Professional Documents
Culture Documents
Chapter 5-6
Chapter 5-6
CHANGE ACTIVITIES
PARTCIPANTS IN THE SDLC:
Systems Professionals- individuals who build the system (systems analysts, systems
engineers, and programmers)
End Users- for whom the system is built (These include managers, operations personnel,
accountants, and internal auditors)
Stakeholders- individuals either within or outside the organization who have an interest
in the system but are not end users
Accountants/Auditors- The SDLC process is of interest to accountants and auditors for
two reasons. First, the creation of an information system involve significant financial
transactions. Accountants are as concerned with the integrity of this process as they are
with any manufacturing process that has financial resource implications. The second
reason is that the accountant’s responsibility is to ensure that the systems employ proper
accounting conventions and rules, and possess adequate controls.
1. IN-HOUSE DEVELOPMENT
Firms design and build their own information systems, customized
2. COMMERCIAL SYTEMS
Firms purchase from software vendors
TYPES OF COMMERCIAL SYSTEMS
Turnkey systems. Completely finished systems and ready for installation, limited
ability for customization
General Accounting Systems. Serves a wide variety of user needs, standardized
systems typically sold in separate modules (e.g., accounts payable, accounts
receivable, inventory control, etc.)
Special Purpose Systems. Standardized systems that deal with industry-specific
procedures. (e.g., accounting systems for the medical field, banking industry)
Office Automation Systems. Improve the productivity of office workers (dbms,
spreadsheet programs)
Backbone Systems. provide a basic system structure on which to build.
Vendor Supported Systems. Hybrid custom and commercial systems, software
vendor develops and maintains custom systems for clients.
ADVANTAGES OF COMMERCIAL SOFTWARE
Immediate implementation than custom systems
Cost is reduced
Reliability. commercial software is less likely to have errors than an equivalent
in-house system.
DISADVANTAGES OF COMMERCIAL SOFTWARE
Independence. Firms are dependent on vendors for maintenance, greatest
disadvantage
Commercial software are not customized according to the needs of the firm
Commercial software may be difficult to change or modify
SYSTEMS PLANNING-PHASE 1
Link individual system projects or applications to the strategic objectives of the
firm
Basis is the organization’s business plan.
Where the firm wants to go and how to get there
1. Strategic Systems Planning. Allocation of systems resources at the macro level.
Process is similar to budgeting resources for strategic activities. Technically not a
part of the SDLC.
2. Project Planning. Basic purpose is to allocate scarce resources to specific projects.
The product of this phase consists of two formal documents: the project proposal and
the project schedule.
Project Proposal. basis for deciding whether to proceed with the project
(1. Recommend new or modified system. 2. shows that the proposed new system
complements the strategic direction of the firm)
Project Schedule. a budget of the time and costs for all the phases of the SDLC
SYSTEMS ANALYSIS-PHASE 2
Foundation for the rest of the SDLC
Systems analysis report is the end result of the systems analysis phase. It presents
the survey findings, the problems identified with the current system, the user’s
needs, and the requirements of the new system.
Systems analysis involves 2 steps:
1. System Survey. Analyst gathers and analyzes relevant facts and use these to assess
the current system.
Fact-gathering techniques:
Observation
Task participation
Personal interviews
Reviewing key documents
2. Analysis Step. Systems analysis is an intellectual process that is commingled with
fact gathering. The analyst is simultaneously analyzing as he or she gathers facts. It is
therefore difficult to identify where the survey ends and the analysis begins.
optimization process that seeks to identify the best system from the alternatives or
choices presented in phase 3
The deliverable product of the systems selection process is the systems selection
report.
involves 2 steps:
T- technical feasibility. whether the system can be developed under existing technology
or if new technology is needed
E- economic feasibility. Availability of funds
L- legal feasibility. The decision maker must be certain the proposed system falls inside
all legal boundaries.
O-operational feasibility. degree of compatibility between the firm’s existing procedures
and personnel skills and the operational requirements of the new system
S- schedule feasibility- firm’s ability to implement the project within an acceptable time
DETAILED DESIGN-PHASE 5
produce a detailed description of the proposed system that both satisfies the
system requirements identified during systems analysis and is in accordance with
the conceptual design
after the detailed design, perform system design walkthrough to ensure that the
design is free from conceptual errors that could become programmed into the final
system
APPLICATION PROGRAMMING AND TESTING-PHASE 6
select a programming language from among the various languages available that
is suitable to the application
A procedural language requires the programmer to specify the precise order in
which the program logic is executed. Procedural languages are often called
third-generation languages
Event-driven languages are no longer procedural. Under this model, the
program’s code is not executed in a predefined sequence. Instead, external
actions or “events” that are initiated by the user dictate the control flow of the
program
Object-Oriented Languages. Central to achieving the benefits of the object
oriented approach is developing software in an object-oriented programming
(OOP) language.
Programming the System. Regardless of the programming language used,
modern programs should follow a modular approach. This technique produces
small programs that perform narrowly defined tasks
SYSTEM IMPLEMENTATION-PHASE 7
Database structures are populated with data, New system is installed, system is
documented
The system’s documentation provides the auditor with essential information
about how the system works:
Designer and Programmer Documentation. Systems designers and
programmers need documentation to debug errors and perform
maintenance on the system
Operator Documentation. Computer operators use documentation called
a run manual, which describes how to run the system.
User Documentation. documentation describing how to use the system
(user handbook).
Cutover. process of converting from the old system to the new. It will usually
follow one of three approaches: cold turkey, phased, or parallel operation.
Cold Turkey Cutover. Under the cold turkey cutover approach (also
called the “Big Bang” approach), the firm switches to the new system and
simultaneously terminates the old system.
Phased Cutover. Sometimes an entire system cannot, or need not, be cut
over at once.
Parallel operation cutover involves running the old system and the new
system simultaneously for a period of time
SYSTEMS MAINTENANCE-PHASE 8
Business activities begin with the acquisition of materials, 3.) The Revenue Cycle
property, and labor in exchangefor cash—the expenditure
Firms sell their finished goods to customers through the
cycle
revenue cycle, which involvesprocessing cash sales, credit
Thus, transaction has two parts: aphysical component (the sales, and the receipt of cash following a credit sale.
acquisition of the goods) and a financial component (the
The primary subsystems of the revenue cycle are
cashdisbursement to the supplier).
a. Sales order processing. The majority of business sales
The major subsystems of the expenditure cycle are:
are made on credit andinvolve tasks such as preparing
a. Purchases/accounts payable system. This system sales orders, granting credit, shipping products
recognizes the need to acquirephysical inventory and (orrendering of a service) to the customer, billing
places an order with the vendor. customers, and recording the transactionin the
b. Cashdisbursements system. When the obligation accounts (accounts receivable [AR], inventory,
created in the purchases systemis due, the cash expenses, and sales).
disbursements system authorizes the payment, b. Cash receipts. For credit sales, some period of time
disburses the fundsto the vendor, and records the (days or weeks) passes betweenthe point of sale and
transaction by reducing the cash and accounts the receipt of cash. Cash receipts processing
payableaccounts. includescollecting cash, depositing cash in the bank,
c. Payroll system. The payroll system collects labor usage and recording these events in the accounts(AR and
data for each employee,computes the payroll, and cash).
ACCOUNTING RECORDS 2. General Journals. Firms use the general journal to
record nonrecurring, infrequent,and dissimilar
Manual Systems transactions. For example, we usually record periodic
A. Documents depreciation andclosing entries in the general journal.
Figure 6.7 shows one page from a general journal.
A document provides evidence of an economic event and
may be used to initiate transactionprocessing. Some A journal voucher is actually a special source document
thatcontains a single journal entry specifying the general
documents are a result of transaction processing.
ledger accounts that are affected.Journal vouchers are used
to record summaries of routine transactions,
1. Source Documentsare used to capture and formalize
nonroutinetransactions, adjusting entries, and closing
transaction data that the transaction cycleneeds for entries.
processing. C. Ledgers
2. Product Documentsare the result of transaction
processingrather than the triggering mechanism for A ledger is a book of accounts that reflects the financial
the process. For example, a payroll check toan effects of the firm’s transactionsafter they are posted from
employee is a product document of the payroll system. the various journals.
3. Turnaround Documentsare product documents of
onesystem that become source documents for another There are two basic types of ledgers:
system.
1. General Ledgers summarizes the activity for each of
B. Journals
the organization’saccounts. The general ledger
A journal is a record of a chronological entry. The journal department updates these records from
holds acomplete record of transactions and thus provides a journalvouchers prepared from special journals and
means for posting to accounts. other sources located throughout the organization.
2. Subsidiary Ledgers contain the details of the
There are two primary types of journals: individual accounts that constitute a particular control
account.
1. Special Journals. Special journals are used to record
specific classes of transactionsthat occur in high The Audit Trail
volume.
a. sales journal The accounting records described previously provide an
b. cash receipts journal audit trail for tracing transactions from source documents
c. cash disbursements journal to the financial statements. Of the many purposes of the
d. purchases journal audit trail, most important to accountants is the year-end
e. payroll journal.
audit.
Registeris often used to denote certain types of special
Computer-Based Systems
journals.
Types of Files
Audit trails in computer-based systems are less observable
than in traditional manual systems, but they still exist.
DOCUMENTATION TECHNIQUES
Figure6.12
2. Entity relationship (ER) diagram is a documentation
technique used to represent the relationship between
entities. Entities are physical resources, events, and agents
about which the organization wishes to capture data.
3. System Flowcharts is the graphical representation of the The primary objective should be to provide an unambiguous
physical relationships amongkey elements of a system. description of the system. With this in mind, certain rules and
These elements may include organizational departments, conventions need to be observed:
manualactivities, computer programs, hard-copy accounting
1. The flowchart should be labeled to clearly identify the
records, and digital records. System flowcharts also describe
system that it represents.
the type of computer media being employedin the system,
such as magnetic tape, magnetic disks, and terminals. 2. The correct symbols should be used to represent the
various entities in the system.
Flowcharting Manual Activities
3. All symbols on the flowchart should be labeled.
1. A clerk in the sales department receives a hard-copy
customer order by mail and manually prepares four hard 4. Lines should have arrowheads to clearly show the process
copies of a sales order. flow and sequence of events.
2. The clerk sends Copy 1 of the sales order the credit 5. If complex processes need additional explanation for
department for approval. The other three copies and the clarity, a text description should be included on the flowchart
original customer order are filed temporarily, pending credit or in an attached document referenced by the flowchart.
approval.
Steps in preparing Flowchart
3. The credit department clerk validates the customer’s
order against hard-copy credit records kept in the credit a. Lay out the Physical Areas of Activity.
b. Transcribe the Written Facts into Visual Format.
Figure 6. 20
To signify the filing system used, the file symbol will usually
contain an “N” for numeric (invoice number), “C” for
chronological (date), or “A” for alphabetical order (customer
name).
6. The program loops back to Step 1, and the process is 5. Record layout diagrams are used to reveal the internal
repeated until the EOFcondition is reached. structure of the records that constitute a file or database
table. The layout diagram usually shows the name, data
Figure 6.25 type, and length of each attribute (or field) in the record.
Detailed data structure information is needed for such tasks
as identifying certain types of system failures, analyzing error
reports, and designing tests of computer logic for debugging
and auditing purposes.
Figure6. 27
eXtensible business reporting language (XBRL) – is the October 2005, U.S banking regulators have required
Internet standard specifically designed for business reporting quarterly “call reports” to be filed in XBRL.
and information exchange. April 2005, the SEC began a voluntary financial reporting
- Is a derivative of another Internet standard called XML program.
(eXtensible markup language) . September 2006, the SEC announced its new electronic
reporting system to receive XBRL filings.
XML (eXtensible markup language) – is a metalanguage May 2008, the SEC issued rules requiring large publicly
for describing markup languages. held companies to adopt XBRL.
Since early 2003, the Tokyo Stock Exchange has accepted
The term extensible means that any markup language
XBRL information
capable of storing data in relational form in which tags (or
In 2007, the Canadian Marketplace gain practical
formatting commands) are mapped to data values.
knowledge in preparing, filing and using XBRL.
eXtensible business reporting language (XBRL)
CONTROLLING THE FRS
- is an XML-based language that was designed to
SOX legislation requires that management design and
provide the financial community with a standardized method
implement controls over the financial reporting process.
for preparing, publishing, and automatically exchanging
financial information, including financial statements of The potential risks to the FRS include:
publicly held companies.
1. A defective audit trail
- Is typically used for reporting aggregated financial 2. Unauthorized access to the general ledger.
data, but can also be applied to communicating information 3. GL accounts that are out of balance with subsidiary
pertaining to individual transactions. accounts.
4. Incorrect GL account balances because of unauthorized
STEPS IN XBRL REPORTING PROCESS or incorrect journal vouchers.
The general ledger provides verification control for the The general ledger function serves as an independent
accounting process. Therefore, individuals with access verification step within the accounting information system.
authority to GL accounts should not:
TWO OPERATIONAL REPOTS
1. Have record-keeping responsibility for special journals or
subsidiary ledgers. 1. Journal Voucher Listing - provides relevant details
2. Prepare journal vouchers. about each journal voucher listing and the GL change
3. Have custody of physical issues. report.
2. General Ledger Report –presents the effects of journal
ACCESS CONTROLS voucher postings to the GL accounts.
Unauthorized access to the GL accounts can result in INTERNAL CONTROL IMPLICATION OF XBRL
errors, fraud and misrepresentation in financial statements.
TAXONOMY CREATION – Taxonomy may be generated
incorrectly, which results in an incorrect mapping between
data and taxonomy elements that could result in material
ACCOUNTING RECORDS misrepresentation of financial data.
An audit trail facilitates error preventionand correction TAXONOMY MAPPING ERROR – the process of mapping
when the data files are conveniently and logically organized. the internal database accounts to the taxonomy tags needs
Also, the general ledger and other files that constitute the to be controlled.
audit trail should be detailed and rich enough to:
VALIDATION OF INSTANCE DOCUMENTS- once the
1. Provide the ability to answer inquiries. mapping is complete and tags have been stored in the
2. Be able to reconstruct files if they are completely or
internal database, XBRL instance documents (reports) can
partially destroyed.
be generated.
3. Provide historical data required by auditors
4. Fulfill government regulations; and