D217-New Study Guide

legacy systems

characterized by the flat-file approach to data management. In this environment, users own their data files. Exclusive ownership of data is a natural consequence of two problems associated with the blank era. The first problem is a business culture that erects barriers between organizational units that inhibit entity-wide integration of data. The second problem stems from limitations in flat-file management technology, which require data files to be structured to the unique needs of the primary user. Thus, the same data, used in slightly different ways by different users, may need to be restructured and reproduced in physically different file

Prepare Payroll

clerk in the payroll department then performs the following tasks: (1) Prepares the payroll register, showing gross pay, deductions, overtime pay, and net pay. (2) Enters this information into the employee payroll records (3) Prepares employee paychecks (4) Sends the paychecks to the distribute paycheck function. (5) Files the time cards, personnel action form, and copy of the payroll register (not shown).

Journal voucher file

collection of blank processed in current period. It provides a record of all GL transactions & replaces traditional general journal

Program development

contains application development software. Users & programmers can use this to create application access to database

Budget master file

contains budgeted amounts for revenues, expenditures, and other resources for responsibility centers.

Journal voucher history file:

contains journal vouchers for past periods. Current & historical journal voucher files are important links in firm's audit trail.

Responsibility Center file:

contains revenues, expenditures, and other resource utilization data for each responsibility center in organization. MRS draws upon this data.

Information Generation Relevance

contents of a report or document must serve a purpose. This could be to support a manager's decision or a clerk's task. We have established that only data relevant to a user's action have information content. Therefore, the information system should present only relevant data in its reports. Reports containing irrelevancies waste resources and may be counterproductive to the user. Irrelevancies detract attention from the true message of the report and may result in incorrect decisions or actions.

Data Redundancy

data storage data updating Currency of information

distinction

drawn between attestation and financial services. Both external and internal auditors conduct IT audits.

Authorization Controls

each transaction should be initiated by a written request from the user or department. Should be formal and explicitly authorized.

Predictive analytics

encompasses a variety of statistical techniques that draw upon current and past data to calculate the statistical likelihood of future scenarios occurring. In business, predictive models are used to analyze current and historical data on potential customers to rank order them in terms of their likely future performance such as their creditworthiness (the likelihood that they will pay their bill) and their likelihood to respond to a particular offer or product promotion.

most common audits

external (attestation) audits, internal (operational) audits, fraud audits.

(AIS)

financial transaction: an economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms.

Data Sources

financial transactions that enter the info systems from internal or external sources

Data Collection

first operational stage in Information system

System Flowcharts

graphical representation of the physical relationships among key elements of a system.

Data Processing

group that manages the computer resources used to perform day to day processing of transactions

audit

independent attestation performed by the auditor, who expresses an opinion about the fairness of a company's financial statements

Independent Verification Controls

internal auditor should review the asset acquisition and approval procedures to determine the reasonableness of factors used in such decisions. The internal auditor should verify the location, condition, and fair value of the organization's fixed assets against the fixed asset records in the subsidiary ledger. In addition, depreciation charges calculated on fixed assets should be reviewed and verified for accuracy.

Role of accountants in AIS

involved in both design & the audit of AIS. Play a prominent role on systems development teams as domain experts * The IT professionals on the team are responsible for the physical system

Asset Maintenance

involves adjusting the fixed asset subsidiary account balances as the assets (excluding land) depreciate over time or with usage. Depreciation charges from assets not used in manufacturing are treated as expenses in the current period. Depreciation calculations are transactions that the fixed asset system must be designed to anticipate internally when no external event (source document) triggers the action. An important record used to initiate this task is the depreciation schedule. blank also involves adjusting asset accounts to reflect the cost of physical improvements that increase the asset's value or extend its useful life. Such enhancements, which are themselves capital investments, are processed as new asset acquisitions Each subsidiary record should indicate the current location of the asset. The ability to locate and verify the physical existence of fixed assets is an important component of the audit trail.

Transaction Authorization

journal voucher authorizes an entry to GL. JV have numerous resources such as cash receipts processing, sales order processing and financial report group. It's vital to the integrity of accounting records for JV to be properly authorized by managers at source department.

Financial Reporting system

law dictates management's responsibility for providing stewardship information to external parties which is met via FRS. Much of the information provided takes the form of standard financial statements, tax returns, and documents required by regulatory agencies such as the Securities and Exchange Commission (SEC).

Advanced Technology Payroll System:

moderate-sized and large organizations, payroll processing is often integrated within the human resource management (HRM) system. The HRM system captures and processes a wide range of personnel-related data, including employee benefits, labor resource planning, employee relations, employee skills, internal training, personnel actions (pay rates, deductions, etc.), and payroll processing. HRM systems provide real-time access to personnel files for purposes of direct inquiries and making changes in employee status as they occur.

Employee Timekeeping

o Biometric clocks - verify employees' identities by using fingerprint or handvein scan tech. This device uses mathematical algorithm for verification instead of fingerprints o Magnetic Swipe ID cards - employees can be issued a card that has magnetic strip containing employee info. Employee swipes card through time clock record to start/end time on job. o Proximity Cards - works similar to swipe cards but don't need to swipe. Card can be placed in front of a reader to record attendance time. The advantage is card can be read through wallets/purses. o Mobile remote devices - employees can clock in using handheld devices (tablet/phone) or web browsers from laptop.

IT Application Controls

o Input controls in the form of edits and check digits ensure that data (journal vouchers) entering the general ledger are free from data entry errors that can corrupt GL accounts. o Process controls, such as error messages, passwords, and multilevel security, serve the same objectives in the GLS as they do in transaction processing applications. o Output controls need to be in place to ensure that financial statements and other management reports produced by the FRS arrive at their intended destinations

Segregation of Duties

o The timekeeping function and the personnel function should be separated. o accounts payable the responsibility of reviewing the work done by payroll (payroll register) and approving payment. Based on this approval, the cash disbursements function then writes a single check to cover the entire payroll. The individual employee paychecks are not negotiable instruments until the payroll check is deposited into the imprest account at the bank. o The use of an independent paymaster to distribute checks (rather than the employee's supervisor) helps verify the existence of employees.

Production Dept

prepare two types of time records: job tickets and time cards. Job tickets capture the time that individual workers spend on each production job. Cost accounting uses these documents to allocate direct labor charges to work-in-process (WIP) accounts. Time cards capture the time the employee is at work. These are sent to the prepare payroll function for calculating the amount of the employee's paycheck

GL Master File

principal file in GLS Database & based on organizations Chart of Accounts o Each record in GL Master is either a separate GL account (ie. Sales) or Control Account (ie. AR - Control) for a corresponding subsidiary ledger in TPS o FRS draws upon GL master to produce financial statements o MRS uses this file to support internal information reporting

Information Generation

process of compiling, arranging, formatting, and presenting information to users. Information can be an operational document such as a sales order, a structured report, or a message on a computer screen. Regardless of physical form, useful information has the following characteristics: relevance, timeliness, accuracy, completeness, and summarization.

Real-time systems

process transactions individually at the moment the event occurs; therefore, no time lags exist between occurrence and processing. On the other hand, a large portion of total programming costs for real-time systems are incurred in designing user interfaces. Real-time systems must be user-friendly, forgiving, and easy to work with. Real-time processing of large volumes of transactions can create operational inefficiencies.

Advisory Services

professional services offered by public accounting firms to improve their client organizations' operational efficiency and effectiveness. The domain of blank services is intentionally unbounded so that it does not inhibit the growth of future services that are currently unforeseen.

Fixed assets

property, plant, and equipment used in the operation of a business. These are relatively permanent items that often collectively represent the largest financial investment by the organization. The process involves three categories of tasks: asset acquisition, asset maintenance, and asset disposal.

Database Management System: (DBMS)

provides controlled access to database. It is the 2nd element of the database approach. It is a control between users programs and physical database. Blank is a special software system that is programmed to know which data elements each user is authorized to access.

Attest Service

rapidly growing field of advisory services, which many public accounting firms offer.

Sequential Coding

represents items in some blank order (ascending or descending). Alpha Numeric is common. Advantage: supports batch reconciliations (ie. Sales orders) at the end of process, detects gaps in sequence. Disadvantages: codes carry no information beyond their order in sequence, difficult to change, difficult to renumber, inappropriate for grouped records logically where additions and subtractions occur regularly.

The IT function

responsible for designing the physical system, and the accounting function is responsible for specifying the conceptual system

GL ledger history file

same format as GL master. Provides historical financial date for comparative financial reports

Prepare Cash Disbursement

single check for entire amount of payroll is prepared & deposited to payroll imprest account. (employee paychecks are drawn from account before paychecks can be cashed) o clerk sends copy of check with disbursement voucher & payroll register to AP dept. o Journal voucher is prepared and sent to update GL function.

Supervision Controls:

supervisors must ensure that fixed assets are being used in accordance with the organization's policies and business practices

Diagnostic analytics

techniques view past performance to determine why something happened the way it did. These tools help managers understand system-wide "pipeline" problems and show them how the various teams in the system are performing. Often management cannot see the "problem." Instead, they see a symptom of the problem

Prescriptive analytics

tells user what actions should be taken in response to specific questions. Blank helps them determine which campaigns to run and for which products. Another use is to support product assortment optimization. Business managers can thus determine the optimal configuration of premium, high-end, medium-price, and low-price items that maximize the total value to the company. The analysis draws upon structured data such as the price of items and their baseline demand as well as unstructured data such as substitution effects

Currency of information

the problem of performing multiple updates is the problem of failing to update the files of all users affected by a change. If update messages are not properly disseminated, then some users may not record the change and will perform their duties and make decisions based on outdated data.

Alphabetic codes

used for many of the same purposes as numeric codes. Alphabetic characters may be assigned sequentially (in alphabetic order) or may be used in block and group coding techniques. Advantages: The capacity to represent large numbers of items is increased dramatically through the use of pure alphabetic codes or alphabetic characters embedded within numeric codes (alphanumeric codes). Disadvantages: The primary drawbacks with alphabetic coding are (1) as with numeric codes, there is difficulty rationalizing the meaning of codes that have been sequentially assigned (2) users tend to have difficulty sorting records that are coded alphabetically.

Sophisticated Users with Homogeneous Information needs

users of financial reports understand the conventions and accounting principles that are applied and that the statements have information content that is useful. · Financial reporting is final step in overall accounting process that begins in Transaction Cycles.

Block Codes

variation on sequential coding that partly remedies the disadvantages just described. Can be used to represent whole classes of items by restricting each class to a specific range within the coding scheme. Common application for block coding is the construction of Chart of Accounts - basis of General Ledger. Advantage: allows for the insertion of new codes within a block without having to reorganize the entire coding structure Disadvantage: As with the sequential codes, the information content of the blank is not readily apparent

Data Processing

· At the end of the work period, the following tasks are performed in a batch process: 1. Labor costs are distributed to various WIP, overhead, and expense accounts. 2. An online labor distribution summary file is created. Copies of the file are accessible from terminals in the cost accounting and general ledger departments. 3. Payroll is calculated, and an online payroll register is created from the time and attendance; file and the employee records file. The payroll register file is accessible from the AP and cash disbursements departments. 4. The employee records file is updated. 5. Paychecks are prepared, signed, and distributed to the employees. 6. Funds sufficient to cover the full amount of the payroll are transferred to the payroll imprest account, and the transfer is recorded in the check register. 7. Digital journal vouchers are entered into the journal voucher file. The system automatically updates the general ledger from the journal voucher and labor distribution summary files.

Segregation of Duties

· GL provides as verification control for accounting process so the GL task must be separate from all other responsibilities in the organization. Individuals who have access to GL accounts: o Should not have recordkeeping responsibility for special journals or subsidiary ledgers o Should not prepare journal vouchers o Should not have custody of physical assets o *note: real time GL/FRS system: detailed listings of journal voucher & account activity reports provided to end users since actions are automated

Personnel Dept

· prepares and submits personnel action forms to the prepare payroll function. These documents identify employees authorized to receive a paycheck and are used to reflect changes in hourly pay rates, payroll deductions, and job classification.

dual roles of accountants 1 2

(1) designers of AIS (2) auditors of AIS

Flowcharting Manual Activities

Look at chart with symbols

MIS

MDPF

Information Generation Completeness

No piece of information essential to a decision or task should be missing. For example, a report should provide all necessary calculations and present its message clearly and unambiguously.

(MIS)

Non-financial transactions: events that do not meet the narrow definition of a financial transaction. For example, adding a new supplier of raw materials to the list of valid suppliers is an event that may be processed by the enterprise's information system as a transaction.

Asset Maintenance

The fixed asset system uses the depreciation schedules to record end-of-period depreciation transactions automatically. The specific tasks include (1) calculating the current period's depreciation, (2) updating the accumulated depreciation and book value fields in the subsidiary records, (3) posting the total amount of depreciation to the affected GL accounts (depreciation expense and accumulated depreciation), and (4) recording the depreciation transaction by adding a record to the journal voucher file. Finally, a fixed asset depreciation report is sent to the fixed asset department for review.

Distribute Paycheck

To prevent fraud, many companies use a paymaster to distribute paychecks to employees. This individual is independent of the payroll process—not involved in payroll authorization or preparation tasks. If a valid employee does not claim a paycheck, the paymaster returns the check to payroll. The reason the check went unclaimed can then be investigated.

COSO CONTROL ISSUES 1 2 3 4 5 6

Transaction Authorization Segregation of Duties Access Controls Accounting Records Independent Verification IT Application Controls

GENERAL LEDGER SYSTEM

Transaction cycles process individual events that are recorded in special journals and subsidiary accounts. Summaries of these transactions flow into the GLS and become sources of input for the MRS and FRS. The bulk of the flows into the GLS comes from the transaction processing subsystems. Note, however, that information also flows from the FRS as feedback into the GLS

Task-data independence

Users have access to the full domain of data available to the firm. As users' information needs expand beyond their immediate domain, the new needs can be more easily satisfied than under the flat-file approach. Only the limitations of the data available to the firm (the entire database), and the legitimacy of their need to access it, constrain users.

Disposal Procedures

When the clerk deletes the record from the fixed asset subsidiary ledger, the system automatically (1) posts an adjusting entry to the fixed asset control account in the general ledger, (2) records loss or gain associated with the disposal, and (3) prepares a journal voucher. A fixed asset status report containing details of the deletion is sent to the fixed asset department for review.

data updating

When users maintain separate files, any such change must be made separately for each user. This adds significantly to the cost of data management.

Descriptive analytics

a mathematical process that describes real-world events and the relationships between factors responsible for them. This form of analysis is useful in allowing management to learn from data about historic activities and events, and understand how they might influence future outcomes. In this context, "historic" data refers to data generated at any point of time when an event occurred, which could be years or only seconds past

Mnemonic Codes

alphabetic characters in the form of acronyms and other combinations that convey meaning. Advantages: The mnemonic coding scheme does not require the user to memorize meaning; the code itself conveys a high degree of information about the item that is being represented. Disadvantages: Although mnemonic codes are useful for representing classes of items, they have limited ability to represent items within a class

data storage

an efficient information system captures & stores data only once & makes this single source available to all users who needs it. This is not possible for flat file environment as data is stored and collected multiple times.

batch systems

assemble transactions into groups for processing, a time lag will always exist between the point at which an economic event occurs and the point at which it is processed by the system and reflected in the firm's accounts. The length of lag (minutes or weeks) depends on the frequency of batch processing. For example, payroll processing is typically a batch system with long lag times. batch systems demand fewer organization resources (such as programming costs, computer time, and user training) than real-time systems. Batch processing of noncritical accounts, however, improves operational efficiency by eliminating unnecessary activities at critical points in the process.

Accounting Records

audit trail is a record of the path that a transaction takes through the input, processing, and output phases of transaction processing. An audit trail facilitates error prevention and correction when the data files are logically organized. Also, the general ledger and other files that constitute the audit trail should be detailed and rich enough to (1) provide the ability to answer inquiries, for example, from customers or vendors; (2) be able to reconstruct files if they are completely or partially destroyed; (3) provide historical data required by auditors; (4) fulfill government regulations; and (5) provide a means for preventing, detecting, and correcting errors.

Asset Disposal

begins when the responsible manager issues a request to dispose of the asset. Like any other transaction, the disposal of an asset requires proper approval. The disposal options open to the firm are to sell, scrap, donate, or retire the asset in place. A disposal report describing the final disposition of the asset is sent to the fixed asset accounting department to authorize its removal from the ledger.

Cost Accounting

blank Accounting dept enter job cost data in real time to create labor usage file

Users

blank access database in 2 ways - o user application programs that sends data access requests to DBMS which validates the requests & retrieves the data for processing. o Direct query - no formal user programs. DBMS has a built in query facility that allows authorized users to process data independent of professional programmers.

Flat File problem solved

by data sharing - database approach

Taxonomy Creation

can be generated incorrectly and results in incorrect mapping between data & taxonomy elements that could result in misrepresentation of financial data. Controls must be designed and put in place to avoid errors

Journal Voucher

can be used to represent summaries of similar transactions or a single unique transaction, identifies the financial amounts and affected general ledger (GL) accounts. Routine transactions, adjusting entries, and closing entries are all entered into the GL via journal vouchers. Because a responsible manager must approve journal vouchers, the manager offers a degree of control against unauthorized GL entries.

Current values

change any user makes to the database yields current data values for all other users. For example, when User 1 records a customer address change, User 3 has immediate access to this current information.

Task Data Dependency

Another problem with the flat-file approach is the user's inability to obtain additional information as his or her needs change. This problem is called task-data dependency. The user's information set is constrained by the data that he or she possesses and controls

Taxonomy Mapping Error

Correctly generated XBRL tags may be incorrectly assigned to internal database accounts resulting in misrepresentation of financial data. Therefore, a control must be put in place.

DATABASE ENVIRONMENT 1 2 3 4

DBMS(database management system), database administrator physical database Users

Database Management:

Data Attribute --> collection of attributes =record-->collection of record = file

No data redundancy

Each data element is stored only once, thereby eliminating data redundancy and reducing storage costs.

Independent Verification

FRS produces two operational reports—journal voucher listing and the GL change report—that provide proof of the accuracy of this process. The journal voucher listing provides relevant details about each journal voucher posted to the GL. The general ledger change report presents the effects of journal voucher postings to the GL accounts

Update General Ledger

GL function receives labor distribution summary from cost accounting, the disbursement voucher from A/PT, and journal voucher from cash disbursement. With these information, the GL clerk updates debit & credits for respective accounting entries, then file documents.

Human Resources

HR clerk enters data into employee records file in real time from terminals.

Information Generation Accuracy:

Information must be free from material errors. Materiality is, however, a difficult concept to quantify. It has no absolute value; it is a problem-specific concept. This means that, in some cases, information must be perfectly accurate. In other instances, the level of accuracy may be lower. A material error exists when the amount of inaccuracy in information causes the user to make poor decisions or to fail to make necessary decisions. We sometimes must sacrifice absolute accuracy to obtain timely information. Often, perfect information is not available within the user's decision time frame. Therefore, in providing information, system designers seek a balance between information that is as accurate as possible, yet timely enough to be useful.

Information Generation Timeliness

The age of information is a critical factor in determining its usefulness. Information must be no older than the time frame of the action it supports. For example, if a manager makes decisions daily to purchase inventory from a supplier based on an inventory status report, then the information in the report should be no more than a day old.

Asset Acquisition:

1. Departmental manager (user) recognizing the need to obtain a new asset or replace an existing one. Authorization and approval procedures over the transaction will depend on the asset's value. Department managers typically have the authority to approve purchases below a certain materiality limit. Capital expenditures above the limit will require approval from the higher management levels. This may involve a formal cost-benefit analysis and the formal solicitation of bids from suppliers. 2. Once the request is approved and a supplier is selected, the fixed asset acquisition task is similar to the expenditure cycle procedures with two noteworthy differences. First, the receiving department delivers the asset into the custody of the user/manager rather than a central store or warehouse. ii. Second, the fixed asset department, not inventory control, performs the record-keeping function

Basic Technology Payroll System:

1. Personnel action and time and attendance information from the personnel and production departments, respectively, initiate the payroll process. 2. The payroll department reconciles this information, calculates the payroll, and sends the paychecks to the paymaster for distribution to employees. 3. Cost accounting receives information regarding the time spent on each job from production. This is used for posting to accounts in the WIP subsidiary ledger. 4. Accounts payable receives payroll summary information (payroll register) from the payroll department and authorizes the cash disbursements department to deposit a single check, in the amount of the total payroll, in a bank imprest account on which the payroll is drawn. 5. The general ledger department reconciles summary information from cost accounting and accounts payable. GL accounts are updated to reflect these transactions

(Data Security) Firewall

A central component in controlling against external hackers is the implementation of an electronic firewall that insulates the organization's internal network and stored data from outside intruders on the Internet. Blank enforces access control to ensure that only authorized traffic passes between the organization and individuals on the outside. Validated users are directed to the application or data they need. Those who fail the validation tests are rejected, and such failed attempts should be logged and investigated by an internal security group.

invoice arrives

AP clerk reconciles using receiving report & PO in A/P pending file (three-way match: order was received & fairly priced).

Prepare A/P:

AP clerk reviews payroll register for correctness & prepares copies of cash disbursement voucher for the total amount of payroll. Clerk records voucher in voucher register & submits the voucher packet (voucher & payroll register) to prepare cash disbursement function. A copy is sent to GL function for update.

reconciled is complete

AP packet (invoice, PO, receiving report) is prepared & used as formal authority to record liability & make a payment

Group Codes

Numeric blank codes are used to represent complex items or events involving two or more pieces of related data. The code consists of zones or fields that possess specific meaning. Advantages: blank codes have a number of advantages over sequential and block codes. -They facilitate the representation of large amounts of diverse data.-They allow complex data structures to be represented in a hierarchical form that is logical and more easily remembered by humans.-They permit detailed analysis and reporting both within an item class and across different classes of items. Disadvantages: blank codes can effectively present diverse information, they tend to be overused. Unrelated data may be linked simply because it can be done. This can lead to unnecessarily complex group codes that cannot be easily interpreted. Finally, overuse can increase storage costs, promote clerical errors, and increase processing time and effort.

Update Work In Process (WIP) Account

Once labor costs are updated in WIP account, labor distribution summary (summary of labor costs in WIP acct) is prepared and forwarded to general ledger function

Validation of Instance Documents

Once mapping and tags are complete & stored in internal database, XBRL instance docs/reports can be generated. Independent verification procedures need to be established to ensure appropriate taxonomy & tags have been applied before posting to web server.

Big Data Reporting System 1 2 3 4

Prescriptive analytics Predictive analytics Descriptive analytics Diagnostic analytics

Acquisition Procedures

Process begins when fixed asset accounting clerk receives a receiving report & cash disbursement voucher. (1) Clerk creates record of asset in fixed asset subsidiary ledger (incl useful life, salvage value, depreciation method, asset's location) (2) The fixed asset system automatically updates the fixed asset control account in the general ledger and prepares journal vouchers for the general ledger department as evidence of the entry. (3) system prepares a depreciation schedule for each asset when its acquisition is originally recorded. The schedule is stored on computer disk to permit future depreciation calculations

features of DBMS:

Program development Back up & recovery

Access Controls

SOX legislation requires organizations to implement controls that limit database access to authorized individuals only.

Internal Control of XBRL 1 2 3

Taxonomy Creation Taxonomy Mapping Error Validation of Instance Documents