Accounting information systems controls and process 2nd tunnwe weickgenannt chapter 01

Chapter 1-4 Overview of Business Processes Overview of Business Processes SO 1 An overview of business processes Accounting Information System must identify the ► Transactions to record

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Prepared by Coby Harmon University of California, Santa Barbara

Westmont College

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Accounting Information Systems, 2nd Edition

Introduction to AIS

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1. An overview of business processes

2. An overview of an accounting information system

3. The business process linkage throughout the supply chain

4. The IT enablement of business processes

5. Basic computer and IT concepts

6. Examples of IT enablement

7. The internal control structure of organizations

8. The importance of accounting information systems to

accountants

9. The relation of ethics to accounting information systems

Study Objectives

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Overview of Business Processes

SO 1 An overview of business processes

Accounting Information System must identify the

► Transactions to record,

► Capture all details,

► Properly process into correct accounts, and

► Provide reports externally and internally.

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Chapter

1-5 SO 1 An overview of business processes

Business Process - a sequence of work steps performed in

order to produce a desired result

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Four general types of business processes:

1 Revenue Processes (Chapters 8)

a Sales

b Sales return

c Cash collection

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2 Expenditure Processes (Chapters 9 and 10)

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3 Conversion Processes (Chapter 11)

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Internal controls are the set of procedures and policies

adopted to:

1. safeguard assets,

2. check accuracy and reliability of data,

3. promote operational efficiency, and

4. encourage adherence to prescribed managerial practices

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d revenue process

When a customer returns goods that were purchased, the

business process to accept the return would most likely

Advance slide in presentation mode to reveal answer.

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Exhibit 1-1

Overview of an Accounting Information System

The Accounting Information System

SO 2 An overview of an accounting information system

Various Business Processes

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Which of the following is least likely to be an output of the

accounting information system?

The Accounting Information System

SO 2 An overview of an accounting information system

Review Question

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Process Throughout the Supply Chain

SO 3 The business process linkage throughout the supply chain

► Customers

► Intermediaries

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Supply Chain Management - the organization and

control of all materials, funds, and related information in the logistics process, from the acquisition of raw materials to the delivery of finished products to the end user (customer).

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Exhibit 1-2

A Simplified Supply Chain for McDonald’s

A simplified Supply Chain for McDonald’s

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1-16 SO 3 The business process linkage throughout the supply chain

The Real World

An organization such as McDonald’s must have many different suppliers of the

same product because of the need for fresh ingredients For example, the regional bakery in the next exhibit provides buns for McDonald’s in a five-state area

As you have traveled, you may have noticed that your Big Mac is always the same,

no matter where you go Even the buns are exactly the same in each town and city McDonald’s plans for this uniformity in buns and must have many suppliers

throughout the world that can make and deliver a consistent quality bun

East Balt Inc is one of the large bakeries that supplies McDonald’s with buns East Balt bakeries make these buns according to strict standards of size, shape, color,

height, and seed coverage To maintain freshness, the buns have to be baked in

regional locations It would be much too difficult to have one central location bake all buns for McDonald’s Therefore, McDonald’s must have many different suppliers of buns throughout the world

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c The supply chain includes information flows.

Which of the following is not true of the supply chain?

Review Question

a The supply chain includes vendors

b The supply chain excludes customers.

d The supply chain includes secondary suppliers.

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Information Technology - Computers, ancillary

equipment, software, services, and related resources as

applied to support business processes.

IT Enablement - Using IT systems to enhance efficiency

and effectiveness of internal or supply chain processes.

IT Enablement of Business Processes

SO 4 The IT enablement of business processes

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IT usage accomplishes one or more of the following

objectives:

1 Increased efficiency of business processes

2 Reduced cost of business processes

3 Increased accuracy of the data related to business

processes

IT Enablement of Processes and the AIS

Business Process Reengineering (BPR) is the

purposeful and organized changing of business processes to make them more efficient.

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Review Question

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Basic Computer

Data Structures

Basic Computer and IT Concepts

SO 5 Basic computer and IT concepts

► One item within record

► Example - last name

► Set of related fields

► Example – employee #, name, pay rate, etc

► Set of related records

► Entire collection of files

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The correct order of the computer data hierarchy is

a byte, bit, record, field, file, database

b bit, byte, record, field, file, database

c bit, byte, field, record, file, database

d bit, byte, field, record, database, file

Review Question

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Relational Database

Master File

Transaction

File

Example - relationship in data of a

customer having more than one order.

Example - payroll master file maintains

the relatively permanent data to process payroll transactions.

Example - transaction file is processed

against the master file, and year-to-date balances are updated in the master file.

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File Access and Processing Modes

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Data Warehouse and Data Mining

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Review Question

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Network (two or more computers linked together)

Types important to accounting:

► Local Area Network (LAN)

► Internet

► Intranet

► Extranet

Networks and the Internet

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The Real World

The American Institute of Certified Public Accountants recently released the results

of its 2012 Top Technology Initiatives Survey The survey asked respondents to rank their organization’s top IT goals for the coming year The top five responses were:

1 Securing the IT environment

2 Managing and retaining data

3 Managing risks and compliance

4 Ensuring privacy

5 Leveraging new technologies (such as cloud computing and mobile devices)

These findings clearly indicate that the ability to access key information is a top

priority for accountants However, changing technologies tend to cause accountants

to rethink the way they work The more that can be learned about the capabilities of emerging technologies, the more likely it is that they will be appropriately integrated into the IT environment to produce an improved result Complete survey results are available at aicpa.org/toptech

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Encompasses all forms of:

► Online electronic trading

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The intercompany, computer-to-computer transfer of

business documents in a standard business format.

Example: Transmit purchase orders, invoices, and payments

electronically between trading partners.

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A system of hardware and software that captures retail

sales transactions by standard bar coding.

Example: Customer checks out through the cash register,

bar codes are scanned on the items purchased, prices are

determined by access to inventory and price list data, sales

revenue is recorded, and inventory values are updated.

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A computer system in which the software matches an

invoice to its related purchase order and receiving report.

Example: Ford Motor Company described in text illustrated an

automated matching system.

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An invoice-less system in which computer software

completes an invoice-less match that is a comparison of the purchase order with the goods received.

E-Payables and Electronic Invoice

Presentment and Payment (EIPP)

Web-enabled receipt and payment of vendor invoices.

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An IT enabled system for purchasing that is an

“invoice-less” system is called a(n)

a automated matching system

b evaluated receipt settlement

c e-payables

d point of sale system

Review Question

SO 6 Examples of IT enablement

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Internal Control Structure of Organizations

SO 7 The internal control structure of organizations

Risks that impact financial standing:

1 Assets will be stolen or misused

2 Errors in accounting data or information

3 Fraudulent activity

4 Risks inherent in IT systems, such as

a Erroneous input of data

b Erroneous processing of data

c Computer fraud

d Erroneous input of data

e Hardware or software failure

f Natural disasters

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Enterprise Risk Management (ERM)

ERM is defined as

a process, effected by an entity’s board of directors,

management and other personnel, applied in strategy setting and

across the enterprise, designed to identify potential events that may

affect the entity, and manage risk to be within its risk appetite, to

provide reasonable assurance regarding the achievement of entity

objectives.

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Requires management set policies and procedures related to:

► Internal Environment

► Objective Setting

► Event Identification

► Risk Assessment

► Risk Response

► Control Activities

► Information and Communication

► Monitoring

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Management should ensure the following types of control

structures exist:

1 Code of Ethics (Chapter 3)

2 COSO Accounting Internal Control Structure (Chapter 3)

3 IT Controls (Chapter 4)

4 Corporate Governance (Chapter 5)

5 IT Governance (Chapter 6)

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c “Corporate Governance”

The COSO report written for the purpose of assisting

managers in the challenge of managing risk in their

organizations is entitled

a “Internal Controls—Integrated Framework”

b “Enterprise Risk Management—Integrated Framework”

d “IT Governance”

Review Question

Advance slide in presentation mode to reveal answer.

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The Real World

On April 20, 2010, an explosion aboard the Deep Water Horizon drilling platform forced millions of gallons of oil to spill into the Gulf of Mexico, wreaking havoc on marine life and upsetting the coastal economies This event and the related

problems have been disastrous for BP plc, the company most frequently blamed for this tragedy

This example illustrates how critical it is for companies to manage risks Risks lie in nearly every aspect of every business, and the task of identifying and mitigating them is a daily challenge Certainly, any oil company would include an explosion, oil spill or oil leak to be among its most serious risks In the case of BP and the other responsible companies, there were evidently breakdowns in the monitoring of

controls surrounding this location

Although many people are familiar with the BP oil spill, most have probably never considered the accounting implications of this disaster Yet years after its

occurrence, BP was still struggling to account for the damages owed for

environmental clean-up and legal claims, and its audit firm was still using cautionary language in the audit opinion accompanying BP’s financial statements

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Accountants may be

► Users of the AIS,

► Part of the design or implementation team of an AIS,

and/or

► Auditors of an AIS.

Importance of AIS to Accountants

SO 8 The importance of accounting information systems to accountants

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Importance of AIS to Accountants

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Examples of potential unethical behaviors:

► Fraudulent financial reporting

► Revenue inflation

► Expense account fraud

► Inflating hours worked for payroll purposes

► Computer fraud

► Hacking

► Browsing confidential data

Relation of Ethics to AIS

SO 9 The relation of ethics to accounting information systems

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Which of the following is not true of unethical behavior?

a. The only category of unethical behavior for accountants is

inflating revenue.

Ethics and the AIS

SO 9 The relation of ethics to accounting information systems

b. Accountants are often pressured to help commit or cover

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