Assessment Title: Analysing an Accounting Information System
The Revenue Cycle of XYZ Limited.
After finishing your Master of Professional Accounting, you started your accounting consultancy in Brisbane, Queensland, Australia. You got a high distinction in Strategic Information System and preferred to analyse the business processes, risks and internal controls. XYZ is one of your clients, and the CEO of XYZ is delighted with your services.1 The head of the accounting department is concerned about their revenue cycle. Therefore, he has recently contacted you to evaluate their revenue cycle. During the initial meeting, you elaborate him that conceptually, the revenue cycle is a recurring set of business activities and related data processing operations associated with providing goods and services to customers and collecting their cash payments. This definition reveals that the revenue cycle can be categorised into (1) sales order processing procedures (SOPP), and (2) cash receipts procedures (CRP). The SOPP and CRP of XYZ are elaborated below. Therefore, you requested the head of the accounting department to describe the SOPP and the CRP of XYZ Limited separately. This description is given below.
SOPP of XYZ Limited
The sales department receives the unstandardised sales order since customer orders are mailed, e-mailed or faxed to the sales department. The sales clerk first converts the unstandardised sales order into the standardised sales order. For this purpose, the sales representative requests the missing information, if any. When the order is received, the sales clerk checks the customer’s creditworthiness of the customer from his computer terminal. Three years ago, the sales clerk requested the accounting department to provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the creditworthiness of the customers. The sales clerk is using the same procedure to check the creditworthiness of the new customers.
The customer’s order is rejected if the customer’s credit is not verified. The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardised sales order in the sales order system through his computer terminal. A digital copy of the order is distributed to the warehouse and the shipping department terminals for further processing. The computer system automatically records the sale in the sales journal. The clerk reviews this entry and files the hard copy of the customer order in the sales department.
1 XYZ is a wholesaler of rafting and camping equipment that serves outdoor sports camping retailers throughout the Queensland.
As indicated above, the receipt of the digital sales order prompts on the computer terminal of the warehouse manager. Further, the stock release and the shipping notice are also accessible at the warehouse terminal. For further processing, the warehouse manager prints out the sales order, the stock release, and the shipping notice. Using the stock release copy, a warehouse clerk picks the selected items from the shelves and sends them to the shipping department along with the stock release and the shipping notice. The warehouse manager then updates the inventory subsidiary ledger and the general ledger control account from his computer terminal.
The shipping clerk receives the physical stock, the stock release, and the shipping notice from the warehouse manager. The shipping clerk matches them to the corresponding digital sales order displayed on his terminal. If everything matches, he prints out three hard copies of the bill of lading and a packing slip. The shipping clerk sends two copies of the bill of lading and the packing slip, along with the goods, to the carrier. The stock release copy and the shipping notice are sent to the accounts receivable department. The third bill of lading copy is filed in the shipping department.
Account receivable clerk receives the stock release and shipping notice from the shipping clerk. Then, the accounts receivable clerk manually creates a hard-copy invoice, which is immediately mailed to the customer. After mailing the invoice, the clerk uses information on the stock release to update the accounts receivable subsidiary ledger and general ledger from his computer terminal. After the records are updated, the clerk files the stock release and shipping notice in the accounts receivable department. Sometimes, the account receivable clerk reconciles the quantities from the sales order and adjusts the account receivables.
CRP of XYZ Limited
The payments of customers come directly to the general mailroom along with other mail items. The mail clerk performs the following tasks:
• Sorts the mail,
• Opens the customer payment envelope,
• Removes the customer’s check and remittance advice, and
• Reconciles the two documents.
To control the checks and remittance advices, the clerk manually prepares two hard copies of a remittance list. He sends one copy to the accounts receivable department, along with the corresponding remittance advices. The other copy of the remittance list accompanies the checks to the cash receipts department. Once the checks and remittance list arrive in the cash receipts department, the treasurer performs the following tasks:
• Reconciles the documents,
• Endorses the checks,
• Manually prepares three hard copies of a deposit slip,
• Updates the cash receipts journal and the general ledger from his computer terminal,
• Sends the checks and two copies of the deposit slip to the bank, and
• Files the third copy of the deposit slip and the remittance in the department.
The accounts receivable clerk receives the remittance list and remittance advice from the mailroom and reconciles these two documents. He then updates the accounts receivable subsidiary ledger and the general ledger. Then, account receivable files the two documents in the department.
Based on the above information, prepare a report for the CEO of XYZ Limited to evaluate their revenue cycle. In your report, you need to include the following items:
1. The CEO asks you to start the report from five general risks involved in the revenue cycle of any business. Further, indicate the physical and IT control against each risk.
2. Describe potential internal control weaknesses in the sales order processing procedures and cash receipts procedures of XYZ Limited.
3. Discuss the potential risks associated with the internal control weaknesses identified in Section (2) above.
4. Based on Section (3) above, what types are frauds are possible. Hint: we have discussed different types of frauds in the interactive tutorial and lectures. Your discussion should be based on these contents.
• Reference sources must be cited in the text of the report and listed appropriately at the end in a reference list using Harvard referencing style.
• Include a minimum of ten (10) references, at least five (5) from peer-reviewed journal relevant to the unit.
Word limit: 2000 words
The report should include the following components.
1. Executive Summary
The executive summary should be concise and not involve too much detail. It should make commentary on the main points only and follow the sequence of the report. Write the executive summary after the report is completed, and once you have an overview of the whole text.
2. Table of Contents
This needs to show a logical listing of all the sub-headings of the report’s contents. Note this is excluded from the total word count.
Typically, the introduction is a short paragraph which includes background, scope and the main points raised in the order of importance. There should be a brief conclusion statement at the end of the introduction.
4. Main Body Paragraphs with Numbered Sub-headings
This section contains the detailed information which elaborates on the main points raised in the introduction. Each paragraph should begin with an exact topic sentence, then supporting
sentences with facts and evidence obtained from research and finish with a concluding sentence at the end.
This section contains a logical and coherent evaluation based on a thorough and objective assessment of the research performed.
This section includes any additional explanatory information which is supplementary and/or graphical to help communicate the main ideas made in the report. Refer to the appendices in the main body paragraphs, as and where appropriate. (Note this is excluded from the total word count.)
Note: The report should be grounded on relevant literature, and all references must be cited appropriately and included in the reference list.
The general risks involved in the revenue cycle, and the physical and
IT controls against each risk.
The potential internal control weaknesses in the SOPP and CRP of XYZ
The potential risks associated with the internal control weaknesses in
the SOPP and CRP of XYZ Limited.
The potential frauds in the SOPP and CRP of XYZ Limited. 4%
Presentation and Referencing. 4%
TOTAL Weight 20%
Excellent Very Good Good Satisfactory Unsatisfactory
(80-100%) (70-79%) (60-69%) (50-59%) (0-49%)
The general risks Present an excellent Present a very good Present a good Present a reasonable Present a weak or
involved in the discussion on the discussion on the discussion on the discussion on the inadequate discussion
revenue cycle, and the general risks involved general risks involved general risks involved general risks involved on the general risks
physical and IT in the revenue cycle, in the revenue cycle, in the revenue cycle, in the revenue cycle, involved in the
controls against each and the physical and and the physical and and the physical and and the physical and revenue cycle, and the
risk. [4 Marks] IT controls against IT controls against IT controls against IT controls against physical and IT
each risk. each risk. each risk. each risk. controls against each
The potential internal Correctly identify all Correctly identify most Correctly identify Correctly identify one Fail to identify the
control weaknesses in the potential internal of the potential some of the potential to two potential potential internal
the SOPP and CRP of control weaknesses in internal control internal control internal control control weaknesses in
XYZ Limited. [4 the SOPP and CRP of weaknesses in the weaknesses in the weaknesses in the the SOPP and CRP of
Marks] XYZ Limited. SOPP and CRP of XYZ SOPP and CRP of XYZ SOPP and CRP of XYZ XYZ Limited.
Limited. Limited. Limited.
The potential risks Correctly identify all Correctly identify most Correctly identify Correctly identify one Fail to identify the
associated with the the potential risks of the potential risks some of the potential to two potential risks potential risks
internal control associated with the associated with the risks associated with associated with the associated with the
weaknesses in the internal control internal control the internal control internal control internal control
SOPP and CRP of XYZ weaknesses in the weaknesses in the weaknesses in the weaknesses in the weaknesses in the
Limited. [4 Marks] SOPP and CRP of XYZ SOPP and CRP of XYZ SOPP and CRP of XYZ SOPP and CRP of XYZ SOPP and CRP of XYZ
Limited. Limited. Limited. Limited. Limited.
The frauds possible in Correctly identify all Correctly identify most Correctly identify Correctly identify one Fail to identify the
the SOPP and CRP of the frauds possible in of the frauds possible some of the frauds to two frauds possible frauds possible in the
XYZ Limited. [4 the SOPP and CRP of in the SOPP and CRP possible in the SOPP in the SOPP and CRP SOPP and CRP of XYZ
Marks] XYZ Limited. of XYZ Limited. and CRP of XYZ of XYZ Limited. Limited.
Presentation and An extensive amount A broad range of An adequate range of An adequate range of Little or no peer-
Referencing. [4 Marks] of high-quality quality peer-reviewed peer-reviewed journal peer-reviewed journal reviewed journal
evidence from peer- journal references and references was references was references were
reviewed journal other sources was included and used to included and used to a included, and these
articles and other included and used support discussion. basic extent to support were rarely used to
sources was included effectively to support discussion. support discussion
and used effectively to discussion. effectively.