ch6 ais - Accounting Information Systems CHAPTER 6 CONTROL...

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Accounting Information Systems CHAPTER 6 CONTROL AND ACCOUNTING INFORMATION SYSTEMS SUGGESTED ANSWERS TO DISCUSSION QUESTIONS 6.1 a. The "internal environment" refers to the tone or culture of a company and helps determine how risk consciousness employees are. It is the foundation for all other ERM components, providing discipline and structure. It is essentially the same thing as the control environment in the internal control framework. The internal environment also refers to management's attitude toward internal control, and how that attitude is reflected in the organization's control policies and procedures. At Springer's, several deficiencies in the control environment are apparent 1. Management authority is concentrated in three family members, so there are few, if any, checks and balances on their behavior. In addition, several other relatives and friends of the family are on the payroll. 2. Since the company has a "near monopoly" on the business in the Bozeman area, there are few competitive constraints that might otherwise restrain prices, wages, and other business practices. 3. Lines of authority and responsibility are loosely defined within the company, which would make it difficult to identify who might be responsible for any particular problem or decision. 4. Management may have engaged in "creative accounting" to make its financial performance look better, which suggests a management philosophy that could encourage unethical behavior among employees. b. Whether or not to settle with the Springers is a matter of opinion, with reasonable arguments on both sides of the issue. The reasons for reaching a settlement are clearly stated: the difficulty of obtaining convictions in court, and the possible adverse effects on the company's market position. On the other hand, the evidence of fraud here seems strong, and if this kind of behavior is not penalized, then the perpetrators may be encouraged to do it again, with future adverse consequences to society. c.Whether or not Jason and Maria should have been told the results of the high-level audit is also a matter of opinion. The investigative team is apparently trying to keep its agreement to maintain silence by telling as few people as possible what really happened. On the other hand, Jason and Maria were the ones who first recognized the problems, and it seems only right that they be told about the final outcome.
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Ch. 6: Control and Accounting Information Systems Many lessons may be drawn from this story. 1. Auditors should view the condition of an organization's control environment as an important indicator of potential internal control problems. 2. Fraud is more easily perpetrated and concealed when many perpetrators are involved, and especially when management is involved. 3.
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This note was uploaded on 03/23/2010 for the course ACC 409 taught by Professor Ra during the Spring '10 term at University of Nevada, Las Vegas.

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ch6 ais - Accounting Information Systems CHAPTER 6 CONTROL...

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