ACCT 20007 Accounting Information: Risks & Controls
Topic 1 Suggested Solutions Topic 1: Introduction to Accounting Information, Risks and
Task 1 – Understanding Information Quality Goals
You are hired as a consultant for ABC Super-Mart Ltd, a company that runs a retail business. In order to improve the customer experience, ABC Super-Mart is in the process of introducing self-checkouts.
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The director of the company is asking for your opinion on potential risks to accounting information produced by the self-checkouts.
a) Define and explain the information quality goals of validity, accuracy and
completeness.
• Validity – relates to whether what is recorded relates to actual events that were authorised, actually occurred and involve actual entities
• Accuracy – relates to whether the details recorded in the system actually corresponds to the actual event; whether the details for a particular event have been correctly calculated.
• Completeness (details) – relates to whether all the details of a particular transaction been recorded?
• Completeness (events) – relates to whether all valid events/transactions that occurred been captured/recorded.
b) What validity, accuracy and completeness risks could potentially arise from the self-checkouts?
• Choosing a product that is not the one you purchased.
o Queenslandladystolemultipleitemsincludingcoffeemachines
worth $199 each by scanning them through as 2-minute noodles
worth 65c and 72c!
• Customer accidentally scans a product twice.
• Customers underweighting or overweighting an item.
• For reduced products, customers incorrectly scanning the original
barcode instead of the barcode for reduced items.
Completeness (Events)
• Customer walking out of the store without paying for all items.
Completeness (Details)
• From a store perspective, the store may forget to include details of types of different products (e.g. all mangoes are listed just as mangoes, without listing the different types).
Task 2 – Relating Information Quality Goals and Financial Statements
If a company wants to overstate their profits, how might managers manipulate revenue and expense accounts to overstate profits? Which information quality goals are at risk?
To overstate profits, managers will have to manipulate financial statements such that Revenue is overstated, and Expenses are understated.
Record fictitious sales Report inflated sales amount
Omit recording an expense Under report an expense amount
Impact on Information quality goal
Validity of Revenue Accuracy of Revenue
Completeness (event) of Expenses Accuracy of Expenses
Record sales earlier than allowed (pre-mature revenue recognition)
Validity issue for Revenue in current misreported period.
Completeness (event) issue for Revenue in the period the sales is supposed to be recorded in.
Task 3 – Business vs Economic Events
The first column of the Table (“Event”) lists various events that occur in the Expenditure Cycle.
a. Briefly explain the Expenditure Cycle.
The expenditure cycle relates to the business process in which companies purchase inventory for resale or raw materials to use in producing products for sale.
b. For each event, identify whether the event is a business or economic event.
Purchase requisition is received from department.
Purchase requisition is approved. An order is sent to a supplier. Goods are received from a supplier. Invoice is received from a supplier. Payment is made to supplier.
Business or Economic Event?
Economic (i.e., Inventory increases) Business
Economic (i.e., Cash decreases)
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