Accounting Information Systems - Case

An Enterprise Information System integrates the business processes and information from all of an organization’s functional areas. “The purpose of an information system is to facilitate an organization’s business process and to support management decision making by providing information that managers can use to plan and control the activities of the firm.” (Gelinas, Dull, & Wheeler, 2012, p. 23) This can only be accomplished if the data is accurate which requires internal controls.

I agree with Accountant B. Accountant B is right to be concerned that bad decisions might have been made throughout the year based on the incorrect inventory numbers and I will give you a couple examples. The adjusting entry corrections include a credit to inventory resulting in a higher cost of goods sold (expense) and lower income before pretax earnings. Since currently the pretax income is overstated by $1mil the purchasing department may think they have sufficient inventory on hand to produce and meet orders when in fact they may fall short. Also, if high level managers perceive that the company is profiting more than they actually are it could result in incorrect grounds regarding the financial sustainability of the company when making important decisions such as to expand or add product lines.

Accountant B is also correct in that more timely effective control systems should be implemented. In 2002, Congress passed the Sarbanes-Oxley Act (SOX). Amongst other requirements, the “Sarbanes-Oxley Act of 2002 requires corporate executives to personally certify the financial statements” (Spiceland, Sepe, & Nelson, 2013, p. 129) and “requires that companies document their internal controls and assess their adequacy.” (Spiceland, Sepe, & Nelson, 2013, p. 360) Section 404 requires that accountants document there internal control process therefore it would be a good idea for CBU’s accountants to develop more timely and effective control systems and then document the steps taken to...