chapter 1-1 prepared by coby harmon university of california, santa barbara westmont college

Chapter 1-1

Prepared byCoby Harmon

University of California, Santa BarbaraWestmont College

Chapter 1-2

Accounting Information Systems, 2nd Edition

Introduction to AIS

Chapter 1-3

1. An overview of business processes

2. An overview of an accounting information system

3. The business process linkage throughout the supply chain

4. The IT enablement of business processes

5. Basic computer and IT concepts

6. Examples of IT enablement

7. The internal control structure of organizations

8. The importance of accounting information systems to

accountants

9. The relation of ethics to accounting information systems

Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives

Chapter 1-4

Overview of Business ProcessesOverview of Business ProcessesOverview of Business ProcessesOverview of Business Processes

SO 1 An overview of business processes

Accounting Information System must identify the

► Transactions to record,

► Capture all details,

► Properly process into correct accounts, and

► Provide reports externally and internally.

Chapter 1-5 SO 1 An overview of business processes

Business Process - a sequence of work steps performed in

order to produce a desired result.

Examples:

► Completing a sale

► Purchasing raw materials

► Paying employees

► Paying vendors



Four general types of business processes:


1. Revenue Processes (Chapters 8)

a. Sales

b. Sales return

c. Cash collection


2. Expenditure Processes (Chapters 9 and 10)

a. Purchase

b. Purchase return

c. Cash disbursement

d. Payroll

e. Fixed asset






3. Conversion Processes (Chapter 11)

a. Planning

b. Resource management

c. Logistics

4. Administrative Processes (Chapter 12)

a. Capital

b. Investment

c. General ledger


Internal controls are the set of procedures and policies

adopted to:

1. safeguard assets,

2. check accuracy and reliability of data,

3. promote operational efficiency, and

4. encourage adherence to prescribed managerial practices.


Chapter 1-10

d. revenue process

When a customer returns goods that were purchased, the business process to accept the return would most likely be a(n)

Review Question

SO 1 An overview of business processes

1. Revenue Processes

a. Sales

b. Sales return

c. Cash collection

b. conversion process

c. expenditure process

a. administrative process


Advance slide in presentation mode to

reveal answer.

Chapter 1-11

Exhibit 1-1Overview of an AccountingInformation System

The Accounting Information SystemThe Accounting Information SystemThe Accounting Information SystemThe Accounting Information System

SO 2 An overview of an accounting information system

Various Business Processes

Chapter 1-12

Which of the following is least likely to be an output of the accounting information system?

a. a check

b. a report

c. an invoice

d. a bar code

A bar code is usually an input to the accounting information system.

The Accounting Information SystemThe Accounting Information SystemThe Accounting Information SystemThe Accounting Information System

SO 2 An overview of an accounting information system

Review Question

Chapter 1-13

► Vendors

► Service providers

Supply Chain - processes and information flows that involve

the movement of materials, funds, and related information

through the full logistics process, from the acquisition of raw

materials to the delivery of finished products to the end user.

The supply chain includes all:

Process Throughout the Supply ChainProcess Throughout the Supply ChainProcess Throughout the Supply ChainProcess Throughout the Supply Chain

SO 3 The business process linkage throughout the supply chain

► Customers

► Intermediaries

Chapter 1-14

Supply Chain Management - the organization and

control of all materials, funds, and related information in the

logistics process, from the acquisition of raw materials to the

delivery of finished products to the end user (customer).



Chapter 1-15

Exhibit 1-2A Simplified Supply Chain for McDonald’s

A simplified Supply Chain for McDonald’s



Chapter 1-16 SO 3 The business process linkage throughout the supply chain

The Real WorldThe Real WorldThe Real WorldThe Real World

An organization such as McDonald’s must have many different suppliers of the

same product because of the need for fresh ingredients. For example, the regional

bakery in the next exhibit provides buns for McDonald’s in a five-state area.

As you have traveled, you may have noticed that your Big Mac is always the same,

no matter where you go. Even the buns are exactly the same in each town and city.

McDonald’s plans for this uniformity in buns and must have many suppliers

throughout the world that can make and deliver a consistent quality bun.

East Balt Inc. is one of the large bakeries that supplies McDonald’s with buns. East

Balt bakeries make these buns according to strict standards of size, shape, color,

height, and seed coverage. To maintain freshness, the buns have to be baked in

regional locations. It would be much too difficult to have one central location bake all

buns for McDonald’s. Therefore, McDonald’s must have many different suppliers of

buns throughout the world.

Chapter 1-17

c. The supply chain includes information flows.

Which of the following is not true of the supply chain?



Review Question

a. The supply chain includes vendors.

b. The supply chain excludes customers.

d. The supply chain includes secondary suppliers.

Chapter 1-18

Information Technology - Computers, ancillary

equipment, software, services, and related resources as applied to support business processes.

IT Enablement - Using IT systems to enhance efficiency

and effectiveness of internal or supply chain processes.

IT Enablement of Business ProcessesIT Enablement of Business ProcessesIT Enablement of Business ProcessesIT Enablement of Business Processes

SO 4 The IT enablement of business processes

Chapter 1-19

IT usage accomplishes one or more of the following

objectives:

1. Increased efficiency of business processes

2. Reduced cost of business processes

3. Increased accuracy of the data related to business processes

IT Enablement of Processes and the AISIT Enablement of Processes and the AISIT Enablement of Processes and the AISIT Enablement of Processes and the AIS


Business Process Reengineering (BPR) is the

purposeful and organized changing of business processes to make them more efficient.

Chapter 1-20

Which of the following is not an objective of IT enablement?

a. increased accuracy of data

b. reduced cost

c. reduced security problems

d. increased efficiency


Review Question


Chapter 1-21

Basic Computer Data Structures

Basic Computer and IT ConceptsBasic Computer and IT ConceptsBasic Computer and IT ConceptsBasic Computer and IT Concepts

SO 5 Basic computer and IT concepts

Data hierarchy:

1. Bit, or binary digit

2. Byte

3. Field

4. Record

5. File

6. Database

► Smallest unit► Values = zero or one

► One character► Eight bits

► One item within record► Example - last name

► Set of related fields► Example – employee #,

name, pay rate, etc.

► Set of related records

► Entire collection of files

Chapter 1-22

The correct order of the computer data hierarchy is

a. byte, bit, record, field, file, database

b. bit, byte, record, field, file, database

c. bit, byte, field, record, file, database

d. bit, byte, field, record, database, file


Review Question


Chapter 1-23



RelationalRelationalDatabaseDatabase

Master FileMaster File

Transaction Transaction FileFile

Example - relationship in data of a customer having more than one order.

Example - payroll master file maintains the relatively permanent data to process payroll transactions.

Example - transaction file is processed against the master file, and year-to-date balances are updated in the master file.

Chapter 1-24

► Sequential access

► Random access

► Indexed Sequential Access Method (ISAM)

► Batch processing

► Online processing

► Real-time processing

File Access and Processing Modes



Chapter 1-25

► Data warehouse

► Operational database

► Data mining

Data Warehouse and Data Mining



Chapter 1-26

The process of searching for identifiable patterns in data is called

a. Sequential processing

b. data warehousing

c. data mining

d. real-time processing


Review Question


Chapter 1-27

Network (two or more computers linked together)

Types important to accounting:

► Local Area Network (LAN)

► Internet

► Intranet

► Extranet

Networks and the Internet



Chapter 1-28


The American Institute of Certified Public Accountants recently released the results

of its 2012 Top Technology Initiatives Survey. The survey asked respondents to

rank their organization’s top IT goals for the coming year. The top five responses

were:

1. Securing the IT environment

2. Managing and retaining data

3. Managing risks and compliance

4. Ensuring privacy

5. Leveraging new technologies (such as cloud computing and mobile

devices)

These findings clearly indicate that the ability to access key information is a top

priority for accountants. However, changing technologies tend to cause accountants

to rethink the way they work. The more that can be learned about the capabilities of

emerging technologies, the more likely it is that they will be appropriately integrated

into the IT environment to produce an improved result. Complete survey results are

available at aicpa.org/toptech.

Chapter 1-29

Examples of IT EnablementExamples of IT EnablementExamples of IT EnablementExamples of IT Enablement

SO 6 Examples of IT enablement

Encompasses all forms of:

► Online electronic trading

► Consumer-based e-commerce

► Business-to-business transactions

► Internal use of IT

Examples, buying:a book at Amazon.comclothes at Landsend.com

E-Business

Chapter 1-30

Electronic Data Interchange (EDI)



The intercompany, computer-to-computer transfer of business documents in a standard business format.

Example: Transmit purchase orders, invoices, and payments electronically between trading partners.

Chapter 1-31

Point of Sale System



A system of hardware and software that captures retail sales transactions by standard bar coding.

Example: Customer checks out through the cash register, bar codes are scanned on the items purchased, prices are determined by access to inventory and price list data, sales revenue is recorded, and inventory values are updated.

Chapter 1-32

Automated Matching



A computer system in which the software matches an invoice to its related purchase order and receiving report.

Example: Ford Motor Company described in text illustrated an automated matching system.

Chapter 1-33

Evaluated Receipt Settlement (ERS)



An invoice-less system in which computer software completes an invoice-less match that is a comparison of the purchase order with the goods received.

E-Payables and Electronic Invoice Presentment and Payment (EIPP)

Web-enabled receipt and payment of vendor invoices.

Chapter 1-34

Enterprise Resource Planning Systems (ERP)



Multi-module software system designed to manage all aspects of an enterprise.

Usually broken down into modules such as

► inventory management,

► manufacturing, and

► human resources.

► financials,

► sales,

► purchasing,

Chapter 1-35

An IT enabled system for purchasing that is an “invoice-less” system is called a(n)

a. automated matching system

b. evaluated receipt settlement

c. e-payables

d. point of sale system


Review Question


Chapter 1-36

Internal Control Structure of OrganizationsInternal Control Structure of OrganizationsInternal Control Structure of OrganizationsInternal Control Structure of Organizations

SO 7 The internal control structure of organizations

Risks that impact financial standing:

1. Assets will be stolen or misused

2. Errors in accounting data or information

3. Fraudulent activity

4. Risks inherent in IT systems, such as

a. Erroneous input of data

b. Erroneous processing of data

c. Computer fraud

d. Erroneous input of data

e. Hardware or software failure

f. Natural disasters

Chapter 1-37

Enterprise Risk Management (ERM)

ERM is defined as

. . . a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.



Chapter 1-38


Requires management set policies and procedures related to:

► Internal Environment

► Objective Setting

► Event Identification

► Risk Assessment



► Risk Response

► Control Activities

► Information and Communication

► Monitoring

Chapter 1-39

Management should ensure the following types of control

structures exist:

1. Code of Ethics (Chapter 3)

2. COSO Accounting Internal Control Structure (Chapter 3)

3. IT Controls (Chapter 4)

4. Corporate Governance (Chapter 5)

5. IT Governance (Chapter 6)




Chapter 1-40

c. “Corporate Governance”

The COSO report written for the purpose of assisting managers in the challenge of managing risk in their organizations is entitled

a. “Internal Controls—Integrated Framework”

b. “Enterprise Risk Management—Integrated Framework”

d. “IT Governance”



Review Question

Advance slide in presentation mode to

reveal answer.

Chapter 1-41


On April 20, 2010, an explosion aboard the Deep Water Horizon drilling platform forced millions of gallons of oil to spill into the Gulf of Mexico, wreaking havoc on marine life and upsetting the coastal economies. This event and the related problems have been disastrous for BP plc, the company most frequently blamed for this tragedy.

This example illustrates how critical it is for companies to manage risks. Risks lie in nearly every aspect of every business, and the task of identifying and mitigating them is a daily challenge. Certainly, any oil company would include an explosion, oil spill or oil leak to be among its most serious risks. In the case of BP and the other responsible companies, there were evidently breakdowns in the monitoring of controls surrounding this location.

Although many people are familiar with the BP oil spill, most have probably never considered the accounting implications of this disaster. Yet years after its occurrence, BP was still struggling to account for the damages owed for environmental clean-up and legal claims, and its audit firm was still using cautionary language in the audit opinion accompanying BP’s financial statements.

Chapter 1-42

Accountants may be

► Users of the AIS,

► Part of the design or implementation team of an AIS,

and/or

► Auditors of an AIS.

Importance of AIS to Accountants Importance of AIS to Accountants Importance of AIS to Accountants Importance of AIS to Accountants

SO 8 The importance of accounting information systems to accountants

Chapter 1-43

c. auditor

Accountants have some form of use of the AIS in all but which role?

a. user

b. programmer

d. designer

SO 8 The importance of accounting information systems to accountants

Review Question

Importance of AIS to Accountants Importance of AIS to Accountants Importance of AIS to Accountants Importance of AIS to Accountants

Chapter 1-44

Examples of potential unethical behaviors:

► Fraudulent financial reporting

► Revenue inflation

► Expense account fraud

► Inflating hours worked for payroll purposes

► Computer fraud

► Hacking

► Browsing confidential data

Relation of Ethics to AISRelation of Ethics to AISRelation of Ethics to AISRelation of Ethics to AIS

SO 9 The relation of ethics to accounting information systems

Chapter 1-45

Which of the following is not true of unethical behavior?

a. The only category of unethical behavior for accountants is inflating revenue.

Ethics and the AISEthics and the AISEthics and the AISEthics and the AIS

SO 9 The relation of ethics to accounting information systems

b. Accountants are often pressured to help commit or cover up unethical behavior.

c. Hacking is an unethical behavior that accountants should be concerned about.

d. An accounting information system can be used to cover up unethical behavior.

Review Question

Chapter 1-46

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chapter 1-1 prepared by coby harmon university of california, santa barbara westmont college

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