Exam 1 Chapter 2 Essays - BP

4. Time lag is one characteristic used to distinguish between batch and real-time systems. Explain. Give an example of when each is a realistic choice.

Batch processing collects similar transactions into groups (batches) and processes them all at once. Hence, affected files are up to date immediately after the update, but can be expected to be out of date until the next run. Hence, there is a time lag between the event and its recording in the system. A payroll system is often handled with batch processing since it must be up to date at fixed time periods and need not be modified between pay dates. Real-time systems process each transaction as it occurs and files are always up to date-there is no time lag. This is preferred when there may be a need to query the system for the status of transactions. A sales order processing system would benefit from real-time processing. Hence, customer questions could be answered easily, without waiting for the next update (as would be required if the system was batch).

6. Resource use is one characteristic used to distinguish between batch and real-time systems. Explain.

Batch processing typically requires the use of fewer resources including programmer time and effort, computer time, hardware, and user training. Real-time systems require significantly more programming time, especially in the development of the user interface, often require much more computer time, and more expensive hardware, even a dedicated processor.

7. Give a brief description of each of the following documentation techniques: systems flowchart, and program flowchart.

System flowcharts portray the relationships between source data, transaction files, computer programs, master files, and output, including the form or type of media of each. Program flowcharts represent the logic of a particular program. Each step is represented by a separate symbol, each of which represents one or more lines of computer instructions. The order of the steps is represented by the flow lines.

19. Comment on the following statement: "Legacy systems use flat file structures."

A flat-file structure is a single-view model that characterizes legacy systems in which data files are structured, formatted, and arranged to suit the specific needs of the owner or primary user of the system. Such structuring, however, may omit or corrupt data attributes that are essential to other users, thus preventing successful integration of systems across the organization.

13. How may batch processing be used to improve operational efficiency?

A single transaction may affect several different accounts. Some of these accounts, however, may not need to be updated in real-time. In fact, the task of doing so takes time which, when multiplied by hundreds or thousands of transactions, can cause significant processing delays. Batch processing of non-critical accounts, however, improves operational efficiency by eliminating unnecessary activities at critical points in the process.

9. For what purpose are ER diagrams used?

An entity relationship (ER) diagram is a documentation technique used to represent the relationship between entities. One common use for ER diagrams is to model an organization's database.

8. Give an example of how cardinality relates to business policy?

Cardinality reflects normal business rules as well as organizational policy. For instance, the 1:1 cardinality between the entities "Salesperson" and "Company Car" suggests that each salesperson in the organization is assigned one company car. If instead the organization's policy were to assign a single automobile to one or more salespersons who share it, this policy would be reflected by a 1:M relationship.

22. What are the reasons companies use coding schemes in their accounting information systems?

Companies use coding schemes in their AISs because codes concisely represent large amounts of complex information that would otherwise be unmanageable. They also provide a means of accountability over the completeness of the transactions processed and identify unique transactions and accounts within a file. In addition, coding supports the audit function by providing an effective audit trail.

10. With regard to an entity relationship diagram, what is an entity?

Entities are physical resources (automobiles, cash, or inventory), events (ordering inventory, receiving cash, shipping goods) and agents (salesperson, customer, or vendor) about which the organization wishes to capture data.

3. What does an entity-relationship diagram represent? Why do accountants need to understand them?

Entity relationship diagrams represent the relationship between entities in a system. An entity is either 1) a resource (such as cash or inventory), 2) an event (such as a sale or a receipt of cash), or 3) an agent (such as a customer or vendor). ERDs represent the relationship between entities graphically. ERDs are used in the design of databases.

14. If an organization processes large numbers of transactions that use common data records, what type of system would work best (all else being equal)?

Large-scale systems that process high volumes of transactions, often use real-time data collection and batch updating. Master file records that are unique to a transaction such as customer accounts and individual inventory records can be updated in real time without causing operational delays. Common accounts should be updated in batch mode. Real-time processing is better suited to systems that process lower transaction volumes and those that do not share common records.

17. What are the key distinguishing features of legacy systems?

Legacy systems tend to have the following distinguishing features: they are mainframe based applications; they tend to be batch oriented; early legacy systems use flat-files for data storage, however, hierarchical and network databases are often associated with later era legacy systems. These highly structured and inflexible storage systems promote a single-user environment that discourages information integration within business organizations.

11. Is a DFD an effective documentation technique for identifying who or what performs a particular task? Explain.

No. A DFD shows which tasks are being performed, but not who performs them. It depicts the logical system.

18. What information is provided by a record layout diagram?

Record layout diagrams are used to reveal the internal structure of the records that constitute a file or database table. The layout diagram usually shows the name, data type, and length of each attribute (or field) in the record.

1. Describe the key activities in the revenue, conversion, and expenditure cycles.

Revenue cycle: Sales order processing involves preparation of sales orders, credit granting, shipment and billing. Cash receipts collects cash and makes bank deposits. Conversion cycle: Production system involves planning, scheduling, and control of the manufacturing process. Cost accounting system monitors the flow of cost information related to production. Expenditure cycle: Purchases/accounts payable involves the acquisition of physical inventory. Cash disbursements authorizes payment and disburses funds. Payroll monitors labor usage and disburses paychecks to employees.

23. Compare and contrast the relative advantages and disadvantages of sequential, block, group, alphabetic and mnemonic codes.

Sequential codes are appropriate for items in either an ascending or descending sequence, such as the numbering of checks or source documents. An advantage is that during batch processing, any gapdetected in the sequence is a signal that a transaction may be missing. A disadvantage is that the codes carry little, if any, information other than the sequence order. Another disadvantage is that sequential codes are difficult to manage when items need to be added; the sequence needs either to be reordered or the items must be added to the end of the list. Block codes provide some remedies to sequential codes by restricting each class to a pre-specified range. The first digit typically represents a class, whereas the following digits are sequential items which may be spaced in intervals in case of future additions. An example of block coding is a chart of accounts. A disadvantage of block coding is that the information content does not provide much meaning, i.e. an account number only means something if the chart of accounts is known. Group codes may be used to represent complex items or events involving two or more pieces of related data. The code is comprised of fields which possess specific meaning. The advantages of group codes over sequential and block codes are 1) they facilitate the representation of large amounts of diverse data, 2) they allow complex data structures to be represented in a hierarchical form that is logical and thus more easily remembered by humans, and 3) they permit detailed analysis and reporting both within an item class and across different classes of items. A disadvantage is that the codes may be overused to link classes which do not need to be linked, and thus creating a more complex coding system that is necessary. Alphabetic codes may be used sequentially or in block or group codes. An advantage is that a system which uses alphabetic codes can represent far more situations than a system with numeric codes given a specific field size. Some disadvantages are that sequentially assigned codes mostly have little meaning. Also, humans typically find alphabetic codes more difficult to sort than numeric data. Lastly, mnemonic codes are alphabetic characters in the form of acronyms, abbreviations or other combinations that convey meaning. The meaning aspect is its advantage. A disadvantage of mnemonic codes is that they are limited in their ability to represents items within a class i.e. names of all of American Express's customers.

21. How is backup of database files accomplished?

The destructive update approach leaves no backup copy of the original master file. Only the current value is available to the user. To preserve adequate accounting records in case the current master becomes damaged or corrupted, separate backup procedures must be implemented. Prior to each batch update or periodically (for example, every 15 minutes), the master file being updated is copied to create a backup version of the original file. Should the current master be destroyed after the update process, reconstruction is possible in two stages. First, a special recovery program uses the backup file to create a pre-update version of the master file. Second, the file update process is repeated using the previous batch of transactions to restore the master to its current condition. Because of the potential risk to accounting records, accountants are naturally concerned about the adequacy of all backup procedures.

16. How are computer system flowcharts and program flowcharts related?

The system flowchart shows the relationship between two computer programs, the files that they use, and the outputs that they produce. However, this level of documentation does not provide the operational details that are sometimes needed. An auditor wishing to assess the correctness a program's logic cannot do so from the system flowchart. A program flowchart provides this detail. Every program represented in a system flowchart should have a supporting program flowchart that describes its logic.

5. The revenue cycle has two subsystems. What are they and what occurs within each?

The two subsystems of the revenue cycle are sales order processing and cash receipts. In the sales order processing subsystem, the sales order is processed, credit granted, goods are shipped, customer is billed, and related files updated (sales, accounts receivable, inventory, etc.). In the cash receipts subsystem, cash is collected and deposited in the bank and files updated (cash, accounts receivable, etc.).

20. What factor influences the decision to employ real-time data collection with batch updating rather that purely real-time processing? Explain.

Transaction volume is the key factor. Large scale systems that process high volumes of transactions, often use real-time data collection and batch updating. Master file records that are unique to a transaction such as customer accounts and individual inventory records can be updated in real time without causing operational delays. Common accounts should be updated in batch mode. Real-time processing is better suited to systems that process lower transaction volumes and those that do not share common records.

15. Why might an auditor use a program flowchart?

When testing an application program, the auditor needs details about its internal logic provided by the program flowchart to design the audit tests.

12. Is a flowchart an effective documentation technique for identifying who or what performs a particular task? Explain.

Yes. A flowchart depicts the physical system and illustrates who, what, and where a task is performed.

2. Categorize each of the following activities into the expenditure, conversion or revenue cycles and identify the applicable subsystem. a. Preparing the weekly payroll for manufacturing personnel. b. Releasing raw materials for use in the manufacturing cycle. c. Recording the receipt of payment for goods sold. d. Recording the order placed by a customer. e. Ordering raw materials. f. Determining the amount of raw materials to order.

a. Expenditure cycle-payroll subsystem. b. Conversion cycle-production system subsystem. c. Revenue cycle-cash receipts subsystem. d. Revenue cycle-sales order processing subsystem. e. Expenditure cycle-purchases subsystem. f. Conversion cycle-production subsystem.