Question

Analysing the Accounting Information System of HARDA Fashion. HARDA Fashion sells ready-to-wear fashion clothes to teenagers. The company has a 20-store chain concentrated in the north-eastern part of the United States of America. Each store has the experienced full-time staff consist of a manager and an assistant manager. The full-time staff is paid a fixed salary. The full-time staff is assisted with a cashier and a sales assistant who have comparatively less experience. The cashier and sales assistant are paid hourly wages plus the commission based on the volume of sales. HARDA Fashion uses unsophisticated cash registered with four-parts sales invoice to record each financial transaction. These sales invoices for the sales transaction irrespective of the payment type. The record-keeping starts with the sales assistant on the sales floor. The sales assistant fills the sales invoices manually by providing the following information:

1. Records his or her employee number.

2. Enters the transaction details including clothes item number, description, quantity, and the unit price.

3. Totals the sales invoice.

4. Calculates the discounts manually when appropriate.

5. Calculates the sales tax.

6. Finalise the sales invoice after calculating the grand total.

The sales assistant then forwards the sale invoice to the cashier and keeps one copy in the sales book. The cashier reviews this sales invoice and enters in the cash register. The cash register mechanically validates the invoice, automatically assigning a consecutive number to the transaction. The cashier is also responsible for getting credit approval on charge sales and approving sales paid by cheque. The cashier gives (1) one copy of the invoice to the customer, (2) retains the second copy as a store copy, and (3) the third for a bankcard, if a deposit is needed. Returns are handled in exactly the reverse manner, with the cashier issuing a return slip. At the end of each day, the cashier sequentially orders the sales invoices and takes cash register totals for cash, bankcard, cheque sales, and cash and credit card return. These totals are reconciled by the assistant manager to the cash register tapes, the total of the consecutively numbered sales invoices, and the return slips. The assistant manager prepares a daily reconciliation report for the store manager’s review.

The manager reviews cash, cheque, and credit card sales and then prepares the daily bank deposit (credit card sales invoices are included in the deposit). The manager makes the deposit at the bank and files the validated deposit slip. The cash register tapes, sales invoices, and return slips are forwarded daily to the central data processing department at corporate headquarters for processing. The data processing department returns a weekly sales and commission activity report to the manager for review. Required Prepare a report to Chief Executive Officer of HARDA Fashion to evaluate its processes, risks, and internal controls for its revenue cycle.

In your report, you need to include the following items:

1. Identify six strengths in HARDA’s system for controlling sales transactions.

2. For each strength identified, explain what problem(s) HARDA Fashion has avoided by incorporating the strengths in the system for controlling sales transactions.

3. Identify two situational pressures in a company like HARDA Fashion that would increase the likelihood of fraud.

4. Explain why some companies would choose to install a distributed computer system rather than a centralised one.

Answer 1

Solution - 1 & 2

It is necessary to distribute the work in a well planned and effective way. It helps the organization to strength their systems and reducing the chances of error. The six strengths in HARDA's system for controlling sale transactions and the problems avoided by these strenghts are:-

a) Strength - The Sale transaction recording person and the money collection person (cashier) is different. The sale tranasaction person generate sale invoice and transferred one copy to cashier to collect cash.

Problem Avoided:- Sale recording and Cash collection person is different. It reduces the risk of misplacement of cash.

b) The cashier reviews this sales invoice and enters in the cash register. The cash register mechanically validates the invoice, automatically assigning a consecutive number to the transaction.

Problem Avoided:- Sale Invoice has been double checked and reduces the risk of error of recording.

c) At the end of each day, the cashier sequentially orders the sales invoices and takes cash register totals for cash, bankcard, cheque sales, and cash and credit card return.These totals are reconciled by the assistant manager to the cash register tapes, the total of the consecutively numbered sales invoices, and the return slips. The assistant manager prepares a daily reconciliation report for the store manager’s review.

Problem Avoided:- Sale invoices and cash register is reconsiled on daily basis by assistant manager which reduces the risk of early fraud and having double check on cashier and sales person work.

d) The manager reviews cash, cheque, and credit card sales and then prepares the daily bank deposit (credit card sales invoices are included in the deposit).

Problem Avoided:- Cash, cheque and credit card details are checked on daily basis which reducedes the risk of misplacement of cash by cashier or forgotten of any payment made by cashier. The same amount deposited in bank on daily basis.

e) The cash register tapes, sales invoices, and return slips are forwarded daily to the central data processing department at corporate headquarters for processing.

Problem Avoided:- The data send to corporate office for evaluation and for recording purpose, which helps in evaluating daily performance of every brancha nd take corrective steps at early stage.

f) The data processing department returns a weekly sales and commission activity report to the manager for review. Required Prepare a report to Chief Executive Officer of HARDA Fashion to evaluate its processes, risks, and internal controls for its revenue cycle.

Problem Avoided:- Weekly report provided regarding the performance od the business which helps in rechecking of business performance and taking of necessary steps at early stages.

Solution- 3

a)  There is so many works done by the cashier at the same time. The cashier reviews this sales invoice and enters in the cash register. The cash register mechanically validates the invoice, automatically assigning a consecutive number to the transaction. The cashier is also responsible for getting credit approval on charge sales and approving sales paid by cheque. There is a risk of misplacement of any step by the single cashier or give some change of doing any intentionally fraud in the payment of clients. In addition to it, cash register mechanically validates the invoice. The company should adopt the automative system there to reduce the risk of human error.

b) The sales assistant files the sales invoices manually. It increases the risk of filling any wrong data intentionally or unintentionaly by the sales personel. The company should adopt the bar scanning automatic accounting machine which helps in removing the physical intervention of the sales personnel.

Solution - 4

In Distributed computer system the controls are distributed along with the sense of responsibility to the different levels of persons, but in Central distribution system , te workload is on the single system or at different person alone. When company operates in a very small scale then CDS system is very effective but in case if the company opereates in multiples locations and have presence in various geographical locations then it is better to apply the Distribution system because it helps in distributing the loads on the diffrent levels which helps in effective rumming of business and helps in early dicision making and effective control in very tensed and heavy workloads situations.

2.