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PA R K E S | C O N S I D I N E | O L E S E N | B LO U N T
AC C O U N T I N G
INFORMATION
SYSTEMS
FIF T H ED I T I O N
5.3 Alternative systems development Reduced accounting time 251
approaches 218 Recognition by major accounting
Prototyping 219 software vendors 251
Agile/adaptive methods 220 Interchangeable data 252
5.4 Software selection for SMEs 221 Comparisons across companies 252
Pre-developed programs 221 Improved audit quality 252
Types of accounting packages 221 Stakeholder benefits 252
Software as a service 222 6.7 XBRL concepts 253
5.5 Typical problems of systems development 222 XML and XBRL compared to HTML 253
Conflict 222 XBRL specifications 255
Escalation of commitment 222 XBRL taxonomies 256
Project goal issues 223 Instance documents 258
Technical skills 223 Tagging accounts using XBRL 259
Interpersonal skills 223 6.8 Cloud computing 263
5.6 Systems development management tools 224 Cloud Infrastructure as a Service (IaaS) 263
Gantt charts 224 Cloud Platform as a Service (PaaS) 263
CASE 225 Software as a Service (SaaS) 263
Summary 225 6.9 Big data 265
Key terms 226 Other technologies 265
Discussion questions 227 AIS FOCUS 6.1
Self-test activities 228 Phablets for accountants? 266
Problems 229 Summary 267
AIS FOCUS 5.3 Key terms 268
An integrated medical record system 232 Discussion questions 269
Further reading 235 Self-test activities 270
Self-test answers 235 Problems 270
Endnotes 235 Further reading 273
Acknowledgements 237 Self-test answers 273
Endnotes 274
CHAPTER 6 Acknowledgements 274
Technology concepts 238 CHAPTER 7
Introduction 239
6.1 Why an ERP system? 240 Systems mapping and
6.2 Business processes supported by documentation 275
ERP systems 240 Introduction 276
6.3 ERP systems — SAP modules 242 7.1 The purpose of systems documentation 277
Financial accounting (FI) 242 7.2 Role of systems documentation in process
Controlling and profitability analysis (CO) 243 redesign and re-engineering 278
Human resources (HR) 243 7.3 Role of accountant in accurate reporting and
Sales and distribution (SD) 243 preserving corporate memory 278
Materials management (MM) 244 Auditing and systems documentation 279
6.4 XBRL and its role in reporting systems 7.4 The law and systems documentation 280
and decision making 245 7.5 Reading systems documentation 281
6.5 Different ways to apply XBRL tags 247 AIS FOCUS 7.1
XBRL tags in the accounting system 247 The role of software in systems
Tagging accounts after reports have been documentation 282
produced 248 Entities 282
6.6 Benefits of XBRL 249 The narrative 283
Reduced data manipulation 249 Process maps 286
Paperless reporting 251 Data flow diagrams 287
Industry-accepted standards 251 Systems flowcharts 293
vi CONTENTS
7.6 Balancing a data flow diagram 299 Summary 364
7.7 Drawing systems documentation 299 Key terms 365
Analysing the case 301 Discussion questions 366
Preparing a process map 303 Self-test activities 366
Preparing data flow diagrams 307 Problems 367
Further reading 368
7.8 Comparing the different documentation
Self-test answers 368
techniques 317
Endnotes 368
Summary 318
Acknowledgements 372
Key terms 319
Discussion questions 320 CHAPTER 9
Self-test activities 320
Problems 323 Internal controls II 373
Self-test answers 328 Introduction 374
Endnotes 328 9.1 Control activities, business processes and
Acknowledgements 329 accounting 375
9.2 Evaluation of control activities 376
CHAPTER 8
Preventive, detective and corrective controls 377
Internal controls I 330 AIS FOCUS 9.1
Introduction 331 Insider trading: the worst case in
8.1 Evolution of corporate governance 332 Australia? 379
What is corporate governance? 332 Input, processing and output controls 380
Brief history of corporate governance 333 9.3 COSO, COBIT and control activities 380
8.2 Principles of corporate governance in 9.4 Aims of a computerised accounting
Australia 335 information system 382
AIS FOCUS 8.1 Proper authorisation 382
Availability of information to shareholders 336 Proper recording 383
8.3 IT governance 339 Completeness 383
What is IT governance? 339 Timeliness 383
8.4 COBIT framework and principles 340 9.5 General controls 384
Australian IT governance 346 Physical controls 384
AIS FOCUS 8.2 Segregation of duties 385
Governance and accounting failure in Australia 346 User access 385
8.5 Significance of internal control 347 System development procedures 387
What is internal control? 347 User awareness of risks 387
8.6 Components of COSO internal control Data storage procedures 387
framework 349 AIS FOCUS 9.2
Control environment 349 Privilege vulnerabilities 388
Risk assessment 350 Security policies 389
AIS FOCUS 8.3 9.6 Application controls 389
Fuel prices and financials 350 Input controls 389
AIS FOCUS 8.4 AIS FOCUS 9.3
Disaster recovery options 351 Human error: the biggest problem 393
Control activities 353 Processing controls 395
Information and communication 353 Output controls 397
Monitoring 354 AIS FOCUS 9.4
8.7 Identifying and assessing risks 357 Controls in practice 398
Linking risks to financial statement assertions 358 9.7 Disaster recovery plans 399
8.8 Evaluating COSO and COBIT frameworks 361 Temporary sites 399
AIS FOCUS 8.5 Staffing 400
Corporate governance, financial reporting . . . what Restore business relationships 400
else? 363 9.8 Execution of internal control 400
CONTENTS vii
9.9 Documenting controls 401 Summary 467
Narrative descriptions 401 Key terms 468
Questionnaires and checklists 402 Discussion questions 469
Flowcharts 403 Self-test activities 470
Control matrix 404 Problems 471
Further reading 479
9.10 The limitations of controls 404
Threats to an organisation’s objectives 404
Endnote 479
Threats to internal controls 406
Summary 407
Key terms 408 CHAPTER 11
Discussion questions 409
Self-test activities 410 Transaction cycle — the
Problems 410
expenditure cycle 481
Endnotes 420 Introduction 482
Acknowledgements 422 11.1 Expenditure cycle overview and
key objectives 483
PART 3 Strategic implications of the expenditure
Systems in action 423 cycle 484
11.2 Technologies underpinning the
CHAPTER 10 expenditure cycle 485
AIS FOCUS 11.1
Transaction cycle — the Getting behind the scenes — managing
revenue cycle 426 your supply chain 486
Introduction 427 11.3 Data and decisions in the expenditure
10.1 Revenue cycle overview and key cycle 486
objectives 427 Data and the expenditure cycle 486
Strategic implications of the revenue cycle 429 Expenditure cycle business decisions 487
AIS FOCUS 10.1 AIS FOCUS 11.2
Simply Energy 430 Accounts payable processing at Telstra 488
10.2 Technologies underpinning the revenue 11.4 Expenditure cycle documentation 488
cycle 430 Expenditure cycle context 489
AIS FOCUS 10.2 Expenditure cycle logical data flows 490
Caffe Primo Chain 431 11.5 Expenditure cycle activities and related risks
10.3 Data and decisions in the revenue cycle 432 and controls 495
Data and the revenue cycle 432 Determine demand for goods — activities,
Revenue cycle business decisions 432 risks and controls 495
10.4 Revenue cycle documentation 433 Order goods — activities, risks and controls 499
Revenue cycle context 433 Receive goods — activities, risks and
Revenue cycle logical data flows 434 controls 505
10.5 Revenue cycle activities and related Pay for goods — activities, risks and controls 512
risks and controls 439 Physical DFD — determine demand for
Process the sales order — activities, risks and goods 520
controls 440 System flowchart — determine demand for
Pick, pack and ship the goods — activities, goods 521
risks and controls 448 11.6 Measuring expenditure cycle
Bill the customer — activities, risks and controls 450 performance 524
Receive and record payment — activities, Summary 524
risks and controls 459 Key terms 526
Physical DFD — process the sales order 463 Discussion questions 527
Systems flowchart — process the sales order 465 Self-test activities 527
10.6 Measuring revenue cycle performance 466 Problems 529
viii CONTENTS
Further reading 537 Self-test activities 583
Self-test answers 537 Problems 585
Endnote 537 Further reading 593
Acknowledgements 537 Self-test answers 593
CHAPTER 12
PART 4
Transaction cycle — the general
ledger and financial reporting Systems issues 595
cycle 538 CHAPTER 13
Introduction 539
12.1 General ledger and financial reporting cycle
Auditing and governance
overview and key objectives 539 of accounting information
Strategic implications of the general ledger and systems 596
financial reporting cycle 542
Introduction 597
12.2 Technologies underpinning the general ledger
13.1 Importance of the audit function 598
and financial reporting cycle 542
13.2 Internal auditing 598
AIS FOCUS 12.1
13.3 External auditing 599
Storm clouds ahead: some pros and cons of
data in the cloud 544 13.4 Audit committees 600
12.3 Data and decisions in the general ledger and 13.5 Influences on the auditor 601
financial reporting cycle 545 Benchmarks and best practice 602
Data and the general ledger and financial 13.6 Financial (statutory) audit 602
reporting cycle 545 Requirement for a financial audit 602
AIS FOCUS 12.2 Sarbanes–Oxley Act (SOX)
Online recruiter uses Xero for accounting requirements 603
online 547 13.7 Information systems audit 604
General ledger and financial reporting cycle Overview of the AIS audit 605
business decisions 547 AIS FOCUS 13.1
12.4 General ledger and financial reporting Cloud computing: assessing the risks 606
cycle documentation 549 Audit tools 608
General ledger and financial reporting AIS FOCUS 13.2
cycle context 549 COBIT and IT governance
General ledger and financial reporting cycle case studies 608
logical data flows 554 Planning the audit 613
12.5 General ledger and financial reporting cycle Fieldwork (performing the audit) 617
activities and related risks and controls 556 Analysis 618
Prepare budgets — activities, risks and AIS FOCUS 13.3
controls 556 Protecting customer data 620
Update the general ledger — activities, risks and Completion, review, monitoring and
controls 557 reporting 622
Record general ledger adjustments — activities, Audit of systems under development 623
risks and controls 565 Special purpose audits 623
Produce reports — activities, risks and Summary 624
controls 569 Key terms 624
Physical DFD — prepare budgets 575 Discussion questions 625
Systems flowchart — prepare budgets 576 Self-test activities 626
12.6 Measuring general ledger and financial Problems 627
reporting cycle performance 580 Further reading 630
Summary 580 Self-test answers 631
Key terms 582 Endnotes 631
Discussion questions 582 Acknowledgements 632
CONTENTS ix
CHAPTER 14 14.4 Cybercrime 649
Malware: viruses, worms, Trojans, bots 650
Ethics and cybercrime 633 Spam 650
Introduction 634 Identity crime 651
14.1 The importance of ethics 634 AIS FOCUS 14.3
Consequentialist theories 635 News of the World 652
Non-consequentialist theories 636 14.5 Fraud, online fraud and scams 652
Importance of ethics in AIS and Sales fraud or e-commerce fraud 654
accounting 637 14.6 Reducing the risk of cybercrime 655
Ethical issues in business 637 14.7 Future trends and issues with
14.2 Ethical decision making 638 new technologies 656
Applying the framework 639 Summary 657
14.3 Ethical issues in accounting information Key terms 658
systems 640 Discussion questions 659
Self-test activities 660
Customer protection and privacy 640
Problems 661
AIS FOCUS 14.1 Further reading 662
Data breaches 641 Self-test answers 663
AIS FOCUS 14.2 Endnotes 663
RFID: Asset tracking capabilities and more 643 Acknowledgements 666
x CONTENTS
PREFACE
The fifth edition of Accounting Information Systems offers a uniquely Australian and New Zealand
perspective of the business processes central to many organisations, and contains additional material
and improved chapter content from the third edition. In order to maximise the benefit of its Australian
and New Zealand context, this text uses, wherever possible, contemporary Australian and New Zealand
examples and issues as a basis for explaining and exploring the many issues associated with accounting
information systems (AIS).
For students
This text offers you an Australian and New Zealand perspective of the AIS discipline. Written by a team
of authors from Australia and New Zealand for a tertiary audience, this text guides you through your
studies in the AIS area. An understanding of accounting information systems is vital for all accounting
areas because throughout your working life you will be using and relying on the technologies and
systems described in this book, and also managing the processes discussed and explored. In recent years,
the need to be abreast of the areas covered in the text has been highlighted by corporate failures and
the financial crisis — each of which saw attention placed on the way organisations operate and the con-
trol structures that they employ. Another area of recent change relates to accounting technologies and
accounting data. In response to recent technological developments, additional materials have been intro-
duced to cover enterprise resource planning (ERP) systems, eXtensible Business Reporting Language
(XBRL), cloud computing, and the ‘big data’ or data analytics phenomenon. This text will help you
successfully complete your studies in the accounting information systems area; you will gain essential
skills and analytical approaches of benefit to you both now and well into the future.
For lecturers
The structure of the text allows teaching in several different ways, depending on the pedagogy of the
instructor and the focus of the course design. The partitioning of the text into four sections provides
flexibility of material delivery that makes sense in most sequence structures. Educationally, the text pro-
vides a range of assessment and learning material and additional end-of-chapter questions and problems.
Each chapter employs a range of small case vignettes to illustrate, using Australian and New Zealand
examples, the main ideas being conveyed in the chapter. Learning objectives relate to the major issues
and themes of the chapter, and are outlined at the commencement of the chapter and then emphasised
in the appropriate spot as each chapter proceeds. The end-of-chapter review materials and problems link
back to the learning objectives. This linkage allows for the setting of targeted questions based on the
emphasis adopted when delivering the material to students. From a student’s perspective, this structure
has definite benefits as well, providing a clear link between the requirements of the question material
and the theoretical concepts discussed throughout the chapter.
Central to the discussion throughout the book is the notion of the business process. As business
processes become increasingly important to the organisation, impacting on organisational design and
operation, the perspective adopted by the text makes it contemporary and relevant. The fifth edition
presents business processes with chapters on the revenue process (chapter 10), expenditure process
(chapter 11) and general ledger and financial reporting (chapter 12). Additional chapters from previous
editions covering the manufacturing process and the human resources management and payroll process
are available through Wiley Custom Select. The scope of these processes offers a complete and com-
prehensive coverage of the typical business processes within the organisation. In addition, the range of
processes included means that the instructor has flexibility in what processes are covered and the extent
of emphasis within the individual AIS course design.
PREFACE xi
Linked closely to the business process and systems materials is an overview of current technology
trends including XBRL, which introduces a new perspective on financial reporting and accounting infor-
mation systems design. The text also covers the emerging technologies of cloud computing and data
analytics, focusing particularly on how these technologies impact the accounting role. The coverage of
ERP systems has been greatly expanded in this fifth edition.
Overall, much content has been enhanced in the fifth edition, including a new technology concepts
chapter covering ERP, systems applications and products (SAP), cloud computing and big data. Chapters
on internal controls, systems development, and ethics and cybercrime have been extensively revised.
Process maps have been added throughout chapters 10, 11 and 12 to more clearly depict the processes
and create new options for classroom teaching and learning.
Links to the various areas of the typical undergraduate degree are borne out in many topics in the
text — for example, the chapters on systems documentation and systems development. The intent of this
is to reinforce that Accounting Information Systems is not a standalone unit — it has direct relevance to
the various areas of the professional accountant’s roles and responsibilities. This perspective means that
a comprehensive coverage of AIS issues is now offered by the text, as well as greater flexibility in the
selection and sequencing of topics over the course of the semester.
The text offers discussion questions, self-test activities in the form of multiple choice questions, and
problems at the end of each chapter. Much of this material has also been revised and updated for the fifth
edition, including an expanded set of end-of-chapter problems. Many of the AIS Focus vignettes have
been updated.
The authors are grateful for the contributions of colleagues who invested time and effort to prepare the
teaching and learning resources that accompany the text.
Each of the authors would welcome any comments or suggestions about the content of the text and
any suggested changes or improvements for later editions of the text.
Alison Parkes
Brett Considine
Karin Olesen
Yvette Blount
March 2016
xii PREFACE
PART 1
Systems
fundamentals
In part 1 of this text we introduce the fundamental ideas and principles underlying business
information systems. Business information systems are an integral part of any organisation,
providing a means of capturing, organising and sharing data. Accounting information systems are
a specialised form of business information system; they record transactional accounting data,
convert data into information, and provide information to external and internal decision makers.
In this section we also explore these ideas in detail by describing fundamental systems concepts,
explaining the historical development of accounting information systems and discussing a range of
systems-related issues.
Familiarisation with systems fundamentals provides the foundation for subsequent chapters,
which cover the business processes that exist in an organisation, along with the design and
documentation of these systems and processes. Part 1 concludes with an overview and
roadmap of the text and provides brief descriptions of each of the remaining chapters.
1 Introduction 2
CHAPTER 1
Introduction
LEA RN IN G OBJE CTIVE S
After studying this chapter, you should be able to:

1.1 critically evaluate accounting practices, reflecting on how accounting information systems enrich and
extend the role of the accountant
1.2 compare and contrast data and information
1.3 critique and synthesise system concepts, giving examples
1.4 explain ‘accounting information systems’ and discuss their evolution
1.5 justify and communicate the role of accounting information in supporting decision makers
1.6 understand the environment in which AIS operates and the issues associated with AIS.
Introduction
Welcome to the study of accounting information systems! You are embarking on the study of an area that
will have far-reaching impacts on your professional life. Accounting information systems is a special-
isation offering exciting future-proof career opportunities which greatly increase the value of any busi-
ness degree. Given the pervasive nature of business information systems and technology generally,
accountants are increasingly expected to be able to be competent owners and managers of their special-
ised accounting information systems. Traditional approaches to accounting and audit are becoming less
relevant and effective as the automation of accounting processes and systems becomes widespread. A
related challenge for accountants and auditors is the changing landscape of business data. In addition to
the ability to capture new and potentially valuable streams of data (known as ‘big data’ or data ana-
lytics), the increasing use of online data storage (putting data ‘in the cloud’) poses many challenging
questions about the ownership and management of accounting data. Technology-driven changes have
created an increased demand for accountants who understand the business processes and information
systems in use in organisations.1
Accounting information systems are ubiquitous; you have probably encountered an accounting infor-
mation system in one form or another several times today without even realising it! For example, if you
used public transport, you probably had to validate your ticket before travelling. The act of validating
your ticket creates a transaction, which is captured as a data record in the accounting information system
used by the public transport provider. These millions of individual transactions are summarised and
converted into information which is used to support decision making around issues such as revenue allo-
cation and patronage loads on different routes. If you paid for your ticket electronically, you interacted
with an integrated accounting information system which combined systems from the public transport
provider, their bank and your bank to seamlessly transfer money from your bank account into theirs.
CHAPTER 1 Introduction 3
These simple everyday transactional systems not only directly affect the customer experience, but can
also create a valuable competitive advantage for the systems owner through the unique information they
generate. The value of an accounting information system is directly linked to the quality of information
generated by that system. A well-designed and controlled accounting information system records high-
quality data, provides valuable, insightful information, promotes sound decision making and ensures
ongoing high-level performance for the organisation.
Chapter 1 introduces you to the concept of an accounting information system and discusses some
general principles relevant to the study of accounting information systems, forming a foundation for
subsequent chapters.
1.1 What is an accounting information system?

LEARNING OBJECTIVE 1.1 Critically evaluate accounting practices, reflecting on how accounting
information systems enrich and extend the role of the accountant.
What accounting information systems are has been an ongoing issue for much of the research that has
tried to define the discipline. One of the constant challenges confronting the field of accounting infor-
mation systems is the need to carve out its own area distinct from other disciplines, while being part of
a constantly evolving and changing landscape. This section introduces you to some ideas about what
accounting information systems are, leading to the definition of an accounting information system that is
used throughout the remainder of the text.
We begin our search for the meaning of accounting information systems by going back to first prin-
ciples and looking at the three words individually: ‘accounting’, ‘information’ and ‘system’.
Accounting
As a business student, no doubt you will have some concept of what accounting is and what it involves.
The traditional role of accounting and accountants was to record details of transactions occurring within
an organisation, summarise and adjust that data as necessary, and then to prepare and distribute financial
statements and reports. The traditional accounting cycle typically included the following steps:
1. transaction occurs
2. analyse transaction
3. journalise transaction
4. post journal to ledger
5. prepare trial balance
6. adjust entries
7. adjust trial balance
8. close entries
9. prepare financial statements.
The aim of the accounting cycle was to provide meaningful information for use by decision makers,
both internal and external to the organisation. The accounting process, and the accountants who used that
process, was functionally a data storage and classification system, with transactions tagged and classi-
fied based on the accounts they affected to determine which account to debit and credit when entering a
transaction into the subsidiary and/or general journals. A set or ‘chart’ of accounts was tailored for the
organisation and the total amounts posted to each of these accounts were reported in the form of a ‘trial
balance’ of the general ledger. The modern rules around debits, credits and double-entry accounting
are based on ideas from the Italian mathematician, Luca Pacioli,2 who devised a method of recording
business transactions for the merchants of Venice during the Italian Renaissance. Those early merchants
faced the same issues their modern-day counterparts grapple with. How much have I sold? What is my
profit? To whom do I owe money and when should I pay it?
The primary difference today is that these steps of the cycle are routinely handled by computers rather
than by quill and ink notations made in vellum account books. So the boring and often frustrating task
4 PART 1 Systems fundamentals

of journalising and posting transactions to create financial reports is now performed more efficiently by
accounting information systems. These systems range in scope and complexity from a relatively simple
small business package like Xero or MYOB through to enterprise-wide modular systems such as those
offered by Oracle and SAP. Enterprise systems are typically designated as belonging to one of three tiers
(see figure 1.1). This automation of basic bookkeeping has changed the typical accountant’s role to one
of ensuring data quality, designing and validating usable financial reports, and advising senior corporate
decision makers.
Are all ERP solutions created equal?

There is a multitude of ERP systems available, so how do you decide which one is the right solution? All
ERP solutions are not created equal: one ERP may be too small to meet the needs of your organisation,
while another may be too large. Although other companies in your industry may be choosing to adopt a
particular solution, you need to work out what will work best for your business.
Spending more money up front won’t necessarily give you the best result. Total Cost of Ownership
(TCO) is high for a Tier 1 ERP — both the initial costs and the ongoing maintenance bills will be higher.
Selecting a less expensive Tier 3 ERP might not be the best idea either, as you can end up relying on
other applications to provide missing functionality. Also, you can end up storing crucial data outside the
system and become unable to meet business reporting needs. To help you understand the three ERP
tiers, a summary of each follows.
Tier 1 ERP software solutions
Tier 1 ERP solutions are provided by SAP and Oracle. They are designed for complex global organ-
isations with multiple operating locations and revenues typically in the billions. Tier 1 ERP solutions
contain many complex processes, from providing workflow functionality to supporting multiple users
accessing core functions simultaneously. While these are essential for a global organisation, smaller
companies can be overwhelmed by the overall complexity of these systems. Tier 1 ERP solutions
generally take the longest time to implement, contain a huge array of features and have a high price tag.
Tier 2 solutions are less complex and less expensive than Tier 1. Epicor ERP, Infor, Microsoft and Sage,
for example, fall into this group. As mid-sized ERPs suit many businesses, the competition here is fierce.
Both Tier 1 players offer a downsized version of their ERP to meet this market, while many Tier 3 players
are trying to move upmarket for the same reason.
Tier 2 ERP systems fit mid-sized companies with less complex needs than Tier 1 users; however,
the degree of complexity does vary widely. Vertical market players are common in the Tier 2 category,
developing software aimed at a single specialised industry. This helps with achieving fit; however, the
more specialised an ERP system is, the smaller its market will be. This makes Tier 2 vertical market
players more vulnerable to takeover by other players. Horizontal Tier 2 ERP systems providers tend to
be more stable and often offer partnerships with third-party developers to create missing functionalities.
At this lowest level, you’ve got Quickbooks, MYOB, Xero and Sage 50, formerly known as Peachtree.
These products generally do not offer the workflows of Tier 1 and Tier 2 solutions, and may not even
qualify as ERP systems. They usually offer only basic accounting functions. Small businesses and busi-
nesses using a business application with poor accounting functionality would benefit from adopting a
Tier 3 solution, as they offer a low TCO and are easy to implement. However, there is some risk that,
as the business expands, it may outgrow this system, but most Tier 3 solutions provide data migration
capabilities for users to upgrade these systems.3
FIGURE 1.1 Three tiers of enterprise systems
Enterprise systems are just one example of how traditional accounting roles have been revolution-
ised and broadened in scope to encompass tasks beyond the traditional accounting functions. Enterprise
systems also emphasise the role that technology has played in changing the perception and functioning
of accounting information systems in the organisation.
As computer systems have been developed to perform the recording and classification tasks
associated with business activities, the nature of accounting and the work of the accountant have also
been pushed in a new direction. Increasingly, the role of the accountant is seen to be to add value in
one of two ways: by active ownership and management of the accounting information system, and by
analysing and presenting information to the decision makers in organisations. As an example, look
at the following two quotes from the two major professional accounting bodies in Australia, CPA
Australia (certified practising accountants) and the Institute of Chartered Accountants in Australia
(ICAA).
Under the heading of ‘Why accounting?’, CPA Australia provides the following argument.4
Accounting studies give you the tools to understand how and why key business decisions are made, and
how to have input into those decisions. Having a qualification in accounting will open doors to career
opportunities within: finance and accounting, information technology, marketing, human resource man-
agement, e-commerce, international business, economics, running your own business, management,
strategy and business development.
Similarly, the ICAA defines a chartered accountant (CA) as someone who:5
bring[s] their analytic expertise to fields as diverse as strategic planning, market analysis, compliance,
change management and the use of information technology.
Some of the potential career paths associated with accounting are described in figure 1.2.
The world of professional accounting is bigger than you might think

Accounting positions exist in every part of business and include a wide range of roles, from payroll
officer to CEO or chair of the board. Many CPAs are business leaders. They work in a variety of organ-
isations, including small businesses, large corporations, multi-national investment firms, government
and private practice.
As a CPA, you’ll be equipped with the ability to analyse and interpret financial and non-financial infor-
mation, so you can advise a company on where it stands and where it’s headed. You will be recognised
as a trusted adviser.
Here are a few examples of the positions open to CPAs.
Chief financial officer

Responsible for keeping an organisation financially healthy. This means analysing data, presenting
reports and creating strategies for success. CFOs must also establish the best way to drive a business
to where it needs to go. If you enjoy being in control, this could be the role for you.
Forensic accountant
The detectives of the finance world. They track and analyse data to find missing funds, trace
illegal business activities and identify fraud. It’s a challenging and exciting field that could take you
anywhere.
Counter-terrorism financial investigator

Works with the police on financial matters relating to persons of interest in ongoing investigations.
Environmental accountant
Takes a ‘green’ approach to making money and finds ways to ensure a company is environmentally
responsible and profitable. They enjoy great professional rewards while helping the planet.
International accounting specialist

Part of a network of professionals helping manage cross-border transactions, global trade agreements
and overseas investments. A great career if you like your work fast-paced and ever-changing.

Accounting risk analyst
Risk analysts identify any strategic and operational risks. Plus, provide the necessary solutions to help
an organisation cope. You’ll need exceptional analytical skills and the ability to perform under pressure.
Associate at a major accounting firm
All-rounders who manage a range of accounts. Graduates who work for the major accounting firms
are mentored by some of the most experienced accountants in the industry, and look after a variety of
organisations.
Strategic procurement manager
The masterminds behind organisational deals. They perform market research to identify supplier best
practice and capabilities, develop evaluation plans and look after complex contracts. If you have a stra-
tegic mind and the ability to negotiate in tricky situations, this could be the perfect role for you.6
FIGURE 1.2 Careers in accounting
As shown in figure 1.2, the accountant’s role has extended beyond the task of capturing and recording
financial information about an organisation to being someone who provides information and solves prob-
lems for an organisation. The days of the accountant only being the one who maintains the books are
long gone. The career paths mentioned in figure 1.2, however, still rely on a knowledge of accounting.
Accounting is still an important skill to possess — it is just that what is done with those accounting
skills has changed.
Accountants are increasingly exposed to and working with technology and information systems; this
is the major theme of this text. Accountants of the twenty-first century must be comfortable with infor-
mation systems concepts as these systems play an important role in the management and functioning of
the organisation. This shift in definition of accounting and accountants towards a technology- based role
leads to the second component of the subject area: information.
1.2 Data and information explained

LEARNING OBJECTIVE 1.2 Compare and contrast data and information.
The traditional accounting process described in learning objective 1.1 is focused on capturing data about
the organisation’s financial activities. For example, every time a sale is completed, the details of the sale
will be recorded in the sales journal. The details of the sale are the data. Data are the raw facts relating to
or describing a single business transaction or event. For example, the data relating to a sale could include
the sale date, salesperson, customer involved, items purchased, sale price and so on. Every time a sale
occurs, this sales data will be gathered and recorded in the accounting system. The later chapters on data-
base concepts explain the options around data collection and arrangement in databases. The important con-
cept to consider for now is that each organisation chooses which data to collect based on their perceived
reporting needs, so data for a common transaction such as a sale may vary widely between organisations.
This ability to record appropriate data (i.e. only data that is useful to meet user needs) forms an important
part of the quality of the accounting information system. The main details of accounting transactions are
captured in the journals and subsidiary ledgers. Considered individually, these data items are of very little
use to us. For example, consider the data shown in figure 1.3, an extract from a sales journal.
The sales journal in figure 1.3 contains a record of each sale made by the organisation, with each
of these data records consisting of a standardised set of ‘fields’ or types of data related to the business
event of making credit sales to customers. As a basis for decision making, however, this mass of data is
not very useful. To understand why, consider a real-world business that engages in many thousands of
transactions every day. This would mean thousands of individual records being made in the sales journal
in a day. How useful would that be for those who have to make decisions? Probably not very useful at
all. Imagine the task of analysing sales or trying to identify trends in sales and customer sales levels if
all you had were the raw data in figure 1.3. It would be very time-consuming, difficult and potentially
inaccurate. So a way is needed to make the data useful.
Data become useful when they are subject to the application of rules or knowledge, which enables
us to convert data into information. Information is a guiding tool for decision making and can prompt
action. The sales data contained in the sales journal in figure 1.3 can be made useful by summarising
them in some meaningful way to support further analysis by decision makers. Examples of this could
include weekly sales summaries, sales by customer reports, profit margins per customer and so on.
Debit Credit
Date Customer Invoice # Accts Rec. COGS GST Payable Sales Inventory
02-6-15 A Bligh 1001 350 180 31.82 318.18 180
04-6-15 A Phillip 1002 121 65 11.00 110.00 65
05-6-15 G Macquarie 1003 143 80 13.00 130.00 80
07-6-15 B Earton 1004 400 200 36.36 363.64 200
08-6-15 B Dulloch 1005 650 400 59.09 590.91 400
09-6-15 S Pine 1006 500 300 45.45 454.55 300
10-6-15 K Riley 1007 423 290 38.45 384.55 290
11-6-15 M Blue 1008 644 500 58.55 585.55 500
12-6-15 D Malchio 1009 1110 670 100.91 1009.09 670
12-6-15 P Star 1010 225 100 20.45 204.55 100
13-6-15 F McGrath 1011 75 39 6.82 68.18 39
14-6-15 B Earton 1012 685 400 62.27 622.73 400
15-6-15 K Riley 1013 590 300 53.64 536.36 300
16-6-15 M Blue 1014 170 80 15.45 154.55 80
17-6-15 M Cook 1015 367 200 33.36 333.64 200
FIGURE 1.3 Example sales journal
To improve usability, the raw data records could also be summarised on the basis of sales by cus-
tomer, sales by geographic region (assuming geographic region data are available), sales by product type
and so on. When this is done, the data become more meaningful and easier to work with. Summarising
the data and turning it into information creates a useful tool to assist decision making. The concept of
data records and their creation and storage is explored in more detail in later chapters examining data-
bases and enterprise information systems.
One key issue with information is the potential to provide too much. This is described as information
overload, which happens when an individual has more information than they need, and as a result
experiences difficulty working through to a decision, which is obviously undesirable. Organisations need
to be conscious of what information they produce (whether reports or some other type of information)
and make sure that it is relevant to the needs of the people who will use it. Commonly in large organ-
isations, people will request reports for a specific problem. Over time, that problem may disappear, yet
the reports are still produced. In many cases, these reports will then just be filed away because ‘that’s
what has always been done’. So resources are wasted in generating the reports and the potential for
information overload and suboptimal decision making is created.

As an example of some of the different ways that organisations today are moving beyond conventional
accounting systems for information, read AIS Focus 1.1. This article reports on an initiative by Loyalty
New Zealand to use the large amounts of customer data collected from users of their FlyBuys program
to create new value for customers and retailers. Loyalty New Zealand uses SAS software to profile and
segment customers so as to provide better targeted offers to their customers. This helps not only with
understanding customer purchasing habits, but also provides the ability to customise products for niche
sections of a market and assess purchasing profiles of various consumer types.
AIS FOCUS 1.1
Loyalty New Zealand — reaping the big data rewards

Established in 1996 and based in Wellington and Auckland, Loyalty New Zealand operates a FlyBuys
loyalty program that recognises and rewards customers while also offering over 50 participating busi-
nesses vital information concerning their customers. The vision of Loyalty New Zealand is to create,
maintain and motivate loyal customers for their business partners. With 75 per cent of New Zealand
households being active members of the FlyBuys program, transactional information is systematically
recorded at point-of-sale (POS) terminals when customers use their FlyBuys card. This gives Loyalty
New Zealand access to rapidly growing, vast amounts of customer behaviour data. Loyalty New Zealand
is currently using big data to enhance the benefits and the value customers get by using their cards. Big
data refers to vast amounts of generally unstructured and distributed customer information collected
from various sources such as transactional histories, customer feedback and surveys, social media
applications, mobile device activity and software logs which can be processed by using special appli-
cation software in order to obtain new insight concerning customer behaviour.
Using SAS software, Loyalty New Zealand are enhancing their ability to better understand their cus-
tomers by way of profiling, segmenting and analysing data in order to target customers with meaningful
offers and campaigns that aim at providing the right offer to the right consumer at the right time. With
SAS, Loyalty New Zealand now can develop, scale and launch campaigns within a single day which is
almost 20 times faster than before. Specifically, Loyalty New Zealand now has many new capabilities,
including the ability to carry out highly targeted campaigns, the ability to model behavioural propensity of
consumers and the ability to profile them on the basis of the geographical area of residence and proximity
to business outlets. Customised recommendations can also be provided in real time to customers based
on continuously evolving individual product preferences. For example, recurring patterns of purchases of
baby products could be indicative of a new baby in the family of the cardholder, which can be used as a
basis to offer types of complementary baby products or even information related to relevant promotional
campaigns of businesses that are partners of Loyalty New Zealand in the cardholder’s geographical area
of residence. Recurring patterns of past purchases can also be used as a basis to anticipate the types
of products or services that customers might be likely to purchase into the future. For example, big data
applications can analyse present purchases of toddler products and use findings as a basis to provide
insight into the types of school-aged children’s products that the household is likely to be purchasing in
the near future. Integrating transaction histories from multiple business partners and past customer pref-
erences can also provide insight into what else and from where customers might be likely to purchase
in the future. Taken together, this information can be invaluable to help predict the manner in which cus-
tomers will behave and address it accordingly.7
1.3 What is a system?

LEARNING OBJECTIVE 1.3 Critique and synthesise system concepts, giving examples.
A system is an organised set of principles or procedures created and used to carry out a specific activity.
For the purposes of this text, the systems we discuss rely on the input–processing–output (IPO) model
used in information systems. Information systems receive inputs, process those inputs, and use those
processed inputs to generate outputs.
Inputs are the starting point of a system. The primary inputs for an accounting information system are
the data extracted from each business transaction as it occurs. For example, each time a sales transaction
occurs, a new sales record is input. Transactions are often recorded initially on source documents that an
organisation generates and receives in its normal business operations. Examples of various source docu-
ments are described in detail in later chapters of this text. These source documents are used to provide
documentary evidence for transactions input into the accounting information system. Transactions can
be input into an accounting system in a number of different ways, including the following.
Most common
•• Manual keying. As the name suggests, manual keying requires a person to enter data into a system via a
keyboard. This could introduce errors in the data if items such as names and amounts were incorrectly
keyed. As any errors are the result of human error, mistakes in the data tend to be random and inconsistent.
•• Scanning through barcode technology. This involves scanning a barcode with a laser device. The
barcode number is then searched for on a database and appropriate details returned to the system.
Examples of this include scanners at a supermarket, where universal product codes are used. As errors
are the result of technology error, mistakes in the data tend to be systematic and consistent.
Less common
•• Scanning through image scanners. Image scanners are a useful input approach where the input is in
the form of a diagram or graphic image. Scanners are used to capture the image, which is then stored
electronically.
•• Magnetic ink character recognition (MICR). This technology is used on bank cheques. A special ink and
character set is used, with computers able to read the ink due to its magnetic properties. MICR offers a
security control for banks and provides a quick method for scanning information into a system.
•• Voice recognition. Using voice recognition technology allows a computer to convert spoken words and
commands into data inputs. Issues with voice recognition technology can include training the system
to recognise words and deal with accents and different voice intonations.
•• Optical mark readers. You have most probably used this technology when completing multiple-choice
exams at university. Data inputs are coded onto a sheet by colouring in the appropriate space, and the
sheet is then fed through a machine that identifies where the dots are and, based on their location,
converts them into data that can be stored electronically. All marks made on the sheet need to be
precise and unambiguous, otherwise high error rates can be experienced.
Processing refers to activities that are performed on the inputs into the system. Again using the sales
system as an example, once sales data are entered into the system, various processing is undertaken,
including checking format and validity, manipulating inputs, and finally storage. Examples of format and
validity checks are discussed in the chapters on the different transaction cycles, as well as the internal
controls chapter, but the basic aim of data processing is ensuring that data are correct and in a valid
format. Manipulations refer to the act of performing calculations and adjusting the data inputs. As an
example, if a sales order is entered and the unit prices and the quantity of units sold are keyed in, the
system can then manipulate these two figures to generate the total price (sales price × units sold). Other
checks and manipulations performed on the data can be hash checks, to ensure that inputs like credit
card numbers and customer numbers are valid. These are discussed in more detail in later chapters.
Outputs refer to what is obtained from a system, or the result of what the system does. In the sales
system, outputs will typically include reports for decision making. Some examples of outputs from the
sales system could be receipts and invoices that are given to customers when a sale is executed, or sales
summary reports used by management to assess performance. When designing a system, it is important
to consider what outputs will eventually be required to ensure sufficient data input to the system to meet
the end-user needs. If, for example, customer details are not gathered when sales data are input into the
sales system, then it will be impossible to generate a sales report that breaks sales down by customer.
Interacting with the inputs, processes and outputs is the control system, which is the set of checks
and balances that ensures that the system is running as expected and that there are no data errors or
exceptional circumstances. For example, if data for a new customer, including a customer number, is
entered into a system, the system could take the customer number data entered and check that it is in
the required format and is a valid number. If the system finds an error in the customer number (e.g. it

has been entered as alpha-numeric when it should be numeric), then it will alert the data entry person
responsible and prompt them to re-enter the customer number in the correct format. Controls form an
important part of an accounting information system, so several chapters of this text are devoted to the
design and implementation of controls.
One example of a control is booking a flight online through Virgin Australia. If a departure date later
than the return date is entered, the user will get an error message alerting them to the incorrect sequence of
dates (for example, if the departure date was entered as 20 March 2015 and the return date was entered as
4 March 2015, which obviously does not make sense). To help ensure that only accurate and reliable data
enter the system, a control is put in place which advises the user that this sequence of dates is not accept-
able. The transaction will not be recorded until the date sequence has been input correctly. The design
and implementation of controls is usually the responsibility of a specialised system or risk accountant, or
a management accountant. Enforcing compliance with controls is a general management responsibility.
Checking compliance with controls is the responsibility of external and internal auditors. As many controls
are visible to customers and employees, it is important to ensure that controls are easy to use and unlikely
to offend or annoy. In 2015, a major Australian telecommunications provider issued a public apology after
an error message stated that the title of ‘Dr’ did not match the gender of the name (‘Rachel Cook’).
Any system needs to have a defined task or domain to which it is applied — one system cannot do
everything. This is the idea of system scope: the domain that a system addresses. Systems also operate
within a particular external environment, or context, which will affect the operation of the system. As
an example, an accounting system within an organisation has the scope of preparing the financial reports
that the organisation provides to its shareholders and other dependent users of the financial information.
The financial reporting system operates within the environment of the relevant accounting rules, regu-
lations, generally accepted accounting principles (GAAP) and standards that govern accounting prac-
tice. These rules and regulations are established externally through bodies such as the federal and state
governments and the Australian Accounting Standards Board (AASB), yet they have a definite impact on
the way that the accounting system is designed and operates within an organisation.
The idea of a system is an important one for the remainder of this text. Throughout the text, a range
of different systems and processes that operate throughout organisations will be examined. As you will
see, each of these systems can be broken down and analysed in terms of their inputs, processes and
outputs. The systems analysed include the revenue, expenditure and general ledger systems. These three
systems form the financial spine of most organisations and an understanding of the inputs, processes
and outputs within them is essential knowledge for an accountant. They are also examples of a generic
transaction processing system (TPS), which are systems designed to capture and record recurrent events
that occur in a business’s operations. They can be customised to different types of transactions, including
a purchasing TPS to handle purchases, a human resources TPS to handle payroll and associated human
resources transactions, a sales TPS to handle sales activities and so on.
1.4 Definition and evolution of accounting

information systems
LEARNING OBJECTIVE 1.4 Explain ‘accounting information systems’ and discuss their evolution.
From the above discussion, an accounting information system can be defined as deploying a tech-
nology solution to capture, verify, store, sort and report financial data relating to an organisation’s
activities. This encompasses the definitions of accounting, information and systems as discussed above.
Bear in mind that the definition of an accounting information system includes technology that currently
would mean computer technology. However, as was discussed in the introduction to systems, a system
does not have to be computerised. An accounting information system could operate manually; however,
the reality for organisations today is that most accounting systems are computerised, so this text assumes
some degree of computerisation exists in all accounting information systems.
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of which set closely enough together to keep fragments of shells
from going through should one hit and explode on deck.
On our battleships the main battery is generally made up of four
10 inch, 12 inch or 13 inch breech loading guns and these are
mounted in revolving turrets one of which is forward and one aft. The
Alabama had four 13 inch guns in the large turrets and twelve 6 inch
guns on the broadsides. I’m telling you that if Huerta had been at
Vera Cruz when we got there and taken a look into the muzzle of
one of our 13 inch guns he’d have saluted the flag without any more
of that mañana business. As it was he was safely out of range of our
guns for Mexico City is over 200 miles from Vera Cruz.
In the early days of wireless when every Tom, Dick and Harry was
getting up a “new” wireless system the Navy Department tried out all
of them. It would not use the Marconi system because the
government wanted to buy the apparatus outright while the policy of
the Marconi Company was to lease their apparatus.
The favorite type of wireless apparatus used by the Navy
Department was known as the Telefunken, a German getup that was
a combination of the Slaby-Arco and the Braun-Siemens and Halske
systems. The transmitter of our station was one of this kind and
consisted of an induction coil with a mercury turbine interruptor, an
electric motor to run it and the usual key, loose coupled tuning coil
and condensers.
The receiver was of a later type and had both a crystal detector
and a vacuum tube detector, the latter being the invention of Dr.
Fleming of England who has been Marconi’s technical adviser for
many years. This detector is really a small incandescent lamp bulb
with not only a filament but a metal plate sealed in it. The filament is
kept at a white heat by a current from a storage battery.
When the telephone receivers are connected to the hot filament
and the cold plate electrodes, the high frequency currents that are
set up in the aerial by the incoming electric waves are changed into
direct currents and the varying strength of these act on the head-
phones. This detector is very sensitive and needs no adjusting.
Many of the messages we sent and received were in straight
English but nearly all the important ones, especially those for and
from Washington, were in code, the purpose of which was to prevent
any one else, except our officers, from reading them and this kind of
message is not very interesting but we know that something is going
on anyway.
We anchored off Vera Cruz on the 21st and the natives must have
thought from the number of warships that hemmed them in that we
were going to blow them to smithereens. A few hours after our arrival
we landed a thousand marines and they drove back Huerta’s
soldiers and captured the customs house.
The chief reason this was done was because our government had
got wise to the fact that a couple of German ships were scheduled to
arrive at Vera Cruz with a cargo of guns and ammunition for Huerta,
and our Commander had received orders on the way down to
prevent this by seizing the customs house.
There was not much show of armed resistance on the part of
Huerta’s men but in the scuffle that took place four of our men were
killed and about twenty were wounded. I made up my mind right then
and there that if I ever got a chance I’d blow the sombrero off of
some greaser out of pure revenge.
The favorite method of warfare that is waged by the Mexicans is
sniping, that is, they hide behind something and take a shot now and
then at you. As a result of sniping a few days later the number of our
men that had been killed was brought up to eighteen and the number
of wounded to 71.
When things had quieted down Hart Douglas, another operator
and I got a six hour shore leave. We buckled on our holsters and
slipped our revolvers into them with small thought of having a
chance to use them. We took a look around the town and all went
well for awhile when zip, zip, a couple of bullets whizzed by my ear
and Hart dropped with a bullet in his lung.
I whipped out my gun and wheeled around just in time to spot a
couple of snipers lying on a near-by roof with their rifles pointing
toward us. I emptied the five chambers at them as fast as I could pull
the trigger. I got one of them; he raised himself to his feet and
pitched headlong into the street. But the other one got me for he
drew a bead on my gun arm which, also don’t forget, is my key arm.
A couple of marines put poor Hart on a stretcher and carried him
over to a field hospital. Another bound up my arm, walked with me
over to the launch and when I got aboard my ship the doctor dressed
it.
“I WHIPPED OUT MY GUN JUST IN TIME TO SPOT A COUPLE OF
SNIPERS”
No more shore leaves were granted the men because two
perfectly good operators had gone ashore and two miserable good-
for-nothing operators had returned. Hart hovered between life and
death for weeks but he finally pulled through though he never will be
as good a man as he was. I came along all right but my hand
seemed paralyzed from the wrist down and it was many a moon
before I could use a key again with my right hand. I guess you see
now why I like those greasers so well.
Our marines remained on duty until the end of the month when
General Funston arrived from Galveston with about four thousand
troops and took possession of the port. It was hard to see what turn
affairs would take next for Huerta had an army of 5,000 men not very
far from Vera Cruz. But I guess he had heard of General Funston
before and he didn’t care about being captured as Aguinaldo, the
Philippine leader, was.
Instead of having some small war the diplomats of the A B C
governments of South America, as Argentine, Brazil and Chile are
called, offered to try to negotiate a friendly settlement between the
United States and Mexico. President Wilson, who liked peace and
hated war, at once accepted their kind offer and agreed to send
representatives to their proposed conference. The following day
Huerta agreed to send his representatives to the A B C conference
which was to be held in the town of Niagara Falls on the Canadian
side of the river.
Finally, when all the representatives met, the first thing that was
done was to have an armistice signed by the United States and
Huerta’s government. As soon as this was done Huerta’s
representatives tried to have the United States withdraw its forces
from Vera Cruz and the United States forego the salute for the insult
to our flag. The representatives of the United States asked only that
Huerta resign.
After deliberating for five weeks the representatives of all the
countries agreed that a provisional government should be
established in Mexico, and that Huerta should resign; that the United
States should not ask Mexico to pay an indemnity nor to ask for a
salute or other apology for the insult to the flag at Tampico and that
our troops were to remain at Vera Cruz.
In the meantime Huerta was being hard pressed by Carranza on
the north and the rebel Zapata on the south and with our troops
occupying Vera Cruz it evidently suited him very well to resign. So on
the 10th of July Huerta appointed Chief Justice Corbajol to be
president in his place.
It was common talk among the blue-jackets on our ship that
Huerta had some 3,000,000 dollars deposited in banks somewhere
in Europe and that he planned to go there. Be that as it may he
handed in his resignation to the Chamber of Deputies a week later
and left for Puerto, Mexico, on a special train under heavy guard.
From there he sailed for Jamaica and thence for Europe.
Thus it was that Huerta, the Indian descendant of the Aztecs, who
always went one way and came back another, got out of saluting our
flag and probably saved his life.
CHAPTER IX—ON A SUBMARINE CHASER
Very shortly after Huerta resigned the presidency of Mexico and

made his get-away, the ex-Kaiser let loose the war-dogs of Europe
and here I was signed up for four years in the Navy and, I figured,
didn’t stand a ghost of a chance of breaking into the fight. It seemed
to me a pretty tough deal that old Huerta could resign his job while I,
a free American citizen, couldn’t quit, resign, go-over-the-hill, or
anything.
What I wanted to do was to get over to England and sign up there
for it was dollars to doughnuts in my mind that there would be some
small bickerings going on between the British and the German
navies and it would be well worth while to see those big guns get into
action. I hadn’t the remotest idea, then, that the Imperial German
Navy, as those boches so loved to call it, would be afraid to come
out in the offing and put up a fight. But when it came to torpedoing
unarmed passenger ships loaded with women and children, or
hospital ships carrying wounded soldiers they were right there Fritzy-
on-the-spot with their blackheads as they called their Whitehead
torpedoes.
While the ex-Kaiser’s navy could not be induced to leave its mine-
protected harbors and do battle with the British fleet—no, not even if
all Germany starved to death—crafty, old Admiral von Tirpitz began
to build up a frightful fleet of U-boats with the avowed intention of
sinking every merchant ship, no matter what flag she flew, if she
carried foods or munitions to England and her Allies.
As the United States was shipping cargoes of both of these
commodities to Great Britain and France, which was entirely within
her rights according to international law, it was not long, as you can
imagine, before the German U-boats were sinking our ships and
killing our men.
It was bewhiskered Admiral von Tirpitz who figured out and
showed the ex-Kaiser that the only way left open for Germany to win
the war was to sink every ship afloat that did not fly the German flag,
and soon after this program was agreed to by the war-lords they
seemed in a fair way to succeed, for they were sinking ships faster
than the Allies and the United States could replace them.
Any number of schemes to beat the U-boats were thought up and
while most of them were quite impracticable there were a few that
proved effective when put to the test. One way was to build more
merchant ships every month than the U-boats could sink and when
Uncle Sam put the job into Mr. Schwab’s hands this was done.
Another plan was to hunt down the U-boats with submarine chasers.
A submarine chaser is a small, high-speed boat carrying one or
more rapid fire guns.
As you know a submarine can shoot a torpedo at the biggest ship
afloat and if it hits her she is sure to sink in a few minutes and yet it
is the easiest thing in the world to send a U-boat to the bottom if you
can only get a chance to land a shell on her.
Just before we got into the war Germany built two great
submarines each of which was over 300 feet long. One of these U-
boats was the Deutschland and the other was the U-53, and both
had a cruising radius of about 5,000 miles, that is, they could travel
that distance without having to take on food or fuel.
No one here ever thought that a submarine could make a trip
across the ocean but the Deutschland did it. She left Bremen,
Germany, and submerged while in the river, then she slipped out into
the seaway under the British fleet that had the German warships
bottled up, made the passage of the North Sea on and under the
water, thence through the English Channel going this dangerous
route entirely under water and across the Atlantic Ocean during
which she submerged only when she saw some of the Allies’
warships.
Then one fine morning, 16 days later, she came to the surface in
Chesapeake Bay and docked at Baltimore. There she unloaded a
cargo of dye-stuffs and synthetic gems and took on a cargo of
rubber, and, what was of more importance, secret papers which
Count von Bernsdorf, Germany’s ambassador to the United States,
could not trust to go any other way. On sailing she made her way to
the mouth of the bay, submerged to escape the British ships which
were laying in wait for her beyond the three mile limit and returned to
her home port. Later on she made another round voyage with equal
success.
When we got into the war it was clear that we had a war-zone
right here at home and one that was not to be sneezed at, for, since
a submarine could be built large enough to travel the whole distance
from Europe to America without having to be convoyed by a base, or
mother-ship as she is called, Germany could as easily send over to
our shores one or a dozen submarines as large as the Deutschland,
fitted out with rapid-fire guns and torpedoes and do a lot of damage
to our shipping and even to our cities. The Navy Department
believed that the best way to protect our coast was to build a large
fleet of U-boat chasers and this work was gone ahead with as fast as
possible.
Now while I can use a key with my left hand nearly as well as I
could with my right, still my arm pained me a good deal and I could
have gotten a long leave of absence if I had asked for it. So when I
told the commander I wanted to be transferred to a U-boat chaser he
fixed it O. K. for me and I was assigned to the Second Naval District
which patrolled from Newport to the First and Third Naval Districts.
The chaser I was assigned to was a brand-new one just off the
ways and of the very latest type; she had a length of 110 feet, a
beam a little under 15 feet and a draft of about 4 feet. She was built
chiefly of wood but she had a pair of steel masts and a crow’s nest
for the lookout whose job it was to watch for U-boats. She was
powered with a steam engine but instead of coal she burned oil
under her boilers. Her large size made her very speedy and she
could do 25 knots, if she had to, which was twice as fast as the
fastest U-boat could do.
The aerial was stretched between her masts and the leading-in
wire was connected to it near the rear mast and followed it down to
the deck where it passed through an insulator in the latter, and on
into the operating room. This was about the smallest space I ever
got into which was graced by the name of an operating room but I
had no kick coming as we were not afloat all the time.
The sending set had a ½ kilowatt transformer and the receiving
set was fitted with both crystal and vacuum detectors; the whole
space taken up by them was probably not more than 5 cubic feet.
Well, so much for the chaser.
There were only 14 men in our crew and there was far less
formality on board than on a battleship. Bill Adams and I got to be
pretty good pals. The first time I met him he was trying out one of her
Hotchkiss semi-automatic guns and I was watching him.
“Where did you get that chunk of mud?” he queried as he pointed
the gun at an imaginary U-boat.
“Speaking to me?” I asked in turn.
“You said it,” he replied bluntly.
“If you refer to the sparkler on my annularis finger I have to inform
you, sir, that it came from the land of the Raripunas about 1500 miles
up the Amazon river,” I explained with great perspicacity.
You see, I had had the diamonds cut that Princess Mabel gave me
and the one I wore was a regent weighing about 2 carats and it was
mounted in a Tiffany setting. In fact it was altogether too big a
diamond for any ordinary blue-jacket to come by honestly.
“That’s where it came from, but I’m askin’ you, as man to man
now, where did you get it?”
“Right where it came from,” I put it straight back to him.
If it hadn’t been for my game arm I guess Bill and I would have
settled the mooted question as to where my chunk of mud came
from by referring it to the court of last resort, by which I mean the
manly art of hit-’em-again, gob.
“Put up your dukes,” commanded Bill at the same time striking an
attitude of a gas-house slugger.
Now to get my right hand up I had to lift it with my left and when
Bill saw this he yelled, “time, you win!”
Then his eyes softened, his voice lost its harshness and he
became sympathetic. He wanted to know how it happened and all
about it. And then we got the matter of the chunk of mud
straightened out to Bill’s satisfaction. From that time on Bill and I
were pals and we used to swap stories. He had been in every corner
on the face of the earth except South America and his stock of
experiences was a large one. To keep even with him I had to
manufacture tales out of raw material as I went along and I often
thought he did the same thing. Say, he certainly put over some
regular crawlers. He never got tired of talking about the prospects of
mining diamonds in Brazil and all I had to do to get him going was to
flash my sparkler on him and he was transported as if by magic to
equatorial South America.
Like dozens of other fellows I have met, Bill was a strange
contradiction of brains in that he was a natural born hard boiled egg
and yet when a fellow needed a friend he was as compassionate as
a Salvation Army lass in a trench under fire; again he was ignorant,
yet wanted to learn. For instance he wanted me to teach him
wireless; it was all vague and intangible to him. He had to have
something he could see in three dimensions instead of having to
visualize it in his mind; his one big talent lay in his being able to hit a
target with a projectile of small or large size and accordingly he was
able to serve his Uncle Sam nobly and with telling effect.
You may or may not know it but a fellow can join the navy and live
aboard ship a long time and still know but very little about any part of
her, except his own particular branch, unless he keeps his eyes and
ears open and talks with fellows who know and can and will answer
his questions intelligently. Bill was ignorant when it came to book-
learning but he knew all about submarines and submarine chasers
from their bottoms up.
I had asked him why it was that a torpedo from a U-boat couldn’t
hit a submarine chaser and also to tell me something about the
fighting qualities of U-boats.
“You see, matey,” explained Bill wisely, “the torpedoes made for
the Kaiser’s U-boats are adjusted so that after they are shot from
their tubes they run through the water at an even depth of between 8
and 9 feet below the surface. Now a boat of any size draws far more
water than this and, of course, if the torpedo hits her at all it will be
below the water line and she goes down. But this chaser of ours
draws only 4 feet of water and so a torpedo, if it behaves itself,
would pass clean under her and never touch her.
“The trouble is,” he went on, “that there never was a torpedo
made that stuck to its course and it is liable to shift to the port or
starboard or to come to the surface and for this reason we never
take a chance but dodge them. You can always tell when a torpedo
is coming by the thin white wake she makes on top of the water and
while a ship can’t get out of its way, a speedy little boat like ours can
make a quick turn and give it a wide berth.”
“Who got up the idea of a submarine chaser?”
“Well, that I don’t know about, matey, but I do know that when
Germany sent out her first U-boats to the coast of Great Britain to
sink her ships, all sorts of motor boats which had a length of 40 feet
and over were pressed into service; these boats had guns mounted
in them and they combed the sea in search of the submarine enemy.
“The first German U-boats were slow old craft and they stuck
close to the coast where the ships were the thickest. This made it
easy for the British armed motor-boat patrols to hunt them out and
send them to the bottom. It was soon seen that larger and faster
patrol boats carrying heavier guns were needed to keep up with the
newer and faster U-boats that were sent to take the place of those
the British sunk and so speedy 80 foot boats were built specially for
patrolling.
“By the time we got into the war the U-boats were so big and fast
that to catch them we had to have regular torpedo boats, except they
are without torpedoes, built to run them down and this is exactly
what this chaser we are now on is. With our chaser we can go twice
as fast as any U-boat the Germans ever sent out and I’m telling you,
matey, that if I ever spot a U-boat coming to the top and she is inside
the range of this Hotchkiss her crew might just as well kiss the
Kaiser good-night.”
The way the submarine chasers work is like this: A base is set up
on shore close to that part of the coast waters, or zone as it is called,
that a squadron, which is formed of a dozen chasers has to patrol.
The shore base is fitted up with living quarters for the crews of the
chasers, besides reserve crews who may be needed in an
emergency, and there are also artificers, that is mechanics,
carpenters, painters, etc., who stayed on shore so that when we
were relieved from duty and came in, our boats were looked after as
carefully and overhauled as thoroughly as a millionaire’s automobile.
The base also has a wireless station and any chaser can get in
touch with it should occasion arise for her to do so. Each base also
has one or more destroyers which carry heavier guns and these are
stationed near by so that should the enemy loom up and prove too
much for the guns of our chasers the larger boats can be signaled to
help.
When a squadron of chasers leaves its base for the zone it is to
patrol it is split up into two divisions of six boats each and a division
officer is in charge of each one. Each chaser is given a certain area
to patrol and she works with all the other chasers in her squadron,
the shore station and ships at sea. If a U-boat has been sighted at
sea, the ship who has picked her up immediately sends a wireless
message to the base which in turn informs the commander of the
squadron.
Should a U-boat venture into one of our zones the chasers get as
busy as hornets and scout around until she either slips away or
comes to the top to enable her commander to take a look around
through his periscope to see if there is a ship in sight worth using a
torpedo on.
Besides the regular wireless set each submarine chaser is fitted
with a sound conduction signalling system and this is used to detect
the presence of a U-boat when it is submerged and cannot be seen,
though to do this the enemy boat must be near-by. This conduction
scheme is very simple and you’ll get me fine as I explain it.
Water, as you know, conducts sound waves to much greater
distances than air does. You must have often made the experiment
when in swimming of ducking your head under water and listening
while another fellow would strike a couple of stones together under
water at a distance of thirty or forty feet away from you; and yet you
could hear them click as they struck each other as plainly as you
could in air a couple of feet away.
Now, signalling between submerged submarines or a submarine
and a chaser is carried on on exactly this same principle, that is by
the conduction of sound waves through the water. To do this kind of
wireless signalling each submarine has a high-frequency sound
producing apparatus, or oscillator as it is called, attached to the hull.
It consists of a diaphragm, or disk, that is set into very rapid vibration
by means of an electromagnet, just as the diaphragm of a telephone
receiver is made to vibrate by its electromagnet.
The disk, or diaphragm, which is very much larger than that of a
telephone receiver, sets in the water and when it is made to vibrate
by closing the circuit with the key it sends out trains of sound waves
to considerable distances through the water.
The other submarine, or chaser, is fitted with a like disk which is
fixed to a microphone, or telephone transmitter, and to this a battery
and telephone receiver is connected. When the high frequency
sound waves from one submarine reaches the second submarine
they impinge on the disk of the microphone when it vibrates; this
varies the battery current flowing through the microphone and you
hear the dots and dashes in the receiver.
Now when a U-boat, or any other kind of a power vessel, gets
within a certain range of the chaser the hum of the machinery in her
sets the hull into vibration and you can hear it in the receivers. So,
you see, whether a U-boat is afloat or submerged it is pretty hard for
her to escape the eternal vigilance of the chaser.
We had received word by wireless that a U-boat had been sighted
about a hundred miles off the coast and that she was one of gigantic
size. We swept our area with great zeal, the lookouts in the crow’s
nest being changed every two hours; the gunners were at their guns
ready for instant action and John Paul Jones Boggs, the other
operator and I took turn about listening-in.
I don’t want to brag about myself but I found out a long time ago
when I was a kid operator back home that I had a more sensitive ear
than any of the other fellows, that is, I could differentiate dots and
dashes and take down messages that they could only get as a
jumble of signals. Later on I began to experiment with head-phones
and tried out every make I could get hold of in order to find one that
was particularly sensitive and especially suited to my ear.
When I was chief wireless operator on the Andalusian I met
operators from all over the world. Once when I was in London I
scraped up an acquaintance with a young Swede and he had about
half-a-dozen pairs of head-phones that he had picked up in different
countries. Telephone receivers for wireless work are like violins in
that no two of them are alike and you can’t tell by their appearance
what they are really worth; like violins, too, telephone receivers
improve with age provided the magnets are made of the right kind of
steel and properly tempered.
One of the pairs of head-phones this Swede operator showed me
was made in Sweden by the Ericsson Telephone Manufacturing
Company, and it was by far the most sensitive phone I had ever
used. I bought the pair off him for a sovereign but they are worth
their weight in gold. With this pair of Ericsson’s on my head I was
listening-in for all I was worth. I kept this up intermittently for about 6
hours when I was rewarded by hearing the faint whirring sound of a
propeller. I reported it to my commander and he said it was a U-boat
all right.
He had our engine stopped so that I could hear her to the best
advantage. The sound of her machinery through the water got a little
louder and then stopped entirely and we guessed that she was
resting. Not to be fooled we stuck right to our posts another five
hours but there was nary a sound from her.
Then the lookout in the crow’s-nest telephoned down that he had
sighted the periscope of a U-boat. Did you ever see a field of race
horses just before the signal was given them to start? Well, every
man-jack of us felt just as high strung and spirited only we didn’t
show it. The commander ordered me to signal all the other U-boat
chasers of our squadron to join us.
The U-boat had come to the surface so that her captain could take
a look around and see if there was a ship in sight that was worth
sinking. Seeing nothing but our little boat the U-boat came awash,
that is her conning tower projected above the water and her deck
was just level with the surface of the sea. The captain of the U-boat
was evidently observing us through a port from the inside of the
conning tower and seeing that our guns were manned and that we
were making for her at full speed he had ordered her guns to be
brought into action. Each gun was mounted on her deck in a gun-
well and was hoisted into place together with its gunner by a plunger
worked by compressed air.
We closed in on her and then the shells began to fly. A high sea
was running so that it was well nigh impossible for her gunners to hit
us or for ours to hit her, but soon a shell, bad luck to it, carried away
one of our masts and my aerial with it. I rushed up on deck and there
I saw eight or ten of our little chasers heading for the U-boat, which
was the U-53, the largest submarine that Germany had turned out
with the exception of the Deutschland.
As each chaser came up the fight got hotter but the U-boat stayed
in the game until her captain saw our destroyer coming and then he
concluded it was time to submerge her. We knew her captain had
given the order to his wheelsman to make her dive for her guns and
gunners began to disappear in the deck-wells and in a few seconds
the covers closed down on the latter watertight. Her hatches were
closed and her engines, which had been started, propelled her
slowly through the water which must be done to make her dive at the
proper angle.
“A BRIGHT FLASH OF BLUE FIRE SHOT UP THROUGH THE HOLE”
Just as her bow submerged Bill put over a shell with a bow
trajectory, that is, he aimed his gun so that when he fired the
projectile shot high into the air and seemed as if it would go far over
the U-boat. But Bill knew what he was doing and the shell fell
squarely on the U-boat’s deck just aft her conning tower.
Having found the range he planted three more shells on her with
marvelous accuracy; the last one went through her bow and must
have exploded in her torpedo room for a bright flash of blue fire shot
up through the hole for fifty feet and this was followed by a dense
greenish smoke that rolled out as though she was a blast furnace.
After a couple of misses Bill landed another shell on her stern and
this one ripped an awful hole in her; the water poured into her and
amid a series of explosions that threw steaming water into the air like
young geysers, with much sizzling and hissing she went down stern-
end on never to rise again.
A great hurrah went up from all hands on our boat and our
Commander commended Bill on his excellent shots.
“Three cheers for big Bill,” I shouted and the gobs responded with
mighty lung-power.
“That’s the way to swat ’em, eh, matey?” remarked Bill with grisly
joy as we were cleaning away the wreckage.
“I say it is, Bill,” I made reply.
CHAPTER X—A SIGNALMAN ON A SUBMARINE
Don’t think for a moment that Germany was the only country that had
a fleet of submarines. The reason that her U-boats came to be so
well known was because they had torpedoed the Lusitania and sunk
helpless ships right and left no matter who was on them or what they
carried.
England and France had fleets of submarines, too, but as their
warships had blockaded Germany’s ports there was nothing to
torpedo. And when we declared war on the Kaiser, Uncle Sam began
to build submarines just as he did chasers, merchant ships and
everything else. Except airplanes, did you say? There was no such
fizzle made of building submarines as for a time was made of
building airplanes in the beginning of the war. Within a short time
after we got started our Navy Department was able to turn out a
brand-new submarine every two weeks. Think of it! Once the kind
and the size of the submarine we needed had been agreed upon by
our naval experts, that is, standardized as it is called, machines and
jigs were made by which each part was stamped out of a solid sheet
of metal, and this was done, not in one or a dozen factories, but in
hundreds of factories scattered all over the country and each of
which made a single part.
These parts were shipped to docks at various ports on the Atlantic
seaboard and there artificers of all kinds were ready to assemble
them, that is, to put them together. Thus it was that in two weeks
after the ore was mined it was made into parts, assembled and the
submarine was ready for its perilous cruise.
While the building of submarines was thus speeded up there was
another factor that made for their efficiency as a destructive engine
of war which was just as important as the boats themselves and that
was the crews to man them. Aye, and there was the rub, for a crew
could not be trained for this highly specialized work in less than two
months’ time and sometimes it took three or four months.
Because the submarine job was considered an extra-hazardous
one, volunteers were called for to man the boats and as an
inducement for bluejackets to do so a good bonus, that is, extra pay
was offered. Now Bill Adams knew all about submarines, as I think I
told you before, for he had worked for the Holland Submarine Boat
Company long before the world-war started.
“Let’s me and you go to it, matey,” he said, in one of his bursts of
patriotism; “it isn’t quite as soft a snap as we’ve got on this here
chaser but we gets more time ashore and then we helps our Uncle
Sammy. Besides I’ve made up me mind to buy me mother a flivver;
all the washladies in our neighborhood is ridin’ to and from work in
them baby land-tanks of Mr. Ford’s, and I guess what they can do
she can do, eh, matey?”
“Why not?” I allowed. “She’s got a better right to ride in a motor
car than a lot of those high-falutin’ women who live in glass conning
towers on Fifth Avenue and never had a son to fight for Uncle Sam.
They take everything and they give nothing.”
“Well, I wouldn’t quite say that, matey,” Bill answered thinking hard
within the limits of his ability; “I used to be a kind of anarchist myself,
I guess, as I always felt as how I’d like to throw a bomb—no, not a
bum—into some of them swell places, but I’ve got all over it. Why?
Because if it wasn’t for them big bugs, them rich Janes, there
wouldn’t be any Red Cross, see? Every last one of ’em that is over
eight and under eighty is handin’ out the coin, givin’ the glad hand
and workin’ like gobs holystonin’ the decks and scrapin’ cable for us
guys what’s in the navy and army. But I’m askin’ you, as man to man,
matey, will you volunteer with me for submarine duty?”
“I’m willing to try anything once, Bill, and I’ll take a chance with
you on this submarine deal,” I told him.
So Bill and I signed up for submarine service and after the crew to
which we belonged had had intensive training for several weeks we
were assigned to the H-24 and we went down to Newport to man
her. There the first time I saw her she was swinging from a crane
high in the air for this was the way they launch these sea babies.
She was simply lifted bodily from the dock where she was
assembled, swung over the water and gently deposited on the
surface.

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FIGURE 1.1 Three tiers of enterprise systems

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02-6-15 A Bligh 1001 350 180 31.82 318.18 180

04-6-15 A Phillip 1002 121 65 11.00 110.00 65

05-6-15 G Macquarie 1003 143 80 13.00 130.00 80

07-6-15 B Earton 1004 400 200 36.36 363.64 200

08-6-15 B Dulloch 1005 650 400 59.09 590.91 400

09-6-15 S Pine 1006 500 300 45.45 454.55 300

10-6-15 K Riley 1007 423 290 38.45 384.55 290

11-6-15 M Blue 1008 644 500 58.55 585.55 500

12-6-15 D Malchio 1009 1110 670 100.91 1009.09 670

12-6-15 P Star 1010 225 100 20.45 204.55 100

13-6-15 F McGrath 1011 75 39 6.82 68.18 39

14-6-15 B Earton 1012 685 400 62.27 622.73 400

15-6-15 K Riley 1013 590 300 53.64 536.36 300

16-6-15 M Blue 1014 170 80 15.45 154.55 80

17-6-15 M Cook 1015 367 200 33.36 333.64 200

FIGURE 1.3 Example sales journal

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