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Problem Definition A large engineering firm employing 40 engineers uses two separate accounting systems. One accounting system is used to account for transactions affecting the firm; the other is used to account for all client funds. The separate systems are used to avoid comingling funds. Both systems are on a cash basis. The firm has recently standardized and centralized its billing and accounts receivable operations, and the consultant has been asked to review the billing and accounts receivable functions. Since implementation of centralized billing by the office manager, the firm has experienced cash flow problems. The managing partner has requested a review of the valuation and completeness of billing and accounts receivable. Systems Analysis Description of Firm's Accounting System When billed to the client, charges are recorded as memo entries in the firm's system. Cash advances to clients are recorded in a like manner. Upon receipt of the clients' remittances of billed amounts, appropriate cash, revenue and contract accounts are actually debited and credited. Monthly memo entries are manually reconciled to the accounting entries by the firm's office manager. A memo subsidiary ledger of accounts receivables is then produced. Description of Clients Funds Accounting System Retainers and other deposits of funds with the firm by clients are recorded by appropriate entries in the client accounting system. When any part of these funds are earned, appropriate entries in both the client system and firm's system are made. Although all attorneys are salaried, gross billings and net receipts are major determinants of year-end bonuses. Attorney time charges are based on standard rates and actual clock time in 15-minute increments, and they are reported for billing purposes on each attorney's time sheet.

Problem Definition A large engineering firm employing 40 engineers uses two separate accounting systems. One accounting system is used to account for transactions affecting the firm; the other is used to account for all client funds. The separate systems are used to avoid comingling funds. Both systems are on a cash basis. The firm has recently standardized and centralized its billing and accounts receivable operations, and the consultant has been asked to review the billing and accounts receivable functions. Since implementation of centralized billing by the office manager, the firm has experienced cash flow problems. The managing partner has requested a review of the valuation and completeness of billing and accounts receivable. Systems Analysis Description of Firm's Accounting System When billed to the client, charges are recorded as memo entries in the firm's system. Cash advances to clients are recorded in a like manner. Upon receipt of the clients' remittances of billed amounts, appropriate cash, revenue and contract accounts are actually debited and credited. Monthly memo entries are manually reconciled to the accounting entries by the firm's office manager. A memo subsidiary ledger of accounts receivables is then produced. Description of Clients Funds Accounting System Retainers and other deposits of funds with the firm by clients are recorded by appropriate entries in the client accounting system. When any part of these funds are earned, appropriate entries in both the client system and firm's system are made. Although all attorneys are salaried, gross billings and net receipts are major determinants of year-end bonuses. Attorney time charges are based on standard rates and actual clock time in 15-minute increments, and they are reported for billing purposes on each attorney's time sheet.

Accounting Information Systems
Accounting Information Systems
10th Edition
ISBN:9781337619202
Author:Hall, James A.
Publisher:Hall, James A.
Chapter13: Systems Development And Program Change Activities
Section: Chapter Questions
Problem 1P: ANNOUNCING A NEW INFORMATION SYSTEM The AJAX Company is considering implementing a new accounting...
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Problem Definition A large engineering firm employing 40 engineers uses two separate accounting systems. One accounting system is used to account for transactions affecting the firm; the other is used to account for all client funds. The separate systems are used to avoid comingling funds. Both systems are on a cash basis. The firm has recently standardized and centralized its billing and accounts receivable operations, and the consultant has been asked to review the billing and accounts receivable functions. Since implementation of centralized billing by the office manager, the firm has experienced cash flow problems. The managing partner has requested a review of the valuation and completeness of billing and accounts receivable. Systems Analysis Description of Firm's Accounting System When billed to the client, charges are recorded as memo entries in the firm's system. Cash advances to clients are recorded in a like manner. Upon receipt of the clients' remittances of billed amounts, appropriate cash, revenue and contract accounts are actually debited and credited. Monthly memo entries are manually reconciled to the accounting entries by the firm's office manager. A memo subsidiary ledger of accounts receivables is then produced. Description of Clients Funds Accounting System Retainers and other deposits of funds with the firm by clients are recorded by appropriate entries in the client accounting system. When any part of these funds are earned, appropriate entries in both the client system and firm's system are made. Although all attorneys are salaried, gross billings and net receipts are major determinants of year-end bonuses. Attorney time charges are based on standard rates and actual clock time in 15-minute increments, and they are reported for billing purposes on each attorney's time sheet. The firm's office manager identifies and resolves discrepancies between time charges and actual billings. The office manager also initiates special fee and overhead charges. All actual billings are prepared by the off partner's responsibility. manager's staff. Final approval of all special fee billings is the managing Required: 1. Based on the data given in this description, identify the following: a. Two currently existing controls related to the valuation assertion b. Three currently existing controls related to the completeness assertion. 2. For each of the five controls you identified in item 1, identify the risk (s) associated with malfunctioning controls. 3. For each of the five controls you identified in item 1, indicate an appropriate audit test to evaluate its effectiveness.
Transcribed Image Text:Problem Definition A large engineering firm employing 40 engineers uses two separate accounting systems. One accounting system is used to account for transactions affecting the firm; the other is used to account for all client funds. The separate systems are used to avoid comingling funds. Both systems are on a cash basis. The firm has recently standardized and centralized its billing and accounts receivable operations, and the consultant has been asked to review the billing and accounts receivable functions. Since implementation of centralized billing by the office manager, the firm has experienced cash flow problems. The managing partner has requested a review of the valuation and completeness of billing and accounts receivable. Systems Analysis Description of Firm's Accounting System When billed to the client, charges are recorded as memo entries in the firm's system. Cash advances to clients are recorded in a like manner. Upon receipt of the clients' remittances of billed amounts, appropriate cash, revenue and contract accounts are actually debited and credited. Monthly memo entries are manually reconciled to the accounting entries by the firm's office manager. A memo subsidiary ledger of accounts receivables is then produced. Description of Clients Funds Accounting System Retainers and other deposits of funds with the firm by clients are recorded by appropriate entries in the client accounting system. When any part of these funds are earned, appropriate entries in both the client system and firm's system are made. Although all attorneys are salaried, gross billings and net receipts are major determinants of year-end bonuses. Attorney time charges are based on standard rates and actual clock time in 15-minute increments, and they are reported for billing purposes on each attorney's time sheet. The firm's office manager identifies and resolves discrepancies between time charges and actual billings. The office manager also initiates special fee and overhead charges. All actual billings are prepared by the off partner's responsibility. manager's staff. Final approval of all special fee billings is the managing Required: 1. Based on the data given in this description, identify the following: a. Two currently existing controls related to the valuation assertion b. Three currently existing controls related to the completeness assertion. 2. For each of the five controls you identified in item 1, identify the risk (s) associated with malfunctioning controls. 3. For each of the five controls you identified in item 1, indicate an appropriate audit test to evaluate its effectiveness.
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