Accounting Systems and Assurance - Assignment Example

Accounting Systems and Assurances Audit Memo: The analysis of the financial reports of PQR Pty Ltd. has revealed fraudulent manipulations on the payroll data stored electronically by the Pay Roll Department. The existing audit system adopted by the company is obviously neither efficient nor well functioning in identifying the corruptive action on the part of the departmental staff. The security of the data storage is not ensured in the existing audit system. It is not capable of identifying the corruption in the data storage on time with adequate accuracy. The replacement of the existing audit system is essential for maintaining the data storage security with optimum accuracy. Thus it is essential to install a new audit hooks system by replacing the existing one. Auditing tools should be free from all types of defaults as it is essential for ensuring the efficiency of the audit process. In the computerized pay roll system, deployment of audit hooks will facilitate easy and timely identification of the corruptive actions on the part of the pay roll clerks. The access of the electronic pay role records by the pay roll clerks after the data entry of the employee time sheets should be notified on time by the audit hooks system. In the computerized pay roll system, audit hooks are essential for ensuring accuracy and security at optimum level. Brief statement of the audit hooks system for the pay roll department: Here the Pay Roll Manager, Mr. Greg Grunter was informed that in the pay roll department, a series of audit hooks should be deployed in order to ensure the security of the electronically stored data. In the pay roll department of the company, the electronic pay role system should be modified with new audit hooks. For this purpose, the NEW LSM audit hooks should be used for the internal audit purpose. A generic Audit interface should help to ensure the security of the data storage. The LSM Audit hooks facilitate to get real time notification. Auditing through the computer reduces the time and cost requirements for the audit purpose. Continuous auditing is possible on real time basis. Through the real time notification, corrective actions can be taken in time. Audit hooks are audit routine programs that flags suspicious transactions on real time basis. Embedded program audit hooks are adoptable for this purpose. Through the embedded program audit hooks low complexity can be ensured with the computerized audit program. The flagging of selected transactions that has to be examined is possible through this system. Tooled flag alerts embedded in the audit hooks should provide alert to the auditor in time of access of the electronically stored data on the department. This will facilitate the auditing process while at the same time ensuring more accuracy and authenticity. In conclusion, it is stated that in the pay roll department of the company, embedded audit hooks should be deployed with immediate effect as it is essential for keeping the accuracy of the storage data in the electronic system by ensuring the security of the storage system. Letter of transmittal Ms.La Toya Evans, President, M/s.Great Lakes Car Company, Inc. United States of America. Dear Ms. Evans, Sub: Proposed implementation of XBRL Accounting Model in your organization. I am enclosing my report on the above subject for deliberations with members of Finance Committee. While XBRL Models could be said to be of recent origin and is yet to receive commendation and approval from the Senate, the SEC in the United States has granted validation to this Model to be used for presentation of future accounting and financial reporting. The main issues would be with respect to implementation of uniform standards spread across continents, cultures and global corporate environments. However, it would not be untrue to opine that over a period of time, this could take over from the present cumbersome and voluminous accounting systems. But the systems controls and monitoring need to be regularly and relentlessly reinforced Presented for your opinions and valuable suggestions. Thanking you, With regards, John McAllister Financial Consultant Question 2: Report on XBRL Model. Introduction: XBRL is a derivative of XML or extended memory language. XBRL is the acronym for Extended Business Reporting Language. (Welcome to XBRL international 2009). The method by which XBRL is used could be seen, not in terms of blocks of data as is evident in contemporary financial reports and data, but in terms of tags, being allocated for each type of data. This identifiable tag is computer readable and also amenable to further financial and accounting analysis. From these tags, accounting data classifications are made which provide textual references and also sub-classifications of terms with other kinds of terminologies. Taxonomies are, in essence, dictionaries of financial concepts in which each concept is defined and assigned a relationship to other concepts. (XBRL: what an accounting professional needs to know 2009). For instance, marketing costs would have one identifiable tag, while revenue from sale of scrap would have another computer recognizable tag. “Companies can use XBRL to save costs and streamline their processes for collecting and reporting financial information.  Consumers of financial data, including investors, analysts, financial institutions and regulators, can receive, find, compare and analyze data much more rapidly and efficiently if it is in XBRL format.“ (An introduction to XBRL). It is seen that one of the reasons for using XBRL is so that financial reports can be published directly out of the AIS. This eliminates a lot of monitoring and reviewing from the process. It is seen that XBRL is highly compatible with other software and even accounting standards and procedures. This could also be seen in the context of aligning with other corporates, either within, or outside the organization, where integration of accounting data is required for preparation of financial statements or reconciliation purposes. Thus it is seen that the future uses of XBRL are immense. This is because its inputs can be configured to integrate discrete data obtained from various independent sources or divisions in a coherent and consistent manner. This could be in terms of making other systems respond positively to XBRL. As the system suggests, business information needs to be distilled and classified, before it could be transformed to data and reports. This could also be seen in the context of sheer mass of raw data on turnover, costs, revenues and other operating figures from various divisions, vendors, internal and external consultants, etc. Sometimes, the very enormity of mass of data and incongruity could render it non-amenable for future management analysis or extracting of concerned reports. What XBRL basically does is to offer solutions that ensure that each data entry is made only once, and it is duly archived in all financial records. Thus purchase of Fixed Assets – Plant and Machinery for $20,000 for cash need to be archived and through XBRL it is possible to post all aspects regarding this transaction, including acquisition, payment, calculation of depreciation, WDV etc, and also compare and analyze data much more rapidly and efficiently if it is in XBRL format. (An introduction to XBRL). The main advantage is that XBRL offers a complete paperless accounting format as against voluminous statements and records that are needed for other systems. Required control system to support effective XBRL Reporting: The control system that needs to be enforced is through intranet and extranet systems. (Bergeron 2003, p.1). It is seen that after SEC validation of XBRL as a preferred medium of financial accounting, the significance of XBRL has gained momentum rapidly, and now it is expected to be followed by all large companies and banking institutions, including global corporations whose multifaceted accounting systems would receive a sense of impetus and efficiency through the use of XBRL Model. As viewed by financial and audit experts, the process of implementing XBRL Model would need to be a careful and circumspect, especially considering the fact that programming a venture of this magnitude and voluminous data would not be without risks and challenges, especially in beginning years. Thus it would be necessary for XBRL to really sink into procedural and administrative aspects of financial accounting reporting especially in the case of SEC filings, taxation reports and shareholders’ reporting. It is well known that preparation of financial statements, constitute by far, the most critical, complex and intricate areas of business enterprise, especially in the case of large global corporations, with manufacturing units, offices and outlets all over the globe. To bring together such diverse and voluminous data for disclosure and public accountability purposes, is by itself a very cumbersome and laborious process that entails large expanse of efforts, money and manpower. There are also possibilities that certain data may not be available in computer decipherable manner. Thus, it is quite likely that computer generations have to be done at another point or position, which entails more costs and expenses for the company. Different kinds of Accounting and financial data presentation to suit discrete requirements: It is seen that companies have a major problem in terms of having to prepare different kinds of reports out of similar data. For instance, data needs to be remodeled or restructured to suit various statutory needs like SEC, Tax, ROC, Law Boards, institutional financiers and even for shareholder disclosures. Through XBRL Model, it is possible that various kinds of statutory financial responsibilities could be gleaned from a single source of data, using this model. Controls on XBRL: It is seen that the following control systems need to be properly followed in order to gain the maximum benefits from this system: 1. Creation of classifications needs to be correct, otherwise this would impact the final outcome. If taxonomies are incorrectly devised, the mapping itself would be far from correct and this would lead to an incorrect representation, or even misrepresentation of financial data. (Hall 2008, p.594). Under such circumstances, the very authencity of the final outputs could be questioned and also there may be issues all round. Thus the generation of taxonomies are of crucial importance. 2. The validation of input documents are also important control areas in that, proper check systems need to be made to ensure that mapping data and appropriate tags and taxonomy had been properly assessed. Thus, checks are needed to ensure that suitable classification and tags have been posted before entry into web server. 3. Yet another factor that is important is the degree, and scope of liability of auditors. Under contemporary usage, it is seen that financial auditors are responsible for the accuracy and authenticity of reports they have certified. Under the changed environment when financial statements may be directly posted to the websites, the overall responsibility and accuracy of such financial statements are a major cause for concern. Minimum General and Systems Control that needs to be implemented: 1. The taxonomies need to be properly and accurately derived. 2. The assessment of mapping and tags has to be properly made out. 3. The degree of control that auditors need to exercise for the purpose of their certification of accounts and financial statements needs to set. 4. Public accountants need to make themselves fully acquainted with the nuances of this new system before providing professional consultancy services to clients 5. It is seen that this system is comparatively new and needs to be fully integrated into the present day finance and accounting systems. 6. It is felt by professionals that it would take at least a minimum period of nearly a decade, or so, before the system can be regarded as authentic, fool proof and free of software and procedural errors. Till such time it would be necessary to use Excel or Edgar systems or models for financial account purposes in order to ensure that the data and statements are as near to genuineness as it would be possible. There is also an aspect of viewing into the future, in terms of whether it could deliver quality in future. 7. The unease and trepidation of setting up a new system are also applicable for XBRL. It is also necessary that the long term view be taken in which the sustainability of such Models is taken into account. It would be fruitless to spend time, efforts and funds on a system, only to have it abandoned after a period of time. This would also require restructuring of the existing systems in order that the inputs are well controlled and the outputs are in line with desired objectives. All these tests need to be done at the preliminary stage itself so that the adverse effects of such tests are avoided and proper control mechanisms are in place to deal with any kind of emergency situation. 8. It is seen that the main aspects with regard to XBRL would be with respect to better maintenance and control features that are needed to sustain this on a long term basis. However, it also needs to be seen that excessive controls, especially at the initial stages, would not provide the actual benefits that are needed for this kind of system or Model. Conclusions: The main aspects that need to be seen in the context of XBRL are in terms of the fact that it is necessary that its benefits need to be attained and its drawbacks marginalized as much as could possibly be done. For this it is essential that large corporations, banks or multinational organizations need to consider the cost benefits of installing the system on a long term basis. There could be no short cuts or compromising on the software costs, since this has to be tailored to suit the characteristic needs of the business enterprise. Also it needs to be seen that maximum attention is given to the safety and security aspects, since one could well imagine what would happen in the event of systems crash that could affect not only the local but also other aspects of the business. A thorough study needs to be conducted first, in terms of the short and long term benefits to be derived by business. At this stage it would not be out of place to emphasize that although SEC has granted validation to XBRL, it is yet to become law. And moreover it is only applicable to large corporations with high turnover, profits and revenues, especially banks and financial institutions. Bibliography An introduction to XBRL: a simple explanation. XBRL: Extensible Business Reporting Language. http://www.xbrl.org/WhatIsXBRL/ (accessed April 29, 2009). An introduction to XBRL. Extensible Business Reporting Language. http://www.xbrl.org/WhatIsXBRL/ (accessed April 29, 2009). Bergeron, Bryan P. 2003. Essentials of XBRL: financial reporting in the 21st centaury: overview. John Wiley and Sons. http://books.google.com/books?id=a1NRYltkRIQC&printsec=frontcover&dq=XBRL&ei=BQr3SbL_GYnQkwSmo92bBA#PPA1,M1 (accessed April 29, 2009). Hall. 2008. Accounting information system. Cengage Learning EMEA. http://books.google.com/books?id=khm_JkedGz4C&pg=PA594&dq=XBRL+controls+systems#PPA594,M1 (accessed April 29, 2009). Welcome to XBRL international. 2009. XBRL: Extensible Business Reporting Language. http://www.xbrl.org/Home/ (accessed April 29, 2009). XBRL: what an accounting professional needs to know. 2009. AICPA. http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/BRAAS/downloads/2629_382_XBRL_Q&A_GENERAL.pdf (accessed April 29, 2009). Read More