BP EXAM 1 CH 1
basic accounting eq
A= L + SE - give balance sheet items - permanate accounts
extended accoutning eq
A= L + SE + Rev - Exp - rev and exp are temporary/nominal accounts - begin period at 0 and are flushed out at the end
The IS splits into ____ and ______
Accounting information system (AIS) and management information system (MIS)
Audit independence:
Auditor free from factors that might influence auditor's report regarding the financial position of the firm
the info enviornment
Biz operations form from the base of the pyramid: product, oriented work of organization as u go up, more summarized
transaction processing system (TPS)
Converts economic events into financial transactions, records financial transactions in journals and ledgers, distributes essential financial info to operations personnel
ROLE OF ACCOUNTANTS IN AIS System designers
Domain experts: responsible for aspects of conceptual system(operational rules, reporting requirements, internal control objectives) Physical system: data storage medium to be used and the method for capturing and presenting the info
database
Physical repository for all financial and nonfinancial data entire collection of files
what are internal controls
Policies and procedures put into place to help company achieve objectives
closing dividends
RE xx Div xx
accouting independence
RELIABLE INFO - accouting activites must be seperate and independent of the functional areas maintaing custody of reasources - accounting support these functions with information but does not participate in the physical activies
data processing
Simplex→ complex to get the data from collection to producing info
2 types of external users in info environment
Stakeholders: external entities w/ a direct or indirect interest in the firm Trading partners: Customer sales and billing info, purchase info for suppliers, inventory receipts information
Database management 3 fundamental tasks
Storage- assigns keys to new records and stores in proper place in database Retrieval- locating and extracting an existing record from database for processing Deletion- permanently removing obsolete or redundant records from database
it outsourcing
The organization sells its IT resources to a third party outsourcing vendor. Org leases back IT services from the vendor w/ 5-10 yr contract
which is preferred accrual vs. cash basis
accrual - better measure of performance learn more about future CF
distributed approach adv and con
adv - cost avings - user satisfaction (more control) - backup at multiple sites con - wasted reasources/ redundancy - incompatible systems - poor segregation of duties - difficult to find experts
centralized data processing
all data processing is performed by one or more large computers housed in a common data center that serves users throughout the organization intra-organization communicaion and sharing
audit trail
any step from start to finsih for any transaction
advisory:
anything not tax/audit
levels of data hierarchy: BARF
attribute, record, file
process of an audit
auditior will look @ processes/ controls - if they are good, by default, result from process is good
who gives comfort to users that financial statements can be relied upon
auditors -- express opinions about fair presentation of financial statements
3 duties that must always be seperate
authorization recording custody
R/E formula
beg +/- net incomce/loss - payments to owners (dividends) = end
AUDIT COMMITTEE
boards of directors of publicly traded companies form a subcommittee known as the audit committee that has special responsibilities regarding audits Composed of 3 outsiders One financial exert Independent check and balance for internal audit function
decomposition
breaking big system into little systems
sub ledgers
breaks down each customer/asset/etc.
information is a ___________ __________
business resource
accounting info keeps flows of ______________ ________________ moving
capital markets
information
causes somebody to act
2 types of data processing
centralized distributed
network
collection of computers and communication devices that allow users to communicate, access data and applications, and share info and resources
turnkey systems
commercial software
Record
complete set of attributes for a single occurrence within an entity class unique identifier attribute= primary key.
File
complete set of records of an identical class
subledgers total to
control account
first operational and most important stage in AIS
data collection - Ensures that event data entering the system is valid, complete, and free from material errors - only relevant data - efficent collection procedures designed to collect data only once
responsibilies of operations management
day-to-day operations
expenses
decrease in assets, increase in liabilites, due to major course of biz
custom software
developed through a formal process called the system development life cycle. Requires an in-house team of qualified individuals
sox 404
documentation. reporting of controls - required to have robust internal controls and to document them
transactions are recorded by
documents - evidenc eof transaction should serve a purpose
attest function
done by CPA who work for public accounting firms- expresses opinion in form of a formal report regarding presentation of financial documents
accouting system characteristics
double entry system transactions captured by journal entries basic accounting eq perm and temp accounts closing process
liability
due to past transactions - def on the hook
gains/losses
due to peripheral transactions
financial transaction
economic event that affects the assets and equities of the organization, reflected in its accounts, and measured in monetary terms.
product doc
end of process
trial balance is all about
equality could still be wrong: - omission - double entry - switch - wrong account - fat finger
transaction
even that affects or is of interest to the organization and is processed by its information system as a unit of work
non financial transaction
even that doesnt meet defintion of financial transaction
Transactoion processing system (TPS) splits into ____________
expenditure cyccle, converson cycle, and revenue cycle
end users for AIF fall into two groups
external- creditors , stockholders, gov agencies, suppliers, customers internal- managemnt and operations personnel
accounting manages the __________ reasource of the firm
financial - captures and records transaction distributes transaction info to operations personnel
source doc
formalize need to jounalize relevant info into journal entry
increased popularity as corpoarte governance tool
fraud audits
for the accounting function to be effective...
free from bias
the AIS splits into _____ ______ and __________
general ledger/ financial reporting system (GL/FRS) Transaction processing system (TPS) Management reporting system (MRS)
system
group of interrelated componets for common purpose all interrelated, if one part goes wrong whole thing does, NEED STRONG INTERNAL CONTROLS
what is accounting?
how mgnt displays fin info to thrid party// captures transactions and turn them into firnedly and formatted financial statements
asset
in control of company provides future benefit
closing exp
income summary xx expense xx
revenue
increase in assets or decrease in liability due to major course of biz
data
interesting random nugget - facts which may or may not be processed and have no direct effect on a user's actions
information system framework
keeps track of financial and non financial info set of formal procedures by which data are collected, stored, processed into info and distributed to users
responsibilies of top management
longer-term planning and setting organizational objectives
Who prepares financial statements for lodging operations?
management
Data attribute
most elemental piece of potentially useful data; logical and relevant characteristic of an entity about which he firm captures data
an audit is similar to a
murder investigation - gather eveidence
subsidiary ledgers
must have - AR AP payroll fixed asset
journal
og book of record complete record of all transactions chronological
R/E is an example of a _________ and _____________ account
permanate residual( balance is result of formula)
adjusting entries
prepaids unearneds depreciation accounts based on estimates accural deferrals
Systems development
process by which organizations acquire information system - purchased/built
Information generation:
process of compiling, arranging, formatting and presenting info to users
turnaround
product doc to one person but source to another ex: remittance advice
Management reporting system (MRS)
provides internal info needed to manage a biz and handles discretionary reporting
account
record of an increase or decrease in individual resources accouting system is netting of accounts
useful info
relevance- differs among alt, can make a difference timeliness- accuracy- free from material error completeness- all essetnial info summarization- aggregated for user needs
value of info is determined by ___________
reliability (releveance, accuracy, competeness, summarization, timeliness)
equity
residual claims by the owners
controls
responsibity of management subsystems interrelated properly design docs are control authorization speration of duties indepndent checks on performance/ verification
network admininistration
responsible for effective functioning of hardware and software
closing rev
rev xx income summary xx
software is a _______ model
service user friendly: - based on usage - stored in cloud
responsibilies of middle management
short-term planning and coordinating activites to accomplish organization objectives
General Ledger/ financial reporting system
takes info from TPS and other input and - updates general ledger control accounts - handles nondiscretionary reporting requirements
data sources
the financial transactions that enter the AIS from internal & and external sources
closing income summary
this or switch: income summary xx R/E xx
The accounting cycle
transactions journalization posting in general ledger trial balance adjustments adjusted trial balance financial statements closing entries post closing trial balance reversing entries
3 types of documents
turnaround product source
Distributed
users process transactions locally; each segment process data they need
Software as a Service (SaaS)
when cloud computing data centers deliver hosted IT services over the internet
7 catagories of accounts
(asset liability equity)- perm rev exp gain loss-
AIS subsystem 3 tasks
- complete everyday transaction (TPS) - whole accounting cycle (GL/FRS) - proper external and internal reporting (MRS)
special journals
- high volume recurring transactions for large entitites if transaction doesn't apply to special: put in general
PCAOB (Public Company Accounting Oversight Board)
- monitor public accounting firms - make audit standards for audits of public companies -
overall goal of AIS
- support stewardship - support decison making - support day to day operations
SOX
- us audit regulation - established PCAOB - attempted to break relationships of auditors, comapnies and consultants - responsibility of BOD (committees) - discolse off balance sheet items - easier to prosecute white collar criminals
2 important roles in transaction processing (the accounting function)
1. Accounting captures and records the financial effects of the economic events that constitute the firm's transactions 2. Distributed transaction info to operations personnel to coordinate many of their key tasks
4 purposes of internal controls
1. accurate financial reporting 2. safeguard assets 3. comply to rules and regulations 4. efficency of operations
4 INFORMATION TECHNOLOGY FUNCTIONS
1. data processing 2. Systems development and maintenance 3. Database administration 4. Network administration
predesigned document is control:
1. prenumbered 2. completeness 3. timely fashion 4. easily understood 5. w paper: multi copy