Question

There are three cycles in TPS. Revenue Cycle, Expenditure Cycle, Conversion Cycle.

1. Among the three, which is internal controls most important and why?

2. In which of the three cycles is technology most importan? why?

Answer 1

1. Among the three, internal controls are most important in the expenditure cycle. The expenditure cycle is very crucial for internal controls since it involves payment of expenses and cash flows. Under the cycle, the transactions take place on credit relationship between the parties. The goods or services are provided first and cash is received later. There can be weeks and months gap between the two. There is high risk of cash theft and misappropriation of funds in this cycle if the internal controls are weak. Cash being the most crucial aspect of a firm's assets, the internal controls in this area are definitely the priority.

2. Technology is most important in the conversion cycle as it involves multiple stages in production and cost accounting systems. The production system involves planning, scheduling and controlling of manufacturing activities which relies majorly on sophiscated technology. Technology is required to monitor the various parts of production right from release of raw materials, directing the movement of work in process through various stages of manufacturing. Techonolgy also is required in cost accounting system related to the flow of cost information. Information systems are necessary for inventory valuation, budgets, cost controls , performance reporting and decision making.