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HI5019 Potential Risk Of Internal Control: The Revenue Cycle Of XYZ Limited Assessment 1 Answer

T3 2020
Unit Code
Unit Title
Strategic Information Systems for Business and Enterprise
Assessment Type
Assessment 1: Individual Assignment
Assessment Title
Analysing an Accounting Information System
Purpose of the assessment (with ULO Mapping)
Students are required to:
  • Critically evaluate   the   purpose   and   role   of   accounting information systems in today’s business environment [ULO 1].
  • Articulate the various transaction cycles, financial reporting, management reporting systems and ecommerce systems to technical and non-technical stakeholders [ULO 2].
  • Appraise the risks inherent in computer-based systems/ERP, including the role of ethics and the various internal control processes that need to be in place [ULO 4].
20% of the total assessments.
Total Marks
20 Marks.
Word limit
2000 words ± 10%.

  • Reference sources must be cited in the text of the report and listed appropriately at the end in a reference list using Harvard referencing style.
  • Include a minimum of ten (10) references, at least five (5) from peer- reviewed journal relevant to the unit


The Revenue Cycle of XYZ Limited.

After finishing your Master of Professional Accounting, you started your accounting consultancy in Brisbane, Queensland, Australia. You got a high distinction in HI5019 Strategic Information System and preferred to analyse the business processes, risks and internal controls. XYZ is one of your clients, and the CEO of XYZ is delighted with your services.1 The head of the accounting department is concerned about their revenue cycle. Therefore, he has recently contacted you to evaluate their revenue cycle. During the initial meeting, you elaborate him that conceptually, the revenue cycle is a recurring set of business activities and related data processing operations associated with providing goods and services to customers and collecting their cash payments. This definition reveals that the revenue cycle can be categorised into (1) sales order processing procedures (SOPP), and (2) cash receipts procedures (CRP). The SOPP and CRP of XYZ are elaborated below. Therefore, you requested the head of the accounting department to describe the SOPP and the CRP of XYZ Limited separately. This description is given below.

SOPP of XYZ Limited

The sales department receives the unstandardised sales order since customer orders are mailed, e-mailed or faxed to the sales department. The sales clerk first converts the unstandardised sales order into the standardised sales order. For this purpose, the sales representative requests the missing information, if any. When the order is received, the sales clerk checks the customer’s creditworthiness of the customer from his computer terminal. Three years ago, the sales clerk requested the accounting department to provide him with a list of customers whose account receivables are written off. The sales clerk is still using this information to check the creditworthiness of the customers. The sales clerk is using the same procedure to check the creditworthiness of the new customers.

The customer’s order is rejected if the customer’s credit is not verified. The sales order processing is started after the credit verification. In particular, the sales clerk records the approved standardised sales order in the sales order system through his computer terminal. A digital copy of the order is distributed to the warehouse and the shipping department terminals for further processing. The computer system automatically records the sale in the sales journal. The clerk reviews this entry and files the hard copy of the customer order in the sales department.

As indicated above, the receipt of the digital sales order prompts on the computer terminal of the warehouse manager. Further, the stock release and the shipping notice are also accessible at the warehouse terminal. For further processing, the warehouse manager prints out the sales order, the stock release, and the shipping notice. Using the stock release copy, a warehouse clerk picks the selected items from the shelves and sends them to the shipping department along with the stock release and the shipping notice. The warehouse manager then updates the inventory subsidiary ledger and the general ledger control account from his computer terminal.

The shipping clerk receives the physical stock, the stock release, and the shipping notice from the warehouse manager. The shipping clerk matches them to the corresponding digital sales order displayed on his terminal. If everything matches, he prints out three hard copies of the bill of lading and a packing slip. The shipping clerk sends two copies of the bill of lading and the packing slip, along with the goods, to the carrier. The stock release copy and the shipping notice are sent to the accounts receivable department. The third bill of lading copy is filed in the shipping department.

Account receivable clerk receives the stock release and shipping notice from the shipping clerk. Then, the accounts receivable clerk manually creates a hard-copy invoice, which is immediately mailed to the customer. After mailing the invoice, the clerk uses information on the stock release to update the accounts receivable subsidiary ledger and general ledger from his computer terminal. After the records are updated, the clerk files the stock release and shipping notice in the accounts receivable department. Sometimes, the account receivable clerk reconciles the quantities from the sales order and adjusts the account receivables.

CRP of XYZ Limited

The payments of customers come directly to the



Internal control is the security line of the business organization that is used by the business organization to increase the assurance related to the business processes. Business organization has the various business function that is required to manage by the top management with the help of establishing the internal control. This report include the assessment of the potential risk of the internal control that can led to play havoc for the business activity. However, the potential risks associated with the sales and other program is also followed with a view to evaluate the audit and assurance program in the framework. Nonetheless, inherent, control and detection risk is associated with the related weakness in the internal control system. 


Business organization in order to be identical with other businesses, what is require to be competent. The accounting information system is used to record and classify the data in the accounting framework and help in strengthen the work program. In order to understand the business and its related risk factors how it affects the business, foremost vital aspect is to understand the word Business Risk. Business risk is “threat to firm’s goal” which if suspected on time could be converted into opportunity. Sometimes elimination of risk is tough but it could be indemnify through selecting the best internal control risk diminishing factors, recording the factors of risk, industry specific risk must be managed accordingly. Some key aspects to be keep in mind while mitigating the risk –

  • Risk and its type
  • How to recognize risk
  • What is source or origin of risk
  • How to supervise or control or avoid or mitigate the risk


Revenue cycle is continuous process which involves continuous exchange of good or service given to customers against the money or cash in consideration.

Potential Associated Risk
Physical level control
IT level control
Reputational risk 
Risk that is directly associated with the company’s name. it is important for the company to maintain the brand that further depends on the employees and owners of the associated with the company (Rahim, Nawawi,  & Salin, 2017). 
It is important for the company to  maintain Chinese wall strategy in the organization and maintain the price sensitive information through preventing and restricting the involvement of all the employees to price sensitive information of the company
In Today dynamic environment, it is quite vital for the company to maintain the strategy like enhancing the company’s brand name and its CEO reputation through media and other social platforms. Alike the the strategy used by the CEO of coca-cola to balance its image through media via intracting the public at large, which reduces the probability of circulating wrong rumors which can affect the company.
Deficiency in internal control
Internal control strengthens the organization’s risk mitigating probability but if there is lack of internal control in the organization which could lead to absence of  security concern or ability to track performance or many more deficiencies.
Essence of internal control through good internal control administration or good hired hands through their intelligence leads to identify threats before this affect the organization (Donelson, Ege, & McInnis, 2017).
It is vital for the for concern to develop the software that manifest the performance of the employees and verify the work related to specified employee.
Commodity price risk
Price of good or services influenced by the world regulation procedures or completion any other factor.
Administrative personnel of the concern are required to analysis the future prices of commodity. 
IT sector should be managed to build a data analysis software for prices of commodity of past or present performance.
Competition risk
To stand identical compare with other compeer concern, essence for an organization.
Organization key role should be to combat the competition with other organization. Completion within the organization within the staff should be avoided.
To identify the competitor in the market, the organization IT sector should be developed in such a specified way that limit the influence of new entrants in the market.
Compliance risk 
It deals with regulation or governance of legal or material loss which can be alleviated.
Requirement of good professional with intelligence and quick situation based knowledge for acceptable quality of governance.
Compliance risk management could be expensive, through hiring experienced professional who charge high fees, so technology makes it easy for the concern to get the expertise consultancy at low price.


Deficency or weakness in internal control in sales order is due to involvement of no. of employees and where the internal control lacks in its efficiency to maintain the control over the personnel. This is the area of high exposure to risk. Thus it requires the oraganization to make accountable some specified personnel who are authorize to select the sales price or the credit limit,  document approval requirement, approving the new employees or payment terms. Proided case study envisage the internal key area to keep in concern which affect the sales order proccessing system (Bentley-Goode, Newton, & Thompson, 2017).

Weak internal control and its impact on sales order process

  1. Inadequate system of Creditworthiness 
  2. The foremost duty to regulate the creditworthness is of credit officer while the same work is done by the clear of the organisation that is not acceptable standard.
  3. Credit being removed authomatically without being analyised appropraitely.
  4. Consumer credit receivable account being maintained since past three years and new consumers creditworthiness is being judged on the basis of past consumer information.
  5. Inadequate system of warehouse maintainance process
  6. Due to lack of security maintainance due to involvement of clerks in operative as well as cash collection procedure there is lack of segregation of work which lead to inadequate and insufficient system of warehouse maintainance.
  7. Due to lack of sepration of assigned work to different personnel it expose the organisation to risk of security financially.

Wrong policy maintained for cash receipts process

  1. Illegitimate process 
  2. no segregation of duty of the personnel in the company which lead to complication and poor performance and increase the chances of fraud.
  3. It reduces the efficiency of the personnel as the single personnel being diversified in different work.
  4. Lack of programmed work which reduces the ability of the concern to make more money.
  5. Data being recorded mannually and lack of programmed procedure
  6. As the data being recorded mannually which inculcate the chances of error or frauds (Nguyen, 2020).
  7. Human error can be avoided through maintainance of proper computer technique.
  8. The chance of fraud could be reduce if data would be maintained by the software as the personnel could be made accountable for the work they have been engaged into or assigned of.


Internal control guarantees an organisation objective to achive within the limited time with more efficeiency and effectiveness. Internal control is all about managing the internal system, internal procedures, internal personnels. Internal control refers to internal check on the company. Internal control can be either through appointing mangment form within the company or appointing mangement from outside the company. When the involvement of employees increase in an organisation with that requirement to srutinize the organisation control is must.

Verifying the creditworthiness is must wherther it is verfying the creditworthiness of vendors, suppliers, or customers. This institutes the risk mitigating policy in the company. These are some work that an owner is need undertake inorder to retain the company from the losses.


Both the term are related with each other. If the creditwothiness is not verified as per standard norms then it would be difficult for the owner to recover the company from out of losses. That could  arise due to bad debt if the cosumer solvency is not being checked or verified appropriately. Verification or validation of any consumer creditworthiness depends on the internal control by the assigned mangement of the company. It there is lack of internal control then it may cause loss to company through deficiency in maintaining the accredation of its customers (Akhmetshin, Vasilev,  Vlasova, Kazakov,  Kotova,& Ilyasov, 2019).

  • Atrocious quality of inventory managment-

Poor quality of inventrory managment lead to inefficiency in the organisation as inventroy require the accurate procedure to compute the correct proportion or quantity of commodities being sold out or purchased in by the company.To maintain the the category of custormers between the regular consumers and non regular consumers. This can be checked through good professional internal control measurement being undertaken by the company. Internal check validates the company‘s inventory and provide security from fraud and malpractices. Internal control keep a check on the employees who are directly work under the company inventory and are in a position to take advantage of their position.

  • Lack of segregation or difersification of assigned work-

The direct effect of no segeregation of duty is inefficeiency in the work of the employee. If the employee being assigned diversified work then one or the other task would give insignifcant result .

Sometime managment of the company take advantage of their position and to save money for themselves does not appoint more personnel even when it requires. This affects the results of the company. standarised internal control norms regulates check on these malpractices and make sure that the required work is to be performed by the suitable personnel (Harini, Kurniawan, & Umiyati, 2019)

Therefore, it can be said that the internal control is measure towards the assurance of suitable and appropriate working condition in the company and regulates and work as goverance on the company .


  • Falsification of funds-

Lack of internal control in the company lead the space for the falsification or manipulation in the funds of the company.

Misaapropriation of funds or falsification of funds are charged with strict offences but due to lack of segregation of work in the company and lack of internal control the funds falsification is hard to identified. This persuade the poor economic condition of the organisation and company incurr looses. Company needs to equip with the latest techniqe and good professional which inculcate the good environment in the comapny and personnel should be encouraged to work for the company goal. If employee work only for the personal benefit and steal the funds of company then it would incurr loss to the company and could lead to dissolution (Safonova, & Petukh, 2017).

  • Inappropriate goverance on mail procedure lead to mail fraud-

As the consumer‘s remittance and its related information being maintained by the company then it is vital to keep such procedure under the internal control as any personnel can take advantage of the personal information and deceit or defraud consumer. Technical personnel who is appointed for the job should not be the only authority to regulate the email and related work, there should be a authority to regulate the work of such technical personnel. Due diligence keeps check on the employees work make them accountable for the work done by them. Such personal information that can harm any individual privacy should not be allowed to circulate futher. Strict policy by the company should be maintained to focus on such risk exposure details.

  • Erroneous assumptions of employee lead to false sale receipts-

The sale receipt highlights the amount of cash the company has earned in a particular time period. The amount should be appropriate and and does not involve any manipulation in funds of company. when the company personnel or employee maintain the sale receipt through manually then it lead to chances of frauds or misappropriation or falsification of the frauds. Thus it is required for the company to have access to the role played by the accountants who maintain the receipts and have futher regulatory authority to regulate them (Trilaksana, 2019).

Thus,  abovementioned factors provides the  requirement of maintainance or goverance on proper and appropriate role played by the personnel. In order to establish renounced and identical company compared with other competitiors regulatory maintainance to achive the required goals of the company within the prescribed time. To save the company from risk exposure the assurance of proper control of internal managment is must (Vovchenko, Holina,  Orobinskiy, & Sichev, 2017).


Above mentioned para focus on the strong and well developed internal control in an organisation. Natural causes, economic causes or human couses affects the company in its operation thus the internal control is being maintained by the company for efficeint performance of the company in long run and competing in the market. With the dynamic environment it is essence for a company to have professionals to guide and analyis the risk exposure factor and threats to the company and achieve the goals. Internal control is a protection to the company from future threats which is identied by the professional through their acknowledged power of wit. Quality of quick identification of frauds or misaapropriation of funds safegaurds the company‘s assets and property from the personnel or mangers or owners who work for their personal benefit and take advantage.

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