Fraud: any and all means a person uses to gain an unfair advantage over another person.

Requires a misrepresentation of a material fact, with an intent to deceive. There must be justifiable reliance by the victim party who
suffered an injury or loss.
4 types of AIS Threats:
 Natural and Political Disaster
 Software error and equipment malfunction
 Unintentional Acts -logic errors, negligence (Greatest risk to information systems and causes greatest loss of dollars
 Intentional Acts/Computer Crimes
Sabotage = An intentional act where the intent is to destroy a system or some of its components
Cookie – a text file created by a website and stored on a visitor’s hard drive. Cookies store information about who the user is and what the user has
done on the site.
Most fraud perpetrators are knowledgeable insiders with the requisite access, skills, and resources.
White-Collar Criminals = Typically, businesspeople who commit fraud. White-collar criminals usually resort to trickery or cunning, and their crimes
usually involve a violation of trust or confidence.
Corruption = Dishonest conduct by those in power which often involves actions that are illegitimate, immoral, or incompatible with ethical
standards. Examples include bribery and bid rigging.
Investment Fraud = misrepresenting or leaving out facts in order to promote an investment that promises fantastic profits with little or no risk.
Examples include Ponzi schemes and securities fraud
Misappropriation of Assets = Theft of company assets by employees
Fraudulent Financial Reporting = Intentional or reckless conduct, whether by act or omission, that results in materially misleading financial
statements.
Reduce By:
1. Establish an organizational environment that contributes to the integrity of the financial reporting process
2. Identify and understand the factors that lead to fraudulent reporting
3. Assess the risk of fraudulent financial reporting within the company
4. Design and implement internal controls to provide reasonable assurance of preventing fraudulent financial reporting.

Auditors responsibility to Detect Fraud

 Understand fraud: how and why it is committed
 Discuss the risks of material fraudulent misstatements: Audit team discusses how and where company financial statements are
susceptible to fraud
 Obtain information: look for fraud risk factors, test company records, ask management/board of directors about past or current
suspected fraud
 Identify, assess, and respond to risk – vary nature time and extent of audit
 Evaluate the results of their audit test
 Document and communicate findings: to company audit committee
 Incorporate a technology focus
Fraud Triangle:
Pressure = A person’s incentive or motivation for committing fraud. Personal pressures include financial, Emotional, Lifestyle pressures.
Organizational pressures include management characteristics, financial, and industry conditions.
Opportunity = The condition or situation that allows a person or organization to commit and conceal a dishonest act and convert it to personal
gain. (convert, conceal, commit) the most prevalent opportunity for fraud results from a company’s failure to design and enforce its internal control
system.
Rationalization = the excuse that fraud perpetrators use to justify their illegal behavior (Justification, attitude, lack of personal integrity)
Lapping = Concealing the theft of cash by means of a series of delays in posting collections to accounts receivable. (Steal funds from A, use B to pay
for A, C to pay for B etc.)
Check Kiting = Creating cash using the lag between the time a check is deposited and the time it clears the bank
Computer Fraud = Any type of fraud that requires computer technology to perpetrate
Reasons for Rise in Computer Fraud
 Not everyone agrees to what constitutes computer fraud
 Many instances of computer fraud go undetected:
 A high percentage of fraud is not reported
 Many networks are not secure
 Internet sites offer step-by-step instructions on how to perpetrate computer fraud and abuse
 Law enforcement cannot keep up with the growth of computer fraud
 Calculating loss is difficult when information is stolen, websites defaced, and viruses shut down entire computer systems.
Computer Fraud Classifications
 Input Fraud = altering or falsifying computer inputs. Requires little skill
 Processor Fraud = unauthorized system use; theft of computer time and services
  Computer Instructions Fraud = tampering with company software, copying software illegally, using software in an unauthorized manner,
developing software to carry out unauthorized activity
 Data Fraud = illegally using, copying, browsing, searching or harming company data
 Output Fraud = displayed or printed outputs stolen, copied or misused

3 Instances of ERP: production – handles daily activities; second for testing and development; third stored online as a backup to provide real-time
recovery if one of other two becomes corrupted

The Revenue Cycle

Revenue Cycle: the recurring set of business activities and data processing operations associated with providing goods and services to customers
and collecting cash in payment for those sales. Primary objective to provide the right product in the right place at the right time for the right price.
Primary external exchange is with customers
Four basic revenue Cycle Activities: Sales order entry, Shipping, Billing, Cash Collection
Activity Threat Control
General Issues throughout 1. Inaccurate or invalid master 1.1 Data processing integrity controls
revenue cycle data 1.2 Restriction of access to master file
2. Unauthorized disclosure of 1.3 Review of all changes to master data
sensitive information 2.1 Access Control
3. Loss or destruction of data 2.2 Encryption
4. Poor performance 2.3 Tokenization of customer personal information
3.1 Backup and disaster recovery procedures
4.1 Managerial Reports
Sales Order Entry 5. Incomplete/inaccurate 5.1 Data entry edit controls
 Take customer order orders 5.2 Restriction of access to master data
 Credit Approval 6. Invalid Order 6.1 Digital Signature or written signature
 Check inventory availability 7. Uncollectible accounts 7.1 Credit Limits
 Respond to customer inquiry 8. Stockout or excess inventory 7.2 Specific authorization to approve sales to new customers or
9. Loss of Customer sales that exceed customer’s credit limits
7.3 aging accounts receivable
8.1 Perpetual inventory control system
8.2 Use of bar codes or RFID
8.3 Training
8.4 Periodic physical counts of inventory
8.5 Sales Forecasts and activity reports
9.1 CRM systems, self-help websites, and proper evaluation of
customer service ratings
Shipping 10. Picking the wrong items or 10.1 Bar-code and RFID technology
 Pick and pack order the wrong quantity 10.2 Reconciliation of picking lists to sales order details
 Ship order 11. Theft of inventory 11.1 Restriction of physical access to inventory
12. Shipping Error 11.2 Documentation of all inventory transfers
11.3 RFID and bar-code technology
11.4 Periodic physical counts of inventory and reconciliation to
recorded quantities
12.1 Reconciliation of shipping documents with sales orders,
picking lists, and packing slips
12.2 Use RFID system to identify delay
12.3 data entry via bar-code scanners and RFID
12.4 Data entry edit controls
12.5 Configuration of ERP System to prevent duplicate
shipments
Billing 13. Failure to bill 13.1 Separation of billing and shipping functions
 Invoicing 14. Billing Error 13.2 Periodic reconciliation of invoices with sales orders, picking
 Updating Receivables 15. Posting errors in accounts tickets, and shipping documents
receivable 14.1 Configuration of system to automatically enter pricing data
16. Inaccurate or invalid credit 14.2 Restriction of access to pricing master data
memos 14.3 Data entry edit controls
14.4 Reconciliation of shipping documents to sales orders
15.1 Data entry control
15.2 Reconciliation of batch totals
15.3 Mailing of monthly statements to customers
15.4 Reconciliation of subsidiary accounts to general ledger
16.1 Segregation of duties of credit memo authorization
from both sales order entry and customer account
maintenance
 16.2 Configuration of system to block credit memos unless
there is either corresponding documentation of return
of damaged goods or specific authorization by
management
Cash Collection 17. Theft of Cash 17.1 Segregation of duties – the person who handles payments
18. Cash Flow Problems from customers should not also post remittances to
customer accounts, create or authorize credit memos or
reconcile the bank account
17.2 Use of EFT, FEDI, and lockboxes to minimize handling of
customer payment by employees
17.3 Obtain and use a UPIC to receive EFT and FEDI payments
from customers
17.4 Immediately upon opening mail. Create list of all customer
payments received
17.5 Prompt, restrictive endorsements of all customer checks
17.6 Having two people open all mail likely to contain customer
payments
17.7 Use of cash registers
17.8 Daily deposit of all cash receipts
18.1 Lockbox arrangements, EFT, or credit cards
18.2 Discounts for prompt payment by customers
18.3 Cash flow budgets

Sales Order: The document created during sales order entry listing the item numbers, quantity, prices, and terms of sale
Electronic data interchange (EDI) = The use of computerized communications and a standard coding scheme to submit business documents
electronically in a format that can be automatically processed by the recipient’s information system.
Credit limit = the maximum allowable credit account balance for each customer, based on past credit history and ability to pay
Accounts receivable aging report = a report listing customers account balances by length of time outstanding
Back order = A document authorizing the purchase or production of items that is created when there is insufficient inventory to meet customer
orders
Picking ticket = A document that lists the items and quantities ordered and authorizes the inventory control function to release that merchandise
to the shipping department
Customer relationship management system (CRM) = Software that organizes information about customers in a manner that facilitates efficient
and personalized service.
Packing slip – A document listing the quantity and description of each item included in a shipment
Bill of lading = A legal contract that defines responsibility for goods while they are in transit
Sale invoice = A document notifying customers of the amount of a sale and where to send payment
Open-invoice method = Method for maintaining accounts receivable in which customers typically pay according to each invoice
Remittance advice = A copy of the sales invoice returned with a customer’s payment that indicates the invoices, statements, or other item being
paid
Balance-forward method = Method of maintaining accounts receivable in which customers typically pay according to the amount shown on a
monthly statement, rather than by individual invoices. Remittances are applied against the total account balance, rather than specific invoices
Monthly statement = A document listing all transactions that occurred during the past month and informing customers of their current account
balance
Cycle billing = producing monthly statements for subsets of customers at different times
Credit memo = a document, approved by the credit manager, authorizing the billing department to credit a customer’s account
Remittance list = A document listing the names and amounts of all customer payments received in the mail
Lockbox = a postal address to which customers send their remittances
Electronic lockbox = a lockbox arrangement in which the bank electronically sends the company information about the customer account number
and the amount remitted as soon as it receives payment.
Electronic funds transfer (ETF) = the transfer of funds through use of online banking software
Financial electronic data interchange (FEDI) = The combination of EFT and EDI that enables both remittance data and fund transfer instructions to
be included in one electronic package
Universal Payment Identification Code (UPIC) = A number that enables customers to remit payment via ACH credit without requiring the seller to
divulge detail information about its bank
Cash Flow Budget = A budget that shows projected cash inflows and outflows for a specified period
Following Duties Should be Segregated
 Handling cash or checks and posting remittances to customer accounts
 Handling cash or checks and authorizing credit memos
 Handling cash or checks and reconciling bank Statements

Expenditure Cycle
Expenditure cycle = A recurring set of business activities and related data processing operations associated with the purchase of and payment for
goods and services. Primary external exchange with suppliers/vendors. Tends to mirror revenue cycle. All expenditure cycle activities depend on
the integrated database that contains information about suppliers, inventory and purchasing activities
Activity
General issues throughout
entire expenditure cycle
Ordering materials supplies
and services
 Identifying what, when,
and how much to
purchase
 Choosing from which
supplier to purchase
o Consider price,
quality, dependability
Receiving Material supplies
and services
 Receiving goods
 Transferring goods
to inventory stores
or departments
Approving supplier Invoices
Threat
1. Inaccurate or invalid master data
2. Unauthorized disclosure of sensitive 1.2 Restriction of access to master data
information
3. Loss or destruction of data
4. Poor Performance
5. Stockouts and Excess Inventory
6. Purchasing items not needed
7. Purchasing at inflated prices
8. Purchasing goods of inferior quality
9. Unreliable suppliers
10. Purchasing from unauthorized
suppliers
11. Kickbacks
12. Accepting unordered items
13. Mistakes in counting
14. Not verifying receipt of services
15. Theft of inventory
16. Errors in supplier invoices
17. Mistakes in posting to accounts
payable
Control
1.1 Data processing integrity controls
1.3 Review of all changes to master data
2.1 Access controls – limit who can view
2.2 Encryption of sensitive data
3.1 Backup and disaster recovery procedures
4.1 Managerial Reports
5.1 Perpetual inventory system
5.2 Bar coding or RFID tags
5.3 Periodic physical counts of inventory
6.1 Perpetual inventory system
6.2 Review and approval of purchasing requisitions
6.3 Centralized purchasing function
7.1 Price lists
7.2 Competitive bidding
7.3 Review of purchasing orders
7.4 Budgets
8.1 Purchasing only from approved suppliers
8.2 Review and approval of purchases from new suppliers
8.3 Tracking and monitoring product quality by supplier
8.4 Holding purchasing managers responsible for rework and
scrap costs
9.1 Requiring suppliers to possess quality certification
9.2 Collecting and monitoring supplier delivery performance
data
10.1 Maintaining a list of approved suppliers and configuring the
system to permit purchase orders only to approved
suppliers
10.2 Review and approval of purchases from new suppliers
10.3 EDI-specific controls (access, review of orders, encryption,
policy)
11.1 Prohibit acceptance of gifts from suppliers
11.2 Job rotation and mandatory vacation
11.3 Requiring purchasing agents to disclose financial and
personal interests in suppliers
11.4 Supplier audits
12.1 Requiring existence of approved purchase order prior to
accepting any delivery
13.1 Do not inform receiving employees about quantity ordered
13.2 Require receiving employees to sign receiving report
13.3 Incentives
13.4 Use bar codes and RFID tags
13.5 Configuration of ERP system to flag discrepancies between
received and ordered quantities that exceed tolerance
threshold for investigation
14.1 Budgetary controls
14.2 Audits
15.1 Restriction of physical access to inventory
15.2 Documentation of all transfers of inventory between
receiving and inventory employees
15.3 Periodic physical counts of inventory and reconciliation to
record quantities
15.4 Segregation of duties: custody of inventory versus
receiving
16.1 Verification of invoice accuracy
16.2 Requiring detailed receipts for procurement card
purchases
16.3 ERS
16.4 Restriction of access to supplier master data

Cash disbursement
16.5 Verification of freight bill and use of approved delivery
channels
17.1 Data entry edit controls
17.2 Reconciliation of detailed accounts payable records with
the general ledger control account
18. Failure to take advantage of 18.1 Filing of invoices by due date for discount
discounts for prompt payments 18.2 Cash flow budgets
19. Paying for items not received 19.1 Requiring that all supplier invoices be matched to
20. Duplicate payments supporting documents that are acknowledged by both
21. Theft of cash receiving and inventory control
22. Check alteration 19.2 Budgets (for service)
23. Cash flow problems 19.3 Requiring receipts for travel expenses
19.4 Use of corporate credit cards for travel expenses
20.1 Requiring a complete voucher package for all payments
20.2 Policy to pay only from original copies of suppler invoices
20.3 Canceling all supporting documents when payment is
made
21.1 Physical security of blank checks and check-signing
machine
21.2 Periodic accounting of all sequentially numbered checks by
cashier
21.3 Access controls to EFT terminals
21.4 Use of dedicated computer and browser for online banking
21.5 ACH block on accounts not used for payments
21.6 Separation of check-writing function from accounts
payable
21.7 Requiring dual signatures on checks greater than a
specified amount
21.8 Regular reconciliation of bank account with recorded
amounts by someone independent of cash disbursement
procedures
21.9 Restriction of access to supplier master file
21.10 Limiting the number of employees with ability to
create one-time suppliers and to process invoices from
one-time suppliers
21.11 Running petty cash as an imprest fund
21.12 Surprise audits of petty cash fund
22.1 Check-protection machines
22.2 Use of special inks and papers
22.3 “positive Pay” arrangements with banks
23.1 Cash Flow Budget

Economic order quantity (EOQ) = The optimal ordering size to minimize the sum of ordering, carrying, and stockout costs
 Ordering Costs = all expenses associated with processing purchase transactions
 Carrying Costs = those associated with holding inventory
 Stockout Costs = those resulting from inventory shortages, such as lost sales or production delays
Recorder point = Specifies the level to which the inventory balance must fall before an order to replenish stock is initiated
Material requirements planning (MRP) = An approach to inventory management that seeks to reduce required inventory levels by improving the
accuracy of forecasting techniques to better schedule purchases to satisfy production needs
Just-In-Time (JIT) inventory System = A system that minimizes or virtually eliminates inventories by purchasing and producing goods only in
response to actual, rather than forecasted, sales
Purchase requisition = A document or electronic form that identifies the requistioner; specifies the delivery location and date needed; identifies
the item numbers, descriptions, quantity, and price of each item requested; and may suggest a supplier
Purchase order = A document that formally requests a supplier to sell and deliver specified products at designated prices. It is also a promise to pay
ad becomes a contract once the supplier accepts it
Blanket purchase order (Blanket Order) = A commitment to purchase specified items at designated prices from a particular supplier for a set time
period, often one year
AS2 Protocol – makes it possible for sender to encode and receiver to correctly decode purchase orders and other documents sent over the internet
Vendor-Managed Inventory (VMI) = Practice in which manufacturers and distributors manage a retail customer’s inventory using EDI. The supplier
accesses its customer’s point-of-sale system in order to monitor inventory and automatically replenish products when they fall to agreed-upon
levels.
Kickbacks = gifts given by suppliers to purchasing agents for the purpose of influencing their choice of suppliers
Receiving report = A document that records details about each delivery, including the date received, shipper, supplier, and quantity received
Debit memo = A document used to record a reduction to the balance due to a supplier
Voucher package = The set of documents used to authorize payment to a supplier. Consists of a purchasing order, receiving report, and supplier
invoice
Nonvoucher system = A method for processing accounts payable in which each approved invoice is posted to individual supplier records in the
accounts payable file and is then stored in an open invoice file. (Contrast with voucher system)
Voucher system = A method for processing accounts payable in which a disbursement voucher is prepared instead of posting invoices directly to
supplier records in accounts payable subsidiary ledger. The disbursement voucher identifies the supplier, lists the outstanding invoices, and
indicates the net amount to be paid after deducting any applicable discounts and allowances. (Contrasts with nonvoucher system)
Reduces number of checks that need to be written, prenumbered to simplify tracking, facilitates separating the time of invoice approval
from the time of invoice payment, making it easier to schedule both activities to maximize efficiency.
Disbursement voucher = A document that identifies the supplier, lists the outstanding invoices, and indicates the net amount to be paid after
deducting any applicable discounts and allowances.
Evaluation receipt settlement (ERS) = An invoice-less approach to accounts payable that replaces the three-way matching process (Supplier
Invoice, Receiving Report, Purchase Order) with a two-way match of the purchase order and receiving report
Procurement card = A corporate credit card that employees can use only at designated suppliers to purchase specific kinds of items
Imprest fund = A cash account with two characteristics: it is set at a fixed amount (such as $100) and vouchers are required for every disbursement.
At all times, the sum of cash plus vouchers should equal the preset fund balance.

General Ledger and Reporting System

Journal Voucher File = A file that stores all journal entries used to update the general ledger
Trial Balance = A report listing the balances of all general ledger accounts
Audit Trail = A path that allows a transaction to be traced through a data processing system from point of origin to output or backwards from
output to point of origin
XBRL = eXtensible Business Reporting Language is a variant of XML specifically designed for use in communicating the content of financial data
Instance Document = An XBRL file that contains tagged data (facts about specific financial statement line items, values and contextual information
such as measurement unit (dollar, euros, yen) and whether the value is for a specific point in time, or a period of time)
Element = A specific data item in an XBRL instance document, such as a financial statement line item
Taxonomy = A set of XBRL files that define elements and the relationship among them
Schema = An XBRL file that defines every element that appears in a specific instance document
Linkbase = One or more XBRL files that define the relationships among elements found in specific instance documents
 Reference linkbase = identifies relevant authoritative pronouncements for that element (GAAP IFRS)
 Calculation linkbase = specifies how to combine elements
 Definition linkbase – indicates hierarchical relationships among elements
 Presentation linkbase = describes how to group elements
 Label linkbase = associates human readable labels with elements
Style Sheet = An XBRL file that provides instructions on how to display/render an instance document on either a computer screen or printed report
Extension Taxonomy = A set of custom XBRL tags to define elements unique to the reporting organization that are not part of the standard
generally accepted taxonomies for that industry
Responsibility Accounting = A system of reporting financial results on the basis of managerial responsibilities within an organization
Flexible Budget = A budget in which the amounts are stated in terms of formulas based upon actual level of activity
Balance Scorecard = A management report that measures four dimensions of performance: Financial, internal operations, innovation and learning,
and customer perspective of the organization
Activity Threat Control
General issues throughout entire 1. Inaccurate or invalid general 1.1 data processing integrity controls
general ledger and reporting cycle ledger data 1.2 Restriction of access to general ledger
2. Unauthorized disclosure of 1.3 Review of all changes to general ledger data
financial statement 2.1 Access controls – limit functions that can be performed by
3. Loss or destruction of data each manager, and at each terminal to what is needed to
do that individuals job.
2.2 Encryption
3.1 Backup and disaster recovery procedures
Update General Ledger 4. Inaccurate updating of 4.1 data entry processing integrity controls
 Consists of postings journal entries general ledger 4.1.1 validity check – ensure account exists for each
that originate from accounting 5. Unauthorized journal entries account number
subsystems (summary Entries) or 4.1.2 field check = amount field contains only numeric data
the treasurer(direct entries) 4.1.3 zero balance check = verify debits equal credits
4.1.4 closed-loop verification = matches account number
with account description
4.1.5 Completeness check – ensures all pertinent data are
entered, especially source of entry
 4.1.6 Sign check – verify balance of the account once
updated is of the appropriate nature (debit vs credit)
4.1.7 Run-to-run totals – verify accuracy of journal voucher
batch processing
4.2 reconciliation and control reports – trial balance
4.3 audit trail creation and review
5.1 Access Controls
5.2 Reconciliation and control reports
5.3 Audit trail creation and review
Post adjusting entries 6. Inaccurate adjusting entries 6.1 Data entry processing integrity control
Originate in controller’s office after 7. Unauthorized adjusting 6.2 spreadsheet error protection controls
initial trial balance has been prepared. entries 6.3 standard adjusting entries
5 basic categories 6.4 reconciliations and control reports
 Accruals = entries made at end of 7.1 Access controls
accounting period to reflect events 7.2 Reconciliations and control reports
that have occurred but for which 7.3 Audit trail creation and review
cash has not yet been received or
disbursed
 Deferrals = entries made at the
end of the accounting period to
reflect the exchange of cash prior
to performance of the related
event
 Estimates = entries that reflect a
portion of expenses expected to
occur over a number of accounting
periods
 Revaluations = entries made to
reflect either differences between
actual and recorded value of an
assets, or a change in accounting
principles
 Corrections = entries made to
counteract the effects of errors
found in the general ledger
Prepare financial statements 8. Inaccurate financial 8.1 Processing integrity controls
statements 8.2 Use of packaged software
9. Fraudulent financial 8.3 Training and experience in applying IFRS and XBRL
reporting 8.4 Audits
9.1 Audits
Produce Managerial Reports 10. Poorly designed reports and 10.1 responsibility accounting
graphs 10.2 Balanced Scorecard
10.3 Training on proper graph design

Data Design Process

 (1)System analysis, (2) conceptual design, (3) physical design, (4) Implementation and conversion, and (5) Operation and Maintenance
Data Modeling = defining a database so that it faithfully represents all key components of an organization’s environment. The objective is to
explicitly capture and store data about every business activity the organization wishes to plan, control, or evaluate
Entity-relationship diagram = a graphical depiction of a database’s contents showing the various entities being modeled and the important
relationships among them
Entity = anything about which an organization wants to collect and store information
REA (resource, events, and agents) data model = A data model used to design AIS databases. It contains three fundamental types of entities:
resources, events, and agents
Resources = Those things that have economic value to an organization such as cash, inventory, supplies, factories, and land
Events = Business activities about which management wants to collect information for planning or control purposes
Agents = The people and organizations who participate in events and about whom information is desired
Structuring Relationships: Basic REA Template Rules
1. Every event must be linked to at least one resource entity
2. Every event must be linked to at least one other event entity
3. Every event entity must be linked to at least two participating agents
Developing an REA Diagram
1. Identify the events about which management wants to collect information
2. Identify the resources affected by each event and the agents who participate in those events
 3. Determine the cardinalities of each relationship
Cardinalities = Describe the nature of a database relationship indicating the number of occurrences of one entity that may be associated with a
single occurrence of the other entity. Three types of cardinalities are one-to-one, one-to-many, and many-to-many
Minimum cardinality = the minimum number of instances that an entity can be linked to the other entity in a relationship. (0 or 1)
Maximum cardinality = the maximum number of instances that an entity can be linked to the other entity in the relationship (1 or many)
One-to-one relationship = a relationship between two entities where the maximum cardinality for each entity is 1
One-to-Many relationship (1:N) = a relationship between two entities where the maximum cardinality for one of the entities is 1 but the other
entity has a maximum cardinality of many
Many-to-many relationship (M:N) = a relationship between two entities where the maximum cardinality of both entities is many
Integrating REA Diagram Across Cycles
1. Merge Redundant Resource Entities – place entities used by multiple cycles between cycles
a. Does not change minimum cardinality of the resource entities
2. Merge Redundant event Entities
a. When merging across cycles, minimum cardinality becomes 0, as the event can be in either cycle but not both at same time.
Same occurs between shared cycle event entities, and connecting agents
3. Validating the accuracy of integrated REA Diagrams (6 rules for a correctly drawn REA diagram)
a. Every event must be linked to at least one resource
b. Every event must be linked to two agents who participate in that event
c. Every event that involves the disposition of a resource must be linked to an event that involves the acquisition of a resource
d. Every resource must be linked to at least one event that increments that resource and to at least one event that decrements
that resource
e. If event A can be linked to more than one other event, but cannot be linked simultaneously to all of those other events, then
the REA diagram should show event A is linked to a minimum of 0 of each of those events
f. If an event can be linked to any one of a set of agents, but cannot be simultaneously linked to all those agents, then the REA
diagram should show that event is linked to a minimum of 0 of each of those agents
Implementing an REA Diagram in a Relational Database
1. Create tables for each distinct entity and M:N relationship
2. Assign attributes to each table
2.1 Identify Primary Key
2.1.1 Concatenated keys = two or more primary keys of other database tables that, together, become the unique identifier
or primary key of an M:N relationship table
2.2 Assign other attributes to appropriate tables
2.3 Price and cost data
2.4 Cumulative and Calculable Data
3 Use foreign keys to implement 1:1 and 1:N relationships
4 Completeness check
4.1 Every table must have a primary key
4.2 Other nonkey attributes in each table must be either a fact about the thing designated by the primary key, or foreign keys used to
link that table to another table
4.3 Every attribute in every table is single-valued