HI5019 Strategic Information Systems for Business and Enterprise (T1, 2013) Assignment (20% of Final Mark) The assignment has two parts namely Part A (20 marks) & B (20 marks). Part A will require you...

Strategic Information Systems for Business and Enterprise
Introduction
The report aims to present a discussion on the effect of SOX or the Sa
anes Oxley Act
2002 on the provision of attest and advisory services. Then, it goes on to compare and
contrast the advantages and disadvantages of sequential, block, group, alphabetic and
mnemonic codes and subsequently, provides a discussion on the non-accounting services
that external auditors are no longer permitted to render to audit clients under the SOX
legislation. Further, it seeks to identify the classes of physical controls employed in the
expenditure cycle. Then , in the second part, an analysis relating to two case studies is
ca
ied out to assess their internal control issues, preventive measures and suitable IT
controls in the case of Bern Fly Rod Company and Spice Is Right Imports.
Part A
1. The effect of SOX on the provision of attest and advisory services is noteworthy and
substantial in terms of the limits it draws on the non-audit services that auditors may perform
for their audit clients. Prior to SOX, there were no such restrictions, the auditing firms were
self-regulated and thus performed several non-audit and consultancy works which were far
more lucrative than the audit engagement. Sec 201 of the Sa
anes-Oxley Act lays down the
nine non-audit services which are prohibited to the auditors as these impair their
independence. These include bookkeeping or other services related to the financial records
of the audit client, financial information systems design and implementation, appraisal or
valuation services, fairness opinions, or contribution-in-kind reports, actuarial services,
internal audit outsourcing services, management functions or human resources,
oker,
investment adviser or investment banking services, legal services and expert services
unrelated to the audit. It has now become unlawful for a registered public accounting firm
which is cu
ently providing attest services to a client to provide these above mentioned
services. This is on the ground that such services are outside the permissible scope of the
work of the auditors. Besides, the audit committee must pre-approve other non-audit
services which are not on this list such as the tax services, before they are performed by the
auditor. (Hall, 2012).
The act created the Public Company Accounting Oversight Board (PCAOB) with the purpose
of regulating accounting firms and setting auditing standards. Further, it also impacts the
attest and advisory services by laying stricter rules for audit engagement personnel rotation,
as per which an accounting firm is not allowed to provide audit services to the client if it has
provided audit services to it in each of the five previous years. All these provisions are made
with a view to maintain auditor independence and avoid any actual or perceived conflicts of
interest.
2. Sequential codes present items in a sequential code, whether ascending or descending,
and are mainly used for checks or source documents. A main advantage of these is that any
gap detected in the sequence of transaction numbers alerts the management as to a missing
transaction. However, a major disadvantage is that they do not ca
y any information than
the sequence order. Also, such coding schemes are difficult to change and if items need to
e added, these must go either at the back of the list or the entire sequence is re-ordered.
Block code remedies this disadvantage by restricting each class to a specific range within
the coding scheme. These are used mainly for general ledger accounts and an example is
chart of accounts. However, a disadvantage of these is that these do not provide much
meaning as the account number only means something if the chart of accounts is known.
Group codes are generally used to represent complex items or events with two or more
pieces of related data. The information provided in the codes or the different fields have
specific meaning. They are advantageous over the previous two types of codes as they
assist the representation of large amounts of varied data. They allow complex data
structures to be represented in an ordered form that is logical and thus easy to remember.
They allow for detailed analysis and reporting both within an item class and across different
classes of items.
Alphabetic codes may be used sequentially or in block or group codes. An advantage is that
a system which uses alphabetic codes can represent far more situations than a system with
numeric codes given a specific field size. Some disadvantages are that sequentially
assigned codes mostly have little meaning. Also, typically, alphabetic codes are more
difficult to sort than numeric data. Finally, Mnemonic codes are alphabetic characters in the
form of acronyms, a
eviations or other combinations that convey meaning. Its main
advantage lies in the meaning aspect as it does not require the user to learn and remember
the meaning but the code itself gives considerable information about the item that it purports
to represent, as AR for accounts receivables. A disadvantage of mnemonic codes is that
they are limited in their ability to represents items within a class. To represent such items
within a class, we need to make use of sequential, block or group coding techniques.( Hall
2012, pg 71).
3. Under SOX legislation, the external auditors are no longer permitted to render
ookkeeping services for their audit clients. This includes preparing financial statements, or
the client’s accounting records or the information that forms the basis for preparing financial
statements....