Accounting Information Systems Chapters 15-17

Steps for Better Thinking

(1) Identifying: problem, revelant information, uncertainties (2) Exploring: biases, assumptions, qualitative interpretation from various points of view, information organization (3) prioritizing: ranked list of factors to consider, conclusion (4) envisioning: limitations of endorsed solution, skills integration

Adherence to a code of ethical behavior

Accountants adhere to these - accountant are held to a certain standard of behavior and are expected to follow the rules

Specialized Knowledge Base

Accounting has what? we're talking about financial reporting rules, standards for conducting audits, tax research and planning skills, or activity-based accounting processes, the knowledge we share is not part of society's general body of knowledge

Complex Skill

Accounting requires the use of judgement, and also relies on fairly complex computations in some areas (such as pension accounting); although some accounting software is straightforward and easy to use, some of our IT tools are reasonalby sophisticated as well

Causes of Information Overload

Causes: Personal Factors, Information Characteristics, Task and Process parameters, organizational design, and information technology

Compliance Audit

Governmental and not-for-profit organizations are subject to what type of audits? GNFP's are subject to very strict government rules and regulations, many of which are contained in the yellow book published by the government accountability office (GAO); this type of audit determines whether or not a GNFP is following the rules and regulations in the yellow book

symptoms and effects of information overload

Limited information search and retrieval strategies; arbitrary ifnromation analysis and organization; suboptimal decisions; and strenuous personal situations

Generic Audit Steps

The following factors: Assess management's integrity; evaluate management's credentials; review the internal control system; perform compliance testing; issue the audit report - what are these factors part of?

Task and process parameters

Time pressure is one example, if you've taken any intermediate accounting courses, or taxation courses, you may have found the rules and standards in one or both areas both numerous and incredibly detailed; other examples are nonroutine tasks, task complexity and interdependencies and interruptions (cause of information overload )

presentation and disclosure

assertions by management that must be evaluated as part of auditing - were all the transactions recorded in the correct accounts? are the disclosures understandable to users?

Opinion

finally, the audit report must clearly state the auditor's what on the financial statements (unqualified, qualified, disclaimer, or adverse); the auditor also must explain the reason(s) for the statements

Generally Accepted Accounting Principles (GAAP)

first, the opinion must state whether or not the statements are presented in accordance with what?

Personal Factors

refer to everyone's individual limitations to process information; for example: I prcoess information much better in the afternoon and evening than I do in the morning, also if you've ever stayed up all night finishing a shcool project, you may have noticed your own ability to process information erodes (cause of information overload)

an audit report or opinion

the auditing of a company culminaates with the issuance of what?

disclaimer

this of opinion denotes that the auditors could not tell if the statements were not prepared in accordance with GAAP

Section 404 (of the Sarbanes-Oxley Act)

this section of the Sarbanes-Oxley Act is entitled "management assessment of internal controls" this section re-emphasizes the importance of a sound internal control system as part of maintaining AIS integrity and reliability; the organizations must discuss the scope and adequacy of internal controls

Management Audit

this type of audit involves the greatest degree of judgement; it determines the degree to which the assumptions underlying decisions are valid; it also examines the ways in which management decisions are supported

information

what drives the 21st century economy?

steps to create a knowledge management system

(1) create an organizational culture that supports the ideas of knowledge sharing and development (2) define the business goals the knowledge management system will address (3) perform a knowledge audit to identify any duplication, gaps and overlaps in an organization's knowledge base (4) create a visual map that describes units of knowledge and the relationships (5) develop a knowledge management strategy based on the content management, integrations, search mechanisms, information delivery, and collaboration (6) purchase or build appropriate tools for capturing, analyzing, categorizing, and distributing knowledge (7) periodically reassess the value of the knowledge management system and make necessary adjustments

metaethics, normative ethics and applied ethics

philosphers today usually divide ethical theories into three general subject areas which are?

limited information search and retrieval strategies

information overload causes people to be less effective when looking for information; less systematic searching; increased problems differentiating relevant and irrelevant information - what symptom or effect of information overload does this describe?

strenuous personal situations

information overload takes its toll on people physically, psychologically, mentally, and spiritually; stress, confusion, and cognitive strain; overconfidence - what symptom or effect of information overload does this describe?

Metaethics

investigates where are ethical principles come from, and what they mean

the field of ethics (also called moral philosophy)

involves systematizing, defending, and recommending concepts of right and wrong behavior

Bounded rationality

means that people will inherently avoid uncertainty and rely on proven "rules" for problem solving whenever they can: for example: a friend tells you that there is a better route to get to school than the way you usually go, under this concept you will take the way you usually go--avoiding uncertainty

Training

refers to auditors knowning what they are doing before getting on the field - from school or supervisors

information technology

Example: all the ways IT provides you with information: e-mail, instant messaging, cell phones, the Internet increased numbers of television channels; people are bombarded with information (cause of information overload)

exploring

Falls under which step for better thinking - biases (people who are against information sharing); assumptions (knowledge sharing is a good thing); qualitative interpretation from various points of view (inexperienced cpa's feel they don't have much to offer, experienced feel they have nothing left to learn; clients have differing opinions on information sharing); information organization (how to implement knowledge sharing - creates a list of costs and benefits)

envisioning

Falls under which step for better thinking - limitations of endorsed solution (knowledge sharing requires a change in organizational culture, pilot testing in a subset of the organization may lead to rumors and later bias against knowledge sharing); skills integration (once the pilot test is complete managers could use the information to spread the knowledge sharing project throughout the firm)

identifying

Falls under which step for better thinking - problem (identify the problem); relevant information (legal and regulatory requirements, see how other companies dealt with the problem); uncertainties (will people share knowledge, will they do so effectively)

prioritizing

Falls under which step for better thinking - ranked list of factors to consider (human factors, required information technology knowledge and tools, financial costs and benefits); conclusion (develope a limited knowledge-sharing program on a pilot basis; helps to workout the systems before using it more widely)

Reporting

Generally Accepted Auditing Standards, includes GAAP, Consistency, Disclosure and Opinion; these speak to the ultimate opinion the auditors express on the financial statements

field work

Generally Accepted Auditing Standards, this involves supervision, internal control and evidence; they set out important ideas for conducting the audit itself

Four criteria to be considered a professional

McDonald identified what? they include specialized knowledge base, complex skills, autonomy of practice and adherence to a code of ethical behavior

to enhance the knowledge environment

obective of knowledge managment - means stakeholders have a responsibility to create conditions that facilitate knowledge creation and sharing; teniques that fall into this category include participative management; 360 degree performance evaluation, and decentralizaed management structures

Characteristics of a Professional

The following factors (as given by Dr. Nancy Bell): communicates effecitvely; thinks rationally, logically, and coherently; appropriately uses technical knowledge; integrates knowledge from many disciplines; exhibits ethical professional behavior; recognizes the influence of political, social, economic, legal and regulatory forces; and actively seeks additional knowledge - are what?

to improve knowledge access

obective of knowledge managment - talking about making knowledge more available throughout an organization; the most competitive organziations today share knowledge among individuals and responsibility centers

Consistency

this is one of the qualitative characteristics of accounting information in the conceptual framework; it is also one of the reporting standards; the audit report must explain any differences between the current period's application of GAAP and the prior application

virtues model of ethical behavior

according to this ethical philosophy, people should do what is right, moral and virtuous, this model asks managers to look inwardly to determine the rightness of their actions; sometimes they make no difference between moral behavior and ethical behavior

Disclosure

another commonality between GAAS and the conceptual framework; financial statement users can assume the disclosures in the financial statements are appropriate unless the audit opinion specifically states they are not

existence or occurrence

assertions by management that must be evaluated as part of auditing - Did the recorded sales transactions really occur? do the assets listed on teh balance sheet really exist?

rights and obligations

assertions by management that must be evaluated as part of auditing - Does the company really own the assets? are related legal responsibilities identified?

valuation and allocation

assertions by management that must be evaluated as part of auditing - are the accounts valued correctly? are expenses allocated to the period (s) benefited?

completness

assertions by management that must be evaluated as part of auditing - are the financial statements (including footnotes) complete? were all the transactions recorded in the right period?

adverse opinion

this means the statements are not prepared in accordance with GAAP

to manage knowledge as an asset

obective of knowledge managment - the strict accounting definition of an asset is a probable future benefit obtained or controlled by a particular entity as a result of past transactions or events; while knowledge probably falls within that definition, we simply don't knwo how to measure its economic value for financial reporting purposes

to create knowledge repositories

obective of knowledge managment - think of this objective as developing a "library" for your organization; knowledge here can refer to informatino on the competitive landscape, results of internal research, and the results of internal research, and the experiences of others in the organziation

Information Overload

occurs when the decision maker estimates he or she has to handle more information than he or she can efficiently use

Information Overload

occurs when the information-processing requirement (information needed to complete a task) exceed the information-processing capacity (the quantity of information one can integrate into the decision-making process)

Information Overload

occurs when the volue of the information supply exceeds the limited human information processing capacity. Dysfunctional effects such as stress and confusion are the result

Information Characteristics

information can be uncertain, ambiguous, complex and intense; for example: the complexity of information you read in an accounting text compared to the information complexity in a newpaper or novel, newspapers and novels are much easier to digest than an accounting book simply because of the nature of the information they contain (Cause of Information overload)

suboptimal work

decision making is weakened, producing poor results; inefficient work; reduced quality and accuracy of decisions - what symptom or effect of information overload does this describe?

Organizational design

example: group projects; people in groups have differing ideas and approaches for problem solving and decision making; integrating all those different points of view can easily lead to information overload (cause of information overload)

Countermeasures for Information Overload

examples include: allow more time to complete important tasks; compress, aggregate, categorize, and structure information; create small, self-contained tasks rather than trying to do everything at once; define decision models and rules for common decision contexts; handle information as it comes to you-don't put it off!; improve personal information management; improve personal time management skills and techniques

normative ethics

in accounting, we are perhaps most concerned with what kind philosophy of ethics? what are the rules and standards, whether personal or professional, that guide our professional decision making

Operation Audit

in this type of audit, auditors examine a company's rules and procedures for conducting business; they're asking if a company's rules make sense, and if they're followed; systems documentation and flowcharting are particularly important in this type of audit

definition of ethics

includes "rules or standards governing the conduct of a person or the members of a profession"

Autonomy of Practice

refers to independence of self-sufficiency; "independence of mind" is an important characterisitc for accounting professionals; historically the accounting profossion was almost completely independent and self-regulating, although the PCAOB has given less what to auditors, the profession as a whole remains relatively self-suffiicient

Relapse Errors

refers to people's tendency to follow a familiar routine, even if the routine is ineffective and even if they have a positive intention to change; example: people who want to lose weight, intend to but continually fall back into their old ways -- this idea indicates that, even with positive intentions to change, the person is likely to continue repeating the same behavior over and over again

Satisficing

refers to people's tendency to stop looking for solutions to a problem when they find a solution that works--whether that decision is the "best" or not; example: an accountant trying to choose a piece of general ledger software might "settle" for the first package that came along rather than looking further for a possibly better package

unqualified opinion

says that the company's statements are prepared in accordance with generally accepted accounting principles

auditing standards

the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) identified 10 whats that govern external audits by CPA's

Auditing

the area of accounting associated with AIS evaluation; it is a methodical examination or review of a condition or situation

Supervision

the audit is to be properly planned, and all staff members must be adequately what; most audit teams comprise professional at various stages of their careers, with vary levels of experience in auditing-as a team member's experience increases, the need for this may decrease

Professional Care

the auditor must exercise due what in preparing for and completing the audit; the engagement must be properly planned in terms of personnel on the audit team and specific audit procedures; it also extends to preparing the audit report

utilitarian model of ethics

the end justifies the means; in other words this philosophy of ethics would say that as long as you have a successful/favorable outcome, any method of achieving it is justified

Common internal controls

the following factors: adequate documentation of business processes; background checks for prospective employees; comprehensive employee training; document matching; multiple signatures for checks over a specified threshold; physical safeguards for assets; regular bank reconciliations; separation of duties - these factors are part of

assertions by management that must be evaluated as part of auditing

the following factors: existence or occurrence; rights and obligations; valuation and allocation; completness; and presentation and disclosure - are part of what

Information Overload

the point where the amount of information actually integrated into the decision begins to decline, beyond this point, the individual's decisions reflect a lesser utilization of the available information

knowledge managment

the process through which organizations generate value from their intellectual and knowledge-based assets; most often generating value from such assets involves sharing them among employees, departments and even with other companies in an effort to devise best practices

Section 401 (of the Sarbanes-Oxley Act)

the section of the Sarbanes-Oxley Act is titled "Disclosures in Periodic Reports" the financial statements must be "accurate and presented in a manner that does not contain incorrect statements or admit to statematerial information; these financial statemetns shall also include all material off-balance-sheet liabilities, obligations or transactions

general standards

these auditing standars focus on the auditor's background and approach to the audit; includes training, independence and professional care

ethical issues

these include: making realistic, unbiased decisions, using AIS data appropriately, maintaining strong internal control over cash and other liquid assets, and paying for software and other forms of information technology

the rights and duties school of ethical thinking

this ethical philosophy feels that all individuals have certain rights; other have the duty to not interfere with those rights, you might think of this model as an "every person for himself" way of thinking

justice model of ethics

this ethical philosophy feels that all people should be given what they deserve, this model weighs a person's actions against the results of those actions

Steps for developing a career plan

this includes: (1) determine your strengths, aptitudes, and abilities (2) create a career mission statement (3) research employment opportunities related to the first two items (4) build your resume (5) practice your interviewing skills

the eight-step model for dealing with ethical dilemmas

this includes: (1) identify the facts; (2)identify the ethics issues and the stakeholders involved (3) define the norms, principles, and values related to the situation (4) identify the alternative courses of action (5) evaluate the consequences of each possible course of action (6) decide the best course of action consistent with the norms, principles and values (7) if appropriate, discuss the alternative with a trusted person to help gain greater perspective regarding the alternatives (8) reach a decision as tot he appropriate course of action

applied ethics

this involves examining specific controversial issues

Financial Audit

this involves the examination of a company's accounting information system and financial statements; auditors express one of four types of opinions on the company's financial statements

Internal Controls

this is a critical step early in the audit process; while such an assessment has always been critical, the Sarbanes-Oxley Act of 2002 has placed even greater emphasis on what issues?

qualified opinion

this is issued when one or more items don't conform to GAAP--but not so many items as to compromise the overall fairness of the statements

Section 409 (of the Sarbanes-Oxley Act)

this section of the Sarbanes-Oxley Act discusses real-time reporting is the primary issue in this section; if an organization experiences a material change in its financial condition or operations, it is required to disclose that change "on an urgent basis"; in other words, the company cannot wait until its quarterly or annual SEC filings to communicate the change; it must be disclosed as quickly as possible

Section 802 (of the Sarbanes-Oxley Act)

this section of the Sarbanes-Oxley Act spells out the penalties for noncompliance with the Sarbanes-Oxley Act; this section imposes penalties of fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation

Section 302 (of the Sarbanes-Oxley Act)

this section of the Sarbanes-Oxley act relates to the evaluation of internal controls in an audit; specifically, it obligates the chief executive officer and chief financial officer to attest that they have personally reviewed internal controls within the preceding 90 days - the CEO and CFO also acknowledge that they are responsible for the financial statemetns and the internal controls that promote their reliability and integrity; these responsibilities cannot be delegated

Independence

this speaks to the auditor's mental attitude; that is, the auditor must always remain aloof from the client

Evidence

this speaks to the importance of having an objective, reasonable basis for expressing an opinion on the company's financial statements; it can be obtained in many different ways, including observing organizational processes, inspecting documents, and obtaining external confirmations of accounting balances

Normative Ethics

this takes on a more practical task, which is to arrive at mroal standars that regulate right and wrong conduct; this may involve articulating the good habits that we should acquire the duties that we should follow, or the consquences of our behavior on others

Systems Audit

this type of audit determines whether the various forms of information technology in an AIS are producing expected results; it also examines the issue of systems security very closely, making sure the data are safe within the system; basically this audit looks "inside the box" rather than treating the computer as an unknown quanitity in an audit

Investigative Audit (also known as a fraud audit)

this type of audit is associated with the broader field of forensic accounting; this audity, which may be conducted by a certified fraud examiner, may be triggered by observation of unusual behavior or discrepancies in the accounting information system

International Audit

this type of audit is really a "basket" of the other types; it can be conducted in a US-based firm with international operations or a non-US-based firm; it is exceptionally challenging, it requires the auditor to understand the accounting rules in another country, but it also necessitates an intimate understanding of national culture, laws, religion and other nonaccounting issues

Investigative Audit (also known as a fraud audit)

this type of audit starts with reviewing pertinent documents, then moves on to interviews of neutral third-party witnesses, then corroborative witnesses and finally co-conspirators before interviewing the target

Ojectives of knowledge management

to create knowledge repositories; to improve knowledge access; to enhance the knowledge environment; to manage knowledge as an asset

arbitrary information analysis and organization

too much information coming in too fast impairs a person's ability to organizae and classify information; overlapping and inconsistent categories; difficulty seeing the "big picture" - what symptom or effect of information overload does this describe?

management's integrity

what evaluation focuses on two questions: (a) is management technically competent? (b) is management financially competent?

Information Overload

when too much information starts coming in, or information comes in faster than we can process it (our brains have a limited capacity for processing information)