Sean

Pham Accounting Information System Final Professor R. Damico Page 390 # 16 A. Discuss the following aspects of a standard cost system. 1. The characteristics that should be presented include setting standards from all levels such as engineering, manufacturing, accounting and purchasing. Translate the companys goals and objectives into monetary terms, and support of the standard cost system by management. 2. The system should be implemented to positively motivate employees by soliciting from employees standards, for which they will be held accountable. Communicating the corporate objectives of a standard cost system and tying the individuals performance in the standard cost system to the individuals performance review and reward system. B. The use of variance analysis often results in management by exception. 1. Management by exception only focuses on those items that deviate significantly from the standard. It allows managers to have more time working other managerial activities. 2. The behavioral implications of management by exception include both positive and negative implications. This technique increases management efficiency by focusing only on material variances, giving them the time to concentrate on other activities. However, managers tend to focus only on the negative variances rather than positive ones limiting their employee interactions to negative reinforcement or punishment. C. Explain how employee behavior could be adversely affected when actual-to- budget comparisons are used as the basis for performance evaluation. Employees behavior could be adversely affected when actual-to-budget comparisons are used. He/she might sabotage the system and submit budgets that are low so they can exceed it more favorably. He/she will most likely not going to work up to his/her full potential.

Sean Pham Accounting Information System Final Professor R. Damico Page 700 - #8 A. Describe the role of each of the following in the establishment, maintenance, and evaluation of Micro Systems internal control. Management has responsibility of protecting company assets, maintaining, and evaluating the internal control system. The audit committees involves assisting the board of directors in carrying out its responsibilities, including internal control, accounting policies, and financial reporting practices. The external auditor reviews the companys control structure such as the accounting systems, control procedures, and control environment. They will also need to report of any material weaknesses during check up. The internal audit department performs both financial and operational audits and reports its findings for evaluation / corrections if needed. They may also help the external auditors with the review of the internal control system.

B. Describe the responsibilities that micro systems audit committee has in the financial reporting process. The responsibilities of the Micro Systems audit committee in the financial reporting process include maintaining the connection between the board of directors and auditors, reviews the progress of the audit and its findings, and make sure the organizations control system is adequate and effective.

Page 701 - #9 A. Define objectivity as it relates to the internal audit function. The internal auditor must have and maintain objectivity, which implies no subordination of judgment to another and arises from an independent mental attitude that views events on a factual basis without influence from feelings, prejudice, opinions, or interests. B. For each of the 5 nonaudit activities presented, explain whether the objectivity of Leigh Industries internal Audit Department has been materially impaired. Consider each situation independently. The internal auditors objectivity is not impaired by the preparation of policy statements on internal control. The preparation of policy statements to guide others in the development and implementation of internal controls is a responsibility of the internal audit staff.

Sean Pham Accounting Information System Final Professor R. Damico The internal auditors objectivity is impaired. In order to maintain objectivity, the auditor should not perform operational assignments that are included as part of the independent evaluation and verification of a proper system of internal control. Separation of duties must be maintained. Objectivity is not impaired in the review of the budget for relevance and reasonableness if the internal auditor has no responsibility for establishing or implementing the budget. However, the review of variances and explanations would impair objectivity as this is an area that would normally be reviewed during an operational audit.

Objectivity is impaired to the extent that the internal auditor has been involved in the design and installation of internal accounting controls because there will be little confidence in audit findings issued by the individual who designed and installed the system being audited. The preparation of accounting records will materially impair the internal auditors objectivity by involving the auditor in day-to-day operations. C. The director of internal audit reports directly to the corporate controller. 1. This reporting relationship adversely affects the objectivity of the internal audit Department. The corporate controller is responsible for the accounting system and related operational transactions. The internal audit staff is responsible for the independent and objective review and examination of the accounting system and related operational transactions. Independence and objectivity may not exist because the internal audit staff is responsible for reviewing the work of the corporate controller, the person to whom it reports. 2. No, the responses for Question b would not be affected by the internal audit staff reporting to an audit committee rather than the corporate controller. In order to maintain objectivity, the internal audit staff should refrain from performing non-audit functions such as management decision-making, design and installation of systems, record keeping, or operational duties. Page 733 - #4 A. What weaknesses in their organizations control structure must have existed to permit this type of embezzlement? The company did not have any software to fend of intruders such as viruses and hackers, and they didnt have anyone to monitor and update

Sean Pham Accounting Information System Final Professor R. Damico their system frequently. They shouldnt have also thrown out the ERP manuals into the dumpsters, because it contains a lot of the data and information of the company. B. What specific control techniques and procedures could have helped prevent or detect this fraud? Hire someone to monitor and update the system more often, including changing the password and update any anti-virus software. Instead of just throwing the ERP manual into the dumpsters, its best to shred or burn it to minimize the risk of exposing it to the public.