ACCT 650 Week 3 Individual Learning Project Proposal Example

Proposal: Evaluating the Month-End Close and Journal Entry Controls at a Regional Medical Supply Distributor

Organization and Process

Pinecrest Medical Distribution is a privately held distributor of surgical and patient-care supplies to hospitals and clinics in four states, with annual revenue of about $180 million. I work there as a senior accountant. The company's month-end close currently takes eleven business days, and roughly 60 percent of its journal entries by value are manual entries prepared and posted by a five-person accounting team. The company's bank lenders receive monthly financial statements and an annual audit, and the owners are considering a sale within three years, so the reliability of reported results matters to outside parties.

Problem Statement

A long close with heavy reliance on manual entries creates two risks: errors that are not caught before statements are issued, and entries that bypass review entirely. At Pinecrest, the same staff member can both prepare and post an entry, and review of entries below $25,000 is informal. A close that depends on a few people posting their own entries depends on those people never being wrong. The project will evaluate whether the controls over the close are designed and operating well enough to prevent or detect a material misstatement.

Scope

The project will cover the month-end close and the journal entry process only, from subledger cutoff to the issuance of monthly statements. It will exclude the revenue and procurement cycles except where their entries pass through the close. Within that scope, the project will pay particular attention to three kinds of entries that carry the most judgment: accruals for rebates owed to customers, inventory reserves and the monthly allocation of freight costs. Those entries are large, recur every month and rely on estimates, which makes them the most likely place for an error to go unnoticed.

Method

COSO's 2013 framework will supply the structure, with each finding filed under the one of its five components it concerns (Committee of Sponsoring Organizations of the Treadway Commission [COSO], 2013). Evidence will come from walkthroughs of the close with each team member, a review of written close procedures, and a sample of 40 manual entries from the last two quarters tested for preparation, approval and support. Findings will be classified by severity and paired with recommendations.

Deliverables and Timeline

The walkthroughs and the review of procedures will be completed in Module/Week 4, the sample of entries tested in Modules/Weeks 5 and 6, and the findings and recommendations written into the final paper for Module/Week 7. The paper will include a process map of the close as an exhibit and a table classifying each finding by COSO component and severity.

Why It Matters

Research shows that control weaknesses have measurable consequences for reported numbers. Ashbaugh-Skaife et al. (2008) tie reported control deficiencies to weaker accrual quality, which recovered once the deficiencies were fixed. Doyle et al. (2007) found that control weaknesses were more common at smaller companies and those with fewer resources for accounting, which describes Pinecrest's situation. Although both studies examined public companies, their findings suggest what a private distributor stands to gain from stronger close controls, especially before a sale. The project also reflects a biblical principle: stewards are expected to be found faithful (English Standard Version Bible, 2001/2016, 1 Corinthians 4:2), and faithful stewardship of an owner's resources includes reporting them accurately.

References

Ashbaugh-Skaife, H., Collins, D. W., Kinney, W. R., Jr., & LaFond, R. (2008). The effect of SOX internal control deficiencies and their remediation on accrual quality. The Accounting Review, 83(1), 217-250. https://doi.org/10.2308/accr.2008.83.1.217

Committee of Sponsoring Organizations of the Treadway Commission. (2013). Internal control: Integrated framework.

Doyle, J., Ge, W., & McVay, S. (2007). Determinants of weaknesses in internal control over financial reporting. Journal of Accounting and Economics, 44(1-2), 193-223. https://doi.org/10.1016/j.jacceco.2006.10.003

English Standard Version Bible. (2016). Crossway. (Original work published 2001)