Evaluate the factors which might influence the nature and structure of accounting systems at Pear International Ltd

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Contents

Introduction 2

Learning Outcome 1: 3

1.1 Explain the purpose and use of the different accounting records used by Pear International Ltd. 3

1.1.1 Nominal ledger: 3

1.1.2 Day books 3

1.1.3 Sales ledger 4

1.1.4 Nominal ledger 4

1.1.5 Trial balance 4

1.2Assess the importance and meaning of the fundamental accounting concepts applicable in the above scenario 5

1.2.1 Accrual concept: 5

1.2.2 Prudence concept 5

1.2.3 The consistency concept: 6

1.2.4 Going concern concept 6

1.2.5 Materiality 6

1.2.6 Business entity concept 6

1.3 Evaluate the factors which might influence the nature and structure of accounting systems at Pear International Ltd 7

1.3.1 Manual & Computerized Accounting 7

1.3.2.1 Computerize systems 7

1.3.2 Finance function & authority 8

1.3.2.1 Line authority 8

1.3.2.2 Staff authority 9

1.3.2.3Function authority 9

Learning Outcome 2: 9

2.1 Identify the different components of business risk associated with Pear International Ltd 9

2.1.1 Operational risk 9

2.1.2 Financial risk: 10

2.1.3 Compliance risk: 10

2.2 Analyze the control systems in place at Pear International Ltd. 10

2.2.1 Control environment: 10

2.2.2 Risk assessment process: 10

2.2.3 Information system: 11

4. Control activities: 11

5. Monitoring: 11

2.3 Evaluate the risk of fraud within Pear International Ltd and suggest methods of detection 11

2.3.1 Collusion with external parties 11

2.3.2 Issuing false credit notes 12

Conclusion 12

Reference List 12

Introduction

Pear International Ltd. (hereunder Pear) has been nominated as a manufacturer and provider of electrical equipment. The company owns several factories nation-wide to produce electrical equipment. Notably, its customer base includes retailers or retail agents and individuals who buy products directly from the company. It should be noted that the company has also sold its products in virtual channel via its website where customers can make order and full payment in advance before the delivery of products. As mentioned in the case, the company’s website enables its customers to make online order and payment. It means that the interactional functionality of the website is high which enables the company to enhance interaction with customers. However, there is one disappointing point is the inventory system has not been integrated into the company’s website. Therefore, the inventory cannot be traced at the time orders are made.

Products are delivered to customers via local couriers. However, numerous customers give complaints that the product delivery is delayed. When the company investigated these complaints of customers, it found that the sales system recorded all the customers’ orders; yet, the orders have not been forwarded to the dispatch department to fulfill the delivery. The customers must sign in the receipt of goods. However, sometimes, the customers’ signatures are missing then the company cannot prove the receipt of goods.

In this report, the author, acting as an auditor to be engaged in auditing Pear International Ltd., will entirely focus on explaining the accounting system adopted by Pear International Ltd. In addition, this report also mentions the different components of risks that the company must face with. This report also evaluates the risk of fraud within the case study of Pear International Ltd. as well as provides some flexible solutions to detect the fraud generated from the business operations of the company.

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