SUBJECT: ACCOUNTING INFORMATION SYSTEM

QUESTION 1

You are an audit supervisor assigned to a new client, MyGres Company which is listed in BursaMalaysia. You visited MyGres's corporate headquarters to become acquainted with key personnel and to conduct a preliminary review of the company's accounting policies, controls, and systems.During this visit, the following events occurred:

a)You met with MyGres's audit committee, which consists of the corporate controller, treasurer,financial vice president, and budget director.

b)You recognized the treasurer as a former aide to Mr Yap, who was convicted of fraud severalyears ago.

c)Management explained its plans to change accounting methods for depreciation from theaccelerated to the straight-line method.Management implied that if your firm does not concurwith this change, MyGres will employ other auditors.

d)You learned that the financial vice president manages a staff of five internal auditors.

e)You noted that all management authority seems to reside with three brothers, who serve as chiefexecutive officer, president, and financial vice president.

The information you have obtained suggests potential problems relating to MyGres's internal environment. Identify the problems and solutions in relation to the internal environment concepts for each situation.

(TOTAL :20 MARKS)

QUESTION 2

The Orange Express performs its expenditure cycle activities using its integrated ERP system as follows:

a.Employees in any department can enter purchase requests for items they note as being either out

of stock or in small quantities.

b.The company maintains a perpetual inventory system.

c.Each day, employees in the purchasing department process all purchase requests from the prior day. To the extent possible, requests for items available from the same supplier are combined into one larger purchase order to obtain volume discounts. Purchasing agents use the Internet to compare prices in order to select suppliers. If an Internet search discovers a potential new supplier, the purchasing agent enters the relevant information in the system, thereby adding the supplier to the approved supplier list. Purchase orders above RM15,000 must be approved by the purchasing department manager. EDI is used to transmit purchase orders to most suppliers, but paper purchase orders are printed and mailed to suppliers who are not EDI capable.

d.Receiving department employees have read-only access to outstanding purchase orders. Usually, they check the system to verify the existence of a purchase order prior to accepting delivery, but sometimes during rush periods they unload trucks and place the items in a corner of the warehouse where they sit until there is time to use the system to retrieve the relevant purchase order. In such cases, if no purchase order is found, the receiving employee contacts the supplier to arrange for the goods to be returned.

e.Receiving department employees compare the quantity delivered to the quantity indicated on the purchase order. Whenever a discrepancy is greater than 5%, the receiving employee sends an email to the purchasing department manager. The receiving employee uses an online terminal to enter the quantity received before moving the material to the inventory stores department.

f.Inventory is stored in a locked room. During normal business hours an inventory employee allows any employee wearing an identification badge to enter the storeroom and remove needed items. The inventory storeroom employee counts the quantity removed and enters that information in an online terminal located in the storeroom.

g.Occasionally, special items are ordered that are not regularly kept as part of inventory, from a specialty supplier who will not be used for any regular purchases. In these cases, an accounts payable clerk creates a one-time supplier record.

h.All supplier invoices (both regular and one-time) are routed to accounts payable for review and approval. The system is configured to perform an automatic 3-way match of the supplier invoice with the corresponding purchase order and receiving report.

i.Each Saturday, approved supplier invoices that are due within the next week are routed to the treasurer's department for payment. The cashier and treasurer are the only employees authorized to disburse funds, either by EFT or by printing a check. Checks are printed on a dedicated printer located in the treasurer's department, using special stock paper that is stored in a locked cabinet accessible only to the treasurer and cashier. The paper checks are sent to accounts payable to be mailed to suppliers.

j. Monthly, the treasurer reconciles the bank statements and investigates any discrepancies with

recorded cash balances.

Required:

Identify TEN (10) weaknesses/problems in Orange Express's existing expenditure cycle procedures andpropose TEN (10) relevant control procedures to mitigate each of the weaknesses. You answer should be written in the following format:

(i)Weaknesses/problems

(ii)Control Procedures

(TOTAL: 20 MARKS)