ACC 321 Final

An accounting information system is:
- a set of interrelated activities, , and technologies
- designed to data, process it, and report information
- to a diverse group of internal and external makers in organizations

Activities:
- business processes: sales collection, acquisition/payment, conversion, financing, human resource
- cycle steps

Documents:
- purchase orders
- remittance advices
- shipping documents

Technologies:
- general ledger software
- erp systems

Input: source
Process: steps in cycle
- tools
- manual, computer-based, both
- software, hardware
Output: fs or internal reports like variance analyses
Storage: paper form or
Internal controls: controls necessary for information integrity
- separation of duties
- daily backup of data

Master file:
- people, places, things
- e.g. customer file, product file, store file
- compare to
- relatively records

Transaction file:
- actions/events
- e.g. contained data like the price, the discount, payment method
- compare to
- records are highly

Information literacy (information competence) - the ability to find, evaluate, use, and communicate in all of its various formats

UMUC criteria for evaluating information:
- authority: who it? why?
- accuracy: identified? is the information accurate? is it based solely on the author's ?
- objectivity: does it include ? is it available freely?
- currency: how is the information? when updated?
- coverage: is the source still under construction? does it cover the subject with sufficient ?

Coding systems - methods for identifying source for easier reference later

Sequential: documents are numbered in sequence; checks in your checkbook

Block: numbers are assigned in blocks
-each block is for a particular kind of account
-first digit specifies a group
-chat of accounts

Hierarchical: groups of digits have meaning

Mnemonic: code is a reminder of its meaning; accounting

Internal control - a process effected to provide reasonable regarding the achievement of objectives relating to operations, reporting, and compliance.

Process
- internal control is not a list of rules or boxes to check off
- subject to process
- judgement and experience
- periodically review controls

Effected by various groups:
- internal control is the responsibility of the whole , not the sole responsibility of accounting professionals
- requires discussion during the design, implementation, and evaluation
- subject to cost/benefit constraint

Reasonable assurance:
- no internal control ever provides assurance
- the benefits of a control must outweigh its costs
- rely on the common sense and professional judgement

Business objectives relating to:
- operations: business , such as the sales/collection process
- reporting: financial, tax, internal
- compliance: applicable laws & regs, such as SOX, FCPA

Internal Control Purposes:
- safeguard , such as depositing cash daily in the bank
- ensure reliable financial , such as through financial statement audits
- promote operating , such as with a procedures manual
- encourage compliance with directives, such as by appropriate training & performance reviews

Financial risk: monetary activities
Market risk: changes in a company's prices, investment values, and interest rates
Credit risk: associated with customers' or inability to pay amounts owed to the organization
Liquidity: the possibility that a company will not have sufficient cash and near-cash assets available to meet its -term obligations

Operational risk: people, assets, and tech
System risk: relates directly to IT
Human error risk: the possibility that in the organization will make mistakes

Strategic risk: decision-making processes at the senior management and BOD level
Legal and regulatory risk: the chance that management in the organization may break laws that result in financial, legal, or operational sanctions
Business strategic risk: poor making related to a company's basis for competing in its markets

Hazard risk: director' and officers' liability risk
Directors and officers (personal) are accused of by shareholders, government agencies, employees, and other stakeholders.

A legal action brought fo alleged wrongful acts.

Control environment:
- gov't overall about internal control
- must be established at the of the organization
- often called the tone at the top

Risk assessment:
- organization's risk exposure
- tools like brown framework can help ensure all bases are covered
- likelihood &

Control activities
- specific controls to address risks
- preventive//corrective
- a control may address multiple risks; a single risk may involve multiple controls

Information and communication:
- how the entire internal control plan is throughout the organization
- link all components
- relates to the plan in its

Monitoring:
- ensuring the plan's ongoing
- may be entrusted to the internal audit department

ERM - a process effected in a setting designed to identify potential events and manage risk to be within its risk to provide reasonable regarding the achievement of entity objectives.

IC vs ERM
- IC is an important part of ERM
- complements ERM
- ERM is applied from strategy through , while relying on internal control at junctures.
- each raises the value of the other, when used together they're powerful in supporting management
- helps in developing the objective used as a basis for developing controls while IC makes ERM more effective when control activities are in place over risk responses and other ERM processes

Internal control:
- puts controls to support efforts needed to execute that strategy
- call for IC for and response to the most critical risks associated with the strategy

Governance and Culture:
- sets the organization's , reinforcing the importance of, and establishing responsibilities

Strategy and Objective-Setting:
- risk is established and aligned with strategy
- business objectives put strategy into practice while serving as a basis for identifying, assessing, and responding to risk

Performance:
- risks that may impact achievement of strategy and business objectives need to be and assessed
- risks are prioritized by in severity in the context of risk appetite
- selects risk and takes a view of the amount of risk it has assumed
- results are reported to key risk stakeholders

Review and Revision:
-by reviewing entity performance, an organization can consider how well the enterprise risk management components are functioning over time and in light of substantial changes, and what are needed

Information, communication, reporting:
ERM requires a process of obtaining and sharing necessary information, from both internal and external sources, which flows up, down, and across the organization

Business process management:
- a systematic approach to analyzing, redesigning, improving, and managing a specific

1. Select the process and define its
- established in two ways: naming the exact process itself and by limiting it to a specific geographic region
2. Observe, document, and map the process and flow
3. process related data
4. the collected data
5. Identify and prioritize potential process
6. the process
-redis the new process based on suggested improvements from the prioritized list
7. Implement and monitor process

Expectancy theory: three elements, motivation is the product of the three

Expectancy: effort will lead to
Instrumentality: accomplishment leads to
Valence: the importance that the individual places upon the

Motivation=expectancy x instrumentality x valence

SDLC - a structured methodology for developing information systems

Advantages:
- well structured
- user input
- strong
Disadvantages:
- rigid
- time
- costly
- inflexible

SDLC steps:
1. Initiation/planning - a need for a new/revised system is .
2. Requirements analysis - Analysts determine what the system should meet
3. Design - designers develop the first concept sketches of the system
4. Build - based on the design specifications, systems professionals build the system
5. Test - Users test the system and provide on what works and what doesn't work
6. Implementation - system goes live
7. Operations & maintenance - the system is operated and maintained which includes needed

CMM - aim is to existing software development processes
- developed by Watts Humphreys
- five levels
- initially used to evaluate the sophistication of business processes in government contractors

Level 1: Chaotic
- business processes are not (disorganized)
- individuals develop their own processes, but they do not them with others
- success is not replicable

Level 2: Repeatable
- basic project management techniques are established
- involve major and specific deliverables
- may yield consistent results over time

Level 3: Defined
- business processes are developed based on broader standards
- described in more detail

Level 4: Managed
- processes are measured, use of metrics to evaluate

Level 5: Optimized
- processes and metrics are collected
- big picture of
- continuous improvement through monitoring from current processes and introducing innovative processes
- address common causes of process delay and variations

Systems flowchart:
- provide a big overview of a system
- often used in AIS to understand business processes
- combine all resources with related processes
- as part of an

Document flowcharts:
- track the flow of through an information system
- sometimes used in AIS to check & improve document processing

Hardware flowcharts:
- show the relationships between elements
- occasionally used in AIS to understand network components
- form of internal control
- basis for changing network configuration

Program flowcharts:
- show the logic/rules associated with a program
- almost never used in AIS

Symbols
Data: symbols for databases and
Process: symbols for
Line: symbol for following the flow
Special: various symbols, such as terminators and page connectors

Annotation: add descriptive or explanations to a flowchart
File: indicates how the documents are filed/combined
On page connector: to avoid cross lines on a
Off page connector: to avoid over-crowding and move the action of a flowchart between pages
Decision: used for decisions that have a binary outcome
Predefined process: encapsulate a named process with multiple predefined steps
Terminator: to be used at the beginning and of a flowchart
Visual display: information is displayed on a computer screen

Design conventions:
- flowcharting is at least as much as science
- independently drawn flowcharts of the same process will almost never be
- the goal is to produce a flowchart that is and understandable, not to reproduce someone else's work

-Title: based on what is represents
-Columns based on areas of
-Rough draft of flowchart must be discussed by people involved
- reality check
- easily understood
- plenty of space
- top to bottom, left to right
- clear origin and for all documents
- origin: enter the system or created by processes in the system
- termination: filed or cross out of the system boundary

Design steps:
1. establish the system
2. determine column headings
3. list actions performed within each column
4. select appropriate
5. prepare a first
6. discuss the draft with others
7. revise as needed

Nature and purpose of DFDs:
- not as widely used as flowcharts in accounting practice
- helps understanding a business
- helps understanding the relational database that underlies the AIS
- less detailed than
- focus on

Process: transform incoming data flow to data flow
- any set of procedures an organization uses to gather data, change data into info, or report the info to system users
- a number and a name ( phrases)

External entity: any person or organization the boundary of an information system
- depends on your definition of the system, not your definition of the organization
- sources and destinations of the system's inputs and outputs

Data store: repositories of data in the system, a place for collecting data
- think of it as a
- labeled with phrases
- linked to processes/external entities
- cannot be linked to one another

Data flow: pipelines through which packets of information
- represented by a directional line
- only one arrow on one end
- labeled with phrases

DFDs vs Flowcharts
DFD
- symbols
- leveled sets, each depicting more detail than the last
- processes are
- focus on data and how they between business processes, external entities, and data stores
- lines represent data; labeled with phrases

Flowcharts
- many symbols
- columns representing areas of responsibilities
- numbers are used for on-page and off-page
- concerns with data, documents, and processing tools
- lines represent movement between processes, areas of responsibilities; not

Why it is necessary to learn both
- design an AIS from , first use DFD to focus on the and how they are manipulated
- later, use flowcharts to iron out the details

Leveling and balancing:
- DFD are prepared in leveled sets
- leveled set: a collection of DFDs that models related business processes. The various levels provide increasing about the process in the system.
- Each level reveals more than the one before it.
- Levels must be , which means that external entities and data flows at the boundary cannot “disappear” between levels.

Context diagram:
- Highest level view of the system
- The least amount of
- Exactly one in a “leveled set”- taking orders
- Exactly one process
- One or more external entities
- No data stores

Level Zero:
- Exactly one in a leveled set
- More detail than the context diagram
- Preserve data flows at the
- Must be balanced: one data inflow to the customer, one data from the customer

Level One:
- May be more than one in a leveled set
- More than the Level Zero diagram
- Each Level One focused on a single “bubble” from Level Zero
- Preserve data flows at the

-How many process should a single DFD have?
Usually no more than
-Processes may be decomposed to different levels. How many levels should be in a leveled set of DFDs?
Usually no more than
-When do you stop breaking down a process?
Processes are decomposed (“exploded”) until they are (when the process label is fairly self-explanatory).

Rules/Conventions of good DFD:
- All processes should have names
- The inputs to a process should differ from the to a process
- Any single DFD should not have more than 7 processes
- No process can have only

Database Design:
-The data stores in a leveled set of data flow diagrams represent relational databases.
-A relational database: a collection of components (objects) that allows us to store, retrieve, report, and ask questions about the it contains

Objects: Tables
-Every relational database must include at least table.
-Most will include multiple
-Organization:
~Fields (columns)
~Records (rows)

Objects: Queries
-Sets of instructions that examine data in tables and / or other queries
-Output data according to the
-Can include simple computations (e.g., total, average)

Objects: Reports
-Well formatted output of a relational database
-Can be based on tables and/or
-Can incorporate simple

Object: Forms
-Allow a user to with a database even if they know nothing about design and structure
-Two uses: data input, data lookup

Primary key: a field in a table that identifies every record in that table
Foreign key: a primary key in one table that is included in another table for purposes
Compound primary key: two or more fields in a table that together comprise its key

Junction table:
-A table that joins together two tables.
-Required when the two separate tables have a “many-to-many” relationship
-Named by joining the separate table names

Normalization:
-Database tables must be organized as efficiently and effectively as possible
-The process of making a database table and effective is referred to as normalization:
Minimize space allocations
Facilitate searches
Establish between tables

-Step one: First normal form (1NF)
Eliminates repeating
-Step two: Second normal form (2NF)
Eliminates repeating groups
Eliminates data
-Step three: Third normal form (3NF)
Eliminates repeating groups
Eliminates redundant data
Eliminates columns not dependent on the key

Flat file: Acceptable if the data is fairly simple and straightforward; how to answer questions

- XBRL is the open international standard for digital business
-Purpose: to facilitate information between all different kinds of organizations, regardless of the hardware and software platforms they use differently
-Tagging: XBRL enables preparers to utilize software to all financial items in their business reports to the elements within a taxonomy.
-XBRL documents are created to replace older, paper-based reports with more useful, more effective and more accurate digital versions.
-So all financial items can be used programmatically by an XBRL-compatible program.

-XBRL is a subset of a much language, XML
-Stand for eXtensible Markup Language.
-Simple text-based format for representing structured information: documents, data, transactions, etc.
-Designed to describe data.
-XBRL is to financial information what is to web page development

Extensible: Users can add as needed.
Specification: XBRL is an example of a broader group of languages called
Taxonomy: An organizational structure for XBRL tags
- A dictionary to the tags
- Different taxonomy is required for different financial reporting purpose
- Many different organizations, including regulators, specific industries or even companies, may require taxonomies to cover their own business reporting needs
Namespace: the internet of an XBRL taxonomy
Instance document: A document that includes data properly tagged with XBRL

Important characteristics:
-Open source
-Extensible
-Required for reporting
-Can also be used for information, such as journal entries
-Language—not a new set of GAAP
-Overseen by XBRL International

-A typical enterprise has many departments and business units (BU)
-These departments/BU continuously communicate and exchange with each other
-The success of any organizations lies in effective communication and data exchange within the departments/BU as well as associated third party (e.g., vendors, customers)

Decentralized system:
- Data is maintained at the individual departments
- Departments do not have access to data of other departments/BU

Centralized systems
-Data is maintained at a location and is shared with various departments (centralized database)
-Departments have access to the information/data of other departments/BU

Benefits of ERP:
- Eliminates the duplication, discontinuity and redundancy in data
- Provides information across in real time
- Provides over various business processes
- Increases productivity, better inventory managements, promotes quality, reduced material cost, effective HR management, reduced overheads boosts profits
- Better customer interaction, improved services

Purpose: Providing comprehensive information for making
Nature: Fundamentally, relational databases
Modular organization

business process: a set of procedures and policies designed to create for some organizational stakeholder

porter's value chain: a classic, well recognized model for describing generic value creating activities

Primary activities create value .
Support activities create value .

Sales/Collection Process Steps:
1.Take the customer’s order.
2.Approve the customer’s .
3.Fill the order based on approved credit.
4.Ship the product.
5.Bill the customer.
6.Collect payment.
7.Process uncollectible receivables as needed.

Picking list - Telling the warehouse staff what products to take off the shelves to fill the
Packing list - A final check of what is actually loaded into the box before the goods are shipped
Bill of lading -
-Tells the common carrier:
-where to deliver the goods
-explains the freight terms
-who is responsible for the goods while they are in
-who bears the freight cost
Remittance advice - the source document for journal entries related to cash receipts. It goes to the accounting department for recordkeeping.
Deposit slips - A deposit slip typically lists each item to be deposited with some identifying information, account number, etc.