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