerk of previous department (Konstantinidi, and Pope, 2016). The second and third department clerk means receiving and account payable department works upon the purchase order copy which is generated by the clerk of purchase department. The before process the task of their department, they verify the purchase order copy with the invoice generated by the vendor. The work of cash disbursement department depends upon the activity of payable department clerk. The process the payment to the vendor for the goods delivered by them (Bischiniotis, et al. 2019).
Image 1 – Flowchart showcasing the expenditure cycle of the current business organization
Conversion cycle of Paradise Industries group
This flowchart shows that an organization forecast 3 month planning in which marketing department present the schedule to the production department for the future period. By doing the activity of forecasting the organization is now emerge to develop the product and at the present time they all collecting the raw material which is used to develop the produce. The undertaken factors which are accompanied by the process of the cash conversion cycle are such as the time required to convert the raw materials into finish good, undertaking the process work and setting work structure program (Mayanti, 2018). The process conversion cycle is done with a view to manage the strong work program and mitigate the possible issues and threats in effective manner. By using the purchase system and undertaken risk program, Paradise Company could easily mitigate the possible issues. Paradise industries group purchases the material according to quarter production and make plan accordingly then any change in technology will affect the organization dynamically (Degiannakis, and Potamia, 2017).
Analysis of physical internal control weakness in the expenditure cycle
IC can be identified as policies and procedures designed to provide management with reasonable assurance that the company achieves its objectives and goals. However, this sets the strong compliance program and sets the strong inbound and outbound activities program. However, the IC performs three different types of controls such as preventive Controls, which deter problems before they arise, detective Controls are needed to discover problems as soon as they arise, and corrective (Takacs. Frankenberger, and Stechow, 2020). Controls remedy control problems that have been discovered. In the business organization there is need of expenses system in order to purchase the goods and service. All the other business cycle is linked with expenditure cycle. There is high vulnerability of internal control weakness exist where ever the money related things exists. Proper check and control at proper places will ensure the adequate internal control system in the organization. The efficiency of organisation is affected by various weakness. In this case the expenses cycle initiate with the purchase of raw material from the suppliers. After preparation of the purchase order entry has to be made in the purchase order file. Then the receiving department recheck the packaging slip on the order received. Now a receiving copy is generated by the receiving clerk and this copy is share with warehouse clerk, to close the purchase order, entry is recorded by the receiving clerk in the department terminal, the purchase and receiving clerk reconciliation the process, finally, the payment is made by the payment clerk upon reconciliation. After adding the various control step in the current system still there exists some type of deformities in the organisation which ultimate enhances the risk of weaknesses in internal control system (Chen, and Lin, 2018). Now take the case of Paradise Industries Group, the audit analyst the deep research in the expenditure cycle evaluated the weakness. The analytic information is mentioned below. The process work program needs to be set up with the strong internal control system.
Weaknesses in the purchasing department- In the purchasing department the responsible person is purchasing clerk. After reviewing the activities of paradise industries, it is clear that the selection of buyer and quality of purchase of raw material purchase is fall under the responsibility of purchasing clerk. The rates for material purchase and selection of buyer are finalised by purchasing clerk and no additional checking is done on this work. So it is revealed that there is high probability that it creates a purchase event which is bias in nature for the company (Shukla, and Nanda, 2019). There are chances that purchasing clerk is making some personal benefit out of this as there is not monitoring implanted over this activity. This increases the scope of generating the loophole in the organizational system which is ultimately resulting in fraudulent activity.
Weaknesses in the receiving department- The risk of fraud and error is enhanced in receiving department as multiple jobs are performed by receiving clerk. So it is natural that multiple activities are performed by single personnel then the chances of occurrence of material misstatement is also increases. And if the fraud and error are already made in initial department in terms of quality and raw material then it cannot fix in this department. And the receiving clerk job as totally rely over the reconciliation of purchase order and invoice copy shared by the vendor.
Weaknesses in the payment department- disbursement of funds is vulnerable to risk of misappropriation and frauds. In any organisation there must be adequate control system in the segment. In the case of paradise industries, the accounts payment is come under the responsibility of account payment clerk (Amaliah, and Darmawan, 2019). As there is no other personnel to reconcile the work of account payment clerk. And second things which is noted that if fault is generated at the initial step then the accounts payment clerk totally relies on the document shared by the purchasing clerk which again creates the situation of internal replying over the documents. There are no external checks to ensure the accuracy of document initially produced.
Existence of risk in the conversion cycle and steps taken to reduce the risk
The below mentioned risk and corrective steps are as follows:
Operational risk- organisation consist of equipment then there is high risk of equipment breakdown which ultimately hinder the organization efficiency. Organisation must consist of the qualified staff which have strong knowledge of equipment and tools with respect to their speciality. There is sensitive risk to business stability if the company is in its introduction phase.
Steps taken to avoid operational risk- In the case of paradise industries group, there is the great and urgent need to design a plan B in case of disaster or any mis-happening event. The step to avoid operational risk is ultimately lead to decrease the severity of loss occurrence from the present situation.
Regarding the issues related to the security the management of the company in the current case can go for outsourcing. Outsourcing is a term which is another way of mitigating the risk in the company. The outsourcer have the capability to reduce the risk to some extent or managing it to a point that it will not take place. The security program measures needs to be set to mitigate the issues in effective manner (Hopkin, 2018).
Technological risk- in this global world, technology is changing day by day, it is highly dynamic as it is also stated that nothing is permanent. The project that the company tends to undertake is not a single asset but to sustain in the long run it diversify among the different range of products.
In this case the company Paradise industries group purchases the material according to quarter production and make plan accordingly then any change in technology will affect the organization dynamically.
Step taken to avoid technological risk- It is clear that overstock leads to the company loss. And the company should not overstock itself so it should work accordingly to the changing market demands (Chauhan, Yadav, Soni, and Jain, 2017).
Creditability risk- The risk is accessed through the debtor of the company. The market risk of the company is determined by the debtor portfolio which is very important. The payment cycle of debtor is helps to measure the risk. In this case there is no specified rules are mentioned which defines the payment cycle of the debtor. This crediabiltiy risk is followed by organization needs to be reduced by using the credit rating and lower down the credit sales. Nonetheless, the proper internal control system needs also be set to strengthen the work process for the strong credibility.
Steps taken to avoid the creditability risk- The incurrence of bad debts on higher rates is by the irregularities in the payment. In order to reduce this risk is by the organizational plan should prioritize the highest risk in their budget to avoid any type of failure at the end.
Documentation risk- for effectiveness in the implementation of the internal control system is by maintaining the proper and accurate documentation. It is necessarily required that not only documentation is prepared but also there is need of proper implementation of adequate checks over them at the regular intervals. In the case of paradise industries group the work is on the manual basis which delays the process of adequate check on timely basis. This manual preparation not only increases the chances of misstatement but also creates some difficulty in the projection of budget. In the current case the manual entry is done by various step so the occurrence of error in any step leads to a huge loss to paradise group (Begenau, 2019).
Steps taken to avoid documentation risk- to mitigate this type of risk to the possible maximum appetite there is a need to take adequate steps. In this digital world, any organization can use the technology and works with full efficiency so here by using the modern accounting software will help to reduce the risk to some extent which is beneficial to company. By putting each and every step to the system software will enhance the internal accuracy of the accounting data.
Forecasting risk- To withstand in the market proper forecasting is mandatory to predict the prospective market requirement and direct the production department accordingly. Forecast is done by high level of expertise in the particular field in the market. Any mistake in this segment may lead to failure for the organization. The forecasted results could be managed by managing the work program and results by adopting the trend analysis and evaluating the last year data to project the future results in effective manner (Xu, and Tang, (2019).
Step taken to avoid the forecasting risk- In this case of paradise industries group, the forecast is made for the complete quarter which may create hurdle to the company. So it is greatly needed to generate forecasting budget for the short period as well. After assessing all the details of the company, it could be inferred that the projected risk program could be managed by the company by managing proper risks by Paradise Industries group (Koros, 2017). The risk undertaken program, credibility risk program and liquidity risk program needs to be managed by Paradise Industries group to manage the business complexities and develop an effective risk management program. The proper flow chart program and purchase system helps in managing the process risks helps in avoiding the risk issues in effective manner. The forecasted risk could be avoided by undertaking the last year trends data.
In this digital world strategic information system become the most powerful weapon for the organization to work with full efficiency. Strategic information system is very beneficial and helpful. This helps in attaining the information which is related to the concerned department very easily. Each risk type should be handled differently with the aim of eliminating, reducing, or mitigating it. In the above discussion, it is mentioned that what is the expenditure cycle and conversion cycle of Paradise Industries group and what are the risk associated with them and finally what are the step should take to avoid the risk.