HA2011-Managerial Accounting Assessment Answer

Question 3.1. Some argue against corporate involvement in socially responsible behavior because the cost incurred by such behavior places the organization at a disadvantage in a competitive market. Discuss the merits and flaws of this argument.
Answer. The costs of socially responsible behavior include those associated with environmental protection, improving worker safety, and affirmative action. In the short run, when one firm incurs these costs and its competitor does not, the latter has a competitive advantage over the former. However, the socially responsive firm can maximize its profitability in the long run by accruing goodwill in society and avoiding the negative effects of government regulations.

Question 3.2. When a company has a strong internal control structure, stockholders can expect the elimination of fraud. Comment on the soundness of this statement.
Answer. A strong internal control structure provides an excellent shield against fraud. However, these shields are not 100 percent bulletproof, especially when employees collude and/or top management is involved. A strong internal control structure coupled with good employee morals and ethics is the best deterrence against fraud.

Question 3.3. Although top management’s attitude towards ethics sets the tone for business practice, sometimes it is the role of lower-level managers to uphold a firm’s ethical standards. John, an operations-level manager, discovers that the company is illegally dumping toxic materials and is in violation of environmental regulations. John’s immediate supervisor is involved in the dumping. What action should John take?
Answer. Normally, the resolution of an ethical problem on the job would involve consultation between the subordinate and the immediate supervisor. When the supervisor is part of the problem, the matter should be taken to the next higher-level person in the organization structure.

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Question 3.4. The following describes the cash receipts procedures for a medium-sized online and catalog-based retailer.
Customer payments come directly to the general mailroom along with other mail items. The customer payments mail constitutes about 20 percent of the total mail received each day. The mailroom clerks sort through the mail, open the customer payment envelopes, remove the customer checks and remittance advice, and reconcile the two documents. The mailroom
supervisor then sends the reconciled checks and remittance advice to the Accounts Receivable clerk, who posts the amounts received to the customer AR subsidiary ledger and the cash receipts journal from her computer terminal. The AR clerk then manually prepares a remittance list of all checks received, endorses the checks “for deposit only” and sends the

HI5019 T1 2021 Strategic Information Systems for Business and Enterprise
checks and remittance list to the Treasurer. Finally, the clerk files the remittance advice in the AR department.

Once the checks and remittance list arrive at the Treasury Department, the treasurer reconciles the documents and manually prepares three hard copies of the deposit slip. Next, he sends the checks and two copies of the deposit slip to the bank. Finally, he files the third copy of the deposit slip and the remittance in the department.

Required: Identify the internal control weaknesses in the cash receipts process. For each weakness, describe the associated risks. For each weakness provide a possible control activity.

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