Case Study Case 1: Ergon plc was a Cambridge based UK listed company. During the late 1990's the company produced digital positioning equipment for the global transportation sector - especially the merchant navy. The company's products were sold throughout Europe, North America, Australia and Canada, and were widely regarded as the best in the market. Indeed during the period 1993 and 2003 the company's digital positioning equipment consistently won high praise for both its design and capabilities.
In January 2004, however, Ergon plc went into liquidation, with reported debts of £230m. In March 2005, after extensive investigation, the company receivers Hopwind LLP published their findings on the failure of Ergon plc. Their report suggested that the principal cause of Ergon plc's failure had been inadequate internal control within the company's revenue cycle operations - in particular the management of debtor payments.
Required: Describe the primary function of a revenue cycle for a company such as Ergon plc, and explain how a lack of internal control could lead to the eventual collapse of the company.
Case 2: Ergon plc was a Cambridge based UK listed company You have recently been appointed Systems Accountant at Lukman Ltd., a small electrical accessories company.
Your main brief is to: Design a company-wide computer purchasing system.' To date the company has maintained a semi-manual record system for all its purchases. For the previous five financial years the company has made average annual purchases of £15m, (all purchases from UK suppliers) and average annual profits of approximately £9m.
The company has approximately 47 employees working at six locations through out Ghana: Accra, Cape Coast, Koforidua, Takoradi, Kumasi and Tamale . For the year ended 31 March 2007 approximately 95% of the company's purchases were on credit. The company is currently reviewing its purchasing system and is considering introducing a fully computerised purchasing system with the possibility of a web-based purchasing protocol linked to selected suppliers.
Required: Making whatever assumptions you consider necessary.
Prepare a draft report for the management board of Lukman Ltd., detailing the following:
• the control objectives of a company purchasing system
• the general controls and application controls you would expect to find in a computerized purchasing system and
• the control issues relevant to a web based purchasing system