AIS (MODULE)

Internal Information Flows

Horizontal - flows of information primarily used at the operation level to capture transactions and operations data.

Vertical - Information flows:

a. Downward flows - instructions, quotas and budgets.

b. Upward flows - aggregated transactions and operations data.

End Users

a. External Users

 Include creditors, stockholders.

b. Internal Users

 Management at every level of the organization, as well as operations personnel

Data vs. Information

a. Data are facts which or may not be processed and have no direct affect on the user.
b. Information causes the user to make a decision.

Data Sources

a. are financial transactions that enter the information system from both internal and external sources.
b. External Financial Transactions are the most common source of data for most organizations

Data Collection

 Is the first operational stage in the IS

 The objective is to ensure the event data entering the system are valid, complete and free from material
errors

Data Processing

 Stage Range from simple to complex

 Example mathematical algorithms

Manual System Accounting Records

Source Documents - used to capture and formalize transaction data needed for transaction processing
Product Documents - the result of transaction processing
Turnaround Documents - a product document of one system that becomes a source document for another system

Manual System Accounting Records

• Journals - a record of chronological entry

– special journals - specific classes of transactions that occur in high frequency

– general journal - nonrecurring, infrequent, and dissimilar transactions

• Ledger - a book of financial accounts

– general ledger - shows activity for each account listed on the chart of accounts

– subsidiary ledger - shows activity by detail for each account type

Computer Files

• Master File - generally contains account data (e.g., general ledger and subsidiary file)

• Transaction File - a temporary file containing transactions since the last update

• Reference File - contains relatively constant information used in processing (e.g., tax tables, customer addresses)
 • Archive File - contains past transactions for reference purposes

Cardinalities

• Represent the numerical mapping between entities:

– one-to-one

– one-to-many

– many-to-many

Legal Definition of Fraud

• False representation - false statement or disclosure

• Material fact - a fact must be substantial in inducing someone to act

• Intent to deceive must exist

• The misrepresentation must have resulted in justifiable reliance upon information, which caused someone to act

• The misrepresentation must have caused injury or loss

Two Types of IT Controls

• General controls—pertain to the entity wide computer environment

– Examples: controls over the data center, organization databases, systems development, and program
maintenance

• Application controls—ensure the integrity of specific systems

– Examples: controls over sales order processing, accounts payable, and payroll applications

PC Control Issues

 Segregation of Duties - tend to be inadequate and should be compensated for with increased
supervision, detailed management reports, and frequent independent verification
 Access Control - access controls to the data stored on the computer tends to be weak; methods such
as encryption and disk locking devices should be used
 Accounting Records - computer disk failures cause data losses; external backup methods need to be
implemented to allow data recovery

Computer-Based Accounting Systems

CBAS technology can be viewed as a continuum with two extremes:

 automation - use technology to improve efficiency and effectiveness

 reengineering – use technology to restructure business processes and firm organization

Segregation of Duties

 The time-keeping function and the personnel function should be separated

 The personnel function pro- vides payroll with pay rate information for authorized hourly employees.

Key Features of Reengineered HRM

 Personnel - can make changes to the employee file in real time

 Cost Accounting - enters job cost data either daily or in real time
 Timekeeping - enters the attendance file daily
 Data Processing - still uses batch processing and prepares all reports, the checks, and updates the general
ledger

The Conversion Cycle

 The inventory control function consists of three main activities

 First, it provides production planning and control with status reports on finished goods and raw materials
inventory.
 Second, the inventory control function is continually involved in updating the raw material inventory
records from materials requisitions, excess materials requisitions, and materials return tickets.
 Finally, upon receipt of the work order from the last work center, inventory control records the completed
production by updating the finished goods inventory records

Internal Controls

Transaction authorizations

 work orders – reflect a legitimate need based on sales forecast and the finished goods on hand
 move tickets – signatures from each work station authorize the movement of the batch through the
work centers
 materials requisitions – authorize the warehouse to release materials to the work centers

GL/FRS Control Issues

Independent verification

 G/L dept. reconciles journal vouchers and summaries.

Two important operational reports used:

 journal voucher listing – details of each journal voucher posted to the G/L
 general ledger change report – the effects of journal voucher postings on G/L accounts

Implications for Accounting

Audit implication for XBRL

 taxonomy creation: incorrect taxonomy results in invalid mapping that may cause material misrepresentation of
financial data

 validation of instance documents: ensure that appropriate taxonomy and tags have been applied

 audit scope and timeframe: impact on auditor responsibility as a consequence of real-time distribution of
financial statements

Management Principles

Responsibility and authority:

 responsibility - obligation to achieve desired results

 authority - power to make decisions within the limits of that responsibility

 delegated by managers to subordinates

 define the vertical reporting channels through which information flows

Responsibility Centers

 Cost center – responsible for keeping costs within budgetary limits

 Profit center – responsible for both cost control and revenue generation

 Investment center – has general authority to make a wide range of decisions affecting costs, revenue, and investments
in assets

Range of Database Applications

 PC databases

– Usually for individual

  Workgroup databases

– Small group use where everyone has access to the database over a LAN

 Departmental databases

– Larger than a workgroup – but similar

 Enterprises databases

– For the entire organization over an intranet (or sometimes the internet)

Terms and Concepts

 Enterprise

– Organization

 Entity

– Person, Place, Thing, Event, Concept...

 Attributes

– Data elements (facts) about some entity

– Also sometimes called fields or items or domains

 Data values

– instances of a particular attribute for a particular entity

Terms and Concepts

• DA

– Data administrator - person responsible for the Data Administration function in an organization

– Sometimes may be the CIO -- Chief Information Officer

• DBA

– Database Administrator - person responsible for the Database Administration Function

• Data Administration

– Responsibility for the overall management of data resources within an organization

• Database Administration

– Responsibility for physical database design and technical issues in database management

• Data Steward

– Responsibility for some subset of the organization’s data, and all of the interactions (applications, user access,
etc.) for that data

Resources, Events, and Agents Model

 REA models consist of three entity types and the associations linking them.

 Resources

 Events

 Agents

ER Diagrams (ERD’s) versus

REA Diagrams (READ’s

 Classes of entities
  ERD’s – one class

 READ’s – three classes (resources, events, and agents)

 Arrangement of entities

 ERD’s – determined by cardinality and readability

 READ’s – organized into constellations by class

 Sequencing of events

 ERD’s – static

 READ’s – chronological sequence of business processes

 Naming conventions

 ERD’s – all nouns

 READ’s – nouns (R’s and A’s) and verbs (E’s)

OLAP

 Supports management-critical tasks through analytical investigation of complex data associations captured in data
warehouses:

 Consolidation is the aggregation or roll-up of data.

 Drill-down allows the user to see data in selectively increasing levels of detail.

 Slicing and Dicing enables the user to examine data from different viewpoints to uncover trends and patterns.

ERP System Configurations:

Client-Server Network Topology

Two-tier

 common server handles both application and database duties

 used especially in LANs

ERP System Configurations:

Client-Server Network Topology

Three-tier

 client links to the application server which then initiates a second connection to the database server

 used especially in WANs

ERP System Configurations:

Databases and Bolt-Ons

 Database Configuration

 selection of database tables in the thousands

 setting the switches in the system

 Bolt-on Software

 third-party vendors provide specialized functionality software

 Supply Chain Management (SCM) links vendors, carriers, logistics companies, and IS providers

Internet Protocols

 Transfer Control Protocol/Internet Protocol (TCP/IP) - controls how individual packets of data are formatted,
transmitted, and received
  Hypertext Transfer Protocol (HTTP) - controls web browsers

 File Transfer Protocol (FTP) - used to transfer files across the internet

 Simple Network Mail Protocol (SNMP) - e-mail

 Secure Sockets Layer (SSL) and Secure Electronic Transmission (SET) - encryption schemes

The Internet Business Model

 Information level

 using the Internet to display and make accessible information about the company, its products, services, and
business policies

 Transaction level

 using the Internet to accept orders from customers and/or to place them with their suppliers

 Distribution level

 using the Internet to sell and deliver digital products to customers

Implications for Accounting

 Confidentiality of data

 open system designs allow mission-critical information to be at the risk to intruders

 Authentication

 in e-commerce systems, determining the identity of the customer is not a simple task

 Nonrepudiation

 repudiation can lead to uncollected revenues or legal action

 use digital signatures and digital certificates

Implications for Accounting

 Data integrity

 determine whether data has been intercepted and altered

 Access controls

 prevent unauthorized access to data

 Changing legal environment

 provide client with estimate of legal exposure

Wide Area Network (WAN)

 A WAN is a network that is dispersed over a wider geographic area than a LAN. It typically requires the use of:

 gateways to connect different types of LANs

 bridges to connect same-type LANs

 WANs may use common carrier facilities, such as telephone lines, or they may use a Value Added Network (VAN).