...CONTROL AND AIS (Version 1 – Brief, just for the exam) Overview of Control Concepts * Internal Control - plan of organization and the methods a business uses to safeguard assets, provide accurate and reliable information, promote and improve operational efficiency and encourage adherence to prescribed management procedures. * Management Control - broader than internal control 1. Integral part of management responsibilities. 2. Is designed to reduce errors and irregularities and achieve goals 3. Is personnel oriented and seeks to help employees attain company goals by following policies. * Administrative Controls - help ensure operational efficiency and adherence to managerial policies. * Accounting controls - safeguard assets and ensure the reliability of accounting records. * Internal control structure - policies and procedures established to provide reasonable assurance that the organization's specific objectives will be achieved. 1. Control environment 2. Accounting system 3. Control procedures * Internal control classifications 1. Preventive, detective, corrective 2. Feedback, feedforward 3. General, application 4. Input, processing and output COSO - Committee of Sponsoring Organizations * Internal control - process implemented by management, the BOD, and those under their direction to provide reasonable assurance that control objectives are achieved with regard to: ...
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...EURIDIS Research Monograph SCHEMATIC EVALUATION OF INTERNAL ACCOUNTING CONTROL SYSTEMS Kuo-Tay Chen* and Ronald M. Lee# * Department of Management Purdue University at Calumet Hammond, IN 46323 U.S.A. chenk@pucal.bitnet # Erasmus University Research Institute for Decision and Information Systems (EURIDIS) Erasmus University Rotterdam The Netherlands rlee@fac.fbk.eur.nl ERASMUS UNIVERSITY RESEARCH INSTITUTE FOR DECISION AND INFORMATION SYSTEMS Schematic Evaluation of Internal Accounting Control Systems by Kuo-Tay Chen and Ronald M. Lee Monograph No. RM-1992-08-1 (August 11, 1992) EURIDIS Research Monograph Erasmus University Rotterdam, The Netherlands © Kuo-Tay Chen and Ronald M. Lee Permission to copy this monograph without fee is granted provided that (1) the copies are not distributed for the direct commercial purpose and (2) this copyright page including the copyright notice, the EURIDIS monograph number, and date appear. TABLE OF CONTENTS CHAPTER 1. INTRODUCTION ...................................... 1 1.1 BACKGROUND .......................................... 1 1.2 MOTIVATION ............................................. 3 1.3 OBJECTIVE OF THE STUDY .......................... 4 1.4 ISSUES OF INTEREST .................................. 6 1.5 SCOPE OF THE STUDY................................. 7 1.6 CONTRIBUTIONS OF THE STUDY .................. 8 CHAPTER 2. DECISION AIDS RESEARCH FOR INTERNAL CONTROL EVALUATION ............................................ 9...
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...Introduction to the Theory of Accounting and Control ••••••••••••••••••••••••••••••••••••••••••••• Three ideas are central to understanding accounting and control in organizations. First, all organizations are sets of contracts among individuals or groups of indi viduals. Second, provision of shared information among the contracting parties helps design and implement these contracts. Finally, control in organizations is a sustainable balance or equilibrium among the interests of its participants. It should be distinguished from control of organizations, which suggests manipulation or exploitation of some participants by others. We start this overview by stating these ideas briefly, leaving most definitions and details for the following chapters. We conclude with a summary of ideas about micro and macro aspects of accounting and control presented in the book. Organizations as a Set of Contracts Organizations are many things to many people. Business firms, for example, are employers to those who work for them; customers to the purveyors of goods and services; suppliers to their own customers; benefactors to those who receive their charity; investments to those who save; taxpayers to the government; a threat to the livelihood of their competitors; impersonal bureaucracies to the powerless; and pillars of free enterprise to the believers. Organizations are variously seen as com plex networks of human relationships, production functions, hierarchies, even garbage cans....
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...Introduction Management control system (MCS), as a vital part of an organization, which purpose allows organizations to ensure that their activities achieve the objects they desire. The process of designing and improving MCSs requires addressing three basic questions. What is desired? What is likely to occur? And What is the effect of contextual factors ?Then managers must address each of these questions. What controls should be used? In recent years, contingency-based research has maintained its popularity with studies including these variables but redefining them in contemporary terms. This paper provides a critical review of findings from contingency-based studies over the past 20 years, deriving a series of propositions relating MCS to organizational context. The paper examines issues related to the purpose of MCS, the elements of MCS, the meaning and measurement of contextual variables, and issues concerning theory development (Robert H. Chenhall 2003). on the effect of contextual variables on the design of Management Control System (MCS). It is tests the effect of each contextual variable on the relationship between MCS design and performance by using survey instruments. It is demonstrates that contextual variables contribute to the design of MCS. The following sections describe how to address each of these questions. What it is the organization Objectives and, more importantly, strategies that are derived from a good understanding of the organization’s objectives...
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...Airtex Aviation Case Study AirTex Aviation 1. Did AirTex need a new control system at the time of the takeover? * “The management system that was in place was one woman who magically kept everything in her head. There was limited and almost incomprehensible formal system.” Sarah Arthur, the company’s accountant, had complete autonomy over the company’s information, and she kept this information private. * AirTex was in need of a more formalized accounting system, since accounting was a central department of the company, and profitability was a key measure to ensure the success of the company at the time of the takeover. * Also, Ted and Frank had plans to dispose of Sarah Arthur, who was acting manager upon their arrival. However, given her central role within the company for 20 years, she possessed a plethora of information, which was undocumented and she retained in her head * AirTex should make an effort to document and provide proper procedure for all major processes. It will ensure that knowledge is not lost with the departure of key personnel. However, Ted and Frank should be cautious about “rubbing people the wrong way”, especially their employees who have worked at the company for 10+ years. These individuals will be the most resistant to change and will perceive Ted and Frank as new and disruptive. * Managers were unaware of their department’s profitability. It was kept very secretive by Sarah Arthur, the accountant. As a result, managers didn’t know how big...
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...Internal controls are referred to the methods established by a company to safeguard its assets. Internal controls are designed with the idea of achieving a company's objectives, which include the effectiveness and efficiency of operations, that the information presented to financial statement users is reliable, and that the firm is complying with regulations and laws (Bodnar & Hopwood, 2013, p.13). Internal control requires the distribution of responsibilities among employees. It is important for employees to know their task or job function in an entity since they will work harder to control these responsibilities. One example of an internal control placed in a company is the segregation of duties, which implies that the same department or person does not have control upon accounting and financial responsibilities (Bodnar & Hopwood, 2013, p.14). Internal control has an important role in the development of Accounting Information System (AIS) since the success of AIS depends on the effectiveness of the internal controls of a firm. AIS is defined as the transformation of financial and other data, collected by people and equipment, into information. The effectiveness of internal controls assure that the data entered by employees of a company in a computerized system, the techniques used to process information, the methods used to store information, and the information produced are accurate and appropriate Internal controls are designed to monitor and keep the quality of...
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...AirTex Aviation 1. Did AirTex need a new control system at the time of the takeover? * “The management system that was in place was one woman who magically kept everything in her head. There was limited and almost incomprehensible formal system.” Sarah Arthur, the company’s accountant, had complete autonomy over the company’s information, and she kept this information private. * AirTex was in need of a more formalized accounting system, since accounting was a central department of the company, and profitability was a key measure to ensure the success of the company at the time of the takeover. * Also, Ted and Frank had plans to dispose of Sarah Arthur, who was acting manager upon their arrival. However, given her central role within the company for 20 years, she possessed a plethora of information, which was undocumented and she retained in her head * AirTex should make an effort to document and provide proper procedure for all major processes. It will ensure that knowledge is not lost with the departure of key personnel. However, Ted and Frank should be cautious about “rubbing people the wrong way”, especially their employees who have worked at the company for 10+ years. These individuals will be the most resistant to change and will perceive Ted and Frank as new and disruptive. * Managers were unaware of their department’s profitability. It was kept very secretive by Sarah Arthur, the accountant. As a result, managers didn’t know how big their...
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...Professor of Accounting University of Catania (Italy) Department: Impresa, Culture e Società Email: antonio.leotta@unict.it ABSTRACT The extant literature on inter-organizational control distinguishes the main control problems as coordination problems and appropriation concerns. The present study focuses on coordination problems and is intended to understand the process leading to the hybrid nature of inter-firm coordination modes and the role of information in this process. In a theoretical part, after discussing the main critical assumptions underlying coordination studies, an integrative framework is proposed to conceptualize the coordination process and describe the role of information in this process. In Particular, the framework assumes inter-firm settings as a-centered and a-static, whence the relevance of an interpretive approach where coordination is viewed as a process characterized by dialectic interactions between coordinating actors. The empirical part of the study is aimed at verifying the explanatory power of the framework studying a case of outsourcing relations in a divisionalized company operating in the semi-conductor industry. The case provided useful data giving new insights that enrich the framework. Keywords: coordination; information; system;: process; inter-organizational relations. Revised version July, 5 2011 1. Introduction Inter-organizational relations have become a widespread and problematic phenomenon which, from the management control perspective...
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...Seminar – 7 Chapter 7 Financial Responsibility Centers Financial Result Control System Financial Result Control System results are defined in monetary terms, most commonly in terms of accounting measures such as revenues, costs, profits, and returns. Advantages of Financial Result Control System Financial objectives are paramount in for-profit firms. Financial measures provide a “summary” measure of performance by aggregating the effects of a broad range of operating initiatives across a possibly broad range of markets, products, or activities into a single or a few measures. Most financial measures are relatively precise and objective. The cost of implementing financial result controls is often small relative to that of other forms of management control. Types of financial responsibility centers Investment centers Investment centers are responsibility centers whose managers are held accountable for the accounting returns on the investment made to generate those returns. Profit centers Profit centers are responsibility centers whose managers are held accountable for profit which is a measure of the difference between the revenues generated and the costs of generating those revenues. The goal for not-for-profit organization is to break even, or perhaps even incur limited losses. However, for-profit entities is normally not considered desirable to generate higher profits than those budgeted. Two limited forms: When sales-focused entities are made into...
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...Internal Control Case Study #2 Acct 504 Accounting and Finance Managerial Use Table Of Contents 1. New Internal Control requirements if company goes public (pg. 2) 2. Suggest what company is doing correct and why ink machine should not be purchased. Pg. 3 3. Internal control principle used 4. What are the wrong internal control methods being used and Principle that is being violated and recommendations on how to improve Good afternoon Mr. president. I have been given some information about your interest for your company to go public. My colleague has provided some information about some various questions you have had. I will go over some your recent request as ordering a new ink machine, taking the company public and what new internal control methods we can keep and some we can enhance. The first topic we will discuss is the request about going public. When going public there are some internal control methods that have to be followed for a publicly traded company. The company will have to follow a series of Internal control methods to adhere with SOX (Sarbanes and Oxley Act) 1. • A control environment. It is the responsibility of top management to make it clear that the organization values integrity and that unethical activity...
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...Internal Control Requirements Becoming a publically traded company is a big decision. LBJ would have to weigh the cost versus the benefit. Investors want accurate records of the company’s earnings and finances. There are certain rules that a publically traded company must adhere to in order to be in compliance with the Sabarnes Oxley Act or (SOX). For smaller companies with less than 125,000,000 in revenue becoming publically traded and compiling with SOX can be a significant obstacle. “A company must have a set of rules in place that act as internal controls to prevent fraud and detect it when it does occur. In addition to maintaining internal controls a company must also hire an independent auditor to attest that the internal controls are adequate and working. The company’s executives and board of directors must ensure that these controls are reliable and effective (Kimmel, 2013)”. Although it is not required, most publically traded companies have established a code of conduct and also an ethics board to review questionable actions and decisions made. When there is a system in place that gives guidance and management supports that system it is less likely that an employee will be able to commit fraud or other unethical activities. Fraud can occur when there is opportunity, a perceived need due to financial pressure, and rationalization, what I am doing isn’t wrong. Preventing fraud is a matter of having controls which prevent opportunity, maintaining control and promoting...
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...Swinton & Associates Accounting Firm 6711 14th Street Washington, DC 20310 202-678-0076 November 27, 2011 Mr. John Jones: President LBJ Corporation 100 E Main Street Alexandria, VA 22303 First and foremost, thank you for selecting Swinton & Associates Accounting Firm to evaluate LBJ’s Internal Control Systems. I realize that there are a plethora of accounting firms that you could have chosen therefore; I wanted to express my sincere gratitude for trusting our firm to assist you with your needs. With that said, I have carefully assessed the information you provided to my colleague at the initial meeting regarding LBJ’s posture for going public. I have outlined the key areas of concern and have broken the areas down into the following categories: 1. Internal Control Requirements - After numerous corporate scandals came to light in the early 2000s, Congress addressed this issue by passing the Sarbanes-Oxley Act of 2002 (SOX). Under SOX, all publicly traded U.S. corporations are required to maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective. In addition, independent outside auditors must attest to the adequacy of the internal control system. Companies that fail to comply are subject to fines, and company officers can be imprisoned. SOX also created the Public Company Accounting Oversight Board (PCAOB), to establish auditing standards...
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...Financial Management & Control – IM07CC CEMS Dr. Marcel van Rinsum Associate Professor RSM Erasmus University Department Accounting & Control mrinsum@rsm.nl Introduction Financial Management Control Systems (FMCS) form the bridge between the organization’s strategy and its operations. Their purpose is to align managerial behaviour and decision making with organizational goals. Although management controls are typically embedded in the organization’s financial management and accounting systems, their design and use should be based on a thorough understanding of how managerial behaviour is influenced by typical control system elements, such as target setting, performance measurement and rewarding. Indeed, while the proper design of management control systems is paramount for organizational performance, organizational failure can often be attributed to poor design of the organizations management control system. Such poor design may result from a limited understanding of the drivers of managerial behavior in complex organizations. Our challenge thus lies in understanding what are crucial design elements of control systems, what design options are feasible, and how the design and use of control systems should match the organizational context in which they operate. This understanding, rather than the straightforward arithmetic often associated with financial management, forms the core of this course. Course design in a nutshell This course consists of a combination of lectures, articles...
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...[pic] FACULTY OF BUSINESS AND ECONOMICS ACCG828 Management Control Systems Seminar 1 OBJECTIVES AND LEARNING OUTCOMES Objectives: 1. to describe the nature of management control systems as a core function of management within a management accounting context, and, 2. to provide an overview of the unit outline including the learning outcomes, learning and teaching activities, assessments and grading procedures. Upon completion of learning activities relating to Seminar 1, the student should be able to demonstrate knowledge and understanding of: 1. the nature of management control systems as part of the management process and, 2. the differences between strategic control systems and management control systems, and 3. causes of management control problems and control problem avoidance using control alternatives. This seminar contributes to enhancing students’ discipline-knowledge and skills. readings[1] 1. Merchant and Van der Stede (2012). Chapter 1 The Control Function of Management. 2. Chenhall (2003) Management Control Systems Design within its Organisational Context: findings from contingency-based research and directions for the future, Accounting, Organizations and Society, 28, pages 129-134. questions for discussion[2] 1. Read Section 3 (page 129 only) in Chenhall (2003) relating to the ‘Meaning of MCS’ a. Explain how Chenhalls’ meaning of MCS is similar and/or different to that of...
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...and Cost Accounting 8 edition, which is written by Drury Colin. The author is an emeritus professor at Huddersfield University and a leading textbook author for a generation of accounting students. His books have been widely recommended by the main professional accounting bodies. He is an active researcher and published in the main peer-reviewed journals including Management Accounting Research and European Accounting Review, with his research focusing on the application of management accounting techniques in British industry. This short article is only an extract of the whole chapter, which mainly introduce the general control systems used in different companies. The author distinguishes between strategic control and management control first; and emphasis on the management control systems. He states that the aim of this kind of control is to influence employee behaviours in desirable ways in order to increase the probability that an organization’s objectives will be achieved. In our real life, companies use many different control systems address problems and make actions more efficiently and accurately. In this passage, action control and results control are explained and classified in details accompany with other types of controls like personnel, cultural and social control. Each of them has their own benefits and weaknesses whilst different types of system are also use in different situations. Compare with these management control systems, action controls are the most...
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