Inventory Situation Case Study
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Inventory Situation Case Study
Financial accounting reporting and statement preparation are not based on a day entry nor transaction, these are entries that span throughout at least six to twelve months period. The case study under review is that of a poorly managed system. For effective management of an organization and implementing a strong internal control system, an accounting information system is a top priority. An accounting information system (AIS) is a computer-based system that is used to process financial information which helps in strategic decision-making tasks and other organizational activities more accountable (Fatriati & Mulyani 2020). This computer-based technique is managed by an expert called an accountant over a period. Some of the qualities that make information useful are reliability, completeness, timeliness, and verifiability. These characteristics are very important hence the need for the internal auditor to have a physical inventory count to further confirm the information generated by the CBU installed computer system by the accountant. It will be difficult for an organization to thrive if it does not utilize the accounting information system. The accounting information system is responsible for the accumulation, storage, handling of accounting, financial information which is used for decision making and is made up of non-financial exchanges or transactions that impact the preparation of monetary exchange (Majid, et al., 2020).
The case under review was an error made by an accountant because the system does not generate data but comes out as inputted. This error was detected and corrected by an internal auditor. The Basic concepts of an accounting statement, number 2, as stated by the Financial Accounting Standards Board (FASB), defines accounting as a system, whose aim is to provide useful information for decision making. Also, American Accounting Association (AAA) stated in 1996 that accounting was an information system that implements the general theories of information in the form of the figure both in economic activities and others (Trigo, et al., 2016). Based on this assertion, the information that was to be presented was a wrong and misleading statement as a result of accumulated error over a long period by the accountant which was not detected until the intervention of the auditor. The auditor detecting the difference of $1M after a physical inventory count was not at of place because it is in accordance with the Public Company Accounting Oversight Board (PCAOB). Both staff reaction was right. Accountant A was happy because the error was detected though very late, before the presentation of the financial report hence users were not misinformed while Accountant B’s view was such that though the error was detected and corrected, it was a prolonged and overdue error that would have been detected if the right internal processes were put in place and implemented. Based on this view, I will agree with Accountant B.
There is a need for the company to mitigate against such errors. According to Auditing Standard 2510, an observation of inventories is an accepted audit procedure, usually, when an independent auditor has not satisfied himself as to inventories in the possession of his client as presented by computer systems, he can request for a physical count and apply an appropriate test of prior transactions (PCAOB, n.d). CBU should ensure that its auditor carries out the inventory checks periodically and timely instead of waiting for when the financial statement is almost published. This act of the auditor should not undermine the importance of technology in enhancing the availability of information for decision making starting with the gathering of data, recording, to presentation. All decision-makers in an organization benefit from accounting technology (Gelinas, et al., 2018). There is the need for the management of companies like that of CBU to hold continuous training courses for all employees in the finance department on modern, sophisticated, and up-to-date systems and technology to get acquainted with changes in developments in the workplace. Some factors like sources of data and input, hardware, human resources, server, financial and accounting processes, inventories methods, and information technology if accurately implemented can help check such avoidable errors made by CBU (Yazdi, et al., 2019). Likewise, the business processes of the organization can be checked to ensure full conformity to regulatory bodies. It is easier to change a process rather than change a system (Gelinas, et al., 2018). Examples of such processes could be business processes between individual and organization; internal processes such as distribution, manufacturing, and accounting. External processes like the relationship between the organization, its customers, and suppliers are also very important. There is the need to work to modernize and develop computerized accounting information systems with continuous review of processes. (El-Ebiary &Alawi 2020).
Accounting systems and principles are a going concern hence there is a need to be
steadfast. Apostle Paul said “Therefore, my beloved brethren, be ye steadfast, unmoveable, always abounding in the work of the Lord, forasmuch as ye know that your labor is not in vain in the Lord” (King James Version 1769/2017, I Corinthians 15:58). The management, accountant, and the entire team of CBU need to be consistent and continue to improve on their internal processes. Also, there is a need to seek God’s wisdom from all the workers. James 1:5 says if anyone lacks wisdom, let him ask of God who gives to all men freely, and upbraideth not; and it shall be given him