Accounting Information Systems (8th Edition)
Chapter 5, Problem 8IC 2 Bookmarks
Problem
Premier Sports Memorabilia (Networked Computer System with Manual Procedures) (Prepared by Chris Polchin
University)
Premier Sports Memorabilia is a medium-sized, rapidly growing online and catalogue-based retailer centered in
New York. The company was founded in 1990 and specializes in providing its customers with authentic yet afford
sports memorabilia from their favorite players and teams, past and present. Traditionally the company’s custome
located in the northeast region of the United States. Recently, however, Premier launched a successful ad camp
expand its customer base. This has increased sales, which has in turn placed a strain on the organization’s oper
resources. The company currently employs 205 employees who are spread out among its three warehouses and
offices in the tri-state area.
The firm purchases from a large number of manufacturers and memorabilia dealers around the country and is al
looking for additional contacts who have new or rare items to offer.
The company has a computer network installed, which, until recently, has served it well. The firm is now, howeve
experiencing operational inefficiencies and accounting errors. Your firm has been hired to evaluate Premier’s bus
processes and internal controls. The expenditure cycle is described in the following paragraphs.
Purchase System Procedures
Premier’s purchase transactions are initiated when its inventory levels for a certain item falls below the designate
point. This is digitally monitored through Premier’s inventory requisition system, which is directly linked to the inv
Once an item falls below the reorder point, an open requisition record is automatically created. A valid vendor file
both to retrieve stored vendor information and to check that items are being ordered through a preapproved vend
which the company has done business in the past. Digital purchase requisitions are made available to the clerks
inventory control department and the purchasing department via the computer terminal.
When the purchasing department clerk views the digital requisition, she prepares and prints five hard copies of t
purchase order. One copy is filed in the department. A second copy is sent to the receiving department. A third c
to the accounts payable department. A fourth copy is sent to the inventory control department. A final copy is sen
vendor as placement of the order.
Upon receiving the purchase order, the inventory control clerk uses a terminal to access the open requisition file
the record. In addition, the program automatically creates a digital open purchase record.
A few days later, the goods and the packing slip arrive at the receiving department. Using the packing slip and p
order, the receiving clerk physically inspects the condition of the goods and verifies their correctness in terms of
quantity of items received. Upon completion of the inspection, the clerk manually creates three hard copies of a
report. One copy is filed in the department. The second copy is sent to accounts payable for reconciliation. The t
is sent to the inventory control department. When the inventory control department obtains the receiving report, t
uses the purchase update program to access the open purchase record and closes it. In addition, the clerk upda
inventory file by posting the amounts received to the various inventory records affected.
When the accounts payable department clerk receives the invoice from the supplier, he matches it to the suppor
purchase order and receiving report received from the purchasing and receiving departments, respectively. The
manually performs a three-way match and updates the vendor’s record in the AP subsidiary ledger from the dep
terminal.
Finally, at the end of each day, the inventory control department and the accounts payable department create a h
inventory summary and accounts payable journal voucher, respectively, reflecting the effects of all of the day’s tr
These documents are sent to the general ledger department, where they are reconciled and posted to their spec
accounts within the general ledger file.
Required
a. Create a data flow diagram of the current system.
b. Create a system flowchart of the existing system.
c. Analyze the physical internal control weaknesses in the system. Model your response according to the six cate
physical control activities specified in the COSO internal control model.
d. Describe the IT controls that should be in place in this system.
e. (Optional) Prepare a system flowchart of a redesigned computer-based system that resolves the control weak
that you identified. Explain your solution.
Step-by-step solution
Step 1 of 6
Premier Sports Memorabilia
Data flow diagram of Premier Sports Memorabilia Company’s current system:
The company’s current system has an inventory requisition system that monitors the inventory levels of the good
the goods level falls below the required, an open requisition record is created automatically.
Now the digital purchase requisition is made available to the other departments by means of the system. Then th
purchasing clerk views the digital purchase requisition through the system and starts preparing five copies of pur
order.
One copy is filed in the purchasing department itself. The second copy is sent to the receiving department, the th
sent to the accounts payable department. The fourth copy is sent to the inventory department and the final copy
purchase order is sent to the vendor.
Now the inventory clerk will close the open requisition record after receiving the purchase order and digital open
record is created automatically. Now the vendor sends the goods to the receiving department which is received b
receiving clerk. The clerk verifies the quality and quantity of the goods physically and prepares three copies of re
report.
One copy is filed in the department itself. The second copy is sent to the inventory department and the third copy
the accounts payable department. The receiving clerk will now close the open purchase record and update the in
files.
Now the accounts payable clerk will match the invoice, purchase order and the receiving report. Then the vendo
updated in the AP subsidiary ledger. Then the AP journal voucher from the accounts payable department and inv
summary from inventory department are sent to the general ledger department.
In the general ledger department, the received documents are reconciled and posted to their respective control a
general ledger file.
Step 2 of 6
Data flow diagram of Premier Sports Memorabilia Company’s current system is shown below:
PO = Purchase order; R1, R2 = Receiving report; AP = Accounts payable
Step 3 of 6
System flowchart of Premier Sports Memorabilia Company’s existing system:
The company’s existing system has an inventory requisition system that monitors the inventory levels of the goo
the goods level falls below the required, an open requisition record is created automatically.
Now the digital purchase requisition is made available to the other departments by means of the system. Then th
purchasing clerk views the digital purchase requisition through the system and starts preparing five copies of pur
order.
One copy is filed in the purchasing department itself. The second copy is sent to the receiving department, the th
sent to the accounts payable department. The fourth copy is sent to the inventory department and the final copy
purchase order is sent to the vendor.
Now the inventory clerk will close the open requisition record after receiving the purchase order and digital open
record is created automatically. Now the vendor sends the goods to the receiving department which is received b
receiving clerk. The clerk verifies the quality and quantity of the goods physically and prepares three copies of re
report.
One copy is filed in the department itself. The second copy is sent to the inventory department and the third copy
the accounts payable department. The receiving clerk will now close the open purchase record and update the in
files.
Now the accounts payable clerk will match the invoice, purchase order and the receiving report. Then the vendo
updated in the AP subsidiary ledger. Then the AP journal voucher from the accounts payable department and inv
summary from inventory department are sent to the general ledger department. In the general ledger departmen
received documents are reconciled and posted to their respective control accounts in general ledger file.
System flowchart of Premier Sports Memorabilia Company’s existing system is shown below:
PO = Purchase order; R1, R2, R3 = Receiving report; AP = Accounts payable
Step 4 of 6
Physical Internal control weakness of the company’s existing system
The physical internal control weaknesses of the company’s existing system as per COSO internal control model
1. Theft of goods: The received can be exposed to theft if not stored in a secured place. Hence the received go
sent to the respective warehouse of the company
2. Access Controls: The access to physical assets such as inventory should be controlled as per the procedure
company. The company must control the direct access to the goods stored in the warehouse. Direct controls suc
alarms, CCTV and locks should be present at the warehouse in order to avoid fraudulent taking place in the com
Step 5 of 6
IT controls to be placed in the existing system
The various IT controls that can be placed in the existing system of the company are:
1. Input Controls: The input controls are mainly for ensuring the integrity of the data that is entered into the app
The controls for checking the omitted data, Alpha-numeric data and invalid data values can be implemented for r
data entry errors that occur while preparing purchase order, receiving report in the purchasing and receiving dep
2. Process controls: They are the control that controls the logic of the system application.
Passwords - The inventory subsidiary ledger in the inventory department, the accounts payable subsidiary acco
accounts payable department, general ledger account in the general ledger department should have passwords
accessing the records.
3. Output controls: The documents such as invoice, receiving report and purchase order copy should be kept s
avoid losing these documents intentionally or unintentionally. Hence these documents should have physical copi
kept safely or digital copies that are sent to secure mail inboxes.
Step 6 of 6
Redesigned System flowchart of Premier Sports Memorabilia:
The company’s redesigned system has an inventory requisition system that monitors the inventory levels of the g
Once the goods level falls below the required, an open requisition record is created automatically.
Now the digital purchase requisition is made available to the other departments by means of the system. Then th
purchasing clerk views the digital purchase requisition through the system and starts preparing five copies of pur
order.
One copy is filed in the purchasing department itself. The second copy is sent to the receiving department, the th
sent to the accounts payable department. The fourth copy is sent to the inventory department and the final copy
purchase order is sent to the vendor.
Now the inventory clerk will close the open requisition record after receiving the purchase order and digital open
record is created automatically. Now the vendor sends the goods to the receiving department which is received b
receiving clerk. The clerk verifies the quality and quantity of the goods physically and prepares four copies of rec
report.
One copy is filed in the department itself. The second copy is sent to the inventory department and the third copy
the accounts payable department. The fourth copy is sent to the warehouse along with the copy of the receiving
Once the warehouse clerk receives the goods they are safely kept in the warehouse that is monitored by the CC
report is filed in the department itself. This step is added to avoid theft of the goods in the warehouse.
The receiving clerk will now close the open purchase record and update the inventory files. Now the accounts pa
will match the invoice, purchase order and the receiving report. Then the vendor record is updated in the AP sub
ledger. Then the AP journal voucher from the accounts payable department and inventory summary from invento
department are sent to the general ledger department.
In the general ledger department, the received documents are reconciled and posted to their respective control a
general ledger file.
Redesigned System flowchart of Premier Sports Memorabilia is shown below:
PO = Purchase order; R1, R2, R3, R4 = Receiving report; AP = Accounts payable
