Accounting Information Systems (Day 02)

1. What is considered a strong internal control structure?

In cases of employee fraud, weak internal controls are usually present.

Management frauds, however, are usually committed at a level above the one to which internal controls generally relate.

2. The Sarbanes-Oxley Act requires all audit committee members to be independent and requires the audit committee to hire and oversee the external auditors. This provision is consistent with many investors who consider the board composition to be a critical investment factor.

3. What is control risk?

It is an absence or weakness of an internal control.

4. What are non-auditing activities?

5. What are bookkeeping services?

Bookkeeping services include, but are not limited to, maintaining and evaluating financial transaction records in books of account such as sales, purchase, cash journals, ledgers or computerised accounting systems, preparing budget or income expenditure report, profit and loss statements and trial balances, and the making of statutory returns as permitted by law, not the making of any subjective decisions in relation thereto. Examples include:

payroll services
data entry of revenue and expenses
basic depreciation calculations.

6. What is financial planning?

Financial planning means providing advice in respect of a client’s personal financial affairs, specifically related to wealth management, retirement planning, estate planning, risk management and related product advice. This includes:

1. investment advice
2. superannuation advice
3. estate planning
4. insurance
5. financial counseling.

7. Differences between external auditing, internal auditing, and information technology auditing?

External auditing is often called independent auditing because certified public accounting (CPA) firms that are independent of the client organization’s management perform them.

External auditors represent the interests of third-party stakeholders in the organization, such as stockholders, creditors, and government agencies.

IT auditing is usually performed as part of a broader financial audit. The IT auditor attests to the effectiveness of a client’s IT controls to establish their degree of compliance with prescribed standards. Because many of the modern organization’s internal controls are computerized, the IT audit may be a large portion of the overall audit.

Internal auditing is an appraisal function housed within the organization. Internal auditors perform a

wide range of activities on behalf of the organization, including conducting financial statement audits, examining an operation’s compliance with organizational policies, reviewing the organization’s compliance with legal obligations, evaluating operational efficiency, detecting and pursuing fraud within the firm, and conducting IT audits. 

External auditors represent third-party outsiders, whereas internal auditors represent the interests

of management.

8. What is auditing?

Auditing is a form of independent attestation performed by an expert—the auditor—who expresses an opinion about the fairness of a company’s financial statements.

9. What are non-accounting activities?

They include actuarial services, internal audit outsourcing services, and consulting.

10.  Who are stakeholders?

Stakeholders are individuals inside or outside the firm who have an interest in the system but are not end users. They include management, internal auditors, and consultants who oversee systems development.

11. Who are systems professionals?

Systems professionals include systems analysts, database designers, and programmers who design and build the system. Systems professionals gather facts about the user’s problem, analyze the facts, and formulate a solution. The product of their efforts is a new information system.

12. Who are end-users?

End users are those for whom the system is built. They are the managers who receive reports from the system and the operations personnel who work directly with the system as part of their daily responsibilities.

13. Code of ethics

The company’s code of ethics should outline procedures for dealing with actual or apparent conflicts of interest between personal and professional relationships.

Whereas avoidance is the best policy, sometimes conflicts are unavoidable. Thus, one’s handling and full disclosure of the matter become the ethical concern.

References:
1. CPA Website, GUIDE TO PUBLIC ACCOUNTING SERVICES, https://www.cpaaustralia.com.au/professional-resources/public-practice/getting-started-in-public-practice/guide-to-public-accounting-services.

2. Hall, James A. (2014) Accounting Information Systems, 9th edition, South-western Cengage Learning.