Accounting Information System Financial Statements

Question: Discuss about theAccounting Information Systemfor Financial Statements. Answer: Introduction Background: Internal control is important to eliminate the asset risk and to safeguard the plan assets presenting the accurate and reliable financial statements in compliance with legislations and regulations. In order to identify the risks, audit processes on assertion level on substantive and tests of control are to be followed and managing the operational or financial risk policy to control the same. Fruito is a retail organization sells fruits and vegetable to general public and local business organizations. Aims: Considering the business of Fruito and accounting information on payable department, the potential risk may arise on difference between actual order quantity and quantity recognized in the books. Explanations of Expenditure Cycle Expenditure cycle refers to the purchase decisions or actions and is a repetitive procedure to form the purchase orders for products and services. The present report refers the concept and elements of expenditure cycle for ordering fruits and vegetables, receiving fruits and vegetables and the potential impact of the internal risks (Chang et al., 2015). Stages of expenditure cycle: Considering the business of Fruito in the given case in accordance with the accounts payable department, first stage of the expenditure cycle is the ordering material (Rikhardsson Dull, 2016). It is essential to consider the delivery times, policies on return, pricing of the orders along with the order quantity while placing the orders to the supplier and follow the appropriate paperwork. Another stage involved in the cycle is receiving materials for which the organization needs to review the respective invoices and slips to verify the credits and returns (Sangster, 2015). How expenditure could be used in risk and control: In order to control the risk on expenditures it is essential to monitor the availability of the fruits and vegetables along with the consistency of price of the products. Further, it is important to review the ordering and cost budget for fruits and vegetables to discover any error. Risks and their Potential Impact on Fruito Following are the potential risk and impact on the ordering and receiving the stocks can be identified for the organization Fruito: Delivery time is one of the primary risks for ordering and receiving the products by Fruito that will affect the sales revenue and potential customers due to unavailability of products. Risk of return policy is a risk applied to the ordering of fruits and vegetables that would impact the organizational performance during the year end along with the value of product expenses. Inflation risk applies to the ordering and receiving the products in the Fruito organization since it would increase the expenses. Impact of inflation risk might increase the product price and lower the total revenue (Lam et al., 2015). Risk of availability of product is a primary risk for receiving the fruits and vegetables by Fruito since after placing the order, the supplier might not have the requisite number of products. This risk would affect the demand level of the organization and eventually affect the overall performance in terms of revenue (Boyle, DeZoort Hermanson, 2015). Inefficiency risk in terms of accounting information system (AIS) for recording the ordering and receiving details might exist since the AIS involves proper knowledge and skill to main the correct record. In case, the Fruito fails to maintain appropriate details in accounting information system it will affect the accuracy of organizational incomes and expenses. Risk of Complexity in the accounting information system appears because recognition of accounts payable details in the accounting software is complex and requires complete understanding of the application (Vijayakumar Nagaraja, 2012). Accordingly, in case the management fails to follow the recognition steps appropriately, it would reflect false results on the profitability, inventory valuation and quantity of traded products (Newton et al., 2015). Risk of losing the correct data exists if the details on account payables have not been recorded due to lack of correct details on quantity and price of the ordering products. This risk will impact the correctness and accuracy of the financial statements (Yang et al., 2015). Recommendations for Reducing the Risks Recommendation for risk of delivery times: 1. It is suggested that the management of Fruito prepares and confirms the delivery time with the supplier before placing the order. Another recommendation is that Fruito creates a paper document stating the possible penalties on the suppliers if the condition of delivery is not met. Recommendation on Risk of return policy: 1. Fruito is suggested to form policy on return of products for a specified period of time and for specific quantity. Fruito organization is recommended to make provision on return of products based on the previous records so that the performance can be attained following the conservative approach. Recommendation on inflation risk: 1. Fruito is recommended to provide scope for potential inflation rates to the suppliers as well as in the books so that the profitability can be ascertained after the consideration of inflation charges. It is also recommended that Fruito create a provision by considering the market rates and current inflation rates as contingent liability.Recommendation on risk of availability of product: 1. Fruito can check with the suppliers and book the required quantity to receive the appropriate order. Fruito is suggested to maintain the less inventory stock so that the order can be placed on time. Recommendation on Inefficiency risk: 1. Fruito can hire and appoint skilled employees to record the accounts payable details accurately. Fruito organization can outsource and arrange the training sessions to develop the existing employees knowledge on AIS. Recommendation on risk of complexity in the accounting information system: Fruito organization is suggested to segregate the several departments of accounting systems so that the information can be recorded effectively. It is suggested that the organization arrange the recording system on weekly basis or on daily basis to eliminate the risk of error. Recommendation on risk of losing the correct data: 1. It is suggested that Fruito review the trading invoices regularly to ascertain correct results. It is suggested that the organization verify and examines the recognized data with of ordering slips of the fruits and vegetables. Conclusion It can be concluded that the internal risk for Fruito organization in terms of ordering and receiving fruits and vegetables involves several risk. It has been analyzed in the report that ordering and receiving of products involves certain risk on delivery times, inflation, products availability and other risks. However, necessary recommendations have been provided to eliminate the potential risks by forming proper details, review and other necessary procedures to eliminate the potential risks. Reference List Boyle, D. M., DeZoort, F. T., Hermanson, D. R. (2015). The Effects of Internal Audit Report Type and Reporting Relationship on Internal Auditors' Risk Judgments.Accounting Horizons,29(3), 695-718. Chang, B., Kuo, C., Wu, C. H., Tzeng, G. H. (2015). Using fuzzy analytic network process to assess the risks in enterprise resource planning system implementation.Applied Soft Computing,28, 196-207. Lam, H. Y., Choy, K. L., Ho, G. T. S., Cheng, S. W., Lee, C. K. M. (2015). A knowledge-based logistics operations planning system for mitigating risk in warehouse order fulfillment.International Journal of Production Economics,170, 763-779. Newton, N. J., Persellin, J. S., Wang, D., Wilkins, M. S. (2015). Internal control opinion shopping and audit market competition.The Accounting Review,91(2), 603-623. Rikhardsson, P., Dull, R. (2016). An exploratory study of the adoption, application and impacts of continuous auditing technologies in small businesses.International Journal of Accounting Information Systems,20, 26-37. Sangster, A. (2015). The genesis of double entry bookkeeping.The Accounting Review,91(1), 299-315. Vijayakumar, A. N., Nagaraja, N. (2012). Internal Control Systems: Effectiveness of Internal Audit in Risk Management at Public Sector Enterprises.BVIMR Management Edge,5(1). Yang, Y., Liu, Y., Li, H., Yu, B. (2015). Understanding perceived risks in mobile payment acceptance.Industrial Management Data Systems,115(2), 253-269.