Corporate accounting information systems

Tony Boczko Corporate Accounting Information Systems Corporate Accounting Tony Boczko From systems thinking and control theories, to network architectures and topologies, to systems anal

Corporate Accounting Information Systems

Tony Boczko

We live in a competitive world dominated almost exclusively by fl ows of knowledge and information by

technologies designed not only to sustain but also increase the socio-economic need and desire for more

and more information This book offers a unique insight into the nature, role and context of accounting

related information within the competitive business environment, and explores how business organisations

- in particular companies - use a range of theories, practices, and technologies to manage and control

fl ows of data, information and resources, and maximise the wealth of organisational stakeholders

Tony Boczko

Corporate Accounting Information Systems Corporate Accounting

Tony Boczko

From systems thinking and control theories, to network architectures

and topologies, to systems analysis and design, Corporate Accounting

Information Systems provides students at all levels with a rigorous and

lively exploration of a wide range of accounting information systems

related issues, and offers a practical insight into the management

and control of such systems in today’s ever changing technology

driven environment

Key aims:

promote an understanding of the role of corporate accounting information systems in the

maintenance, regulation and control of business related resources

develop an appreciation and understanding of the practical issues and organisation problems

involved in managing contemporary accounting information systems

promote an understanding of the political contexts of contemporary accounting information systems

develop a recognition of the importance of information and communication technology in corporate

accounting information systems management, development and design

promote an understanding of the importance of effective information management and transaction

processing controls in reducing risk, and

provide a framework for the evaluation of corporate transaction processing cycles, systems and

Corporate Accounting Information Systems

Visit the Corporate Accounting Information Systems

to find valuable student learning material including:

n Multiple choice questions to test your learning

understanding

n An online glossary to exaplain key terms

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Tony Boczko

Corporate Accounting Information Systems

Pearson Education Limited

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England

and Associated Companies throughout the world

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First published 2007

© Pearson Education Limited 2007

The right of Tony Boczko to be identified as author of this work has been

asserted by him in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved No part of this publication may be reproduced, stored in a

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endorsement of this book by such owners.

ISBN: 978-0-273-68487-9

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

10 9 8 7 6 5 4 3 2 1

10 09 08 07

Typeset in 9.5/12pt Minion by 35

Printed and bound in China CTPSC/01

The publisher’s policy is to use paper manufactured from sustainable forests.

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For Janine, Christopher James, and Jessica Leigh and of course Max

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List of articles xviii

Chapter 2 Systems thinking: understanding the connections 31

Chapter 3 Control theories: management by design 80

Part 2 Accounting information systems:

Chapter 4 AIS and ICT: welcome to the information age 113

Chapter 5 Network architectures and topologies: making connections 178

Chapter 6 Contemporary transaction processing: categories, types, cycles

Chapter 7 Data management, data processing and databases:

Chapter 8 Corporate transaction processing: the revenue cycle 357

Chapter 9 Corporate transaction processing: the expenditure cycle 422

Chapter 10 Corporate transaction processing: the conversion cycle 488

Chapter 11 Corporate transaction processing: the management cycle 536

Brief contents

Brief contents

Chapter 12 From e-commerce to m-commerce and beyond:

Chapter 13 Risk and risk exposure: fraud management and computer crime 673

Chapter 14 Internal control and system security: minimising loss and

Chapter 15 Accounting information systems audit: towards a world of CAATs 771

Chapter 16 Accounting information systems development: managing change 821

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Globalisation and the changing world – the need for information 4

Contemporary contexts of corporate accounting information systems 15

Corporate accounting information systems – social and political context 21

Corporate accounting information systems – problems and fallacies 23

Corporate accounting information systems – a contextual framework 25

2 Systems thinking: understanding the connections 31

Modern society, the business environment and accounting

Systems thinking – using general systems theory as a framework 62

Part 2 Accounting information systems:

A brief history of information and communications technology 115

Information and communication technology enabled innovations 148

Understanding differences – from soft-type networks to hard-type networks 180

Contemporary transaction processing – toward a classification 239

Transaction processing cycles and accounting information systems 251

Transaction processing systems and the Data Protection Act 1998 256

7 Data management, data processing and databases:

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Part 3 Transaction processing cycles 355

Cost management – the accounting information systems

12 From e-commerce to m-commerce and beyond: ICT and the virtual world 610

Corporate accounting information systems – problem conditions

Internal control and systems security – a contemporary context 728

Internal control and the security of tangible/non-tangible resources 754

Internal control and the security of company/organisational networks 755

Information and communication technology enabled innovations –

Accounting information systems architecture – general controls 806

Auditing computer-based accounting information systems – more issues 809

16 Accounting information systems development: managing change 821

Accounting information systems development – alternative approaches 830

The accountant/auditor and the systems development life cycle 874

The politics of accounting information systems development –

Visit www.pearsoned.co.uk/boczkoto find valuable online resources

Companion Website for students

n Multiple choice questions to test your learning

n Revision notes and questions to help you check your understanding

n An online glossary to explain key terms

For instructors

n Complete, downloadable Instructor’s Manual

n PowerPoint slides that can be downloaded and used for presentations

n Additional questions and assignments with suggested solutions

Also: The Companion Website provides the following features:

n Search tool to help locate specific items of content

n E-mail results and profile tools to send results of quizzes to instructors

n Online help and support to assist with website usage and troubleshootingFor more information please contact your local Pearson Education sales

representative or visit www.pearsoned.co.uk/boczko

List of articles

9.2 Shevchenko completes record £31m move as Mourinho gets his man 463

12.2 Do it yourself: Self-service technologies, such as websites and kiosks,

12.5 UK leads the world in online spending but security fears hold

12.6 Security fears still hurting e-commerce many consumers reluctant

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13.3 Internal hackers pose the greatest threat – beware the enemy within 689

15.2 Big four bristle at claims that too much power rests in their hands 776

List of examples

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List of figures

1.3 The integrated nature of corporate accounting information systems 151.4 Alternative context of corporate accounting information systems 161.5 Procedural context of corporate accounting information systems 161.6 Organisational context of corporate accounting information systems 181.7 Relational context of corporate accounting information systems 181.8 Functional context of corporate accounting information systems 201.9 Organisational users of corporate accounting information systems 221.10 Corporate accounting information systems – a thematic context 25

List of figures

6.6 Hierarchical classification of transaction processing systems 240

6.12 Transaction processing systems/accounting information systems interface 252

7.21 Database management system 317

11.2 Cash-based transactional finance/non-cash-based transactional finance 550

13.3 Activities at each variant form of the precautionary principle (A) 67913.4 Activities at each variant form of the precautionary principle (B) 679

14.6 Push/pull – internal control and information and communication

List of figures

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List of tables

12.4 The cost of an internet merchant account – HSBC Merchant Services 63413.1 Type of computer crime/security breach suffered by UK businesses

Introduction

Aims of the book

To paraphrase an old Chinese proverb, we not only live in interesting, but in changing times

We live in an ever-changing world A world dominated not by the changing nature of globalpolitics, or by the international flows of goods and services, or indeed by the turbulent unpredict-ability of the global capital markets We live in a world dominated almost exclusively by flows

of knowledge and information – by technologies designed not only to sustain but also increasethe socio-economic need and desire for more and more information

This book offers an insight into the nature, role and context of accounting-related informationwithin the competitive business environment, and explores how business organisations – inparticular companies – use a range of theories and technologies not only to assist in the maximis-ation of shareholder wealth, but also in the management and control of organisational resources

It is concerned primarily with corporate accounting information systems – as an organisationalarrangement of processes and procedures that employ both tangible and intangible resources totransform data – more specifically economic data – into accounting information In doing so,such systems play an important role in four related areas of corporate activity:

n transaction processing management and the supporting of business operations,

n resource management and the fulfilment stewardship obligations,

n information management and the supporting of decision-making processes, and

n financial management and the fulfilment of legal, political and social obligations

It is an understanding of each of these roles that informs the issues addressed by this book, abook which considers the following areas:

n systems thinking,

n control theories,

n accounting information systems and information and communication technology,

n architectures, topologies and networks,

n contemporary transaction processing cycles and systems,

n systems analysis, development and design,

n information systems and database management,

n e-commerce and the virtual economy,

n risk and fraud management,

n internal control and systems security, and

n accounting information systems audit

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The aims of this book are as follows, to:

n promote an understanding of the role of corporate accounting information systems in themaintenance, regulation and control of business-related resources,

n develop an appreciation and understanding of the practical issues and organisation problemsinvolved in managing contemporary accounting information systems,

n promote an understanding of the political contexts of contemporary accounting informationsystems,

n deploy systems thinking, control theories and information theories as an integrated conceptualframework for understanding the contemporary nature of corporate accounting informationsystems,

n develop a recognition of the importance of information and communication technology incorporate accounting information systems management, development and design,

n promote an understanding of the importance of effective information management andtransaction processing controls,

n provide a framework for the evaluation of corporate transaction processing cycles, systemsand processes,

n identify the objectives and nature of internal control/security, and promote an understanding

of the strategies a company could adopt to minimise exposure to corporate risk,

n promote an understanding of the internal control issues associated with alternative transactionprocessing architectures and system topologies, and

n provide an understanding of basic systems audit strategies

Themes of the book

Practical orientation

Corporate accounting information systems are real-entities – they exist within a real-world environment To provide a balanced overview this book not only provides an exploration of the practical and technical aspects of corporate accounting information systems but, moreimportantly, a consideration of the social, political and economic pressures that continue toshape the very nature of such systems

Accessibility

Where at all possible, a clear, informal linguistic style is used The use of complex jargon andobscure terminology that seems to litter practical inter-disciplinary subjects such as corporateaccounting information systems is, where possible, reduced to a minimum Where this is inevitable,definitions and explanations of key terms and concepts are provided

In addition, because much of the discussion on accounting information systems requires notonly an appreciation of a range of theoretical ideas, but perhaps more importantly the under-standing of a number of sometimes very diverse and very complex practical issues, an incrementalapproach is adopted in the presentation, analysis and development of such discussion

Integration with other disciplines

Corporate accounting information systems cannot be viewed in isolation Whilst such systemsare essentially created political structures whose primary role is seen as economic – as the processing of wealth-creating transactions, they function within the social fabric of the company,

increasingly employing a wide range of information and communication technologies Clearly,

to understand fully such systems requires more than an understanding of accounting andfinance – more than an understanding of information technology It requires an appreciation

of a wide range of business-related topics – from marketing to economics to organisationalbehaviour to management

Student learning features

Each of the chapters contains some or all of following elements;

Introduction

This section presents a brief discussion of the relevance and importance of the issues discussed

in the chapter

Learning objectives

This section presents a summary of expected competencies to be gained by the reader

Scenarios, case studies, examples and articles

Extracts from a range of publications are used to illustrate key arguments and demonstrate/

highlight key issues within the chapter The aim is to provide a ‘real-world’ context to the variousaspects of corporate accounting information systems

Key points and concepts, references, bibliography and weblinks

At the end of each chapter a key points and concepts listing is provided In addition, media-basedand academic-based referencing to further relevant reading/research is also provided Wherepossible the bibliography will provide alternative views on issues discussed in the chapter

A list of useful websites is also provided

Self-review questions

At the end of each chapter a selection of short review questions are provided These are designed

to encourage the reader to review key issues presented in the chapter and, where appropriate,can be used as a review and revision aid

Questions and problems

At the end of each chapter a selection of questions and problems is provided These are designed

to provide an opportunity for the reader to demonstrate an understanding and appreciation ofthe key issues presented in the chapter

Assignments

At the end of each chapter a selection of assignments is provided These assignments are largercase studies that require the reader to develop and examine a range of relationships betweencorporate accounting information systems and the larger corporate/business environment Theseassignments integrate a range of theoretical ideas/practical issues and provide a real-world context to corporate accounting information system problems

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Where appropriate, appendices are included at the end of each chapter

Support for lecturers

Website support

A website supporting this book is available and contains;

n powerpoint slides relating to each chapter,

n a selection of additional end-of-chapter questions, including multiple-choice questions, and

n links to useful websites

Lecturer’s guide

An online lecturer’s guide is available

The guide contains supplementary material for each chapter including learning objectives,

a key point listing and glossary, a selection of multiple-choice questions, and answers to all end

of chapter questions and assignment questions

Target readership

Perhaps because of the increasingly volatile nature of financial/accounting regulation, the ing interconnectedness of both national and international markets, or indeed the increasingimpact of information and communication technologies on accounting-related activities, it isonly in the past 20 to 25 years that courses on corporate accounting information systems havebegun to find their place not only on under-graduate degrees and professional accountancycourses but also increasingly on post-graduate MBA and MSc courses

grow-This book is aimed primarily at undergraduate students studying accounting/finance degrees,and intermediate-level professional students studying for ACCA, CIMA and ICAEW qualifica-tions It is, however, hoped that the critical underlying theme of the discussion in this book willalso appeal to post-graduate MBA/MSc students studying accounting, finance and/or informationsystems

Topics covered

Chapter 1 Information systems in accounting and finance: acontemporary overview

Corporate accounting information systems represent an important link between the ical and often turbulent realities of economic activity, and the created representations – the financial reporting statements This chapter provides an introduction to the nature and socialcontext of corporate accounting information systems as a product of a complex, chaotic andever-changing environment It explores the role of corporate accounting information systems

phys-in supportphys-ing phys-internal decision makers and how they contribute to the fulfilment of corporateobligations relating to issues of agency and stewardship

Chapter 2 Systems thinking: understanding the connections

This chapter introduces the notion of systems thinking and explores a range of systems ideas Italso provides a critical review of their implication on, and contribution to, understanding thecontemporary role(s) of corporate accounting information systems In particular this chapterconsiders the problematic issues inherent in the use of soft and hard systems methodology inthe understanding of corporate accounting information systems

Chapter 3 Control theories: management by design

Companies are often complex entities often encompassing a range of not only interconnectingbut very often conflicting aims and objectives This chapter reviews the notion of the company

as an interactive collection of interrelated sub-systems, and explores how in a contemporarycontext at least, the management and operations of such complex social entities is founded uponthe notion of trust in systems It also explores the role of regulation, surveillance and control,and offers some insights into the need for and nature of systemic feedback and feedforward insocially constructed systems – in particular corporate accounting information systems

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Part 2 Accounting information systems: a contemporary

perspective

Chapter 4 AIS and ICT: welcome to the information age

This chapter considers the changing context of corporate accounting information systems, andthe increasing dependency of such systems on information and communication technologies.Commencing with a brief historical review of the development of corporate accounting infor-mation systems this chapter provides a critical review of the increasing importance of informationand communication technologies, and considers the political context of such technologies incorporate accounting information systems

Chapter 5 Network architectures and topologies:

making connections

Increasingly, corporate transaction processing cycles are becoming more reliant upon mation and communication technologies to ensure the efficient and effective processing of suchtransactions This chapter examine issues related to the development and control of alternativeinformation system architectures and topologies It also considers how information and com-munication technologies, and the adoption of alternative system architectures, have affected thecomputer-based transaction processing

infor-Chapter 6 Contemporary transaction processing:

categories, types, cycles and systems

Companies generate wealth through the temporal and spatial displacement of both tangible andintangible resources However, because of the increasing complexity of such transactions, thegrowing fictitious nature of such transactions and, of course, the increasing separation betweencorporate management and corporate ownership, the need to ensure that adequate internalcontrol procedures, authorisation protocols, recording procedures and management processesexist has become very important Commencing with a review of the generic company types, thischapter provides an overview of four functional sub-systems normally encapsulated within corporate transaction processing cycles, namely;

n the revenue cycle,

n the expenditure cycle,

n the conversion cycle, and

n the management cycle

Chapter 7 Data management, data processing and databases:storage and conversion

Companies are complex entities whose survival depends on the active management of data/information flows This chapter explores issues of data management, including data/informationstructures, data modelling and data flow management It also explores the two main types ofprocessing in contemporary use – batch processing and online processing

Techniques such as dataflow diagrams, systems/document flowcharts and coding systems/charts of account are also considered in detail

Topics covered

Chapter 8 Corporate transaction processing:

the revenue cycle

Companies generate wealth through the temporal and spatial displacement of tangible and gible resources This chapter examines issues associated with the processing of revenue transactions(both debtor-based and non-debtor-based), and considers a wide range of issues relating to themanagement and internal control of revenue cycle transactions, and the consequences associatedwith the failure of internal controls

intan-Chapter 9 Corporate transaction processing:

the expenditure cycle

This chapter examines issues associated with the processing of expenditure transactions (bothcreditor-based and non-creditor-based), and considers a wide range of practical issues relating

to the management and control of expenditure cycle transactions This chapter also considers arange of issues associated with human resource management/payroll

Chapter 10 Corporate transaction processing:

the conversion cycle

This chapter concentrates on production companies, and considers a wide range of issues related

to product development, production planning/scheduling, manufacturing operations, productionmanagement, and cost management and control It also explores issues related to the process-ing and management of conversion cycle data and the potential consequences associated withthe failure of internal controls

Chapter 11 Corporate transaction processing:

the management cycle

This chapter explores the issues associated with:

n financial management – the acquisition and management of long-term funds,

n fund management – the acquisition and management of short-term funds,

n assets management – the management and control of both fixed assets and current assets,

n liabilities management – the management and control of both long-term liabilities and currentliabilities, and

n general ledger management – the management of financial information

Chapter 12 From e-commerce to m-commerce and beyond:

ICT and the virtual world

The use of information and communications technologies, and the introduction and expansion

of e-based commerce is in a corporate business context perhaps the single most importantdevelopment of the late 20th century This chapter examines the issue of e-commerce, in particular the problems and opportunities presented by its integration into corporate account-ing information systems It also explores issues related to e-advertisement, prospect generation,direct sales, business-to-business sales, customer support and education, and considers the particular problems/issues related to the use of e-money and the potential problems associatedwith internet-based finance/commerce

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Part 4 Risk, security, surveillance and control

Chapter 13 Risk and risk exposure: fraud management and computer crime

In a corporate accounting information systems context, risk cannot be eliminated, it can only beminimised by the use of appropriate control features and the establishment of an appropriatecontrol environment This chapter explores alternative sources and types of risk, problemsassociated with minimising the degree of risk exposure and the problems/conditions affectingexposure to risk In particular it will examine issues of fraud, computer crime and computerviruses

Chapter 14 Internal control and system security: minimising lossand preventing disaster

This chapter considers issues associated with the notion of internal control – in particular general controls designed for application on a company-wide basis, and application controlsdesigned for application on specific company systems, and explores alternative internal controlprocedures a company may adopt to minimise risk and ensure the physical security of resources,data/information and system networks

Chapter 15 Accounting information systems audit:

towards a world of CAATs

Ensuring corporate accounting information systems function adequately is an essential requisite for corporate survival This chapter explores the underpinning rationale of audit, and considers the major issues and problems associated with auditing computer-based corpor-ate accounting information systems It also considers a number of alternative contemporaryapproaches to auditing computer-based corporate accounting information systems includingauditing through, with and/or around the computer The use of embedded audit facilities andthe phasing of the audit process is also considered

pre-Chapter 16 Accounting information systems development:

managing change

The development of corporate accounting information systems often represents a huge butnonetheless necessary investment in both economic and social capital Indeed, in today’s ever-changing environment – an environment in which companies are increasingly engaged in anever-ending search for new markets, new customers and new products – in a never-endingpursuit for greater profitability and shareholder wealth, such developments are essential Thischapter examines:

n the importance of a corporate accounting information systems strategy,

n the problems related to ad hoc development, and

n the processes and problems associated with corporate accounting information systems development

Topics covered

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My thanks to the following people for their assistance in the preparation of this book:

n Ron Hornsby for his inspiration, ideas and enthusiasm,

n Christopher James Boczko for his assistance and expertise on numerous technical aspects ofthis book,

n Matthew Smith at Pearson Education for his endless patience, professionalism and belief,and

n the various anonymous reviewers for their constructive and helpful comments

We are grateful to the following for permission to reproduce copyright material:

Guardian News and Media Limited for the following articles ‘Things fall apart’ by James

Meek published in The Guardian 1st

March 2001, ‘Quest to discover how hi-tech is changing

Britain’ by Stuart Miller published in The Guardian 16th

March 2001, ‘We’ll sue illegal music

downloaders, says BPI’ by Dan Milano published in The Guardian 15th

January 2004, ‘Backlash

as Google shores up great firewall of China’ by Jonathon Watts published in The Guardian

25thJanuary 2006 ‘Big four bristle at claims that too much power rests in their hands’ by

Simon Bowers published in The Guardian 8th

August 2006 and ‘Inquiry launched after biggest

ever credit card heist’ by Rebecca Smithers and Bobbie Johnson published in The Guardian

31stMarch 2007 © Guardian News and Media Ltd; Stephen Timms MP for an article ‘Every

step of the way’ published in The Guardian 29th

May 2003; BusinessWeek.com for an extract

‘Global capitalism – can it be made to work better?’ by Pete Engardio and Catherine Belton,published on www.businessweek.com 6th

November 2000; David Fickling for an article

‘Court orders copyright filter on Kazaa’ published in The Guardian 6th

March 2006; The Economist

Newspaper Limited for an article ‘Do it yourself ’ published in The Economist 16th

September

2004 © The Economist Newspaper Limited, London 2004; Telegraph Media Group Limited

for an article ‘Fraudsters hit Visa for a second time’ by Danielle Rossingh published in The

Lewis Smith, published in The Times 24th

November 2004; and FT Syndication for an article

‘Corporate character is not just a legal construct’ by John Kay published in The Financial Times

13thDecember 2004; Booz Allen Hamilton Inc for Figure 10.2; McGraw Hill Education for

Table 13.4 by McClure/Scambray/Kutz, Hacking Exposed, 5th

Part 1

A contextual framework

Part 1 A contextual framework

Part overviewPart 1 of this book presents an introductory overview of corporate accounting information systems

Chapter 1 provides an overview of the social, political and economic context of ate accounting information systems, and considers their role in supporting organisational decision-making processes and the fulfilment of stewardship obligations and responsibilities

corpor-Chapter 2 explores the key features of contemporary systems thinking and considers whysuch thinking has become fundamental not only to the contemporary priorities of capitalbut, more importantly, business organisations and corporate accounting information systems

Finally, Chapter 3 explores the issue of control – as a political construct dominated by the priorities of capital, and considers the application of control theory in the development andmanagement of corporate accounting information systems

CORA_C01.qxd 6/1/07 10:48 Page 2

Corporate accounting information systems are significant inasmuch as they are sociallycreated mechanisms through which symbolic forms of knowledge1that play an increasinglycentral role in portraying, evaluating and govern expanding domains of social and economiclife are constructed Symbolic forms of knowledge that have become a fundamental part

of the struggle for corporate survival, as companies undertake economic transactions in abusiness world increasingly dominated by and concerned with a spatial context of ‘oneness’

A business world in which the controlling mechanism of the marketplace has become occupied with the notion of singularity – a single market, a single world society, a singleglobal culture With a single borderless society in which the once established cartography

pre-of political sovereignty continues to be reconfigured by a market dominated movementwhere the reduction of institutional and economic diversity is seen as paramount, and con-tinuing socio-political heterogeneity is seen as increasingly unacceptable

In a business world increasingly dominated by and indeed reliant upon information, corporate accounting information systems have become central to enabling social, polit-ical and economic activities to be rendered knowable, measurable, accountable and manageable More importantly, such systems have become pivotal in the adjudication ofrival business claims between competing social constituencies both inside and outside thecompany Corporate accounting information systems are implicated not only in condition-ing the global flows of capital investment and business resources, but also in assisting indetermining/measuring the effectiveness of business institutions and organisations, institu-tions and organisations through which differing levels of social, political and economicpower are expressed

Clearly, the pervasive influence of corporate accounting information systems provokesmany questions Questions about how such accounting information systems develop; why particular accounting information systems and practices are adopted; and how suchaccounting information systems are regulated within business organisations More import-antly perhaps such influence provokes questions about how such corporate accounting

1 Information systems in accounting and finance: a contemporary overview