Company X Company X processes fluid chemicals. The purchasing department places
ID: 2819116 • Letter: C
Question
Company X
Company X processes fluid chemicals. The purchasing department places orders based on a minimum inventory level. The chemicals are received through pipelines and stored in tanks. The company has a logistic system in which an employee of the storage department enters the received goods. The purchasing department makes payments based on bills received with each delivery of goods. Each department (among others, purchasing, sales, production, accounts receivable administration, storage department, controlling) has a personal computer at its disposal which is connected to a network. All financial transactions are processed in the financial system. In addition, the company uses a management information system supplying relevant managerial information. The three information systems are not integrated.
Company Y
Company Y processes fluid chemicals. Orders are placed automatically by the ERP-system (logistics module) based on a minimum inventory level. Chemicals are delivered through pipelines and stored in tanks. The minimum inventory level is indicated by means of an automated observation system integrated in the ERP-system. Subsequently, an order is placed with the supplier through EDI (Electronic Data Interchange; purchasing module). At the supplier's the order is prepared automatically by the computer and shipped automatically through the pipeline. Based on the receipt through the pipeline Y's purchasing department automatically prepares a pro forma bill and sends it by means of EDI (purchasing module). Payments are made automatically through electronic money transfer.
Company Y takes over Company X. A big hurdle to take is the conversion from the old-fashioned information system of X to the ERP-system of Y.
Discuss the differences between Company X and Company Y regarding the internal control measures that are to be taken. In doing so, deal with the following areas:
- Input.
- Documents.
- Conversion.
- Continuity.
- Segregation of duties.
- Access security.
- Information and communication technology.
Explanation / Answer
Input.
Input supply finance in its simplest form, involves the financing of agricultural activity by other value chain actors - such as input supply companies and other agro-dealer networks who access financing from banks for working capital tofinance farmer customers.
Documents.
Regardless of the company's size, the mission of accounts payable is to pay only the company's bills and invoices that are legitimate and accurate. This means that before a vendor's invoice is entered into the accounting records and scheduled for payment, the invoice must reflect:
Conversion.
A conversion is the exchange of a convertible type of asset into another type of asset, usually at a predetermined price, on or before a predetermined date. Theconversion feature is a financial derivative instrument that is valued separately from the underlying security.
Continuity.
Continuity Planning. At One Financial Services we believe personal continuity is a coordination of an individual's financial, legal, tax, insurance, estate and health concerns all organized and shared with loved ones before a need arises. Our firm's preference is to know a client's support team in advance of a need.
Segregation of duties.
Separation of duties (SoD; also known as Segregation of Duties) is the concept of having more than one person required to complete a task. In business the separation by sharing of more than one individual in one single task is an internal control intended to prevent fraud and error. The concept is alternatively called segregation of duties or, in the political realm, separation of powers. In democracies, the separation of legislation from administration serves a similar purpose. The concept is addressed in technical systems and in information technology equivalently and generally addressed as redundancy.
Access security.
A security, in a financial context, is a certificate or other financial instrument that has monetary value and can be traded. Securities are generally classified as either equity securities, such as stocks and debt securities, such as bonds and debentures.
Information and communication technology.
ICT in terms of INFORMATION/COMMUNICATION TECHNOLOGY is the utilization of electronic systems to handle financial transactions. The major aspects of any finance organisations runs basically on these systems. These aspects include:
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