OLIVAREZ COLLEGE

Dr. A Santos Avenue San Dionisio, Parañaque

City
COLLEGE OF ACCOUNTANCY

AUDITING IN CIS ENVIRONMENT

Professor: Ms. Mila Cruz

Submitted by: Bonayon, Hannah Grace
MODULE 5
DISCUSSION QUESTIONS (6 ITEMS)
1. Why is learning the manual process model important for accountancy students? (1
X 7.143% = 7.143%)
Learning the manual process model is important for accountancy students
nowadays due to the reason that there is merit in studying the manual process model
before mastering computer-based systems. By examining information flows, key tasks,
and the use of traditional accounting records in transaction processing, the students’
bookkeeping focus is transformed into a business processes perspective. The logic of a
business process is more easily understood when it is not shrouded by technology.
Finally, manual procedures facilitate understanding internal control activities including
segregation of functions, supervision, independent verification, audit trails, and access
controls

2. What are the 5 steps in the SDLC development? (5 X 7,143% = 35.715%)

The 5 steps in the SDLC development are the following: identify the problem,
understand what is to be done, consider alternative options, select the best solution
and, finally, implement the solution.

3. Why are accountants involved with SDLC? (1 X 7.143% - 7.143%)

Accountants are involved with SDLC for two reasons: 1) the creation of an
information system represents a significant financial transaction that consumes both
financial and human resources. Systems development is like any manufacturing process
that produces a complex product through a series of stages, and, 2) the quality of
information system rests directly on the SLDC activities that produce them. The
accountant’s responsibility is to ensure that the systems apply proper accounting
conventions and rules, and possess adequate controls.
 4. What are the two ways of acquiring information systems? (2 X 7.143% = 14.286%)
Organizations usually acquire information systems in two ways:
1) They develop customized systems in-house through formal systems development
activities, and
2) They purchase commercial systems from software vendors

5. What are the four controls needed in maintenance activities to minimize potential
exposure to systems corruption? (4 X 7.143% = 28.57%)
The four controls needed in maintenance activities to minimize potential exposure to
systems corruption are formal authorizations, technical specifications, testing, and
documentation updates.

6. What is the role of internal audit in systems development activities? (1 X 7.143% =

7.143%)
The internal auditor plays an important role in the control of systems development
activities, particularly in organizations whose users lack technical expertise. The internal
auditor can serve as liaison between users and the systems professionals to ensure an
effective transfer of knowledge. An internal audit group, astute in computer technology
and with a solid grasp of the business problems of users, is thus invaluable to the
organization during all phases of SLDC. The auditor should become involved at the
inception of the SLDC process to make conceptual suggestions regarding system
requirements and controls. Auditor involvement should continue throughout all phases of
the development process and into the maintenance phase
TOTAL GRADE 100%
 OLIVAREZ COLLEGE
Dr. A Santos Avenue San Dionisio, Parañaque
City
COLLEGE OF ACCOUNTANCY

AUDITING IN CIS ENVIRONMENT

Professor: Ms. Mila Cruz

Submitted by: Bonayon, Hannah Grace

MODULE 6
DISCUSSION QUESTIONS FOR SUBMISSION APRIL 5, 2021)
1. What are transaction cycles? Explain each.(4 X 4.762% = 19.05%)

Three transaction cycles process most of the firm’s economic activity: the expenditure
cycle, the conversion cycle, and the revenue cycle. These cycles exist in all types of
businesses – both profit-seeking and not-for-profit.
For instance, every business (1) incurs expenditures in exchange for resources
(expenditure cycle), (2) provides value-added through its products or services
(conversion cycle), and (3) receives revenue from outside sources (revenue cycle).

2. Explain the three types of documents used in transaction processing. (3 X 4.762% =

14.29%)
There are three types of documents: source documents, product documents and
turnaround documents.

Source documents.
Economic events give rise to some documents being created at the beginning
(the source) of the transaction. These are called source documents. Some documents
are used to capture and formalize transaction data needed for processing by the
transaction cycle.
Product documents.
Product documents are the result of transaction processing rather than the
triggering mechanism for the process. For example, a payroll check to an employee is a
product document of the payroll system. Customer’s bill is a product document of the
sales system.

Turnaround documents.
Turnaround documents are product documents of our system that become
source documents for another system. A customer, for example, received a perforated
two-part bill or statement. The top portion of the document is the actual bill, and the
bottom portion is the remittance advice. When customers make a payment, they
remove the remittance advice and return it to the company along with their check. A
turnaround document carries important information about a customer’s account to help
the cash receipts system process the check.

3. Differentiate between a general ledger and a subsidiary ledger. (2 X 4.762% = 9.52%)

There are two basic types of ledgers: the general ledger which contains the firm’s
account information in the form of highly summarized control accounts, while
subsidiary ledgers, which contain the details of the individual accounts that constitute a
particular control account.

4. Give examples of at least 5 accounts that need a subsidiary ledger (5 X

4.762% = 23.81%)
A subsidiary ledger can be set up for virtually any general ledger
account. However, they are usually only created for areas in which there are high
transaction volumes, which limits their use to a few areas. Examples of
subsidiary ledgers are:

 Accounts payable ledger

 Accounts receivable ledger

 Fixed assets ledger

 Inventory ledger

 Purchases ledger
 5. Explain the four different types of magnetic files representing the accounting
records in computer-based systems (4 X 4.762% = 19.05%)
Accounting records in computer-based systems are represented by four different
types of magnetic files: master files, transaction files, reference files, and
archive files.

Master file
A master file generally contains account data. The general ledger and subsidiary
ledgers are
examples of master files. Data values in master files are updated from
transactions.
Transaction file
A transaction file is a temporary file holding transaction records that will be used
to change or
update data in a master file. Sales orders, inventory receipts, and cash receipts are
examples of transaction files.
Reference file
A reference file stores data that are used as standards for processing transactions.
For example,
the payroll program may refer to a tax table to calculate the proper amount of
withholding taxes for payroll transactions. Other reference files include price lists
used for preparing customer invoices, lists of authorized suppliers, employee
rosters, and customer credit files for approving credit sales.
Archive file
The archive file contains records of past transactions that are retained for future
reference. These
transactions form an important part of the audit trail. Archive files include
journals, prior-period payroll information, lists of former employees, records of
accounts written off, and prior-period ledgers.

6. What is batch systems processing? What is real time processing? (2 X 4.762% =

9.52%)

Batch systems processing assemble transactions into groups for processing. In this
approach, there is always a time lag between the point at which an economic event
occurs and the point at which it is reflected in the firm’s accounts. The amount of lag
depends on the frequency of batch processing. Time lag can range from minutes to
weeks. Payroll processing is an example of a typical batch system. The economic events-
the application of employee labor-occur continuously throughout the pay period. At the
end of the period, the paychecks (or the ATM deposits) for all employees are prepared
together as a batch.
 Real-time systems process the entire transaction when it occurs. A sales order
processed by the system can be captured, filled, and shipped the same day. Such a
system has many potential benefits, including improved productivity, reduced
inventory, increased inventory turnover, decreased lags in customer billing, and
enhanced customer satisfaction. Since transaction information is transmitted
electronically, physical source documents can be eliminated or greatly reduced.
Real-time processing employs exclusive use of direct access files and involves some level
of network technology. Terminals at distributed sites throughout the organization are
used for receiving, processing, and sending information about current transactions.
They are linked together in a network arrangement so uses can communicate.

7. Explain the meaning of “re-engineering financial reporting”. (1 X 4.762% = 4.76%)

Re-engineering, on the other hand, involves radically rethinking the business
process and the flow of work. The objective of re-engineering is to greatly reduce the
cost of business by identifying and eliminating non-value-added task. This involves
replacing traditional procedures with procedures that are innovative and sometimes
very different from those that previously existed.
A re-engineered GL/FRS enables users to update the general ledger after each batch of
transactions is processes. This also integrates the GL/FRS with MRS.

TOTAL GRADE 100%

 OLIVAREZ COLLEGE
Dr. A Santos Avenue San Dionisio,
Parañaque City
COLLEGE OF ACCOUNTANCY
AUDITING IN CIS ENVIRONMENT
Professor: Ms. Mila Cruz
Submitted by: Bonayon, Hannah Grace

MODULE 7
DISCUSSION QUESTIONS
1. Explain the three types of application controls. (3 X 9.09% = 27.27%)
Application controls which may be manual actions or procedures programmed into an
application, fall into three broad categories: input controls, processing controls, and
output controls.
Input Controls
The data collection department of the information system is responsible for bringing data
into the system for processing. Input controls at this stage attempt to ensure that these
transactions are valid, accurate, and complete. Data input procedures can be either source
document-triggered (batch) or direct input (real-time).
Processing Controls
After passing through the data input stage, transactions enter the processing stage of the
system. Processing controls are divided into three categories: run-to-run controls,
operator intervention controls, and audit trail controls.
Output Controls
Output controls ensure that system output is not lost, misdirected, or corrupted and that
privacy is not validated. Exposures of this sort can cause serious disruptions to operations
and may result in financial losses to the firm. For example, if the checks produced by a
firm’s cash disbursements system are lost, misdirected, or destroyed, trade accounts and
other bills may go unpaid. This could damage the firm’s credit rating and result in lost
discounts, interest and penalty charges. IF the privacy of certain types of outputs is
violated, a firm could have its business objectives compromised, or it could even become
legally exposed. Examples of privacy exposure include the disclosure of trade secrets,
patents pending, marketing research results, and patient medical records.
2. What is output spooling? (1 x 9.09% = 9.09%
Output spooling. In large scale data processing operations, output devices such as line
printers can become backlogged with many programs simultaneously demanding these
limited resources.. This can cause a bottleneck, which adversely affects the throughput of
the system. Applications waiting to print output occupy computer memory and block
other applications from entering the process system. To ease the burden, applications are
often designed to direct their output to a magnetic disk file rather than to the printer
directly. This is called spooling. Later, when printer resources become available, the
output files are printed.

3. What is an audit trail? (1 X 9.09% = 9.09%)

An audit trail of transactions is created from input through processing to the output stage
of the system. The preservation of an audit trail is an important objective of process
control. In an accounting system, every transaction must be traceable through each stage
of processing from its economic resource to its presentation in financial statements. In a
CBIS environment, the audit trail can become fragmented and difficult to follow. It thus
becomes critical that each major operation applied to a transaction be thoroughly
documented. The following are examples of techniques used to preserve audit trail in a
CBIS.

4. As an auditor for a merchandising company that grants credit to regular customers,

what three records would you, at least, check to ascertain the correctness of a
customer’s account? (3X 9.09% = 27,27%)
1. Sales records
• A journal of non-cash transactions affecting accounts payable
• A journal on cash transactions, including any check transactions
• Sales slips, invoices, receipts, cash register receipts and other comparable
documents for original sales
• Memorandum accounts, lists and other documents concerned inventories, fixed
assets and prepaid items
• Ledger to which these journals and other records have been posted
2. Purchase records
• Documentation of purchases subject to state and local taxes
• Documentation of purchases for resale, such as inventory and raw materials
• List of purchases exempt from state and local taxes
• Documents substantiating expenses and cost of goods sold
• Records reflecting the business purposes of purchases
• Proof that sales and use taxes have been paid
3. POS records
• Individual items sold or purchased
• Date of sales or purchase
• Sales or purchase prices
 • Sales tax due
• Vendor names
• Invoice numbers and amounts
• POS identification numbers or purchase orders
• Methods of payment

5. What are the three levels of input validation controls? Distinguish one from the
other. (3 X 9.09% = 27.28%)
There are three levels of input validation controls:
1. Field interrogation
2. Record interrogation
3. File interrogation
TOTAL GRADE 100%
 OLIVAREZ COLLEGE
Dr. A Santos Avenue San Dionisio,
Parañaque City
COLLEGE OF ACCOUNTANCY
AUDITING IN CIS ENVIRONMENT
Professor: Ms. Mila Cruz
Submitted by: Bonayon, Hannah Grace

MODULE 8
DISCUSSION QUESTIONS (4 items)
1. What are the three primary phases in designing a relational database system?
Explain each.(3x11.11% = 33.33%)
There are three primary phases in designing a relational database: conceptual database design,
logical database design, and physical database design.

Conceptual database design

Involves discovering and analyzing the organizational data needs. Through discussions with
users and analysis of business rules, the database designer identifies the key entities in the
system and the data pertaining to them that are important and which need to be captured and
maintained. These findings are formally represented by a data model. The primary tool used in
data modeling is the entity relationship (ER) diagram.
Logical database design
The first step in the process is to create an “unnormalized” table for each of the five candidate
views and assign each table a primary key. Although several base tables may be required to
support a single view, for the moment, each candidate view will be represented as a single
“unnormalized” table.
Physical database design
The Inventory, Supplier, and Part-Supplier tables created thus far are theoretical data (on paper)
not physical. The next step is to create the physical tables and populate them with data. This is
an involved step that must be carefully planned and executed, and may take many months in a
large installation. Once this is done, the physical user views can be produced.
 2. In auditing complex structures with a flat file conversion, why is the auditor advised
to get data directly from the database, and not from the flat file? (1 x11.11% = 11.11
(11.12 to complete the rounding

The auditor advised to get data directly from the database, and not from the flat file
because the database approach is not represented by a single architecture. Early database
models are as different from modern database models as they were from traditional flat file
models. The way the data are organized in these early database systems forces users to navigate
between data elements using predefined structured paths. The relationship model is far more
flexible by allowing users to create new and unique paths through the database to solve a wider
range of business problems.
Although their limitations are severe and their demise is inevitable, hierarchical and network
models still exist as legacy systems that support mission-critical functions in some companies.
Most modern systems, however, employ relational databases.

3. Explain the three fundamental associations of database tables in relation to other tables.
Give an example for each.
3 x 11.11% = 33.33%)
There are three fundamental associations: one-to one, one-to-many, and many-to-many.

One-to-one association
This means that for every one occurrence in Table X, there is a zero or one occurrence in Table Y. In
business terms, for every employee records in the employee file, there is a single (or zero for new
employees) record in the year-to date earnings file. For Example:
One-to-many association
For every record occurrence in Table X, there is a zero, one, or many occurrences in Table Y. To
illustrate, for every customer record in the customer table (Table X), there is zero, one, or many sales
order records in the Sales Order Table (Table Y). For Example:
Many-to-many association
This is a two-way relationship. For each record occurrence in Tables X and Y, respectively, an M:M
association often exists between a firm’s inventory records (Table X) and its vendor records (Table Y). At
the same time, a single vendor supplies one or more items of inventory. For Example:

4. What is data normalization? Why should tables be normalized? 2 x 11.11% = 22.22%)

Data normalization is a process that promotes effective database design by grouping data attributes
into a table that comply to specific conditions. There are possible levels of normalization. Usually,
designers of databases normalize tables to the 3NF (3rd normal form level) to avoid serious anomalies
associated with unnormalized data, normalization procedures need to be performed. Tables that have
not been normalized are associated with three types of problems called anomalies: the update anomaly,
the insertion anomaly, and the deletion anomaly. One of these anomalies will exist in tables that are
normalized at lower levels such as fist normal form (1NF) and second normal form (2NF), but tables in
3NF are free of anomalies.

TOTAL GRADE 100%