Garcia, April Ann C.

A-201

ACCOUNTING INFORMATION SYSTEMS

CHAPTER 1

DISCUSSION QUESTIONS:

1.Discuss the differences between internal and external users of information

and their needs and demands on an information system. Historically, which
type of user has the firm catered to most?

There are strict reporting criteria that apply to the reporting needs of external
users like lending institutions, the IRS, the SEC, and stockholders. Since failing to
give correct and timely information entails severe consequences, corporations have
historically placed a very high priority on the quality of the AIS and the reports
they produce for external bodies. To make wise decisions, internal users like
managers also need crucial information. Businesses are starting to understand how
crucial it is to meet the demands of these internal users if they are to function
profitably and effectively going forward.

2. Comment on the level of detail necessary for Operations management,

middle management, and Stockholders.

Operations management, middle management, and stockholders all want

different levels of depth in the information. The amount of information required for
stockholders is highly aggregated, and it often adheres to the format set forth by
the SEC and GAAP. Middle management needs far more comprehensive data in
order to plan and oversee operations. To manage the daily company tactics and
operations, operations management needs highly specific information.

3. Distinguish between financial and nonfinancial Transactions. Give three

examples of each.

A financial transaction is an economic occurrence that impacts the

organization's assets and equity, is recorded in its books, and is measured in
monetary terms. Examples include the payment of bond obligations, sales of goods
to customers, and purchases of inventories from suppliers. Business activities that
have no influence on the financial accounts are considered nonfinancial
transactions. Examples include books borrowed by students from the school
library, customer complaints submitted through a toll-free hotline, and updates on
ongoing research and development initiatives.

4. Why have re-engineering efforts been made to Integrate AIS and MIS?

Data from the AIS and the MIS are often needed by managers in all
domains. Report preparation is time- and money-consuming if managers must
combine the data from two or more data sources in order to find the information
they require.

5. Do you think transaction processing systems differ significantly between

service and manufacturing Industries? Are they equally important to both
Sectors?

Only the types of data components collected vary amongst the transaction
processing systems. Both the service and manufacturing sectors need to gather data
on operational procedures. While a manufacturing company may gather
information on the amount of scrap produced at a certain workstation, a service
company, like a public accounting firm, wants to gather information about the
number of staff hours spent confirming cash balances. Systems for transaction
processing are essential in many types of industries.

6. Discuss the difference between the financial reporting system and the
general ledger system.

The journal is made up of unprocessed accounting entries, organized

chronologically by date, that document company activities. Assets, liabilities,
owner's capital, revenues, and costs are the five primary accounting elements
tracked by the general ledger, which is more formalized.

7. Examine Figure 1-5 and discuss where and how Problems can arise that can
cause the resulting Information to be bad or ineffective.

The resulting information won't be accurate if the data were not

appropriately collected and/or entered. Additionally, if the information is not
accurately processed by the data processing system, the information that is
produced will also be inaccurate. The information will be inaccurate if the database
is not accurately maintained over time.

8. Discuss how the elements of efficiency, effectiveness, and flexibility are

crucial to the design of an Information system.

Efficiency: Information gathering costs shouldn't outweigh the benefits

Effectiveness: The right data should be processed to provide users with

information.

FRS standards are adaptable and frequently change.

9. Discuss what is meant by the statement, ‘‘The Accounting system is a
conceptual flow of Information that represents the physical flows of
personnel, raw materials, machinery, and cash through the organization.’’

According to this claim, a firm's operations are represented by its accounting

system. The accounting system must be regularly updated to appropriately reflect
these operations as machines run, employees carry out their tasks, raw materials
are transformed into completed goods, and financial flows are exchanged between
suppliers and customers. This conceptual flow is essential because it enables
management to view the financial effects of these operations on the company in
both summary and detail.

10. Discuss the importance of accounting independence in accounting

information systems. Give an example of where this concept is important (use
an example other than inventory control).

In order to avoid having an accounting department that makes and

distributes checks while simultaneously controlling the records. Additionally, they
shouldn't manage the bank reconciliation and the cash account.

11. Discuss why it is crucial that internal auditors Report solely to the
uppermost level of management (either to the chief executive officer or the
Audit committee of the board of directors) and answer to no other group.

Fraud within the company must be found and pursued by the internal
auditors. Internal auditors may be concerned about losing their jobs if they report
such actions if management-level individuals are engaged. Therefore, the internal
auditors ought to report to the board of directors so that they won't have to worry
about upper management criticizing their actions.
12. Contrast centralized data processing with distributed data processing.
How do the roles of systems professionals and end users change? What do you
think the trend is today?

While centralized data processing is beneficial, it is not without drawbacks.

By ‘splitting' the workload over several machines, each doing a small amount of
work, a distributed system can reduce the stress on your RAM and GPU. This
strategy aims to use inexpensive off-the-shelf hardware to perform functions more
quickly than a centralized system. The first benefit of distributed systems is their
diversity.

13. Discuss how conceptual and physical systems differ and which functions
are responsible for each of them. These systems.

The physical system represents the tools for carrying out the activities,
whereas the conceptual system represents the logic and decision rules to be used.
The conceptual system may be accomplished in a variety of ways (physical
systems). Although the accountant is crucial to the conceptual system's design,
system designers may predominate in the activities of due to the technological
nature of the solution's physical architecture. Even though they may just play an
advisory role, the accountant should nonetheless be involved in the process.

14. If accountants are viewed as providers of information, then why are they
consulted as system users in the systems development process?

To create an efficient internal system and to meet the needs of the users of
accounting information, the accountants are consulted as system users. The
accountants are involved not only in one step of system development but in every
level of system development. Since each stage has unique characteristics that set it
apart from others. They are also required to make it simple to establish the
accounting information system. The most crucial aspect is the accuracy and
assurance of dependability of accounting information in financial reporting.

15. Do you agree with the statement, ‘‘the term IT Auditor should be
considered obsolete because it Implies a distinction between regular auditors
and Auditors who examine computerized AIS’’? Why Or why not?

No, because IT auditors provide a unique purpose within the organization.

They are in charge of carrying out IT audits, whether they are independent or part
of the assurance services organization. They are frequently referred to as global
risk management, information systems risk management, or IT risk management.
Second, they confirm the efficacy of a client's IT controls to determine how closely
those controls adhere to predetermined requirements. A wider financial audit is
then conducted by the IT auditor. To sum up, IT auditors are not ineffective
because they provide distinctive work; rather, they are seen as valuable because
they are the ones that manage the company's overall audit and assess the IT
controls, risk, and auditing issues.
CHAPTER 2

DISCUSSION QUESTIONS:

1.Discuss the flow of cash through the transaction cycle Include in your
discussion the relevant sub-systems and any time lags that may occur.

Subsystem of the revenue cycle captures the intent of customers to exchange

cash for services or goods manufactured. Cash is also disbursed to employees,
typically after services are rendered by the employees. For credit sales, the cash is
ultimately released once the goods are received (or services are performed) and an
invoice has been received.

2. Explain whether the cost accounting system primarily supports internal or

external reporting.

Cost accounting systems aim to make it easier for businesses to agree on a

price for the goods and services they offer based on consumer demand and their
capacity to produce supplies. The system therefore aims to maintain both internal
and external reporting.

3. Discuss the role of the conversion cycle for service and retailing entities.

Planning the goods to buy or the services to produce, planning the workforce
to complete the necessary tasks (extremely important in-service entities), and
directing the workforce to perform the service or sell the good are all part of the
conversion cycle activities for service and retailing entities.

4. Can a turnaround document contain information that is subsequently used

as a source document? Why or why not?

Yes. For instance, the source document for the system that processes cash
receipts transactions is the remittance advice of a bill that is returned together with
the payment.

5. Would the writing down of obsolete inventory be recorded in a special

journal or the general journal?

Since this form of transaction is one-time, uncommon, and distinct from

other types, it is documented in the general journal.

6. Are both registers and special journals necessary?

However, the special journal is for posting to the general ledger, even if you
may use them interchangeably at times. Registers are maintained for the storage of
information. Relationship between the AP subsidiary ledger balance and the AP
general ledger control account.

7. Discuss the relationship between the balance in the account’s payable

general ledger control account what is found in the accounts payable
Subsidiary ledger.
 A control account is the balance in the general ledger. The total sum owing
to the creditors recorded in the accounts payable journal is represented by this sum.
The precise amount owing to each creditor is listed in the account’s payable
subsidiary ledger. The control total in the general ledger should match the sum of
the amounts owed to each creditor indicated in the accounts payable journal. The
summary control total of accounts payable in the general ledger is thus broken out
in detail in the account’s payable subsidiary ledger.

8. What role does the audit trail play in the task of Confirmation?

Many different sorts of activities, such as accounting transactions and trades

in brokerage accounts, are verified and tracked using audit trails. When an item's
accuracy needs to be checked, as it might during an audit, an audit trail is most
frequently used.

9. Explain how the magnetic audit trail functions.

Similar to a manual audit trail, a digital audit trail serves the same purpose.
The procedures change slightly in actuality. The file to which the balances and
transactions of the accounts receivable subsidiary accounts are traced is the archive
file that only contains valid transactions. For confirmation, the clients still need to
be contacted.

10. Are large batch sizes preferable to small batch Sizes? Explain.

Small batches have the advantage of fewer transactions to sort through for
error detection, but they are not processed as efficiently. Further, computing
facilities and constraints might dictate whether multiple small batches may be
processed throughout the day or whether a single large batch is processed at night
when the computing facilities have excess capacity
11. Discuss why an understanding of legacy system Technologies is of some
importance to auditors.

Some businesses use legacy systems to process certain portions of their data.
Auditors must be able to assess and test older systems when they are used to
handle financially significant transactions.

12. If an organization processes large numbers of transactions use common

data records, what Type of system would work best (all else being equal)?

Real-time data collecting and batch updating are frequently used in large-
scale systems that handle large numbers of transactions. (Transaction-specific
master file records are changed in real time; updates to common accounts are made
in batch mode.)

13. If an organization processes transactions that have independent) data

needs, what type of system would work best (all else being equal)?

Systems that execute fewer transactions per second and those that do not
share common records are more suited for real-time processing.

14. Explain how a hashing structure works and why it’s quicker than using an
index. Give an example. If it’s so much faster, why isn’t it used exclusively?

To store and retrieve data fast, hash tables are employed (or records). Using
hash keys, records are stored in buckets. Hash keys are created by running a
selected value through a hashing algorithm. This selected value needs to be the
same for all of the records. Each bucket may contain a number of records that are
arranged in a specific order. Since each key does not need to be distinct from the
others, it is speedier than indexing. The hash table would only need to look up and
search through the 15 objects in the "B" bucket, as opposed to all 200 objects, if,
for instance, only 15 of the 200 objects have hash codes that start with the letter
"B".

15. Describe a specific accounting application that could make use of a virtual
storage access method file.

For very big files that need normal batch processing and a light level of
individual record processing, the virtual storage access method (VSAM) structure
is utilized. For instance, a public utility company's customer file will be processed
in batch mode for billing purposes and immediately accessed in response to
specific client requests. The VSAM structure may be progressively searched for
effective batch processing due to its sequential organization.

CHAPTER 3

DISCUSSION QUESTIONS:

1. Distinguish between ethical issues and legal issues.

While governmental regulations provide the legal norms, ethical standards

may not always have a legal foundation. While ethical standards are essentially
founded on human concepts of right and wrong, legal standards are useful because
they assist people comprehend what they are not allowed to do.

2. Some argue against corporate involvement in socially responsible behavior

because the costs incurred by such behavior place the organizational a
disadvantage in a competitive market. Discuss the merits and flaws of this
argument.

The expenses of acting in a socially responsible manner also include those

related to affirmative action, increasing workplace safety, and environmental
protection. When one company pays these costs while its rival does not, the latter
gains a competitive edge over the former in the near term. However, by building
up goodwill in society and avoiding the detrimental consequences of governmental
rules, the socially responsible business can ultimately optimize its profitability.

3. Although top management’s attitude toward ethics sets the tone for
business practice, sometimes it is the role of lower-level managers to uphold a
firm’s ethical standards. John, an operations-level manager, discovers that the
company is illegally dumping toxic materials and is in violation of
environmental regulations. John’s immediate supervisor is involved in the
dumping. What action should John take?

A consultation between the subordinate and the immediate supervisor is

typically required to resolve an ethical issue at work. If the supervisor is
contributing to the issue, the issue should be brought up with the person
immediately above them in the organizational hierarchy.

4. When a company has a strong internal control structure, stockholders can

expect the elimination of fraud. Comment on the soundness of this statement.

A useful defense against fraud is a solid internal control framework. These

barriers aren't impermeable, especially if upper management or employees
conspire against them. The best prevention against fraud is a solid internal control
framework coupled with high staff morale and ethics.

5. Distinguish between employee fraud and management fraud.

The intentional falsification of financial statements, theft, or unlawful use of

corporate resources by top management are common examples of management
fraud. Employee fraud refers to the theft or improper use of company resources by
a non-senior employee.
6. The estimates of losses annually resulting from computer fraud vary widely.
Why do you think obtaining a good estimate of this figure is difficult?

Because they are concerned about how the public would perceive their
internal control system, the top management of publicly traded companies is
frequently reticent to publicly acknowledge that they have been the victim of
computer crime. Additionally, a lot of businesses might not be entirely aware of
the degree of their computer fraud-related losses.

7. How has Sarbanes-Oxley Act had a significant impact on corporate

governance?

By establishing new auditor criteria and shifting accountability for the

thorough and accurate management of financial reports, the legislation imposed
new regulations for corporations. The statute prescribes more severe penalties for
violations in an effort to discourage fraud and the theft of company assets.

8. Discuss the concept of exposure and explain why firms may tolerate some
exposure.

The implementation of internal control measures involves expenses. There is

a potential that businesses will decide to tolerate some exposure if they determine
that the costs of implementing the processes outweigh the advantages.

9. If detective controls signal error flags, why shouldn’t these types of controls
automatically make a correction in the identified error? Why are corrective
controls necessary?

There may be more than one workable corrective option for any recognized
issue, and the optimum course of action possibly not always clear. Therefore, tying
a robotic response to a detective control could make it worse. by taking the wrong
corrective action to an issue.

10. Discuss the non-accounting services that external auditors are no longer
permitted to render audit clients

The auditor is not allowed to offer any of the non-audit services listed below
to an audit client or any of its affiliates. Conception and deployment of financial
information systems. Reports on contributions-in-kind, fairness opinions, or
services for appraisal or valuation.

11. Discuss whether a firm with fewer employees than there are incompatible
tasks should rely more heavily on general authority than specific authority

Small businesses should rely more heavily on specific authorizations if there

are fewer employees than there are conflicting duties. To somewhat make up for
the absence of separation of roles, management should approve decisions more
often and should improve oversight.

12. An organization’s internal audit department is usually considered an

effective control mechanism for evaluation the organizations’ internal control
structure. The Birch Company’s internal auditing function reports directly to
the controller. Comment on the effectiveness.

It is improper for the controller to receive reports from the internal auditing
department. The controller may provide the auditors with incorrect or misleading
information if they are aware of or participating in a fraud or defalcation. If the
auditors don't keep some things under wraps, they run the risk of losing their jobs.
Additionally, the fraud may be occurring above the controller, and if the case is
pursued, the controller might fear losing his or her employment. The best course of
action is to have the board of directors get direct reports from the internal auditing
unit.

13. According to COSO, the proper segregation of functions is an effective

internal control procedure. Comment on the exposure (if any) caused by
combining the tasks of paycheck preparation and distribution to employees.

Nobody would be the wiser if a payroll employee prepared a paycheck for

an absent employee (perhaps using an alias or a relative's name), and this
individual is also responsible for dispersing the checks. On the other hand, the
extra check should be found if the checks are sent to a different person who
subsequently distributes the paychecks.

14. Explain the five conditions necessary for an act to be considered

fraudulent.

Fraud must be proven by demonstrating that the defendant's actions included

five distinct elements: (1) a false statement of a material fact, (2) knowledge on the
defendant's part that the statement is false, (3) intent on the defendant's part to
deceive the alleged victim, and (4) justifiable reliance on the part of the alleged
victim.

15. Distinguish between exposure and risk.

Exposure is the risk of harm to the business. In plain English, risk is the
likelihood, i.e., the possibility, that a circumstance will materialize and primarily
result in a loss or an undesirable consequence, whereas exposure is the degree to
which the risk can have an impact.