Ais Case 7-3 Accounting Essay

AIS Case#1
Sun Ho Sin
University of Maryland University College

Abstract
Answer for question #52; Coupon Accounting and #55; Evan Charter on Chapter3 is given in this assignment.
#52; Coupon Accounting
a. Yes, this situation called “Coupon Accounting Abuse” can happen to a company with a good control environment. This situation would fall under management fraud where top-level manager within the company conduct a fraudulent financial reporting in order to receive personal benefit. Managers operate above the level of internal controls by circumventing the internal control; therefore this can happen to a company with a good control environment.
b. To prevent or detect management fraud, the company needs to establish a professional internal audit staff that periodically checks up on management activities and reports to the audit committee of the board of directors.
c. Falsely increased stock price and falsely prepared financial statements will
harm the stockholders and bondholders from obtaining accurate information. Company itself will also be harmed from not being able to find the bad employee or the problem within itself like bad marketing strategy conducted by the management or awarding wrong people that could lead to moral problem and as a result builds up the internal problem. Moreover, this kind of situation will harm the entire stock market when the distrust from frauds like this builds up and drive the people out of stock market and as a result negatively affects the economy and harms everyone on earth.
d.
I consider this example to be management fraud because, first of all Larry is a brand manager who has a direct access to the financial record. Misstating financial statement to enhance chances of promotion or to increase incentive-based compensation as bonus is a major reason the management fraud occurs as stated in our textbook, Accounting Information Systems (p82). In addition, as stated in the problem, “but he also knows that neither the firm’s independent nor internal auditors will seriously challenge the estimate” shows that this manager can override the internal control which is the main challenge with preventing management fraud. Also, Larry said, “If the auditors question the rate, I’ll give them a story about seasonality and shifting consumer patter. They won’t know enough about marketing to question my story.” This shows another typical management fraud involves complex transactions, manipulations on business structure like Enron did where managers operate above the level of internal
control.
#55; Evan Charter

a. No, Evan’s action was not justified, I would have advised Evan to cash in this $200 check and honestly turn it in to his fraternity. Instead, he could have been acknowledged for his outstanding performance in front of his frat members and consider his extra effort as an extra service or a personal donation to his fraternity and feel proud about it. If that good feeling is not enough, maybe he needs to re-consider about being the fundraiser of the frat in the first place because this is not a money-making job he was performing but a selfless volunteer position that he did for his frat brothers and family members.
b. The fraternity could have implemented a “Prevent Shimming” internal control to prevent Evan’s action. There is no internal record of cash, so it is very difficult to discover the fraud in a situation like this case. Therefore, maintaining and enforcing a good code of ethic is important to persuade the employees themselves to make the right decisions.
Also, Fraternity could have made Larry to only use emails that are managed by the fraternity website for fundraising purpose so that others have an access to Larry’s work communicating with donors and can track on the donations made to the company.
c. A good way for detective control would be to keep the letter of acknowledgement must in control to make sure it can be backtracked to match the donation with donors. The frat can ask Larry to turn in the contact list of the donor list and mail the donors the special letter of acknowledgement directly from the fraternity.
Another good way is to publish a thank note on a local newspaper with the list of donors. If Larry knew about this, he would not have committed this fraud because the name of the donor who gave him personal check needs to be turned in, otherwise he would get called by the donor for not acknowledging him like everyone else on the newspaper.

References
Turner, Weickgenannt (2009). Accounting Information Systems. Hoboken, NJ: Wiley