Accounting Information Systems PDF

27d ago
7.29 MB
830 Pages

AccountingInformationSystemsSEVENTH EDITIONJAMES A. HALLPeter E. Bennett Chair inBusiness and EconomicsLehigh University

Accounting Information Systems,Seventh EditionJames A. HallVP/Editorial Director: Jack W. CalhounEditor-in-Chief: Rob DeweySr. Acquisitions Editor: Matt FilimonovEditorial Assistant: Lauren Athmerª 2011, 2008 Cengage LearningALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced, transmitted, stored or used in any formor by any means graphic, electronic, or mechanical, including but notlimited to photocopying, recording, scanning, digitizing, taping, Webdistribution, information networks, or information storage and retrievalsystems, except as permitted under Section 107 or 108 of the 1976United States Copyright Act, without the prior written permission of thepublisher.Developmental Editor: Maggie KubaleMarketing Manager: Natalie KingMarketing Coordinator: Heather McAuliffeAssociate Content Project Manager: Jana LewisManager of Technology, Editorial: Matt McKinneyFor more information about our products, contact us at:Cengage Learning Academic Resource Center,1-800-423-0563For permission to use material from this text or product, submit arequest online at Editor: Bryan EnglandSr. Manufacturing Buyer: Doug WilkeProduction Technology Analyst: Starratt AlexanderProduction House: Cadmus CommunicationsPrinter: Edwards BrothersSouth-Western Cengage Learning, a part of Cengage Learning.Cengage, the Star logo, and South-Western are trademarks usedherein under license.Art Director: Stacy Jenkins-ShirleyLibrary of Congress Control Number: 2009938064Marketing Communications Manager: Libby ShippISBN-13: 978-1-4390-7857-0Permissions Acquisition Manager: Roberta BroyerISBN-10: 1-4390-7857-2Cover Designer: Itzhack ShelomiCover Image: iStock PhotoPrinted in the United States of America1 2 3 4 5 13 12 11 10 09Cengage Learning5191 Natorp BoulevardMason, OH 45040USA

Brief ContentsPreface xviiPart IOverview of Accounting InformationSystems 1Chapter 1The Information System: AnAccountant’s Perspective 3Chapter 2Introduction to TransactionProcessing 41Chapter 3Ethics, Fraud, and Internal Control 111Part IITransaction Cycles and BusinessProcesses 151Chapter 4The Revenue Cycle 153Chapter 5The Expenditure Cycle Part I:Purchases and Cash DisbursementsProcedures 217Chapter 6The Expenditure Cycle Part II: PayrollProcessing and Fixed AssetProcedures 265Chapter 7The Conversion Cycle 305Chapter 8Financial Reporting and ManagementReporting Systems 349Part IIIChapter 9Advanced Technologies in AccountingInformation 395Database Management Systems 397Chapter 10The REA Approach to DatabaseModeling 459Chapter 11Enterprise Resource Planning Systems489Chapter 12Electronic Commerce Systems 523iii

ivBrief ContentsPart IVSystems Development Activities 571Chapter 13Managing the Systems DevelopmentLife Cycle 573Chapter 14Construct, Deliver, and MaintainSystems Project 605Part VComputer Controls and Auditing 663Chapter 15IT Controls Part I: Sarbanes-Oxleyand IT Governance 665Chapter 16IT Controls Part II: Security andAccess 703Chapter 17IT Controls Part III: SystemsDevelopment, Program Changes, andApplication Controls 737Glossary773Index791

ContentsPreface xviiAcknowledgments xxviDedication xxviiPart IChapter 1Overview of Accounting InformationSystems 1The Information System: An Accountant’sPerspective 3THE INFORMATION ENVIRONMENT 4What Is a System? 5An Information Systems Framework 7AIS Subsystems 9A General Model for AIS 10Acquisition of Information Systems 14ORGANIZATIONAL STRUCTURE 15Business Segments 15Functional Segmentation 16The Accounting Function 19The Information Technology Function 20THE EVOLUTION OF INFORMATION SYSTEM MODELS 24The Manual Process Model 24The Flat-File Model 25The Database Model 27The REA Model 28Enterprise Resource Planning Systems 31THE ROLE OF THE ACCOUNTANT 31Accountants as Users 32Accountants as System Designers 32Accountants as System Auditors 32SUMMARY 33Chapter 2Introduction to Transaction Processing 41AN OVERVIEW OF TRANSACTION PROCESSING 42Transaction Cycles 42ACCOUNTING RECORDS 44Manual Systems 44The Audit Trail 50v

viContentsComputer-Based Systems 51DOCUMENTATION TECHNIQUES 53Data Flow Diagrams and Entity Relationship Diagrams 53System Flowcharts 57Program Flowcharts 64Record Layout Diagrams 67COMPUTER-BASED ACCOUNTING SYSTEMS 67Differences between Batch and Real-Time Systems 68Alternative Data Processing Approaches 69Batch Processing Using Real-Time Data Collection 71Real-Time Processing 74DATA CODING SCHEMES 74A System without Codes 74A System with Codes 76Numeric and Alphabetic Coding Schemes 76SUMMARY 79APPENDIX 80Chapter 3Ethics, Fraud, and Internal Control 111ETHICAL ISSUES IN BUSINESS 112Business Ethics 112Computer Ethics 112Sarbanes-Oxley Act and Ethical Issues 116FRAUD AND ACCOUNTANTS 117Definitions of Fraud 117The Fraud Triangle 118Financial Losses from Fraud 119The Perpetrators of Frauds 120Fraud Schemes 122INTERNAL CONTROL CONCEPTS AND TECHNIQUES 128SAS 78/COSO Internal Control Framework 132SUMMARY 137Part IIChapter 4Transaction Cycles and Business Processes151The Revenue Cycle 153THE CONCEPTUAL SYSTEM 154Overview of Revenue Cycle Activities 154Sales Return Procedures 160Cash Receipts Procedures 163

ContentsRevenue Cycle Controls 166PHYSICAL SYSTEMS 170MANUAL SYSTEMS 171Sales Order Processing 171Sales Return Procedures 174Cash Receipts Procedures 174COMPUTER-BASED ACCOUNTING SYSTEMS 177Automating Sales Order Processing with Batch Technology 177Keystroke 178Edit Run 180Update Procedures 180Reengineering Sales Order Processing with Real-TimeTechnology 180Transaction Processing Procedures 180General Ledger Update Procedures 182Advantages of Real-Time Processing 183Automated Cash Receipts Procedures 183Reengineered Cash Receipts Procedures 185Point-of-Sale (POS) Systems 185Daily Procedures 185End-of-Day Procedures 187Reengineering Using EDI 187Reengineering Using the Internet 188Control Considerations for Computer-Based Systems 188PC-BASED ACCOUNTING SYSTEMS 190PC Control Issues 190SUMMARY 191APPENDIX 192Chapter 5The Expenditure Cycle Part I: Purchases andCash Disbursements Procedures 217THE CONCEPTUAL SYSTEM 218Overview of Purchases and Cash Disbursements Activities 218The Cash Disbursements Systems 225Expenditure Cycle Controls 228PHYSICAL SYSTEMS 230A Manual System 230The Cash Disbursements Systems 232COMPUTER-BASED PURCHASES AND CASHDISBURSEMENTS APPLICATIONS 234Automating Purchases Procedures Using Batch ProcessingTechnology 234vii

viiiContentsCash Disbursements Procedures 239Reengineering the Purchases/Cash Disbursements System 240Control Implications 242SUMMARY 243Chapter 6The Expenditure Cycle Part II: PayrollProcessing and Fixed Asset Procedures 265THE CONCEPTUAL PAYROLL SYSTEM 266Payroll Controls 274THE PHYSICAL PAYROLL SYSTEM 275Manual Payroll System 275COMPUTER-BASED PAYROLL SYSTEMS 277Automating the Payroll System Using Batch Processing 277Reengineering the Payroll System 279THE CONCEPTUAL FIXED ASSET SYSTEM 281The Logic of a Fixed Asset System 281THE PHYSICAL FIXED ASSET SYSTEM 283Computer-Based Fixed Asset System 283Controlling the Fixed Asset System 286SUMMARY 288Chapter 7The Conversion Cycle 305THE TRADITIONAL MANUFACTURINGENVIRONMENT 306Batch Processing System 307Controls in the Traditional Environment 318WORLD-CLASS COMPANIES AND LEANMANUFACTURING 320What Is a World-Class Company? 320Principles of Lean Manufacturing 320TECHNIQUES AND TECHNOLOGIES THAT PROMOTE LEANMANUFACTURING 322Physical Reorganization of the Production Facilities 322Automation of the Manufacturing Process 323ACCOUNTING IN A LEAN MANUFACTURINGENVIRONMENT 326What’s Wrong with Traditional Accounting Information? 326Activity-Based Costing (ABC) 328Value Stream Accounting 329INFORMATION SYSTEMS THAT SUPPORT LEANMANUFACTURING 331Materials Requirement Planning (MRP) 331

ContentsManufacturing Resource Planning (MRP II) 331Enterprise Resource Planning (ERP) Systems 333SUMMARY 334Chapter 8Financial Reporting and ManagementReporting Systems 349THE GENERAL LEDGER SYSTEM 349The Journal Voucher 350The GLS Database 350GLS Procedures 352THE FINANCIAL REPORTING SYSTEM 352Sophisticated Users with Homogeneous Information Needs 352Financial Reporting Procedures 352XBRL—REENGINEERING FINANCIAL REPORTING 355XML 355XBRL 356The Current State of XBRL Reporting 361CONTROLLING THE FRS 362SAS 78/COSO Control Issues 362Internal Control Implications of XBRL 364THE MANAGEMENT REPORTING SYSTEM 365FACTORS THAT INFLUENCE THE MRS 365Management Principles 365Management Function, Level, and Decision Type 368Problem Structure 370Types of Management Reports 371Responsibility Accounting 374Behavioral Considerations 378SUMMARY 380Part IIIChapter 9Advanced Technologies in AccountingInformation 395Database Management Systems 397OVERVIEW OF THE FLAT-FILE VERSUS DATABASEAPPROACH 398Data Storage 398Data Updating 398Currency of Information 399Task-Data Dependency 399The Database Approach 399Flat-File Problems Solved 400ix

xContentsControlling Access to the Database 400The Database Management System 400Three Conceptual Models 401ELEMENTS OF THE DATABASE ENVIRONMENT 401Users 401Database Management System 401Database Administrator 404The Physical Database 407THE RELATIONAL DATABASE MODEL 407Relational Database Concepts 408Anomalies, Structural Dependencies, and Data Normalization 412DESIGNING RELATIONAL DATABASES 419Identify Entities 419Construct a Data Model Showing Entity Associations 421Add Primary Keys and Attributes to the Model 422Normalize Data Model and Add Foreign Keys 422Construct the Physical Database 423Prepare the User Views 424Global View Integration 427DATABASES IN A DISTRIBUTED ENVIRONMENT 427Centralized Databases 428Distributed Databases 429SUMMARY 433APPENDIX 433Chapter 10The REA Approach to DatabaseModeling 459THE REA APPROACH 460The REA Model 460DEVELOPING AN REA MODEL 462Differences between ER and REA Diagrams 463View Modeling: Creating an Individual REA Diagram 463VIEW INTEGRATION: CREATING ANENTERPRISE-WIDE REA MODEL 470Step 1. Consolidate the Individual Models 470Step 2. Define Primary Keys, Foreign Keys, and Attributes 475Step 3. Construct Physical Database and Produce User Views 477REA and Value Chain Analysis 481REA Compromises in Practice 482SUMMARY 482

ContentsChapter 11Enterprise Resource Planning Systems 489WHAT IS AN ERP? 490ERP Core Applications 491Online Analytical Processing 492ERP SYSTEM CONFIGURATIONS 492Server Configurations 492OLTP Versus OLAP Servers 493Database Configuration 496Bolt-on Software 496DATA WAREHOUSING 497Modeling Data for the Data Warehouse 497Extracting Data from Operational Databases 498Cleansing Extracted Data 498Transforming Data into the Warehouse Model 500Loading the Data into the Data Warehouse Database 501Decisions Supported by the Data Warehouse 501Supporting Supply Chain Decisions from the Data Warehouse 502RISKS ASSOCIATED WITH ERP IMPLEMENTATION 503Big Bang Versus Phased-in Implementation 503Opposition to Changes in the Business’s Culture 504Choosing the Wrong ERP 504Choosing the Wrong Consultant 505High Cost and Cost Overruns 506Disruptions to Operations 507IMPLICATIONS FOR INTERNAL CONTROLAND AUDITING 507Transaction Authorization 507Segregation of Duties 508Supervision 508Accounting Records 508Independent Verification 508Access Controls 509Internal Control Issues Related to ERP Roles 509Contingency Planning 511SUMMARY 512APPENDIX 512Chapter 12Electronic Commerce Systems 523INTRAORGANIZATIONAL NETWORKS AND EDI 524INTERNET COMMERCE 524Internet Technologies 524xi

xiiContentsProtocols 527Internet Protocols 528Benefits from Internet Commerce 530RISKS ASSOCIATED WITH ELECTRONIC COMMERCE 532Intranet Risks 532Internet Risks 533Risks to Consumers 533SECURITY, ASSURANCE, AND TRUST 539Encryption 539Digital Authentication 540Firewalls 542Seals of Assurance 542IMPLICATIONS FOR THE ACCOUNTING PROFESSION 543Privacy Violation 543Continuous Auditing 544Electronic Audit Trails 545Confidentiality of Data 545Authentication 545Nonrepudiation 545Data Integrity 545Access Controls 545A Changing Legal Environment 546SUMMARY 546APPENDIX 546Part IVChapter 13Systems Development Activities 571Managing the Systems Development LifeCycle 573THE SYSTEMS DEVELOPMENT LIFE CYCLE 574Participants in Systems Development 575SYSTEMS STRATEGY 576ASSESS STRATEGIC INFORMATION NEEDS 576Strategic Business Needs 576Legacy Systems 577User Feedback 577DEVELOP A STRATEGIC SYSTEMS PLAN 580CREATE AN ACTION PLAN 580The Learning and Growth Perspective 581The Internal Business Process Perspective 582

ContentsThe Customer Perspective 582The Financial Perspective 582Balanced Scorecard Applied to IT Projects 582PROJECT INITIATION 583SYSTEMS ANALYSIS 583The Survey Step 583The Analysis Step 586CONCEPTUALIZATION OF ALTERNATIVE DESIGNS 587How Much Design Detail Is Needed? 587SYSTEMS EVALUATION AND SELECTION 589Perform a Detailed Feasibility Study 589Perform Cost-Benefit Analysis 590Prepare Systems Selection Report 595Announcing the New System Project 596User Feedback 597THE ACCOUNTANT’S ROLE IN MANAGING THE SDLC 597How Are Accountants Involved with SDLC? 597The Accountant’s Role in Systems Strategy 598The Accountant’s Role in Conceptual Design 598The Accountant’s Role in Systems Selection 598SUMMARY 598Chapter 14Construct, Deliver, and Maintain SystemsProject 605IN-HOUSE SYSTEMS DEVELOPMENT 606Tools for Improving Systems Development 606CONSTRUCT THE SYSTEM 610The Structured Design Approach 610The Object-Oriented Design Approach 610System Design 615Data Modeling, Conceptual Views, and Normalized Tables 615Design Physical User Views 615Design the System Process 622Design System Controls 625Perform a System Design Walk-Through 625Program Application Software 626Software Testing 627DELIVER THE SYSTEM 628Testing the Entire System 628Documenting the System 628Converting the Databases 630Converting to the New System 630xiii

xivContentsPostimplementation Review 631The Role of Accountants 633COMMERCIAL PACKAGES 633TRENDS IN COMMERCIAL PACKAGES 633Advantages of Commercial Packages 635Disadvantages of Commercial Packages 635CHOOSING A PACKAGE 635MAINTENANCE AND SUPPORT 639User Support 639Knowledge Management and Group Memory 639SUMMARY 640APPENDIX 640Part VChapter 15Computer Controls and Auditing 663IT Controls Part I: Sarbanes-Oxleyand IT Governance 665OVERVIEW OF SOX SECTIONS 302 AND 404 666Relationship between IT Controls and Financial Reporting 666Audit Implications of Sections 302 and 404 667IT GOVERNANCE CONTROLS 671ORGANIZATIONAL STRUCTURE CONTROLS 671Segregation of Duties within the Centralized Firm 672The Distributed Model 674Creating a Corporate IT Function 675Audit Objectives Relating to Organizational Structure 676Audit Procedures Relating to Organizational Structure 676COMPUTER CENTER SECURITY AND CONTROLS 677Computer Center Controls 677DISASTER RECOVERY PLANNING

The Manual Process Model 24 The Flat-File Model 25 The Database Model 27 The REA Model 28 Enterprise Resource Planning Systems 31 THEROLEOFTHEACCOUNTANT 31 Accountants as Users 32 Accountants as System Designers 32 Accountants as System Auditors 32 ... James A. Hall Lehigh University ...