ACCOUNTING INFORMATION SYSTEM 2ND EDITION BY VERNON RICHARDSON,JANIE CHANG, RODNEY SMITH SOLUTION MA

TEST BANK

ACCOUNTING INFORMATION SYSTEM 2ND EDITION BY VERNON RICHARDSON,JANIE CHANG, RODNEY SMITH SOLUTION MANUAL Chapter 1 – Accounting Information Systems and Firm Value Multiple Choice Questions 1. c 2. d 3. a 4. c 5. d 6. b 7. d 8. a 9. d 10. b 11. b 12. c 13. a 14. c 15. a

Discussion Questions 1. Brainstorm a list of discretionary information that might be an output of an accounting information system and be needed by Starbucks. Prioritize which items might be most important and provide support.

Answers will vary. Here are some potential answers: The cost of a cup of coffee, by type: Breakfast blend, Cafe estima, caffe Verona, espresso roast, Ethiopia sidamo, french roast, Gold coast blend, Guatemala Antigua, house blend, Italian roast, Kenya coffee, komodo dragon blend, organic Serena blend, organic shade grown Mexico, sumatra, decaf caffe Verona, decaf espresso roast, decaf house blend, and decaf Sumatra!

Monthly Sales per square foot of retail space.

Employee cost for each operating hour.

Advertising expenditures per dollar of sales.

The cost of condiments per dollar sales of coffee. Condiments might include sweeteners, liquid creamers, cream canisters, sugar packets, sugar canisters, stir sticks! ..

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The cost of electricity per operating hour each month of the year.

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2. Explain the information value chain. How do business events turn into data then into information and then into knowledge? Give an example starting with the business event of the purchase of a DVD at Best Buy all the way to useful information for the CEO and other decision makers.

The information value chain represents the overall transformation from a business need and business event (like each individual sale of U.S. flag) to an ultimate decision. The information value chain might be represented considering the purchase of a DVD at Best Buy in the following way: The DVD will be recorded as sales revenue and then after deducting its costs will add to or subtract from corporate income. The cash from the DVD sale will also add to the operating cash flows.

The specific DVD will be recorded in the information as a sale to monitor which DVDs are selling within Best Buy. This will help Best Buy and its suppliers know which DVDs are selling and which type of DVDs should be reordered. The type of DVD will also help the marketing department better understand its customers and their respective demographic profile to better market to them.

In addition, knowing the location of the DVD sale will also help decision makers know where its sales are occurring.

The CEO can look at the profitability of DVDs overall, the specific types of DVDs that are selling and the location of those sales all due to the information value chain.

3. Give three examples of types of discretionary information at your college or university and explain how the benefits of receiving that information outweigh the costs.

Answers will vary. This represents a potential answer.

Universities are often interested in their freshmen retention (the percentage of sophomores that return after their freshman year). They also quite interested in their four- or five-year graduation rates.

Universities are also interested in their production of research grants. This is often used to monitor the success of their research and their ability to get interested sponsors (such as the National Institute of Health or the National Science Foundation).

Information for each of these three examples can be gained by the information system at the university. However, a university generic information system does not usually offer this information as a standard report or standard output of the system. Therefore, work must be done to capture (and potentially digitize) this information, ensure its validity and then report it in an appropriate useful format. The cost of getting useful information will depend on the university and its technology. However, since these represent three keys metrics of a university

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and will likely be used as a key input to manage the university, the benefits will potentially outweigh those costs.

4. After a NBA basketball game a box score is produced detailing the number of points scored, assists made and rebounds retrieved (among other statistics). Using the characteristics of useful information discussed at the beginning of the chapter, please explain how this box score meets (or does not meet) the characteristics of useful information.

A box score of a NBA basketball game (or other sports) produces overall team statistics by half and quarter and details player performance including minutes played, shots taken, shots made, free throw shots taken and made, assists, rebounds, steals, blocks and fouls.

To be relevant, the information must potentially impact a decision that a decision maker must make. Relevant information is usually characterized by having predictive value, feedback value and receiving it on a timely basis. This information provides feedback value to explain how players performed in the game. The box score provides predictive value to the extent that prior performance (as reflected in the box score) is predictive of future performance. Since box scores are available immediately following the game, it is also received on a timely enough basis to make decisions for a subsequent game.

To be reliable, the information must be verifiable, be representationally faithful and be neutral.

There are often some allegations that the statistics included in a box score is affected by the bias of the scorekeeper. While the actual points scored by the team is verified by the officials, more minute details are not verified and may be subject to bias, thus limiting their reliability.

The information is potentially relevant to the coach in helping to figure out which players are most efficient and productive. Which players play well against different teams and which players are good at particular aspects of offense and defense, among others.

5. Some would argue that the role of accounting is simply as an information provider. Will a computer ultimately completely take over the job of the accountant? As part of your explanation, explain how the role of accountants in information systems continues to evolve.

Accountants have a role as a business analyst. That is, they gather information to solve business problems or address business opportunities. They determine what information is relevant in solving business problems, then create or extract that information and finally analyze the information to solve the problem. An AIS provides a systematic means for accountants to get needed information and solve a problem.

While a computer is very good at reliably collecting, processing and producing information, the role of the accountant when serving as a business analyst will continue to be able to assess the problems the business is facing and work to provide information that will address it. ..

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6. How do you become a Certified Information Technology Professional (CITP)? What do they do on a daily basis?

A CPA can earn a CITP designation with a combination of business experience, lifelong learning and an optional exam.

The CITP designation identifies accountants (CPAs) with a broad range of technology knowledge and experience. On a daily basis, CITPs may help devise a more efficient financial reporting system, help figure out how an information system can provide needed decision-relevant information, help the accounting function go paperless or consult on how an IT function may transform the business.

7. Explain the value chain for an appliance manufacturer, particularly the primary activities. Which activities are most crucial for value creation (or in other words, which activities would you want to make sure are the most effective)? Rank the five value-chain enhancing activities in importance for an appliance manufacturer.

The value chain goes all the way from product design, through sourcing to manufacturing to shipping the final product to the warranty and repair business. Many would consider the product design, which ensures that the appliance has the desired functionality at the right priced points, to be a critical activity for value creation. Sourcing the product components to low cost, yet high quality component providers is also key to creating value. Final assembly (or operations) of the product components is also key to ensuring high product quality at reasonable prices. Marketing the final product through appropriate distribution channels and supporting the final product through the warranty and repair process also are crucial parts of the value chain.

My opinion of the ranking of the five primary activities would be that product design would be the most important, then sourcing (inbound logistics), then marketing, then warranty and repair and finally final assembly (or operations).

8. Which value chain supporting activities would most be most important to support a health insurance provider’s primary activities? How about the most important primary activities for a university?

Of course, all of the supporting activities are important. Human Resources perhaps can be viewed as most important to make sure the right nurses and right doctors with the appropriate skills are available at the right time to service the sick and injured. Technology is increasingly becoming an important part of hospitals, especially with the digital medical records are becoming increasingly available and useful. Certainly, other arguments can be made for other supporting activities.

The primary activities of a university would be to attract students, educate them and then helping them find a good job once they have graduated. Educating students is probably the most important primary activities in the university as that is its primary mission.

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9. List and explain three ways that an AIS can add value to the firm.

Accounting Information Systems add value by providing decision relevant information to management.

Three specific examples would include the following: Customer relationship management (CRM) techniques could attract new customers, generating additional sales revenue. Enterprise systems can significantly lower the cost of support processes included. Supply Chain Management Software allows firms to carry the right inventory and have it in the right place at the right time.

10. Where does new product development fit in the value chain for a pharmaceutical company?

Where does new product development for a car manufacturer fit in the value chain?

The support activity of technology generally would include research and development for both a pharmaceutical company as well as a car manufacturer. In either case, this is a support activity that can drive the value for a company.

11. An enterprise system is a centralized database that collects and distributes information throughout the firm. What type of financial information would be useful for both the marketing and manufacturing operations might both need?

Both marketing and manufacturing operations might both need records of the past sales as well as projections of which products are selling best. For the marketing group, this information would be helpful to optimize marketing campaigns, understand the demographics of the customer, and make predictions of future products. Manufacturing operations might need product information to decide which products to produce as well as needed changes to be able to produce future products. The enterprise systems might be able to provide answers to questions like, what manufacturing equipment might be needed to produce new products or is the existing manufacturing capacity sufficient to fulfill future product needs.

12. Customer Relationship Management software is used to manage and nurture a firm’s interactions with its current and potential clients. What information would Boeing want about its current and potential airplane customers? Why is this so critical?

For Boeing, understanding its customers is of paramount importance. Boeing would want to know who their potential customers are, who the key contacts are, what the customer’s business models are (e.g., short flights, long flights, fuel efficiency, loads on each flight, cargo volume and capacity, etc., who their key supplier has been in the past (Boeing, Airbus, etc.) , what they value in a plane manufacturer (e.g., financing, customer service, after sale service, parts, etc.).

This information is critical as it helps Boeing tailor its offering and propose new offerings based on the needs of the customer.

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1. (Connect) A recent article suggests: A monumental change is emerging in accounting: the movement away from the decades-old method of periodic financial statement reporting and its lengthy closing process, and toward issuing financial statements on a real-time, updated basis . . . realtime financial reporting provides financial information on a daily basis. Current technology allows for financial events to be identified, measured, recorded, and reported electronically, with no paper documentation. (Source: “Real-Time Accounting,” The CPA Journal, April 2005).

Indeed, many corporations are pressing their finance and accounting departments for more timely financial information and ad hoc analysis. Would a shift toward real-time financial statements make the financial information more useful or less useful? More or less relevant?

More or less reliable?

It may be useful to stakeholders if some accounts are reported on a daily basis, such as sales revenue or employee expenses, as long as that information is reliable. Other accounts are only needed periodically, such as estimates and allowance accounts, so real-time reporting would be less useful.

As information becomes more timely, it generally becomes more relevant. A stakeholder could make decisions based on current account balances versus the balances reported two-to-three months ago. Even periodic data that was reported daily would provide insight into when estimates are generated and adjusted.

However, there is a risk that real-time reporting will be less reliable. Periodic financial statements are reviewed for errors and audited. Real-time reports would be more likely to include material errors that could result in poor decisions by stakeholders. Managers would need to provide better controls or disclose the risks if others are to use the information.

2. Consider the bar chart below of how accounting professionals’ activities have changed over time. Comment on how information technology affects the role of accountants. In what respects is this a positive trend or a negative trend? What will this bar chart look like in 2020?

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Continuous Evolution in Accounting Professional Activities 70

60

50

1999

Percent

40

2003 2006

30

2009

20

10

0

Transactional activities

Control activities

Decision support

Source: The Agile CFO: A Study of 900 CFOs Worldwide, IBM, 2006.

By 2020, many expect the trend from transactional activities to decision support systems would continue. I view this as a positive trend, consistent with one of the themes for chapter 1, that accountants are business analysts, helping businesses to address business opportunities. As noted in the chapters, these opportunities might include a decision whether to outsource a business function, whether to produce one product or another based on which is most profitable, or whether to pursue an attempt to minimize taxes, etc. To address such a business opportunity, the accountants need to decide what information is needed, then build an information system to gather the necessary information and finally analyze that information to offer helpful advice to management. I would expect this trend will continue through 2020 and beyond.

3.

(Connect) Match the value chain activity in the left column with the scenario in the right column.

1.

2.

3.

4.

5.

6.

7.

Service Activities matches best with B. Warranty Work Inbound Logistics matches best with F. Receiving dock for raw materials Marketing and sales activities matches best with A. Surveys for prospective customers Firm Infrastructure matches best with G. CEO and CFO Human Resource Management matches best with I. Worker recruitment Technology matches best with E. New-product development Procurement matches best with H. Buying (sourcing) raw materials

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8. Outbound Logistics matches best with D. Delivery to the firm’s customer 9. Operations matches best with C. Assembly Line 4.

(Connect) Match the value chain activity in the left column with the scenario in the right column.

1.

2.

3.

4.

5.

6.

7.

8.

9.

5.

Customer Call Center matches best with G. Service Activities Supply Schedules matches best with B. Inbound Logistics Order Taking matches best with I. Marketing and sales activities Accounting Department matches best with D. Firm Infrastructure Staff Training matches best with E. Human Resource Management Research and Development matches best with F. Technology Verifying quality of raw materials matches best with C. Procurement Distribution Center matches best with H. Outbound Logistics Manufacturing matches best with A. Operations

In 2002, John Deere’s $4 billion commercial and consumer equipment division implemented supply chain management software and reduced its inventory by $500 million. As sales continued to grow, they have been able to keep their inventory growth flat. How did the supply chain management software implementation allow them to reduce inventory on hand? How did this allow them to save money? Which income statement accounts (e.g., revenue, cost of goods sold, SG&A expenses, interest expense, etc.) would this affect?

The use of supply chain software allowed the business to reduce its inventory and then as sales growth continued, keep its inventory growth flat. This is at least $500 million less that the company had to finance with either liabilities or equity. To the extent it reduced its debt, this would reduce its interest expense. The reduction in inventory also reduced the warehouses to store the inventory, potentially reducing SG&A expenses.

6.

Dell Computer used Customer Relationship Management Software called IdeaStorm to collect customer feedback. This customer feedback led the company to build select consumer notebooks and desktops pre-installed with the Linux platform. Dell also decided to continue offering Windows 7 as a pre-installed operating system option in response to customer requests. Where does this fit in the value chain? How will this help Dell create value? By listening to the customer and meeting their needs, will this increase revenues or decreases expenses?

The use of IdeaStorm at Dell helped Dell get to know its customers and their needs. The primary activity in the value chain that directly addresses the use of CRM is marketing and sales activities, which identifies the needs and wants of their customers to help attract them to the firm’s products and buy them.

Using customer feedback to get to know their customers helps Dell get the right product at the right price to the right customer. It will potentially increase revenues and potentially reduce obsolete inventory by having the products that the customers need.

7.

(Connect) Ingersoll Rand operates as a manufacturer in four segments: Air Conditioning Systems and Services, Climate Control Technologies, Industrial Technologies, and Security Technologies.

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They installed an Oracle enterprise system, a supply chain system and a customer relationship management system. They boast the following results:      

Decreased direct product costs by 11% Increased labor productivity by 16% Increased inventory turns by four times Decreased order processing time by 90% and decreased implementation time by 40% Ensured minimal business disruption Streamlined three customer centers to one

Please take each of these results and explain which of these systems most directly affected those results.

1. Decreased direct product costs by 11% - this likely came about by efficiencies gained by the supply chain system.

2. Increased labor productivity by 16% - this likely came about by efficiencies gained by the supply chain system.

3. Increased inventory turns by four times - this likely came about by efficiencies gained by a combination of the supply chain system and customer relationship management (by having the right product to the right customer) 4. Decreased order processing time by 90% and decreased implementation time by 40% (this was likely caused by a combination of the implementation of supply chain management, customer relationship management and enterprise systems).

5. Ensured minimal business disruption - uncertain how this is tied to the implementation of supply chain management, customer relationship management and enterprise systems 6. Streamlined three customer centers to one - uncertain how this is tied to the implementation of supply chain management, customer relationship management and enterprise systems

8.

(Connect) Using the explanations of each IT strategic role below, suggest the appropriate IT strategic role (automate, informate or transform) for the following types of IT investments.

Depending on your interpretation, it is possible that some of the IT investments could include two IT strategic roles. a. b. c. d. e. f. g. h. i.

Digital Health Records - automate Google Maps that recommend hotel and restaurants along a trip path - transform Customer Relationship Management Software - informate Supply Chain Management Software - informate Enterprise Systems - automate Airlines Flight Reservations Systems - informate PayPal - transform Amazon.com Product Recommendation on your homepage - transform eBay – informate or transform

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j.

Course and Teacher Evaluation conducted online for the first time (instead of on paper) – automate k. Payroll Produced by Computer - automate

9.

(Connect) Information systems have impact on financial results. Using Figure 1-8 as a guide, which system is most likely to impact the following line items on an income statement. The systems to consider are enterprise systems, supply chain systems and customer relationship management systems.

1. Revenues 2. Cost of Goods Sold 3. Sales, General and Administrative Expenses 4. Interest Expense 5. Net Income Income Statement Item

System Customer relationship management system Supply chain system Enterprise system Supply chain system All of these

Revenues Cost of Goods Sold Sales, General and Administrative Expenses Interest Expense Net Income

10. (Connect) Accountants have four potential roles in accounting information systems: user,

manager, designer and evaluator. Match the specific accounting role to the activity performed.

1. Controller meeting with the systems analyst to ensure accounting information system is able to accurately capture information to meet regulatory requirements -- Designer 2. Cost accountant gathering data for factory overhead allocations from the accounting information system -- User 3. IT auditor testing the system to assess the internal controls of the accounting information system -- Evaluator 4. CFO plans staffing to effectively direct and lead accounting information system – Manager 11. (Connect) In 2013, Frey and Osborne wrote a compelling article suggesting that up to 47

percent of total US employment is at risk due to computerization. The chart below suggests the probability that each occupation will lead to job losses in the next 20 years.

Selected Occupation Physician and Surgeon Preschool Teachers

Probability of Job Loss 0.004 0.007

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Chemical Engineers Police Commercial Drivers Plumbers Economists Sheet Metal Workers Retail Salespersons Accountants and Auditors Tax Preparers

0.02 0.10 0.18 0.35 0.43 0.82 0.92 0.94 0.99

1.

Given these predictions, which jobs are most likely to be replaced by computerization? Those that primarily have tasks that automate, informate or transform? -- Automate

2.

Noticing the high probability of predicted job loss in the accounting and auditing area, are those job losses expected to be due to automate, informate or transform? -- Automate

3.

As accountants become business partners in giving critical information to management for decision making, are those tasks automate, informate or transform? -- Informate

4.

Is the use of data analytics by accountants, an example of automate, informate or transform?

-- Informate

Source: "The Future of Employment: How Susceptible Are Jobs to Computerisation" by. C. Frey and M. Osborne (September 2013)

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Chapter 2: Accountants as Business Analysts Multiple Choice Questions 1. e 2. d 3. e 4. e 5. e 6. b 7. d 8. e 9. e 10. c 11. c 12. e 13. d 14. c 15. b 16. a 17. b 18. e 19. d 20. a 21. e 22. e

Discussion Questions 1. The answers will vary according to the student’s background, but it is likely that they will feel best prepared to use technology and less prepared to design, manage, and evaluate technology.

2. Managing regulatory compliance would involve collection and maintenance of a wide variety of information. First, organizations would have to collect requirement information. Then, they would have collect process information to identify where process activities must comply with regulations. Finally, they would have ongoing collection of process performance data to ensure continued compliance and reporting.

3. BPMN activity diagrams support process documentation, process evaluation, and process improvement. Thus, BPMN diagrams would document the finance and accounting processes to support employee training. An accurate documentation would support an evaluation of process inefficiencies and potential process improvements including applications of technology, as well as a review of internal controls over the process and identification of potential weaknesses.

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4. Student responses will vary depending on their experience, but most will mention training, SOX compliance, regulatory compliance, identifying and collecting process performance information, aiding audits, and so on.

5. Process modeling is iterative. The analyst will model the process and then confirm his/her model with process participants. The confirmation process would likely raise questions about completeness.

6. The use of pools and lanes help establish responsibility. It would be hard to enforce responsibility where multiple departments are involved. Additionally, the assignment process helps define tasks/activities at an appropriate level of detail that allows the models to be used for training, process change, performance management, etc.

7. Exclusive gateways show distinct choices, such as when you select one option among multiple alternatives. Inclusive gateways allow selection of one or more options, such as ordering both an entrée and an appetizer or just an entrée. Parallel gateways take all possible options, such as when dining at a restaurant that charges one price for the meal that includes an appetizer, main course, beverage, and dessert.

8. When the process experiences a delay such as described, the best way to model that is through the use of an intermediate event, such as an intermediate message (catching) event.

9. Processes that start with a timer event could be time to prepare financial reports, time to pay taxes, time to attend class, etc.

10. BPMN diagrams serve similar purposes to flowcharts. The following table compares basic symbols and shows the similarities. The BPMN symbols have more capability to handle events and the Gateways are more flexible that the flowchart decision symbol. The extended list of symbols in the chapter shows that many flowchart symbols are closely tied to specific and outdated data processing methods, whereas the BPMN symbols are independent of the technology.

Element

BPMN Symbol

Flowchart Symbol

Events/ Start and End

Activities

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Sequence Flows

Gateways/ Decisions

Annotations

Comparing BPMN to data flow diagrams shows that the models are very different. Data flow diagrams do not have start, end, or intermediate event symbols. They do, however, clearly show the flow of data in a process or processes, where the BPMN diagram more clearly shows the sequence of activities.

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect. The Connect-based solutions for all Problems can be found in the following section beginning on Page 11.)

1. (Connect) Solutions for Parts a to d are below: a. Solution should look similar to the following model:

(Note that “review menu” is a customer task and would not be modeled in the Starbucks pool.)

b. Solution should look similar to the following model. The looping task could also involve accepting payments, e.g., the customer pays partly by gift card and remainder by cash.

c. Same solution as problem 1, but adding the possibility that coffee will take 5 minutes to brew.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

d. Same as problem 1, but including two pools, message flows, and an intermediate message event.

This solution only includes one intermediate message event, but there could be a message event receiving and sending (catching and throwing) all message flows.

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2. (Connect) Solutions for Parts a to c are shown below: a. Solution should look similar to the following model:

b. Same as Part a, but add an intermediate timer event to indicate the wait between arriving at school and going to class.

c. Same as Part a, but instead of driving, Larry texts Jazmin for a ride to school. If she can give him a ride, he rides to school with her. If not, he walks to school.

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3. (Connect) Solutions for Parts a and b are shown below: a. Yannis plans a vacation to Hawaii.

a. Same as Part a, but assuming that Yannis is having trouble staying within his budget. He tries alternate dates for flight and hotel reservations and cancels his trip if they are not acceptable. In this solution, the reservation process is presented as a collapsed subprocess. The details of the reservations subprocess, including testing alternate dates, could be modeled separately.

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4. (Connect) Solutions for Parts a and b are shown below: a. Time to prepare and file your federal income taxes. Note that tasks could be represented as looping (for multiple forms or documents).

a. Same as Part a, but instead of manual preparation, you use an online tax system to prepare and submit your tax forms. The refund, if any, is sent directly to your bank.

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5. (Connect) Solutions for Parts a to c are shown below: a. Heide renews her automobile registration after completing smog check. Simple initial process.

b. Same as Part a, but now the automobile fails the smog check and needs repairs from the dealer to pass. Note that you could use gateways to model the error condition.

c. Same as Part a, but now the diagram uses data objects to represent the renewal forms received from the state, the smog check certificate, and the subsequent registration.

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Problems – Solutions for Connect

Problem 1 Part A Assume that you will complete your model with 12 elements in the sequence shown below.

1. Which BPMN symbol should replace block 1 above to start the process?

1. A circle with a thin solid perimeter 2. A rectangle with rounded corners 3. A diamond 4. A circle with a thick solid perimeter 5. A rectangle with sharp corners 2. The name for the symbol that you selected to replace block 1 in the process is which of the following?

1. A task 2. A gateway 3. An end event 4. A start event 5. An intermediate event 3. Which BPMN symbol should replace block 2 above in the process?

1. A circle with a thin solid perimeter 2. A rectangle with rounded corners 3. A diamond 4. A circle with a thick solid perimeter 5. A rectangle with sharp corners 4. The name for the symbol that you selected to replace block 2 is which of the following?

1. A task or activity 2. A gateway 3. An end event 4. A start event 5. An intermediate event 5. Which of the following is the best label or name to replace the number 2?

1. Order received ..

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2. Prepare order 3. Receive order 4. Accept payment 5. None of these 6. Which of the following is the best label to replace the number 3?

1. Order received 2. Prepare order 3. Receive order 4. Accept payment 5. None of these 7. Which of the following is the best label to replace the number 4?

1. Order received 2. Prepare order 3. Order is delivered 4. Deliver order 5. None of these 8. Which of the following is the best label to replace the number 5?

1. Order received 2. Prepare order 3. Receive order 4. Accept payment 5. None of these 9. After number 5, the process branches to process the type of payment. Which of the following BPMN symbols should then replace block 6 in the process?

1. A circle with a thin solid perimeter 2. A rectangle with rounded corners 3. A diamond 4. A circle with a thick solid perimeter 5. A rectangle with sharp corners 10. The name for the symbol that you selected to replace block 6 in the process is which of the following?

1. A task 2. A gateway 3. An end event 4. A start event 5. An intermediate event 11. Which of the following is the best label to replace the number 6?

1. Order received 2. Receipt is provided 3. Provide receipt 4. Accept payment 5. None of these 12. Assume that blocks 7, 8, and 9 represent 3 options for processing payments. After that branching, the process then merges again in block 10. Which of the following is the name of the BPMN symbol that should replace block 10?

1. A task 2. A gateway 3. An end event ..

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4. A start event 5. An intermediate event 13. Which of the following is the best label to replace the number 11?

1. Receipt is provided 2. Prepare order 3. Receive order 4. Provide receipt 5. None of these 14. Which of the following is the name of the BPMN symbol that should replace block 12?

1. A task 2. A gateway 3. An end event 4. A start event 5. An intermediate event 15. Which of these describes the BPMN symbol that should replace block 12 above to end the process?

1. A circle with a thin solid perimeter 2. A rectangle with rounded corners 3. A circle with a double line perimeter 4. A circle with a thick solid perimeter 5. A rectangle with sharp corners

Part B

Assume the diagram above provides a high-level view of the process. a. Which of the following is used to represent a looping task?

1. Use a gateway before and after the task 2. Create a collapsed subprocess 3. Add a circular arrow to the symbol 4. Add an intermediate timer event 5. None of these

b. Assume that the Starbucks barista performs multiple preparation tasks to prepare the order.

Which of the following diagrams best shows the looping task?

1. ..

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2.

3.

4.

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Part C a. Which of the following is used to represent an intermediate error event? a. Place the intermediate error symbol on the perimeter of the task b. Use a gateway after testing whether coffee is ready c. Add a circular arrow to the symbol showing that the process repeats d. Add an intermediate timer event showing that the process is delayed e. None of these b. Which of the following partial diagrams best models the described features?

1.

2.

3.

4.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Part D a. Pools represent participants in a process. Which of the following is the best name for the pool representing the external participant?

1. Starbucks 2. Baristas 3. Customers 4. Drive-through lane 5. None of these b. Which of the following is most likely to be a name of a message flow coming into the Starbucks pool?

1. Customer Order 2. Delivered Order 3. Answers to Customer Questions 4. Customer Receipt 5. None of these c. Models often show the pool for the external participants as opaque. What are the advantages of this?

1. Focuses on the message flows and activities for the internal participant 2. Ignores activities in the external participant pool that are not relevant 3. Reduces the complexity of the model 4. Focuses on controllable process activities 5. All of these d. Intermediate message events can be catching or throwing. The events catch incoming message flows and throw outgoing message flows. Which of the following message flows could connect to an intermediate catching event in this process?

1. Delivered products 2. Customer payments 3. Customer receipt 4. Answers to customer questions 5. None of these e. Intermediate message events can be catching or throwing. The events catch incoming message flows and throw outgoing message flows. Which of the following message flows could connect to an intermediate throwing event in this process? ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

f.

1. Customer order 2. Customer payments 3. Customer receipt 4. Answers to customer questions 5. None of these Which of the following is required if you include any tasks or other BPMN elements in the Customers pool?

1. The sequence flow in the Customers pool must flow continuously from the start event to end events.

2. The message flows still connect to the edge of the Customers pool regardless of whether or not the pool is opaque.

3. You do not need to show message flows if you include activities in the Customers pool.

4. The Starbucks pool can be opaque if you include the activities in the Customers pool and the message flows.

5. None of these.

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Problem 2 Part A Assume that you will complete your model with 13 elements in the sequence shown above.

1. Assume that block 1 is the start event that begins this process. From the problem description, what is the trigger for the start of the process? a. Time to go to school b. Alarm sounds c. The weather report d. A weekday starts e. None of these 2. What is the name of the BPMN symbol that should replace block 1? a. A task b. A gateway c. An end event d. A start event e. An intermediate event 3. What is the name of the BPMN symbol that should replace block 2? a. A task b. A gateway c. An end event d. A start event e. An intermediate event 4. Which of the following is the best label for block 2? a. Clothes are put on b. Get dressed c. Eat breakfast d. Prepare for school e. None of these

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

5. Assume that block 5 represents the “check weather” task. Then, block 6 represents where the process branches depending on weather. What kind of gateway should be used to replace block 6? a. Inclusive gateway b. Exclusive gateway c. Parallel gateway d. Conditional gateway e. None of these 6. Assume that block 7 represents a task labeled “put on jacket and take umbrella,” and block 8 represents a task labeled “drive to school.” Which of the following is the best label for block 9? a. Take of jacket b. Park and walk to class c. Drive to class d. Walk to class e. None of these 7. Which of the following is the name of the BPMN symbol that should replace block 12 to show that the two sequence options merge? a. A task b. A gateway c. An end event d. A start event e. An intermediate event 16. Which of the following describes the BPMN symbol that replaces block 12?

1. A circle with a thin solid perimeter 2. A rectangle with rounded corners 3. A circle with a double line perimeter 4. A circle with a thick solid perimeter 5. A diamond 17. Which of the following is the name of the BPMN symbol that should replace block 13?

1. A task 2. A gateway 3. An end event 4. A start event 5. An intermediate event

Part B Consider the same narrative as shown in the beginning, but add an intermediate timer event to indicate the wait between arriving at school and going to class when the class is scheduled to start. a. Which of the following best describes the purpose of an intermediate timer event?

1. Causes the process flow to branch 2. Allows the process flows to merge 3. Delays process flow until a specified time or specified duration 4. Starts a process at a specified time 5. None of these ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

b. Consider the following high-level model of this process. Where would you insert the intermediate timer event?

1.

2.

3.

4.

5.

Between the start event and the dress task.

Between prepare for school tasks and go to school task.

Between go to school task and go to class task.

Between go to class task and end event.

None of these.

c. Consider the following model. Why isn’t this an acceptable equivalent to the one shown in b above with an intermediate timer event?

1. The flow loops back to going to school and you are already there.

2. Gateways don’t develop information, they direct flow based on information from the previous task/activity.

3. The loop doesn’t delay the flow until a specified time.

4. All of these are reasons why model c is not equivalent to model b.

Part C

a. Assume the diagram above correctly summarizes the activity in question. Why is the following diagram not equivalent to the diagram above?

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

1.

2.

3.

4.

5.

This diagram assumes that an error occurs when Jazmin will not give you a ride.

This diagram assumes that you don’t always text to ask for a ride.

This diagram assumes Jazmin’s car will not break down.

This diagram assumes that you do not want to walk to school.

None of these explains why the two diagrams are not equivalent.

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Problem 3 Part A For each step in the diagram from the beginning, enter the appropriate symbol and label. If two events can occur at the same time, enter information for both. The 1st, 4th, and 10th steps have been entered for examples.

Step 1 2 3 4 5 6 7 8 9 10

Select from the following symbols a. Start Event b. End Event c. Intermediate Event d. Task e. Exclusive Gateway f. Inclusive Gateway g. Parallel Gateway h. Looping Task i. Intermediate Timer Event j. Intermediate Error Event

Symbol(s) a. d g d and d g i d h d b

Label(s) x b x c and d x x e a f x

Select from the following labels a. Enjoy vacation activities b. Prepare vacation plans c. Reserve Flights d. Reserve Hotel e. Travel to Hawaii f. Travel to Home x. No label

Part B a. Focusing on the part of the diagram that describes the reservation process, both for flights and hotels. Which of the following partial models would acceptably replace the parallel gateways and reservations tasks so that the model addresses the new situation?

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

1.

2.

3.

4.

None of these

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Problem 4 Part A For each step in the diagram from the beginning, enter the appropriate symbol and label. If two events can occur at the same time, enter information for both. The 2nd, 6th, and 10th steps have been entered for examples.

Step 1 2 3 4 5 6 7 8 9 10 11

Select from the following symbols a. Start Event b. End Event c. Intermediate Event d. Task e. Exclusive Gateway f. Inclusive Gateway g. Parallel Gateway h. Looping Task i. Intermediate Timer Event j. Intermediate Error Event k. Start Timer Event

Symbol(s) k d and h d and h d and h f d and d f d f b and d b

a. b. c. d. e. f. g. x.

Label(s) x a b c x g and e x d x f and x x

Select from the following labels Assemble W-2 and 1099 Forms Download IRS forms and instructions Fill out forms Mail Tax Filing Print Forms Receive and Deposit Refund Write check No label

Part B For each step in the diagram from the beginning, enter the appropriate symbol and label. If two events can occur at the same time, enter information for both. The 5th and 8th steps have been entered.

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Step 1 2 3 4 5 6 7 8 9

a. b. c. d. e. f. g. h. i. j. k.

Symbol(s) k d and h d f d and d f f b and d b

Select from the following symbols Start Event End Event Intermediate Event Task Exclusive Gateway Inclusive Gateway Parallel Gateway Looping Task Intermediate Timer Event Intermediate Error Event Start Timer Event

Label(s) x a h x d and e x x f and x x

a. b. c. d. e. f. g. x. h.

..

25

Select from the following labels Assemble W-2 and 1099 Forms Download IRS forms and instructions Fill out forms Submit tax return Send check Receive and Deposit Refund Write check No label Use cloud software

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Problem 5 Part A For each step in the diagram from the beginning, enter the appropriate symbol and label. If two events can occur at the same time, enter information for both. For example, the 2nd and 6th steps are entered.

Step 1 2 3 4 5 6 7

a. b. c. d. e. f. g. h. i. j. k.

Symbol(s) a d d d g d and d b

Select from the following symbols Start Event End Event Intermediate Event Task Exclusive Gateway Inclusive Gateway Parallel Gateway Looping Task Intermediate Timer Event Intermediate Error Event Start Timer Event

Label(s) x a b c x e and f x

a. b. c. d. e. f. x.

Select from the following labels Complete smog check Submit registration renewal Receive new registration Obtain repairs Place registration in glove box Place tags on license No label

Part B For each step in the diagram from the beginning, enter the appropriate symbol and label. If two events can occur at the same time, enter information for both. For example, the 2nd and 7th steps are entered.

Step 1 2 3

Symbol(s) l d and j d ..

26

Label(s) x a and x d

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

4 5 6 7 8

a. b. c. d. e. f. g. h. i. j. k. l.

d d f d and d b

b c x e and f x

Select from the following symbols Start Event End Event Intermediate Event Task Exclusive Gateway Inclusive Gateway Parallel Gateway Looping Task Intermediate Timer Event Intermediate Error Event Start Timer Event Start Message Event

a. b. c. d. e. f. x.

Select from the following labels Complete smog check Submit registration renewal Receive new registration Obtain repairs Place registration in glove box Place tags on license No label

Part C For each step in the diagram from the beginning, list the data object used or created during that step.

Steps 1 and 2 are filled in for example.

Step

Symbol(s)

Label(s)

Data Object Used

Data Object Created

1

Start Message Event

None

None

None

2

Task

Complete Smog Check

a

b

3

Task

Submit Renewal

a and b

None

4

Task

Receive New Documents

None

c

5

Inclusive Gateway

None

None

None

6

Task, task

a and b

None

Place registration in glove box, Put tags ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

on license 7

End Event

None

None

Select from the following data objects a. Renewal forms b. Smog certificate c. New registration and tags

..

28

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Problem 6 (Available in Connect Only) Consider the following description and then select the appropriate names for the numbered message flows and activities in the diagram below.

You lost your wallet and your credit card. You recognize that you need to call your bank to cancel the credit card and get a new one. This process starts when you call the bank’s central number. The bank’s automated system provides you several options. You select the option that allows you to speak to a customer service representative. After a short wait, the representative answers your call and asks how they can help. You explain the situation. The representative cancels the credit card. Then, you ask if the bank could expedite delivery of a new card, since you are leaving on vacation in a few days. The representative makes the arrangements and then asks you to set a new PIN for your card. You select your new PIN. The representative then summarizes the transactions and asks if there is anything else.

You say no and the call ends.

Select your answers from the following options: A. B. C. D. E. F. G. H. I. J. K. L.

Request expedited delivery How can I help?

Call to bank PIN selection Confirm delivery and request PIN Select call system option Selected option Lost card information Card cancelled and new card issued information Bank system options Request for expedited delivery Write down new card number

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 2

Solution: 1. C 2. J 3. F 4. B 5. H 6. I 7. K 8. E 9. D 10. F 11. A

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Chapter 3: Data Modeling Multiple Choice Questions 1. e 2. a 3. b 4. e 5. e 6. b 7. b 8. a 9. b 10. a 11. e 12. e 13. c 14. e 15. c 16. a 17. e 18. a 19. a 20. e 21. b 22. a

Discussion Questions 1. Although the foreign key could be posted in either table, it makes sense to post it in the cash receipt table. The multiplicities indicate that the cash receipt instance occurs after the corresponding sales instance. If you post the foreign key in the sale table, the field would be blank and then when entering cash receipt information, the database would need to update two tables (to update the foreign key in the sales table). If the foreign key (the sales primary key) is posted in the cash receipt table, that value is always available when the cash receipt information is added.

2. The multiplicities suggest the business sells items on account and collects payment in full. Each payment is for one sale. The multiplicities would change to 0..* next to the cash receipt class, indicating a minimum of 0 and a maximum of many payments for each sale.

3. Each student may take a minimum of 0 and a maximum of many courses. Each course may have been taken by a minimum of 0 and a maximum of many students. The tables would look something like: Students Courses

[Student ID (PK), Student Name, Student Address, Student email, …]

[Course number (PK), Course Name, Course Description, …] ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Student-Courses [Student ID + Course Number (PK), Date Student Took Course, Grade Student Earned, …]

4. The composition relationship would look like the model below. The descriptiveness is a matter of taste.

5. Similar circumstances with the same model include: a deck of cards and the individual cards, a bouquet and the individual flowers (although this is an aggregation relationship example), a university and individual colleges, a high-rise building and the floors, etc.

6. There were undoubtedly a number of rules in the process: the student must pay tuition before enrollment; the student must have taken prerequisite courses before enrolling; the student must be admitted to the University before enrolling; the student cannot enroll outside of a specific date range; …

7. A typical checkout would show the items selected for purchase (in your cart), shipping costs, taxes, the customer’s name, address, phone number, and email for both billing and shipping, plus payment information (e.g., credit card or PayPal). Decision categories might include Calculation (what are the shipping costs for example); Fraud (is the credit card stolen); Targeting (what other products should we suggest to this customer). There would be rules about which fields had to be completed. There would be rules about valid forms of payment. There could be rules about valid shipping destinations.

8. Comparing the two figures, there are some obvious differences between the association lines and the relationship diamonds. The ERD names the relationship, providing additional information about the business purpose of the relationship. Less obvious is that the multiplicities/cardinalities are on the opposite side.

9. A simple class diagram for attending several universities is as follows: ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

(This assumes that Universities have at least one student and a student has attended at least one University.)

10. Examples of one-to-one relationships include: Cash sales at the supermarket (one cash receipt per sale) Sales of new cars (each sale includes one car and a new car is sold only once) Credit card sales over the internet (one sale and one cash receipt) Examples of one-to-many relationships include: Sale of a new car and the customer’s payments Customers and sales Employees and paychecks Houses and the cities they are located in (excluding mobile homes) Examples of many-to-many relationships include: Sales and inventory (at a grocery store) Payments over time on credit card sales (each payment may apply to several sales and each sale could result in several payments)

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect. The Connect-based solutions for all Problems can be found in the following section beginning on Page 6.)

1. (Connect) Dr. Franklin runs a small medical clinic specializing in family practice. The following simple diagram describes the basic relationships. It incorporates several assumptions: 1) a patient visit (sale) could take place without any diagnostic tests; 2) the tests/services are established in the database before they are used by Dr. Franklin; 3) patients are established in the database prior to the first patient visit (sale). Extensions to this model could include adding a second payer, such as an insurance company, as well as several options for payments (which are not shown in the diagram below).

2. (Connect) Paige ran a small frozen yogurt shop. She bought several flavors of frozen yogurt mix from her yogurt supplier. She bought plastic cups in several sizes from another supplier. She bought cones from a third supplier. She counts yogurt and cones as inventory, but she treats the cups as operating expense and doesn’t track any cup inventory. The simple diagram below describes Paige’s purchases. Normally, a purchase must involve at least one inventory item, but she expenses the cups upon purchase, so a cup purchase involves 0 inventory items whereas a yogurt or cone purchase involves at least one inventory item. This model also assumes that suppliers are recorded before items are purchased from them.

3. (Connect) A table structure to support problem 1 would look like: Patients Sales/Visits

[Patient ID (PK), Patient Name, Patient Address, …]

[Patient Visit Number (PK), Date, Basic Fee, Other Charges, Total Amount Due, Patient ID (FK), ..]

Tests/Services [Test/Service ID (PK), Test/Service Description, Charge for this Test/Service, …]

4. (Connect) A table structure to support problem 2 would look like: Suppliers [Supplier ID (PK), Supplier Name, Supplier Address, …]

Purchases [Purchases Number (PK), Supplier ID (FK), Date, Amount, …]

Inventory [Inventory ID (PK), Inventory Description, Quantity on Hand, ..]

Purchase-Items [Purchases Number + Inventory ID (PK), Quantity Purchased, …]

5. (Connect) The following model shows the Multnomah County Library data model. Each county citizen may obtain a library card, so the association between Patrons and Issue Library Cards ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

indicates that constraint. Patrons can check out multiple books or DVDs. Patrons can use one computer at any time and reserve rooms. This assumes that the each room reservation involves one room.

6. (Connect) Sample tables for the Access database might look like these.

Books and DVDs [Catalog# (PK), description, rental duration, …]

Computers [Computer# (PK), computer type, date purchased, …]

Rooms [Room # (PK), occupancy, location, …]

Issue Library Cards [Issue# (PK), issue date, library card# (FK), …]

Check Out Books/DVD [Transaction# ((PK), date, library card# (FK), …]

Computer Use Session [Session# (PK), date/time started, date/time ended, Computer# (FK), library card# (FK),…]

Room Reservations [Room Reservation # (PK), date, Room# (FK), library card# (FK), …]

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Problems – Solutions for Connect Problem 1 1. How many classes did you include in your diagram? a. 2 b. 3 c. 4 d. 5 2. Which of the following best describes the names of the classes that you selected for your diagram? a. Diagnoses, clinic, Dr. Franklin b. Tests, Patient visits, Patients c. Bills, Patients, Appointments d. Dr. Franklin, patients, patient credit 3. Assume that the clinic maintains a lists of tests that it can provide to patients. That list might specify the nature of each test as well as the price to be charged for the test. The list is established before any patient visit. Which of the following best describes multiplicities that would appear next to the TESTS class in an association with a class for patient visits? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 4. Assume that the clinic tracks each patient visit separately along with all the tests performed during that visit. Consider an association between the TESTS class and a PATIENT VISIT class.

Which of the following best describes multiplicities that would appear next to the PATIENT VISIT class? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 5. Assume that Dr. Franklin records information on her patients during the first patient visit.

Consider an association between the PATIENTS class and the PATIENT VISITS class. Which of the following best describes multiplicities next to the PATIENT VISIT class? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 6. Consider an association between the PATIENTS class and the PATIENT VISITS class. Which of the following best describes multiplicities next to the PATIENT class? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 7. Which of the following best explains the reason why your diagram does not need a class to identify Dr. Franklin? ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

a. Dr. Franklin owns the clinic b. There is only one Dr. Franklin c. All patient visits are performed by Dr. Franklin d. Some tests may not be performed during one visit 8. Now consider the possibility that each patient may have one insurance provider. So, your model includes an INSURANCE class. Which of the following best describes the association between that class and other classes on your diagram? a. Associated with PATIENTS b. Associated with PATIENT VISITS c. Associated with TESTS d. Both a and b e. Both b and c Problem 2 1. How many classes did you include in your diagram? a. 2 b. 3 c. 4 d. 5 2. Which of the following best describes the names of the classes that you selected for your diagram? a. Paige, Yogurt Shop, Supplier b. Yogurt, Cones, Supplier c. Plastic cups, Paige, Cones d. Inventory, Purchases, Suppliers 3. If there is an association between a SUPPLIERS class and a PURCHASES class, which of the following best describes the multiplicities next to the PURCHASES class? Assume that SUPPLIERS are added to the database before the first purchase. a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * e. There is no association between SUPPLIERS and PURCHASES in the model 4. If there is an association between a SUPPLIERS class and a PURCHASES class, which of the following best describes the multiplicities next to the SUPPLIERS class? Assume that SUPPLIERS are added to the database before the first purchase. a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * e. There is no association between SUPPLIERS and PURCHASES in the model 5. If there is an association between an INVENTORY class and a PURCHASES class, which of the following best describes the multiplicities next to the PURCHASES class? Assume that INVENTORY records are added to the database before the first purchase. a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

d. Minimum 1, Maximum * e. There is no association between INVENTORY and PURCHASES in the model 6. If there is an association between an INVENTORY class and a PURCHASES class, which of the following best describes the multiplicities next to the INVENTORY class? Assume that INVENTORY records are added to the database before the first purchase. a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * e. There is no association between INVENTORY and PURCHASES in the model 7. If there is an association between a PAIGE class and a SUPPLIERS class, which of the following best describes the multiplicities next to the PAIGE class? Assume that SUPPLIERS records are added to the database before the first purchase. a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * e. There is no association between PAIGE and SUPPLIERS in the model 8. Assume that Paige’s yogurt business expanded and Paige hired several employees to purchase inventory from suppliers. What class(es) and association(s) would you add to the diagram to track this information? a. An EMPLOYEES class and an association between EMPLOYEES and PURCHASES. b. An EMPLOYEES class and an association between EMPLOYEES and SUPPLIERS. c. An EMPLOYEES class and an association between EMPLOYEES and INVENTORY. d. An EMPLOYEES class and an association between EMPLOYEES and PAIGE. e. None of these is a correct addition to the diagram.

Problem 3 (relates to Problem 1) 1. How many relational tables are necessary to implement your model for Dr. Franklin’s clinic? a. 2 b. 3 c. 4 d. 5 2. Which of the following is the best primary key for the TESTS table? a. Test number b. Test description c. Test price d. Test date 3. Which of the following is the best way to implement the association between TESTS and PATIENT VISITS tables? a. Post the primary key of PATIENT VISITS in TESTS as a foreign key. b. Post the primary key of TESTS in PATIENT VISITS as a foreign key. c. Create a linking table between TESTS and PATIENT VISITS with a primary key that combines the primary keys of TESTS and PATIENT VISITS d. Create a new table that includes the primary keys of TESTS and PATIENT VISITS as foreign keys e. None of these is the best option. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

4. Which of the following is the best option for the PATIENTS table primary key? a. Patient phone number b. Patient number (assigned by clinic) c. Patient name d. Patient birthdate e. None of these is a good option 5. Which of the following is the best option for the PATIENT VISITS table primary key? a. Patient number b. Visit date c. Visit number (assigned by clinic) d. Visit description e. None of these is a good option 6. Which of the following is the best way to implement the association between PATIENTS and PATIENT VISITS tables? a. Post the primary key of PATIENT VISITS in PATIENTS as a foreign key. b. Post the primary key of PATIENTS in PATIENT VISITS as a foreign key. c. Create a linking table between PATIENTS and PATIENT VISITS with a primary key that combines the primary keys of PATIENTS and PATIENT VISITS d. Create a new table that includes the primary keys of PATIENTS and PATIENT VISITS as foreign keys e. None of these is the best option.

Problem 4 (relates to Problem 2) 1. How many relational tables are necessary to implement your model for Paige’s yogurt shop? a. 2 b. 3 c. 4 d. 5 2. Which of the following is the best primary key for the INVENTORY table? a. Inventory number b. Inventory description c. Inventory price d. Inventory quantity 3. Which of the following is the best way to implement the association between INVENTORY and PURCHASES tables? a. Post the primary key of PURCHASES in INVENTORY as a foreign key. b. Post the primary key of INVENTORY in PURCHASES as a foreign key. c. Create a linking table between INVENTORY and PURCHASES with a primary key that combines the primary keys of INVENTORY and PURCHASES d. Create a new table that includes the primary keys of INVENTORY and PURCHASES as foreign keys e. None of these is the best option.

4. Which of the following is the best option for the SUPPLIERS table primary key? a. Supplier phone number b. Supplier number (assigned by yogurt shop) c. Supplier name d. Supplier contact person ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

e. None of these is a good option 5. Which of the following is the best option for the PURCHASES table primary key? a. Purchase quantity b. Purchase date c. Purchase number (assigned by yogurt shop) d. Purchase description e. None of these is a good option 6. Which of the following is the best way to implement the association between SUPPLIERS and PURCHASES tables? a. Post the primary key of PURCHASES in SUPPLIERS as a foreign key. b. Post the primary key of SUPPLIERS in PURCHASES as a foreign key. c. Create a linking table between SUPPLIERS and PURCHASES with a primary key that combines the primary keys of SUPPLIERS and PURCHASES d. Create a new table that includes the primary keys of SUPPLIERS and PURCHASES as foreign keys e. None of these is the best option.

Problem 5

1. Which of the following is the best name for the class designated as A in the diagram? a. Books b. Computers c. Patrons d. Room Reservations e. Computer Use Sessions 2. Which of the following is the best name for the class designated as B in the diagram? ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

a. Books b. Computers c. Patrons d. Room Reservations e. Computer Use Sessions 3. Which of the following is the best name for the class designated as C in the diagram? a. Check Out Books and DVDs b. Computers c. Patrons d. Room Reservations e. Computer Use Sessions 4. Which of the following is the best name for the class designated as D in the diagram? a. Books b. Computers c. Patrons d. Room Reservations e. Computer Use Sessions 5. Which of the following is the best name for the class designated as E in the diagram? a. Books b. Computers c. Patrons d. Room Reservations e. Computer Use Sessions 6. Which of the following is the best option for multiplicities to replace F in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 7. Which of the following is the best option for multiplicities to replace G in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 8. Which of the following is the best option for multiplicities to replace H in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 9. Which of the following is the best option for multiplicities to replace I in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 10. Which of the following is the best option for multiplicities to replace J in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Problem 6 (relates to Problem 5) Part 1 Tables a. b. c. d. e. f. g. h.

Primary Keys

Rooms Room Reservations Patrons Check Out Books/DVDs Computers Issue Library Cards Computer Use Sessions Books and DVDs

2 5 6 9 3 10 11 1

Possible primary keys (# indicates number) 1. Book/DVD Catalog # 2. Room # 3. Computer # 4. Card # 5. Room Reservation # 6. Patron # 7. Employee # 8. Library # 9. Check Out Transaction # 10. Card Issue # 11. Computer Use Session # 12. Library Card Category # 13. County # 14. Patron Phone # Part 2 Tables a. b. c. d. e. f. g. h.

Foreign Keys

Rooms Room Reservations Patrons Check Out Books/DVDs Computers Issue Library Cards Computer Use Sessions Books and DVDs

15 2, 6 15 6 15 6 3, 6 15

Possible primary keys (# indicates number) ..

12

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

1. Book/DVD Catalog # 2. Room # 3. Computer # 4. Card # 5. Room Reservation # 6. Patron # 7. Employee # 8. Library # 9. Check Out Transaction # 10. Card Issue # 11. Computer Use Session # 12. Library Card Category # 13. County # 14. Patron Phone # 15. No foreign key

Problem 7 (Available in Connect Only) Use the following narrative to complete the UML class diagram with classes, associations, and multiplicities outlined below and then answer the associated questions: The Pacific Construction Company’s construction projects required careful planning. Each project has a budget. The budget is established within a few weeks after the project is authorized. A budget is composed of many budget items. Each budget item could include labor cost estimates, equipment cost estimates, service cost estimates, or materials cost estimates. Labor costs are estimated by identifying the types of employees that will work on each project, the labor rates for that type of employee, and the expected hours required. Equipment costs are similarly estimated by identifying the type of equipment, costs, and hours. Services costs are broadly estimated by type of service and expected total cost.

Materials costs are estimated by type of material, quantity required, and expected cost. A budget item could combine multiple types of labor, equipment, or materials, but it would include only one type of service. A budget item would include only labor, or equipment, or services, or materials. Labor, equipment, services, and materials information is recorded before use to form budgets.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Part 1 1. Which of the following is the best name for the class designated as A in the diagram? a. Materials b. Projects c. Employees d. Supervisors e. None of these 2. Which of the following is the best name for the class designated as B in the diagram? a. Projects b. Project Locations c. Materials d. Project items e. Budget items 3. Which of the following is the best name for the class designated as C in the diagram? a. Materials b. Employees c. Labor rates d. Projects e. None of these 4. Which of the following is the best option for multiplicities to replace D in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 5. Which of the following is the best option for multiplicities to replace E in the diagram? a. Minimum 0, Maximum 1 ..

14

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 6. Which of the following is the best option for multiplicities to replace F in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 7. Which of the following is the best option for multiplicities to replace G in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum * 8. Which of the following is the best option for multiplicities to replace H in the diagram? a. Minimum 0, Maximum 1 b. Minimum 0, Maximum * c. Minimum 1, Maximum 1 d. Minimum 1, Maximum *

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Part 2 Match each of the following tables from the diagram with the number of the corresponding primary key from the list of primary keys below. Assign 0 to any tables that are not part of the database for this diagram.

Possible primary keys (# indicates number) 1. Project # 2. Budget # 3. Budget item # 4. Employee # 5. Customer # 6. Labor category # 7. Equipment category # 8. Services category # 9. Materials type # 10. Budget item # + Labor category # 11. Budget item # + Equipment category # 12. Budget item # + Services category # 13. Budget item # + Materials type # 14. Budget # + Budget item #

Tables a. b. c. d. e. f. g. h. i. j. k. l.

Primary Keys

Projects Budgets Budget items Labor Equipment Services Materials Budget items - Labor Customers Budget items – Materials Budget items – Services Budget items – Equipment

1 2 3 6 7 8 9 10 0 13 0 11

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 3

Part 3 Match each of the following tables with the number of a primary key or keys from the list of primary keys below that would be posted in the table as a foreign key. Assign 0 to any tables that that do not have foreign keys. Table C has been completed as an example.

Possible primary keys (# indicates number) 1. Project # 2. Budget # 3. Budget item # 4. Employee # 5. Customer # 6. Labor category # 7. Equipment category # 8. Services category # 9. Materials type # 10. Budget item # + Labor category # 11. Budget item # + Equipment category # 12. Budget item # + Services category # 13. Budget item # + Materials type # 14. Budget # + Budget item #

Tables a. b. c. d. e. f. g.

Foreign Keys

Projects Budgets Budget items Labor Equipment Services Materials

0 1 2, 8 0 0 0 0

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Chapter 4 – Relational Databases and Enterprise Systems Multiple Choice Questions 1. B 2. A 3. C 4. B 5. B 6. A 7. D 8. A 9. C 10. B 11. D 12. C 13. B 14. A 15. A

Discussion Questions 1. Hierarchical data models organize data into a tree-like structure. In a hierarchical data model, data elements are related to each other using one-to-many relationships. A network data model is a flexible model representing objects and their relationships. It allows many-to-many relationships. The relational data model is a data model that stores information in the form of related two-dimensional tables. While hierarchical and network data models require relationships to be formed at the database creation, relational data models can be made up as needed.

The relational database is the most popular data model in use today because it has the following advantages: flexibility and scalability simplicity reduced information redundancy.

2. The approach of relational database imposes requirements on the structure of tables:   

The Entity Integrity Rule: the primary key of a table must have data values (cannot be null).

The Referential Integrity Rule: the data value for a foreign key must either be null or match one of the data values that already exist in the corresponding table.

Each attribute in a table must have a unique name.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

  

Values of a specific attribute must be of the same type.

Each attribute (column) of a record (row) must be single-valued. This requirement forces us to create a relationship table for each many-to-many relationship.

All other non-key attributes in a table must describe a characteristic of the class (table) identified by the primary key.

3. The information accountants needed is not always ready for use in the database.

Accountants need to use SQL to pull data needed out from the master table, to design queries to get the calculated data and to run report in an application. Additionally, learning SQL helps accountants better communicate with IT support when they need assistance.

4. MM Materials Management: for the manufacturing companies, material management such as raw material purchase and usage, storage and condition check is always important because it affects the manufacturing process and cost of goods.

--PP Production Planning and Control: Production Planning consists of all master data, system configuration, and transactions to complete the Plan in produce process. It related to the planning stage to the completion of manufacturing, it is critical to the whole process of manufacturing.

SD Sales and Distribution: the Sales and Distribution consists of all master data, system configuration, and transactions to complete the Order to Cash process. It is the purpose of manufacturing.

5. The challenge of integrating with the firm’s own existing legacy systems best described Hershey’s failure of implementing of ERP. Before 1999, Hershey was running legacy systems. When it tried to implement ERP system in 1999, it chose to replace those systems. But the changes cause the delayed delivery of goods during holiday season and big loss in that year.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect. Problems 17 and 18 are available in Connect only.)

1. (Connect) Account# BA-6 BA-7 BA-9

Balance 253 48,000 950

2. (Connect) Account# BA-9 BA-6

Balance 950 253

3. (Connect) Using the Cash Table below, show the SQL command which will return accounts with only checking type: Cash Account# BA-6 BA-7 BA-8 BA-9

Type Checking Checking Draft Checking

Bank Boston5 Shawmut Shawmut Boston5

Balance 253 48,000 75,000 950

Answer: SELECT * FROM Cash WHERE Type = “Checking”;

4. (Connect) Using the Cash Table below, show the SQL command which will return the sum of balance: Cash Account# BA-6 BA-7 BA-8 BA-9

Type Checking Checking Draft Checking

Bank Boston5 Shawmut Shawmut Boston5

Balance 253 48,000 75,000 950

Answer: SELECT SUM(Balance) FROM Cash;

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3

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

5.

6. (Connect) a. Customer table, sales table, cash receipt table are some examples. Students include a variety of tables containing subscriber data, such as movie ratings. b.

Customer table could include the following attributes: customer#, customer name, customer email address, customer phone#, customer zip Sales table could include the following attributes: sales#, sales date, customer#, item#, employee# Cash receipt table could include the following attributes: cash receipt#, cash receipt amount, cash receipt date, customer#, sales# etc. c. The customer# may have information in the data dictionary such as data type: integer, validation: required. Customer name may have data type: text. Customer zip may have field length: Cash receipt amount has data type: currency. d. Netflix tries to trace its customer information to find out the features of their customer in order to improve its product and improve its customer service. The company is also interested in sales and cash receipts information to analyze its profitability and manage its cash flows.

7. People may be reluctant to cloud computing because they may concern about the secure issue about the sensitive data. Additionally, they also concern about the network stability because the system will not function if the network connection goes down. That may potentially cause big damage.

8. Access Practice using Access_Practice.accdb to complete the required tasks. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

a. Link the tables 1) Open the access database (called Access_Practice.accdb), select “Enable Content” in the yellow SECURITY WARNING to work on the assignment. If you do not see the warning, proceed to step 2.

2) Select the “DATABASE TOOLS” tab. Select “Relationships” in the “Relationships” box to open the Show Table window. Holding down shift, select “Inventory,” “Sales,” and “SalesItems” from the Tables list. Select Add then Close.

The following screen will show up:

3) Link the tables by dragging the primary key to its foreign key in the appropriate table.

For each link place a check in the Enforce Referential Integrity box. Select Create.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

4) Save your work then close the relationship window.

b. Create the Item_Extension_Calculation query:

1) Select the CREATE tab. Select Query Design in the Queries box.

2) Select SalesItems in the Show Tables box. Select Add, then Close:

3) Drag InvoiceID, InventoryID, Quantity, and UnitPrice to the Field row of the design grid creating four columns.

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6

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

4) In the blank column on the right of the design grid, type Amt: then select Builder in the

Query Setup box of the DESIGN tab: 5) Expand Access_Practice.accdb by selecting its plus sign (+). Select Tables. (Either select the plus sign or double-click Tables). Select SalesItems from the Expression Elements list, then double-click Quantity from the Expression Categories list. Type, * in the calculated query field. Double-click UnitPrice in the Expression Categories list. In the calculated query field delete <<Expr>>. Select OK.

6) Verify the Show: box in the Amt: column is selected. Then, select Property Sheet in the Show/Hide box of the DESIGN tab. The Property Sheet appears on the right side of the screen.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

7) Choose currency for the Format, close (x) the Property Sheet:

8) Select appear.

9) Select Save

in the Results box of the DESIGN tab. The extended amount of sales will

. Save the query as Item_Extension_Calculation. Select OK.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

c. Calculate the total dollar amount of each sale.

1) Select the CREATE tab. Select Query Design in the Queries box.

a. Select the Queries tab. Choose Item_Extension_Calculation, then Add. Select the Tables tab. Choose Item_Extension_Calculation, then Add.

2) Double-click InvoiceID, InvoiceDate, CustomerID, EmployeeID in the Sales table and Amt in the Item_Extension_Calculation query.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

3) Select in the Show/Hide box of the DESIGN tab. Select Sum for Amt and leave the others as Group by. Format Amt as Currency using the Property Sheet as previously discussed.

4) Select , you will get the total dollar amount of each sale. Save the query as Sale_Amount_Calculation.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

d. Calculate total sales for each inventory item.

1) Create new query and select SalesItems and Inventory under the Tables tab. a. Hint: Hold control to select two items in a list that are not adjacent to each other.

2) Double-click Inventory ID and Name in the Inventory table to add them to the design grid. In the blank column on the right, type Amount and select Builder in the Query Setup section of Design tab.

3) In the Expression Builder under Expression Elements select the SalesItems table and double-click Quantity in the Expression Category list. Type *. Double-click UnitPrice

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

under Expression Category. Delete <<Expr>>, then click OK.

4) Click

and select Sum for Amount in the Total row.

5) Format Amount as Currency.

6) Select

, you will get total sales for each inventory item.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Save the query as Sales_for_Inventory_Items. e. Calculate Total Sales.

1) Select the CREATE tab. Select Query Design in the Queries box. Select SalesItems.

2) In the first column, select Builder in the Query Setup section of Design tab. Type in the formula written in the calculated query field in the Expression Builder image below.

Select OK.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

2) Select

to see the query result.

3) Save the Query as Total_Sales. f. Calculate the month in which each sale occurred 1) Select the CREATE tab. Select Query Design in the Queries box Select Sales.

2) Double-click Invoice ID and Invoice Date to insert into the first two columns. In the third column select Builder and type the formula written in the Expression Builder: 3) .

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

4) Select

, and see the result:

5) Save the query as Sales_Month. g. Calculate the sum of sales for each month.

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15

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If this link does not work with a click, then copy the complete Download link and paste link in internet explorer/firefox/google chrome and get all files download successfully.

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

1) Select the CREATE tab. Select Query Design in the Queries box. Select the SalesItems

table and Sales_Month query.

2) Link the table and query by dragging InvoiceID from the SalesItems table to InvoiceID in the Sales_Month query.

3) Double-click Month from the Sales_Month query. In the second column, select Builder and type the following formula:

4) Select

, select Group By for Month and Sum for Sales_Month in the Total row.

5) Format Sales_Month as Currency using the Property Sheet.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

6) Click

and save the query as Sales_by_Month.

9. Continue from Problem 8. Access Practice using Access_Practice.accdb to complete the required tasks.

a. Link tables: 1) Double-click the Employees table in the All Access Object menu to open it. Select the HOME tab. Select the View drop-down menu. Select Design View. Select EmployeeID. Select Primary Key from the Tools box. Close Employee table.

2) Select Relationships in the Relationships box of the DATABASE TOOLS tab to open the Relationships object. Select Show Table in the Relationships box. Hold the Shift key, select any tables missing from the Relationships tab. Select Add, then Close.

3) Create relationships by dragging the primary key to foreign key in the appropriate table and Enforce Referential Integrity for each one.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Close the relationship object by right clicking the tab and choosing Close. b. Calculate the total sales for each customer.

1) Select the CREATE tab. Select Query Design in the Queries box.

2) Select SalesItems table. Add, then Close.

3) Double-click Invoice ID and in the second column of design gird, use Builder in the Query Setup section of DESIGN tab and type the following formula, selecting Quantity and UnitPrice from SalesItems table. a. Amt: [SalesItems]![Quantity]*[SalesItems]![UnitPrice] b. Remember to use Property Sheet to set the Format to Currency.

4) Click

to see the result and save the Query as Sale_Amount_Calculation_Problem9.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

1) Select the CREATE tab. Select Query Design in the Queries box.

2) Select Customers table, Sales table, Sale_Amount_Calculation_Problem9 query. Select Add, then Close.

3) Double-click CustomerID and CompanyName in the Customers table and Amt in the Sales_Amount_Calculation_Problem9 Query.

4) Click in the Show/Hide section of Design tab, select Group By for Customer ID and CompanyName, select Sum for Amt. 5) Format Amt as Currency.

6) Click

and save the Query as Total_Customer_Sales.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

c. Generate an email user name.

1) Select the CREATE tab. Select Query Design in the Queries box.

2) Select the Employees table, Add, then Close.

3) Double click EmployeesID. In the second column of design grid, use Builder in the Query Setup section of the DESIGN tab and type the following formula: a. EmailUserName: Left( [Employees]![EmployeeFirstName] ,1) & Left( [Employees]![EmployeeLastName] ,5) 4) Select OK. 5) Double click EmployeeLastName and EmployeeFirstName. Click Query as Employee_Email_Generator.

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and save the

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

d. Calculate the total sales for each month 1) Select the CREATE tab. Select Query Design in the Queries box.

2) Select Sales table, Add then Close.

3) Double click InvoiceID. In the second column of design grid, use Builder in the Query Setup section of the DESIGN tab and type the following formula:

Select OK. 4) Save the Query as Month_Sales. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

5) Select the CREATE tab. Select Query Design in the Queries box.

6) Double-click Month_Sales and Sale_Amount_Calculation Queries. Close.

7) Link two queries by dragging InvoiceID from Month_Sales query to InvoiceID of Sale_Amount_Calculation Queries.

8) Double click Month and Amt. Select , select Group By for Month and Sum for Amt. Click SumofAmt then Property Sheet in the Show/Hide section of DESIGN tab. Format Amt as Currency.

9) Click

and save query as Total_Sales_per_Month

e. Determine the highest average sales amount made to one customer.

1) Select the CREATE tab. Select Query Design in the Queries box.

2) Double-click Customers table and Sale_Amount_Calculation (not the Problem 9 version) query, Close.

3) Double click CustomerID, CompanyName, SumofAmt. Select . Select Avg for Amt in the Total row. Select Descending in the Sort row of Amt. Format the Amt as Currency.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

4) Click and find the customer that has the highest Average sale. Save query as Customer_Highest_Sales.

f. Calculate the commission.

1) Select the CREATE tab. Select Query Design in the Queries box.

2) Double-click Sales_Amount_Calculation_Problem9 query, Sales table, Close.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

3) Double-click EmployeeID, Amt. Select 4) Click

, select Sum for Amt. Format for Currency.

and save the query as Employee_Total_Sales.

5) Select the CREATE tab. Select Query Design in the Queries box.

6) Double-click Employee_Total_Sales query, Employees table, Close.

7) Double-click EmployeeID, EmployeeFirstName, EmployeeLastName. In the fourth column, use the Builder and type the following formula: a. Commission:0.05* [Employee_Total_Sales]![SumOfAmt] 8) Format the Commission as Currency under Property Sheet.

9) Click

and save the Query as Commission

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Problems 10 to 14 use the following information: Ellen Novotny started an online bookstore in 2017. You are Ellen’s best friend and promised to help her. Ellen asked you to create a small database to track the information on books and authors. You created the following tables: Author, Book, and Author_Book.

The table, Author_Book, is a relationship table to link the Author table and Book table because of the many-to-many relationship between the two tables. That is, each author may write many books and each book may have multiple authors.

In general, each customer can purchase many books in a single transaction. Also, copies of the same book can be sold to different customers. Once an order is processed, the books are shipped right away.

Based on these tables you have (see below), help Ellen to extract the information she needs from the database.

10. Ellen asks you to give her a list of the books that each author wrote. Write a complete SQL statement to provide the information to Ellen, including author names, book titles, publishers and the years of publication.

Author Table Author ID Last Name AU-1 Adams AU-2 Brown AU-3 Davis AU-4 Newport AU-5 Pham AU-6 Sviokla

First Name Eric Jennifer Keith Kevin John Julia

Book Table Book ID Title B-1 Accounting Principles B-2 Cost Management B-3 B-4 B-5 B-6

Accounting Information Systems Individual Taxation 2017 Intermediate Accounting Advanced Accounting

Email Eric168@yahoo.com jenifferb@gmail.com keithd@gmail.com kevinn@hotmail.com johnpham@gmail.com jsviokla@yahoo.com

Phone number (714) 833-2419 (619) 596-0012 (212) 342-5680 (301) 947-7741 (617) 645-3647 (805) 498-1688

Area Financial Accounting Management Accounting Information Systems Taxation

Year 2016

Edition 8

Publisher Wiley

2017

3

McGraw-Hill

2017

2

McGraw-Hill

2018

6

Pearson

Financial Accounting Financial Accounting

2016

1

Wiley

2017

1

McGraw-Hill

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Author_Book Table Author ID Book ID AU-1 B-2 AU-1 B-5 AU-2 B-6 AU-3 B-2 AU-3 B-3 AU-4 B-2 AU-5 B-4 AU-6 B-1 AU-6 B-6

Answer: SELECT

Author.[Last Name], Author.[First Name], Book.Title, Book.Year, Book.Publisher

FROM

Author, Book, Author_Book

WHERE

Author.[Author ID] = Author_Book.[Author ID]

AND

Book.[Book ID] = Author_Book.[Book ID]

ORDER BY Author.[Last Name], Author.[First Name];

Please note: The solutions of Novotny Bookstore can be find in an ACCESS file called “Novotny Bookstore – solutions” for instructors to use. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

11. Ellen Novotny wants to know how many books each author wrote. Write a SQL statement to provide such information to Ellen.

Answer: SELECT

Author.[Last Name], Author.[First Name], COUNT(*) AS [Number of Books]

FROM

Author, Author_Book

WHERE

Author.[Author ID] = Author_Book.[Author ID]

GROUP BY Author.[Last Name], Author.[First Name];

Please note: The solutions of Novotny Bookstore can be find in an ACCESS file called “Novotny Bookstore – solutions” for instructors to use.

12. You are going to send emails to inform the customers that the books ordered have been shipped. Write a SQL statement to obtain the complete information on the book title(s), unit price(s) and the number of each book purchased to be sent to the customers.

Book Table Book ID Title B-1 Accounting

Area Financial ..

27

Year 2016

Edition 8

Publisher Wiley

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

B-2 B-3 B-4 B-5 B-6

Principles Cost Management Accounting Information Systems Individual Taxation 2017 Intermediate Accounting Advanced Accounting

Customer Table Customer ID Last Name C-1 Black C-2 Brown C-3 Easton C-4 Jennix C-5 Venable C-6 White C-7 Williams

Sales_Line_Item Sales Date Customer ID 9/1/2017 C-7 9/1/2017 C-7 9/1/2017 C-1 9/2/2017 C-5 9/2/2017 C-5 9/2/2017 C-3 9/2/2017 C-3 9/2/2017 C-3 9/3/2017 C-2

Accounting Management Accounting Information Systems Taxation Financial Accounting Financial Accounting

First Name Emily Jack Anderson May Judy Ashley Eric

2017

3

McGraw-Hill

2017

2

McGraw-Hill

2018

6

Pearson

2016

1

Wiley

2017

1

McGraw-Hill

Email Ewb2003@yahoo.com jackjack@gmail.com anderson.easton@gmail.com jennixm@hotmail.com Judy.Venable@gmail.com Ashley2015@yahoo.com Williams_e@yahoo.com

Book ID

Quantity

Unit price

B-3 B-1 B-6 B-2 B-5 B-2 B-6 B-4 B-1

1 1 30 60 25 1 1 1 1

$205 $221 $195 $199 $210 $245 $215 $160 $221

Answer: SELECT Customer.*, Book.Title, Book.Year, Sales_Line_Item.Quantity, Sales_Line_Item.[Unit Price] FROM

Book, Customer, Sales_Line_Item

WHERE

Book.[Book ID] = Sales_Line_Item.[Book ID]

AND

Customer.[Customer ID] = Sales_Line_Item.[Customer ID]; ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Please note: The solutions of Novotny Bookstore can be find in an ACCESS file called “Novotny Bookstore – solutions” for instructors to use.

13. Ellen Novotny wants to know how many copies of each book were sold. Write a SQL statement to obtain the necessary information you think Ellen wants.

Answer: SELECT

Book.Title, Book.Year, Book.Edition, SUM(Sales_Line_Item.Quantity) AS [Copies Sold]

FROM

Book, Sales_Line_Item

WHERE

Book.[Book ID] = Sales_Line_Item.[Book ID]

GROUP BY Book.Title, Book.Year, Book.Edition;

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Please note: The solutions of Novotny Bookstore can be find in an ACCESS file called “Novotny Bookstore – solutions” for instructors to use.

14. Ellen Novotny wants to know the dollar amount of total sales made on September 1, 2017.

Write a SQL statement to obtain the necessary information you think Ellen wants.

Answer: SELECT

[Sales Date], SUM(Quantity * [Unit Price]) AS [Total Sales]

FROM

Sales_LIne_Item

WHERE

[Sales Date] = #09/01/2017#

GROUP BY [Sales Date];

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

Please note: The solutions of Novotny Bookstore can be find in an ACCESS file called “Novotny Bookstore – solutions” for instructors to use.

15. (Connect) What are the possible foreign keys in the following Cash Receipt Table?

Cash Receipt Table Date Remittance Advice # RA-220 11/02/2016 RA-278 11/10/2016 RA-276 11/30/2016 RA-289 11/30/2016

Amount

Customer #

Check #

Invoice #

Cashier #

2549.90 699.90 1209.70 949.95

C-12 C-5 C-9 C-28

201 1457 392 2558

S-101 S-108 S-107 S-105

E-13345 E-13347 E-13345 E-13346

Answer: Customer #, Invoice #, and Cashier #. Since the attribute Check # refers to customers’ check numbers, it should not be a foreign key.

16. (Connect) A sales invoice typically includes the date of sale, salesperson, customer data, items included in the sale, and amount. Which foreign keys should be added to the following table to link all of these data elements?

Sales Table Invoice # S-101 S-105 S-107

Date 10/05/2016 11/01/2016 11/02/2016

Amount 2549.90 949.95 1209.70 ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

S-108

11/06/2016

699.90

Answer: Salesperson #, Customer #, Inventory # (often is NOT if the relationship is many-tomany), Remittance Advice # (only if requires customers to pay at once)

17. (CONNECT ONLY) Based on the two tables and the attributes below, write SQL commands for each question to retrieve the data from the database.

a. Write a query to find out how many customer records in the company’s database.

Answer: SELECT COUNT(CustomerNumber) FROM tblCustomer; b. List customers who live in New York State.

Answer: SELECT CustomerNumber, CustomerName FROM tblCustomer WHERE CustomerState=’New York’; c. List customers with credit limits greater than $50,000.

Answer: SELECT CustomerNumber, CustomerName FROM tblCustomer WHERE CustomerCreditLimit > 50000;

d. List sales transactions made in July, 2018. ..

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Answer: SELECT InvoiceNumber, InvoiceDate, tblCustomer.CustomerNumber, CustomerName FROM tblSales, tblCustomer WHERE tblSales.CustomerNumber=tblCustomer.CustomerNumber AND InvoiceDate BETWEEN #7/1/2018# AND #7/31/2018#; e. Write a query to find out the total sales transactions made to each customer.

Answer: SELECT COUNT(InvoiceNumber) AS Total, tblSales.CustomerNumber FROM tblSales, tblCustomer WHERE tblSales.CustomerNumber=tblCustomer.CustomerNumber GROUP BY tblSales.CustomerNumber;

18. (CONNECT ONLY) Based on the three tables and the attributes below, answer the question for Requirement A and write SQL commands for Requirements B to E to retrieve the data from the database.

a. What are the foreign keys in the Sales table?

Answer: CustomerID, EmployeeID b. How many sales transactions were made in March, 2017?

Answer: SELECT COUNT(InoviceID) FROM Sales WHERE InvoiceDate BETWEEN #3/1/2017# AND #3/31/2017#; c. Which sales transactions were made by the employee whose ID is ‘S2038’ in the system?

Answer: SELECT InoviceID, InvoiceDate, EmployeeID FROM Sales WHERE EmployeeID=‘S2038’; d. List the inventory items with purchase price larger than $6,500.

Answer: ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 4

SELECT InventoryID, Name, PurchasePrice FROM Inventory WHERE PurchasePrice > 6500; e. Write a query to find out the dollar amount of each sales transaction.

Answer: SELECT SalesItems.InoviceID, SUM([Quantity]*[UnitPrice]) AS Amount FROM Sales, SalesItems WHERE Sales.InvoiceID=SalesItems.InvoiceID GROUP BY SalesItems.InvoiceID;

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

Chapter 5: Sales and Collections Business Process Multiple Choice Questions 1. e 2. b 3. b 4. c 5. e 6. e 7. a 8. e 9. e 10. a 11. b 12. c 13. c 14. c 15. c 16. a 17. c 18. b 19. b 20. a 21. c 22. b 23. d 24. a 25. c 26. e 27. a 28. c 29. b 30. a 31. a 32. c

Discussion Questions 1. Managers are concerned about many aspects of the sales and collection process. In particular, they likely would collect product/inventory information about sales trends, customer information about product preferences and cumulative sales activity, employee information about sales productivity per employee or location, as well as sales by month, quarter, and year.

2. The standard example of businesses that collect cash before recording sales are magazines, but there are also many others. For example, airlines sell tickets before customers travel. Regardless ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

of when the cash is collected, the class model remains basically the same. However, internal controls (and the business rules that implement internal controls) could change. The focus no longer is on the collection from the customer, but rather on the delivery of goods or services according to the agreed contract.

3. A simple BPMN model for a fast food restaurant:

A similar model for a traditional restaurant (a more complex model could also include initial activities of seating the customer, taking beverage order, etc.):

A model that incorporates reservations (could also use a generic intermediate event to show the wait until the time of reservation):

4. A collaboration diagram would show two pools: customer and restaurant, and the message flows between them. For a traditional restaurant (as shown above), the order of the message flows would change and the customers would pay after receiving their food.

5. There is no difference between the UML class diagrams for fast food versus traditional restaurants. In both cases, there is a one-to-one relationship between the sales event and the corresponding cash receipt. The difference in payment timing is so minor that it would not normally be shown. To add reservations to the model, you could add a commitment (reservations) event that precedes the sales event. Note that both these models include the customer class, but most restaurants do not track specific customers.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

In the model with reservations, each reservation is related to a minimum of 0 and a maximum of 1 sale; each sale is related to a maximum of one reservation but some sales take place without prior reservations.

6. Collaboration sales model for Amazon (note that there could be a loop involving the first 4 activities until the customer decides to checkout, plus the delivery is most likely a sub-process, since it would be much more complicated than the other activities in the process):

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In a traditional brick and mortar store, there are no formal search, report, and select activities.

The customer presents items and checks out. So, the traditional model would be much simpler.

7. Business rules for the sales process could include 1) payment must be made, 2) acceptable payment options, 3) handling of large bills (e.g., Starbucks employees place $20 bills and larger immediately in their safe), plus 4) a variety of practices to prevent theft – both by customers and employees.

8. The classes and associations below would be used in accounts receivable queries. For a balanceforward calculation, the query would simply sum sales and collections since the previous statement balance; for an open-invoice calculation, the query would list the specific sales and the corresponding receipts for each of those sales.

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect. The Connect-based solutions for applicable Problems can be found in the following section beginning on Page 9.)

1. (Connect) Beach Dude a. UML Class Diagram shown below:

The minimum multiplicities between BD Products and Clothing Line are set to 0 by default, since it can be assumed that product items and clothing lines are defined before the links are defined.

The minimum multiplicities between Employees and Customers are set to 0 since some employees may not work with customers, and some customers may not have an assigned salesperson, yet. The student may make alternate assumptions, but should document those assumptions. b. See related CH 05 Problem 1 Beach Dude database c. One way to determine the accounts receivable balances for each customer: 1) Use the Customers and Sales tables. Sum the Invoice Total from Sales and Group By Customer #.

2) Use the Customers and Cash receipts tables. Sum the Cash receipt amount and Group By Customer #.

3) Use the two queries outlined above. Join them by Customer #. Compute the difference between the Sum of Sales Amount and the Sum of Cash receipt amount to determine each Customer’s accounts receivable.

2. (Connect) Bob White Karate School a. BPMN Diagram (basic diagram; students should be encouraged to think about potential additions to model activities related to renewals):

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

b. UML Class Diagram:

Since each sale is related to only one cash receipt, the sale and cash receipt events are collapsed into one in this solution. While they might also be modeled as separate Sale and Cash Receipt events with a 1:1 relationship, there are no attributes in the list for a Cash Receipt event in this case. This model shows separate inventory, programs, and packages classes, but it would be easy to combine those 3 classes into one class with some modification to the attributes. c. Bob White Karate School Tables Cash [Cash account # (PK), Cash account balance] Inventory [Inventory item # (PK), Inventory item description, Inventory item price. Inventory item quantity on hand (QOH)] Packages [Private lesson package # (K), Private lesson package description, Private lesson package price, Instructor Type (FK)] Programs [Program # (PK), Program description, Program price] Sales [Sale # (PK), Sale amount, Sale date, Sale paid (Y/N), Credit card number for this sale, Date sale paid, Student # (FK), Employee/Instructor # (FK)], Program # (FK)] Employees [Employee/instructor # (PK), Employee name, Employee rank, Instructor type (FK)]

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

Students [Student # (PK), Student current rank, Student name, Student original enrollment date, Employee/Instructor# (FK)] Instructor Types [Instructor Type (PK), Quantity of instructors of this type] Sales-Inventory [Sale # + Inventory item # (PK), Quantity of this inventory item purchased on this sale] Sales-Packages [Sale# + Private lesson package # (PK)] 3. Beach Rentals a. UML Class Diagram:

b. Beach Rentals Tables: Resources Houses [house street address (PK), house zip code, number of bedrooms, neighborhood name (FK)] Cash [bank account # (PK), bank name, bank account balance] Events Rental contract [rental contract # (PK), rental contract begin date, monthly rent, rental contract duration in months, rent discount for 12 month contract, damage fee, house street address (FK), agent employee# (FK), (primary) renter number (FK)] Cash receipts [cash receipt# (PK), cash receipt $ amount, cashier employee# (FK) , renter number (FK), bank account# (FK), rental contract# (FK)] Agents BR Agent [agent employee# (PK), agent name, agent real estate license status, YTD rental commissions]

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

Renters [renter number# (PK), renter name, renter bank and routing numbers, agent employee# (FK)] Cashier [cashier employee# (PK), cashier bonding status, cashier name]

Type Images Neighborhood [neighborhood name (PK), rental surcharge amount, agent employee # (FK), city name (FK)] City [city name (PK), number of houses this city] Linking tables (Secondary Renters) Renter-Contract [rental contract # + renter number (PK)] c. See related Microsoft Access Solution

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

Problems – Solutions for Connect

Problem 1 a. Use the list of potential class names listed below. Identify the appropriate class name for each letter, A through F, in the diagram above. Enter the number of the class name next to the letter below.

Potential class names: 1. Accounts Receivable 2. Beach Dude Products 3. Cash 4. Cash Receipts 5. Clothing Lines 6. Customers 7. Customer Orders 8. Customer Returns 9. Sales 10. Not a class in this Beach Dude diagram Enter the number of the class name next to the correct letter: A. 5 B. 2 C. 3 D. 4 E. 10 F. 6

b. Use the list of potential multiplicities listed below to identify the multiplicities that should replace the numbers, 1 to 16, on the diagram.

Potential multiplicities: 1. 0..0 2. 0..1 3. 1..1 4. 0..* 5. 1..* 6. *..* 7. Not an association for the Beach Dude diagram so no multiplicity required Enter the number of the correct multiplicity for each number on the diagram here.

1.

2 2.

4 3.

5 ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

3 4 5 2 4 4 4 3 4 3 3 7 7

Problem 2 a. The following BPMN activity diagram describes the Bob White Karate Studio’s sales and collection process. Use the list of task labels/symbol names below to replace the letters.

Replace letters A, B, D, and E with the appropriate task labels, e.g., Assign to Program .

Replace letters C, F, and G with the appropriate symbol name, e.g., exclusive gateway.

Select from the following Task Labels/Symbol Names 1. Assign to Instructor 2. Assign to program 3. Assign to belt color 4. Provide equipment, uniforms, insignia, etc.

5. Provide lessons 6. Review programs and packages available 7. Record student’s selections 8. Task 9. Exclusive Gateway 10. Inclusive Gateway 11. Start Event 12. End Event 13. Intermediate Event

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

Enter the number of the appropriate task label or symbol name next to the letter below. Letter D is completed for example.

A. B. C. D. E. F. G.

6 7 10 1 4 10 12

b. Prepare a UML class diagram with classes, associations, and multiplicities. Then, use your diagram to answer the following questions about this diagram.

Use the list of potential class names and multiplicities listed below. Identify the appropriate class name for each letter, A through D, or the appropriate multiplicity to replace the numbers, 1 to 11, in the diagram above. Enter the number of the correct class name or multiplicity next to the letter or number below.

Potential class names or multiplicities: 1. Accounts Receivable 2. Inventory (uniforms, sparring gear, etc.) ..

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3. Instructors 4. Packages of Lessons 5. Programs 6. Students 7. 0..0 8. 0..1 9. 1..1 10. 0..* 11. 1..* 12. *..* 13. Not an association for the Karate School diagram so no multiplicity required Enter the number of the class name or multiplicity next to the correct letter or number here.

A. B. C. D. 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

4 5 2 6 10 8 10 10 10 10 10 9 8 10 8

c. Using the information in the description of the Bob White Karate Studio and the attributes listed below, identify the missing primary and foreign keys in the table listing below.

Attributes: 1. Cash account # 2. Cash account balance 3. Credit card number for this sale 4. Date sale paid 5. Employee/instructor # 6. Employee name 7. Employee rank 8. Instructor type 9. Inventory item # 10. Inventory item description 11. Inventory item price 12. Inventory item quantity on hand (QOH) ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

13. Private lesson package # 14. Private lesson package description 15. Private lesson package price 16. Program # 17. Program description 18. Program price 19. Quantity of instructors of this type 20. Quantity of this inventory item purchased on this sale 21. Sale # 22. Sale amount 23. Sale date 24. Sale paid (Y/N) 25. Student # 26. Student current rank 27. Student name 28. Student original enrollment date Put the number of the attribute in the appropriate blank in the table list below.

Resources Cash Inventory Packages Programs Events Sales

Agents Employees Students

[ 1 (PK), Cash account balance] [Inventory item # (PK), Inventory item description, Inventory item price.

12 )] [Private lesson package # (K), Private lesson package description, 15 , Instructor Type (FK)] [Program # (PK), Program description, 18 ]

[Sale # (PK), Sale amount, Sale date, Sale paid (Y/N), Credit card number for this sale, Date sale paid, Student # (FK), 5 (FK)], Program # (FK)]

[Employee/instructor # (PK), Employee name, Employee rank, 8 (FK)] [Student # (PK), 26 , Student name, Student original enrollment date, Employee/Instructor# (FK)]

Types Instructor Types

[Instructor Type (PK),

19

]

Linking tables Sales-Inventory [ 21 + Inventory Item # (PK), Quantity of this inventory item purchased on this sale] Sales-Packages [Sale# + 13 (PK)]

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

Problem 4 (Available in Connect Only) Beach Cities Rentals rents almost anything. They rent tools, equipment, trucks for everything from home remodeling projects to major construction projects. They also rent office equipment, such as desks, file cabinets, chairs, tables, and office décor items. Finally, they rent furniture for short term home staging or long-term use. They have become well known in the area for having what their customers want.

Construction companies, contractors, real estate agents, office managers, and individual homeowners and renters all rely on Beach Cities to have what they need in stock. The following case describes Beach Cities’ processes for renting its inventory to customers.

Rental inventory and inventory categories Beach Cities categorizes its inventory by the type of inventory. Each inventory item is identified internally by the inventory number (retail inventory #) and categories are tracked by inventory category number (inventory category #). The inventory category # serves as Beach Cities catalog number for its catalog and website. For example, Beach Cities catalog could list executive desk chairs (category number 420), but internally it tracks each individual desk chair in inventory.

Contracts Because Beach Cities is so popular with a variety of organizations, such as construction companies, major contractors, real estate agents, office managers, and others in the area, it regularly negotiates contracts for equipment rental. The contracts give customers special considerations, such as delivery of equipment to the customer’s location, waiver of the requirement for advance deposit, and priority reservations. Contracts can specify that the customer will pay a premium over the regular rental prices to receive special services or they can specify whether the customer will receive volume discounts over the regular rental prices. Contracts don’t apply to specific inventory items or categories of inventory items. Instead, they obligate the customer to a minimum dollar commitment for rentals over the period of the contract as well as the percentage premium or discount on the standard rental costs. Some customers negotiate multiple contracts depending on their needs, but each contract is established separately.

Reservations, rental tickets, and delivery Beach Cities’ customers must make rental reservations in advance. Each reservation applies to one or more categories of items to be rented on some future date or dates. Customers under contract must specify which contract number applies when they make the reservation. At the time of each specific rental, a Beach Cities employee prepares one rental ticket for each item that the customer rents. The rental ticket notes the time that the rental started and the amount of deposit on the item (if the rental is not under contract). Generally, Beach Cities requires a 25% deposit at the time of the rental, but that amount is negotiable and is usually waived for customers with contracts (depending on the specific terms of the contract). For an extra charge, Beach Cities delivers the items to the customer’s location, using its own delivery trucks. It tracks which truck is used for each rental ticket. It tracks its inventory of delivery trucks separately from its rental inventory. When the customer returns the rental items (or Beach Cities picks them up), a Beach Cities employee updates the rental tickets with the rental end time and calculates the charges applicable to each rental ticket. The customer must pay for the remainder of the charges at that time, including delivery charges and contract premium charges. If the customer rented multiple items, the customer can pay for all rental tickets with one check.

Other information ..

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Beach Cities classifies its customers by customer type for planning purposes. Beach Cities records information about all agents, resources, and type images before they are linked to other entities. It tracks all employee information in one employee class.

Required: Use the information above and a list of attributes below to develop UML class models and a corresponding table listing for Beach Cities sales process. Then, fill in the missing information on the model and tables provided.

UML Class Diagram

Part 1 1. Select from the following options for the missing information in the UML class diagram above.

A. B. C. D. E. F. G.

Customer types Inventory categories Rental tickets Delivery trucks Cash disbursements Purchases Cashiers

H. 0..1 15

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

I. 1..1 J. 0..* K. 1..* Enter the letter for the correct option for missing information in the UML class diagram here.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

J B A K J I H C D I J I

Part 2 2. Use the following list of attributes and information from the UML Class Diagram to identify the number of the appropriate attribute for each blank in the table listing below.

Attributes 1. Cash account # 2. Cash account balance 3. Cash receipt # 4. Cash receipt amount 5. Cash receipt date 6. Contract # 7. Contract date 8. Contract end date 9. Contract minimum dollar commitment 10. Contract standard premium 11. Customer # 12. Customer name 13. Customer type 14. Customer's credit card number for this rental reservation 15. Delivery truck # 16. Delivery truck acquired date 17. Delivery truck charge 18. Delivery truck description 19. Employee # 20. Employee name 16

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

21. Inventory category # 22. Inventory category description 23. Number of customers in this customer type 24. Number of rental inventory items available in this category 25. Rental delivery Y/N? 26. Rental end time 27. Rental inventory # 28. Rental inventory acquired on date 29. Rental inventory description 30. Rental inventory hourly charge 31. Rental reservation # 32. Rental reservation date 33. Rental start time 34. Rental ticket # 35. Rental ticket date 36. YTD rentals by this customer Put the number of the attribute in the appropriate blank in the table list below.

Resources Rental Inventory = rental inventory # (PK), 28 , rental inventory description, rental inventory hourly charge, 21 (FK) Delivery Trucks = delivery truck # (PK), delivery truck description, delivery truck charge, delivery truck acquired date Cash = 1 (PK), cash account balance Events Contracts = contract# (PK), contract date, contract end date, contract minimum dollar amount, contract standard premium, 11 (FK), employee # (FK) Rental Reservations = rental reservation # (PK), 32 , customer’s credit card for this rental reservation, contract # (FK), customer # (FK), 19 (FK) Rental Tickets = 34 (PK), rental ticket date, rental start time, rental end time, delivery Y/N, rental reservation # (FK), customer # (FK), employee # (FK), 27 (FK), delivery truck # (FK) Cash Receipts = cash receipt # (PK), cash receipt date, cash receipt amount, 1 (FK), customer # (FK), employee # (FK) Agents Customers = customer # (PK), customer name, 13 Employees = employee # (PK), employee name,

(FK), YTD rentals by this customer

Type Images Inventory Categories = inventory category # (PK), inventory category description, Customer Types = customer type (PK), number of customers of this type Linking Tables Rental Reservation-Inventory Category =

31

+ inventory category # (PK) ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 5

Rental Tickets-Cash Receipts = rental ticket # + cash receipt # (PK)

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Chapter 6: Purchases and Payments Business Process Multiple Choice Questions 1. d 2. c 3. b 4. e 5. c 6. d 7. e 8. d 9. b 10. d 11. a 12. b 13. b 14. c 15. a 16. d 17. b 18. c 19. c 20. d 21. a 22. a 23. c 24. b 25. c 26. c 27. d

Discussion Questions 1. Business rules for Place Order, Receive Items, Assess Items, Place in Inventory, and Pay Supplier process steps are clearly segregation of duties rules. These rules are generally prohibited rules, since they describe what cannot take place in terms of separation of duties. The Place Order rule “Manager approval required for orders > $5,000” is a mandatory rule.

2. Wal-Mart’s vendor managed inventory affects their purchases and payments process by delaying purchase until the product is delivered to the store. This means in many cases that the products will be sold before Wal-Mart has to pay their vendor. In terms of process design, it means that Wal-Mart probably tracks inventory in the distribution center before it is purchased.

Thus, there must be some receiving event that precedes the purchase event.

3. Here is one possible model of the textbook purchase process:

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

4. Figure 6.5 shows a business that issues purchase orders and then receives goods. This would apply many types of organizations, including retailers, government entities, wholesalers, etc.

Businesses might use alternate models if they use a credit card and pick up their items when purchasing. Other businesses may purchase directly from vendors without purchase orders, such as the local convenience store getting deliveries from the Coca-Cola distributor.

5. Other possible type images for Figure 6.6 include a Purchase Types class to help define different types of purchases, a Partner Type image to assure that trained buyers are doing the purchasing.

6. The use of contracts would change the basic purchase activity flow in figure 6.2. The first step would then be the contracting process itself, which could be modeled in Figure 6.2 as a subprocess. Then, the activity: Request Prices & Availability may not be necessary, since the prices and perhaps availability could be specified in the contract. Other steps would remain the same.

The UML class diagram would then include another commitment event to document the contracts, and then the Purchase Order event would link to the Contracts event.

For example, the BPMN could look like this. Alternately, there could be a task to check whether a contract exists. If yes, then branch directly to Place Purchase Order. If no, then branch to Contract for Items.

The basic UML diagram would add a contract event as follows. This diagram assumes that each product is possibly related to multiple contracts and each contract is related to multiple products.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

7. When two processes are integrated, such as the sales and purchase process, the resources and internal agents are typically shared across processes. Inventory is both purchased and sold.

Employees participate in both sales and purchases. The external agent and the events are relevant to one process only. Customers only participate in Sales events, and Suppliers only participate in Purchases events.

8. An accounts payable query would include the Suppliers agent (to whom the amounts are payable) and purchases and cash disbursements event. The logic is: for each supplier, sum the purchases. For each supplier, sum the cash disbursements. For each supplier, calculate the difference between the sum of purchases and the sum of cash disbursements.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect. The Connect-based solutions for applicable Problems can be found in the following section beginning on Page 8.)

1. (Connect) Tablet Store Purchases a. UML Class Diagram

b. See associated Access database c. Sum purchases for each manufacturer. Sum cash disbursements to each manufacturer.

Subtract the sum of cash disbursements from the sum of purchases. Since the Purchases class combines Purchase Orders and Purchases, ensure that the sum of purchases is constrained to show only those purchases received.

2. (Connect) Quick Jet, Inc. Purchases. a. Basic BPMN activity model of Quick Jet Purchases:

b. UML Class diagram:

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

c. QuickJet tables listing Resources Cash [Cash account # (PK), Cash account balance] Planes [Plane # (PK), Plane miles since last maintenance, Plane Type (FK)] Events Plane Leases [Lease # (PK), Lease date, Lease monthly payment amount, Vendor # (FK), Employee # (FK)] Plane Maintenance Contract [Plane maintenance contract # (PK), Plane maintenance contract date, Plane maintenance contract duration] Plane Maintenance Orders [Plane maintenance order # (PK), Plane maintenance order date, Plane maintenance contract # (FK), Plane # (FK), Plane maintenance item performed on this order for this plane, Employee # (FK), Vendor #(FK), Check # (FK)] Misc. Supplies Purchases [Misc. supply purchase # (PK), Misc. supply purchase date, Plane # (FK), Employee # (FK), Vendor # (FK), Check # (FK)] Cash Disbursements [Check # (PK), Check amount, Check date, Date this misc. purchase billed by credit card company, Employee # (FK), Vendor # (FK), Account # (FK)] Agents ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Employees [Employee # (PK), Employee hire date, Employee Name, Employee type (FK)] Vendors [Vendor # (PK), Vendor Name, Vendor type (FK)] Type Images Plane Types [Plane type (PK), Plane type passenger capacity, Plane type range in miles] Employee Type [Employee Type (PK), Employee type description] Vendor Type [Vendor Type (PK), Number of vendors of this type, Vendor type description, Year-to-date (YTD) purchases from this vendor type] Linking Tables Leases-Planes [Lease # + Plane # (PK)] Leases-Cash Disbursements [Lease # + Check # (PK)] 3. BRMC Management Company a. BRMC UML Class Diagram

C/D = cash disbursement C/R = cash receipt Apt Category = Apartment Category

b. BRMC Table Listing Resources 1. Apartment Complex [apartment_complex_address [PK], date constructed, total square footage, employee#[FK] (agent/manager)] 2. Apartments [complex address, apartment# [PK], apartment square footage, count of rooms in apartment, apartment category [FK]] ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Events 3. Maintenance Job [maintenance job# [PK], projected completion date of job, actual completion date of job, actual cost of this job, job type [FK], employee # [FK], contractor # [FK], building address [FK], apt# [FK]] 4. Rental Contract [rental contract# [PK], actual monthly rent, rental contract date, employee # [FK], complex address + apt # [FK]] Agents 5. Contractor [contractor # [PK], contractor name, contractor quality rating, phone] 6. Agent/Manager [employee# [PK], agent name, agent monthly salary] 7. Tenant [tenant ID# [PK], tenant name, tenant credit rating] Type Images 8. Job Type [job type [PK], standard cost for this job type, YTD $ spent on this job type] 9. Contractor Type [contractor type [PK], count of this type of contractor] 10. Apartment Category [apartment category# [PK], number of available apartments in this category] Linking Tables 11. Tenants – Rental Contract [tenant# [PK], rental contract#] 12. Job Type – Contractor Type [job type [PK], contractor type] 13. Contractor Type – Contractor [contractor type [PK], contractor #] 14. Apartment Category – Building [apt category# [PK], complex address, standard monthly rent] 15. Job Type – Complex [complex address [PK], job type, YTD $ costs]

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Problems – Solutions for Connect

Problem 1

a. Draw a UML class diagram that describes the Tablet Stores purchases and payments process.

1. Which of the following is the best class name to replace the letter A in the diagram above? a. Tablet Inventory b. Purchases c. Manufacturers d. Cash Disbursements e. None of these 2. Which of the following is the best class name to replace the letter B in the diagram above? a. Tablet Inventory b. Purchases c. Manufacturers d. Cash Disbursements e. None of these 3. Which of the following is the best class name to replace the letter C in the diagram above? a. Tablet Inventory b. Purchases c. Manufacturers d. Cash Disbursements e. None of these 4. Which of the following is the best class name to replace the letter D in the diagram above? a. Tablet Inventory ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

b. Purchases c. Manufacturers d. Cash Disbursements e. None of these 5. Which of the following is the best multiplicities to replace the number 1 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 6. Which of the following is the best multiplicities to replace the number 2 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 7. Which of the following is the best multiplicities to replace the number 3 in the diagram above?

Assume that items in class A are established before class A is associated with class B. a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 8. Which of the following is the best multiplicities to replace the number 4 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 9. Which of the following is the best multiplicities to replace the number 5 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 10. Which of the following is the best multiplicities to replace the number 6 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 11. Which of the following is the best multiplicities to replace the number 7 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 12. Which of the following is the best multiplicities to replace the number 8 in the diagram above? ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 13. Which of the following is the best multiplicities to replace the number 9 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 14. Which of the following is the best multiplicities to replace the number 10 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 15. Which of the following is the best multiplicities to replace the number 11 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 16. Which of the following is the best multiplicities to replace the number 12 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 17. Which of the following is the best multiplicities to replace the number 13 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 18. Which of the following is the best multiplicities to replace the number 14 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these Problem 2

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

a. Draw a BPMN activity diagram that describes the Quick Jet’s purchases and payments process. Then, answer the following questions based on your BPMN diagram and this general BPMN diagram of the purchases process.

1. Focus on the plan leasing activities described in the case. Which of the following best describes a reasonable change to the BPMN above that would show the repeated payments to the lease company? a. Change the Select Vendor task to Select Lease Company. b. Add a gateway between the Determine Requirements task and the Select Vendor task to branch if leasing funds are not available. c. Add an intermediate timer event before the Pay Vendors task. d. Change the Pay Vendors task to a looping task. e. All of these.

2. Assume that you are combining all three types of purchases in one BPMN diagram. Which of the following best describes how you would modify the diagram above? a. Change the Select Vendor task to a looping task so that it loops over all three vendors. b. Change the Place Order task to a collapsed subprocess. c. Add an exclusive gateway to show that the process can take three different paths. d. Add an intermediate error event to the Place Order task to branch if a different vendor is needed. e. None of these 3. Assume that you added an intermediate timer event before the Pay Vendors task. How would that event affect token flow through the process? a. The token would wait at the event until time to proceed. b. The token would proceed to the Pay Vendors task immediately. c. The token would branch if there is an error in the process. d. The event would generate two tokens. e. None of these.

4. Assume that the diagram includes an intermediate error event attached to the boundary of the Select Vendor task. How would that event affect token flow through the process? a. The token would wait at the event until time to proceed. b. The token would proceed to the Pay Vendors task immediately. c. The token would branch if there is an error in the process. d. The event would generate two tokens. e. None of these.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

b. Use the information in the case above to prepare a UML class diagram with classes, associations, and multiplicities. Compare your UML diagram with the diagram below, and answer the questions about the missing class names and multiplicities.

1. Which of the following is the best class name to replace the letter A in the diagram above? a. Plane Types b. Plane Maintenance Contracts c. Vendor Types d. Cash Disbursements e. None of these 2. Which of the following is the best class name to replace the letter B in the diagram above? a. Plane Types b. Plane Maintenance Contracts c. Vendor Types d. Cash Disbursements e. None of these 3. Which of the following is the best class name to replace the letter C in the diagram above? a. Plane Types b. Plane Maintenance Contract c. Vendor Types d. Cash Disbursements e. None of these 4. Which of the following is the best class name to replace the letter D in the diagram above? a. Plane Types ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

b. Vendors c. Vendor Types d. Cash Disbursements e. None of these 5. Which of the following is the best class name to replace the letter E in the diagram above? a. Employee Types b. Vendors c. Vendor Types d. Cash Disbursements e. None of these 6. Which of the following is the best class name to replace the letter F in the diagram above? a. Employee Types b. Vendors c. Vendor Types d. Cash Disbursements e. None of these 7. Which of the following is the best multiplicities to replace the number 1 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 8. Which of the following is the best multiplicities to replace the number 2 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 9. Which of the following is the best multiplicities to replace the number 3 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 10. Which of the following is the best multiplicities to replace the number 4 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 11. Which of the following is the best multiplicities to replace the number 5 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 12. Which of the following is the best multiplicities to replace the number 6 in the diagram above? a. 0..1 ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

b. 0..* c. 1..1 d. 1..* e. None of these 13. Which of the following is the best multiplicities to replace the number 7 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these 14. Which of the following is the best multiplicities to replace the number 8 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of these c. Using the information in the case above and the attributes listed below, prepare a listing of the relational tables necessary to support this sales and collection process. List the tables in the following order: resources, events, agents, type images, and linking tables. Then answer the questions below.

Attributes: Cash account # Cash account balance Check # Check amount Check date Date this misc. purchase billed by credit card company Employee # Employee hire date Employee Name Employee type Employee type description Lease # Lease date Lease monthly payment amount Misc. supply purchase # Misc. supply purchase date Number of vendors of this type Plane # Plane maintenance contract # Plane maintenance contract date Plane maintenance contract duration Plane maintenance item performed on this order for this plane Plane maintenance order # Plane maintenance order date Plane miles since last maintenance ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Plane type Plane type passenger capacity Plane type range in miles Vendor # Vendor Name Vendor type Vendor type description Year-to-date (YTD) purchases from this vendor type 1. Which of the following is the primary key of the Planes table? a. Plane type b. Vendor # c. Plane # d. Lease # e. None of these 2. Which of the following is the primary key of the Plane Lease table? a. Plane type b. Vendor # c. Plane # d. Lease # e. None of these 3. Which of the following is the primary key of the Plane Types table? a. Plane type b. Vendor # c. Plane # d. Lease # e. None of these 4. Which of the following is the primary key of the Miscellaneous Supplies table? a. Vendor # b. Misc. supply purchase date c. Plane # d. Lease # e. None of these 5. Which of the following is the primary key of the Cash table? a. Check # b. Cash account # c. Plane # d. Lease # e. None of these 6. Which of the following is a foreign key in the Planes table? a. Plane type b. Plane lease # c. Plane Maintenance Contract # d. Misc. supply purchase # e. All of these 7. Which of the following is a foreign key in the Plane Lease table? a. Plane # b. Plane lease # ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

c. Check # d. Vendor # e. None of these 8. Which of the following is a foreign key in the Cash Disbursements table? a. Cash account # b. Employee # c. Vendor # d. All of these 9. Which of the following is a foreign key in the Employees table? a. Employee # b. Employee type c. Check # d. Vendor # e. None of these 10. How would you implement the association between Plane Lease and Cash Disbursement tables? a. Post a foreign key in Cash Disbursements table. b. Post a foreign key in the Plane Lease table. c. Create a linking table. d. The association does not need to be implemented. e. None of the above

Problem 4 (Available in Connect Only) Beach Cities Rentals rents almost anything. They rent tools, equipment, trucks for everything from home remodeling projects to major construction projects. They also rent office equipment, such as desks, file cabinets, chairs, tables, and office décor items. Finally, they rent furniture for short term home staging or long-term use. They have become well known in the area for having what their customers want.

Construction companies, contractors, real estate agents, office managers, and individual homeowners and renters all rely on Beach Cities to have what they need in stock. The following case describes Beach Cities’ processes for purchasing new inventory from its suppliers.

Rental inventory and inventory categories Beach Cities keeps all items available for rent in one inventory class, although it categorizes its inventory by the type of inventory. Each inventory item is identified internally by the inventory number (inventory #). The inventory category # serves as Beach Cities catalog number for its catalog and website. For example, Beach Cities catalog could list executive desk chairs (category number 420), but internally it tracks each desk chair in inventory. Since its inventory is so extensive, it stores much of the inventory in its various storage lots. Beach Cities tracks its various storage lots by storage lot #.

Replacing rental inventory Beach Cities replaces its inventory items as soon as they show signs of wear and tear. The Beach City buyer issues purchase orders to its suppliers and then a Beach City receiving employee records the date that item was received into inventory. It pays suppliers in full by check within 30 days after receipt of the items. Since each purchase order results in one receipt of items, Beach Cities keeps the purchase order and purchases information in one class. Each purchase can involve many inventory items, but each item is only purchased once. Beach Cities tracks the buying employee as well as the receiving employee for each purchase order/purchase. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Other information Beach Cities records information about all agents, resources, and type images before they are linked to other entities. It tracks all employee information in one employee class.

Required: Use the information above and a list of attributes to develop UML class models and a corresponding table listing for Beach Cities sales process. Then, fill in the missing information on the model and tables provided.

UML Class Diagram

Part 1 1. Select from the following options for the missing information in the UML class diagram above.

A. Customer types B. Inventory categories C. Inventory Storage Lots D. Delivery trucks E. Cash disbursements F. Employees G. Cashiers H. 0..1 ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

I. 1..1 J. 0..* K. 1..* Enter the letter for the correct option for missing information in the UML class diagram here.

1.

2.

3.

4.

5.

6.

7.

8.

C F E I I J H J

Part 2 2. Use the following list of attributes and information from the UML Class Diagram to identify the number of the appropriate attribute for each blank in the table listing below.

Attributes 1. Cash account # 2. Cash account balance 3. Check # 4. Check amount 5. Check date 6. Employee # 7. Employee name 8. Inventory category # 9. Inventory category description 10. Number of rental inventory items available in this category 11. Purchase order # 12. Purchase order date 13. Purchase received date 14. Quantity of inventory items at this storage lot 15. Rental inventory # 16. Rental inventory acquired on date 17. Rental inventory description 18. Rental inventory hourly charge 19. Storage lot # 20. Storage lot address 21. Storage lot size 22. Supplier # 23. Supplier name 24. Year-to-date (YTD) rentals by this customer ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 6

Put the number of the attribute in the appropriate blank in the table list below.

Resources Rental Inventory = rental inventory # (PK), rental inventory acquired on date, rental inventory description, 18 , rental inventory category # (FK), 11 (FK), storage lot # (FK) Cash = 1 (PK), cash account balance Storage Lot = storage lot# (PK), storage lot address, storage lot size, 14 Events Cash Disbursements = 3 (PK), check date, check amount, cash account # (FK), employee # (FK), 22 (FK) Purchase Orders/Purchases = 11 (PK), purchase order date, purchase received date, buying employee # (FK), receiving employee # (FK), supplier # (FK), 3 (FK) Agents Employees = employee # (PK), employee name, Suppliers = supplier # (PK), 23 Type Images Inventory Categories = inventory category # (PK), inventory category description,

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

Chapter 7 – Conversion Business Process Multiple Choice Questions 1. e 2. c 3. d 4. a 5. a 6. b 7. a 8. b 9. b 10. e 11. a 12. a 13. c 14. a 15. c 16. b 17. c 18. b 19. b 20. c 21. b 22. c 23. b 24. d 25. a

Discussion Questions 1. There are several reasons that accountants should be concerned with the development of bills of material. Students should refer to Table 2.1 in Chapter 2 that shows the roles of the accounting/finance function in business. In particular, the student should note the business management support roles, such as planning, budgeting and forecasting, cost management, and supply chain management. Additionally, in the performance measurement and management role, accountants need to understand the content of bills of material so they can prepare appropriate variance reports for management.

2. There are many types of businesses that use conversion processes to convert raw material into finished goods. For example, restaurants, car repair services, pharmaceutical companies, computer manufacturers, automobile manufacturers, wineries, breweries, gasoline refineries, etc., use variations of the conversion process. While all use raw material, labor, and overhead in the conversion process, there are some differences in information structure as well as the sequence of activities. Some processes follow a series of steps in which both labor and raw material are used; other processes introduce all the raw materials in the beginning and then ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

apply labor after the raw material is available. Of course, organizations that use activity-based costing have somewhat different information structures than organizations using more basic allocation schemes.

3. The purchases and payments process would link to the conversion process through the raw material resource, since purchases increase the quantity of raw material on hand. The conversion process would link to the sales and cash receipts process through the finished goods inventory resource, since the conversion process increases and the sales process decreases finished goods quantities on hand. All three processes also share internal agents, employees.

The following UML diagram provides a simple example (without multiplicities). The resources, cash, raw materials inventory, finished goods inventory, are shared across processes. The Employees agent is related to every event, so it is also shared across processes. The two events and external agents are unique to processes, so the Suppliers agent and the Cash Disbursement and Purchase events are specific to the purchases process. The Raw Material Issue, Production Authorization, and Labor Operations events are specific to the conversion process. The Sales and Cash Receipts events and the Customer agent are specific to the sales process.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

4. Indirect labor is part of overhead costs typically assigned in terms of either direct labor hours or direct labor dollars. The actual indirect labor costs would be recorded through the payroll process.

5. To implement activity-based costing, the organization needs to record usage of the cost driver for each activity. Thus, Figure 7.6 would have to include 3 additional events to record that information.

6. The integrated model, simplified, is shown below:

7. Answers will vary. For example, the first rule for the Authorize Production step is obligatory; the other rules are prohibited. The first rule could be restated as a prohibited rule: A nonsupervisory partner must not authorize production > $5,000.

8. Comparing figures 7.5 and 5.9, one similarity is that both include resources, events, and agents.

However, figure 7.5 has no external agent and no event affecting cash. The duality is between the authorization event and the related events recording material issue and labor operations.

The main reason is that the conversion process describes changes in internal resources, raw material and finished goods (products) inventories, and the allocations of associated costs, but it does not show interactions with external parties.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect. The Connect-based solutions for all Problems can be found in the following section beginning on Page 8.)

1. (Connect) The Rubber Duck Brewing Company Case. a. UML Class Diagram for Rubber Duck Brewing Company.

b. Table Listing for Rubber Duck Brewery.

Resources 1. Beer Ingredients [Ingredient number [ingred #] (PK), ingredient description, ingredient quantity-onhand [QOH]] 2. Brewed beer [Brewed beer name (PK), brewed beer description, brewed beer quantity on hand [QOH], Planned aging time] 3. Brewing equipment [Equipment item number [equip#] (PK), equipment item description] 4. Copper tanks [Copper tank number [tank#] (PK), copper tank capacity in gallons [gals], actual aging time, quantity of beer in this tank, brewed beer name(FK)] Events 5. Brew steps [Brew step number [brew step#] (PK), brew step description, recipe step # (FK), brew ord # (FK)] 6. Brew order [Brew order number [brew ord#] (PK), brew order date, brew quantity in gallons, [supervisor] emp # (FK), brewed beer name(FK)]

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

Agents 7. Employee [Employee number [emp#] (PK), employee name, employee type (FK)] Types 8. Brewing recipe [Brewing recipe step number [recipe step #] (PK), brewing recipe step description, brewed beer name (FK), employee type (FK)] 9. Employee type [Employee type (PK), employee type description, number of employees of this type] Linking tables 10. Beer ingredients-recipe steps [Ingredient number [ingred #] + brewing recipe step number [recipe step #] (PK), standard quantity of this ingredient used in this recipe step] 11. Beer ingredients-brew steps [Ingredient number [ingred #] + brew step number [brew step#](PK), actual quantity of this ingredient used in this brew step] 12. Equipment-brew step [Equipment item # + brew step # (PK), actual time] 13. Equipment-recipe step [Equipment item # + Recipe step # (PK), planned time] 14. Employee-brew steps [Employee number [emp#] + brew step number [brew step#] (PK), time spent by this employee on this brew step] 15. Employee-Equipment [Employee number + Equipment number (PK), Date this employee qualified to operate this equipment]

2. (Connect) Penny’s Pastries Case a. BPMN Diagram example for Penny’s Pastries.

b. UML Class Diagram for Penny’s Pastries.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

c. Table listing for Penny’s Pastries.

Resources 1. equipment [equipment# (PK), equipment description, equipment manufacturer] 2. finished product [finished product# (PK), finished product description, finished product QOH, finished product price, finished product number of calories] 3. ingredients [ingredient# (PK), ingredient description, ingredient cost, ingredient QOH, ingredient unit of issue] Events 4. Baking order [baking order# (PK), baking order date, emp#(FK)] 5. Baking step [baking step# (PK), total labor hours for this baking step, batch#(FK), recipe step#(FK)] 6. batch [batch# (PK), batch finish time, batch start time, qty of this baked product prepared in this batch, baking order#(FK), baked product#(FK), emp#(FK)] 7. issue [issue# (PK), issue date/time, emp#(FK), baking order#(FK)] Agents 8. employee [emp# (PK), employee name, employee pay rate] Type images 9. ingredient list [ingredient list# (PK), ingredient list description, finished product#(FK)] ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

10. recipe step [recipe step # (PK), recipe step description, standard labor hours for this recipe step, finished product#(FK)]

Linking tables 11. issue – ingredient [issue# + ingredient# (PK), qty of this ingredient issued on this issue#] 12. ingredient list – ingredient [ingredient list# + ingredient# (PK), qty of this ingredient required for this finished product] 13. recipe step – equipment [recipe step# + equipment# (PK), standard baking time for this recipe step with this oven] 14. baking step – equipment [baking step# + equipment# (PK), actual baking time for this baking step and this oven] 15. baking step – employee [baking step# + emp# (PK), employee hours] 16. baking order – finished product [baking order# + finished product# (PK), qty of this baked product ordered by this daily baking order]

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

Problems – Solutions for Connect

Problem 1 Part A

1. Which of the following is the best class name to replace the letter A in the diagram above? a. Ingredients b. Brew Order c. Copper Tanks d. Labor Plan e. None of the choices are correct 2. Which of the following is the best class name to replace the letter B in the diagram above? a. Ingredients b. Brew Order c. Copper Tanks d. Labor Plan e. None of the choices are correct 3. Which of the following is the best class name to replace the letter C in the diagram above? a. Ingredients b. Brew Order c. Copper Tanks d. Employee Types e. None of the choices are correct 4. Which of the following is the best class name to replace the letter D in the diagram above? a. Ingredients b. Brew Order c. Copper Tanks d. Employee Types e. None of the choices are correct ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

5. Which of the following is the best multiplicities to replace the number 1 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 6. Which of the following is the best multiplicities to replace the number 2 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 7. Which of the following is the best multiplicities to replace the number 3 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 8. Which of the following is the best multiplicities to replace the number 4 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 9. Which of the following is the best multiplicities to replace the number 5 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 10. Which of the following is the best multiplicities to replace the number 6 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 11. Which of the following associations would you add to the model to implement the requirements in this sentence in the case: “Over time, Rubber Duck has developed a unique recipe for each of his brewed beers?” a. Association between Brewed Beer and Ingredients b. Association between Brewed Beer and Recipe Steps c. Association between Brewed Beer and Brewing Steps d. Association between Recipe Steps and Employee Types e. None of the choices are correct 12. Which of the following associations would you add to the model to implement fully the requirements in this sentence in the case: “The recipe describes the specific ingredients, the sequence of brewing steps, the specific equipment, and the type of employees required for each step in the brewing process for each beer.?” ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 7

a. b. c. d. e.

Association between Brewed Beer and Ingredients Association between Brewed Beer and Recipe Steps Association between Brewed Beer and Brewing Steps Association between Recipe Steps and Employee Types None of the choices are correct

Part B List of Attributes: 1. Actual aging time to date for the brewed beer in this copper tank 2. Actual quantity of this ingredient used in this brew step 3. Actual time for this equipment used in this brew step 4. Brew order date 5. Brew order number (brew #) 6. Brew quantity in gallons 7. Brew step number (brew step#) 8. Brew step description 9. Brewed beer description 10. Brewed beer quantity on hand (QOH) 11. Brewed beer name 12. Brewing recipe step description 13. Brewing recipe step number (recipe step #) 14. Copper tank capacity in gallons 15. Copper tank number (tank#) 16. Date this employee qualified to operate this equipment 17. Employee name 18. Employee number (emp#) 19. Employee type 20. Employee type description 21. Equipment item description 22. Equipment item number (equip#) 23. Ingredient description 24. Ingredient number (ingred#) 25. Ingredient quantity-on-hand (QOH) 26. Number of employees of this type 27. Planned aging time for this brewed beer 28. Planned time for this equipment in this step 29. Quantity of beer in this tank (in gallons) 30. Standard quantity of this ingredient used in this recipe step 31. Time spent by this employee on this brew step

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition

The blank fields below represent missing information in the Connect table for students to fill in. The correct choices from the attributes are represented below in bold.

Resources Beer Ingredients Brewed beer Brewing equipment Copper tanks

Events Brew steps Brew order

Agents Employee Types Brewing recipe Employee type Linking tables Beer ingredients-recipe steps Beer ingredients-brew steps Equipment-brew step Equipment-recipe step Employee-brew steps Employee-Equipment

[ 24 (PK), ingredient description, ingredient quantityon-hand [QOH]] [Brewed beer name (PK), 9 , brewed beer quantity on hand, Planned aging time] [ 22 , equipment item description] [Copper tank number (PK), copper tank capacity in gallons [gals], actual aging time, quantity of beer in this tank, 11 (FK)]

[Brew step number (PK), brew step description, recipe step # (FK), 5 (FK)] [Brew order number (brew #) (PK), Brew order date, 6 , [supervisor] emp # (FK), Brewed beer name (FK)]

[Employee number (PK),

17

, employee type (FK)]

[Brewing recipe step number (PK), brewing recipe step description, brewed beer name (FK), 19 (FK)] [Employee type (PK), employee type description, 26 ]

[ 24 + brewing recipe step number (PK), standard quantity of this ingredient used in this recipe step] [Ingredient number + 7 (PK), actual quantity of this ingredient used in this brew step] [Equipment item # + brew step # (PK), actual time] [Equipment item # + 13 (PK), planned time] [Employee number + brew step number [brew step#] (PK), time spent by this employee on this brew step] [Employee number + Equipment number (PK), 16 ]

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition

Problem 2 Part A

1. Assume that you want to add pools and lanes to your BPMN diagram. Which of the following is not a lane that you would add? a. Supervisor b. Penny c. Inventory clerk d. Bakers e. All of these are appropriate lanes 2. Assume that you want to add pools and lanes to your BPMN diagram. Which of the following is a pool that you would add? a. Supervisor b. Penny’s Pastries c. Customers d. Bakers e. None of these 3. Assume that you want to add clarify the type of gateway in the process. What type of gateway would you use? a. Exclusive gateway b. Parallel gateway c. Inclusive gateway d. Event-based gateway e. None of these 4. Assume that you want to add data objects to your diagram. Which of the following is most likely to be a data object in this process? a. Customer order b. Purchase order c. Baking order d. Ingredients e. None of these

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition

Part B

1. Which of the following is the best class name to replace the letter A in the diagram above? a. Ingredients b. Batch Steps c. Recipe Steps d. Employee Types e. None of the choices are correct 2. Which of the following is the best class name to replace the letter B in the diagram above? a. Ingredients b. Batch Steps c. Recipe Steps d. Ingredient List e. None of the choices are correct 3. Which of the following is the best class name to replace the letter C in the diagram above? a. Ingredients b. Batch Steps c. Recipe Steps d. Ingredient List e. None of the choices are correct 4. Which of the following is the best class name to replace the letter D in the diagram above? a. Ingredients b. Batch Steps c. Recipe Steps d. Baking Order e. None of the choices are correct ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition

5. Which of the following is the best multiplicities to replace the number 1 in the diagram above assuming that all ingredients must be on at least one ingredient list? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 6. Which of the following is the best multiplicities to replace the number 2 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 7. Which of the following is the best multiplicities to replace the number 3 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 8. Which of the following is the best multiplicities to replace the number 4 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct 9. Which of the following is the best multiplicities to replace the number 5 in the diagram above? a. 0..1 b. 0..* c. 1..1 d. 1..* e. None of the choices are correct Part C List of Attributes 1. actual baking time for this baking step and this oven 2. baking order date 3. baking order# 4. baking step# 5. batch finish time 6. batch start time 7. batch# 8. employee# 9. employee hours worked on this baking step 10. employee name 11. employee pay rate 12. equipment description 13. equipment manufacturer ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition

14. equipment# 15. finished product description 16. finished product number of calories 17. finished product price 18. finished product QOH 19. finished product# 20. ingredient cost 21. ingredient description 22. ingredient list# 23. ingredient list description 24. ingredient QOH 25. ingredient unit of issue 26. ingredient# 27. issue date/time 28. issue# 29. quantity of this baked product ordered by this daily baking order 30. quantity of this baked product prepared in this batch 31. quantity of this ingredient issued on this issue# 32. quantity of this ingredient required for this finished product 33. recipe step # 34. recipe step description 35. standard baking time for this recipe step with this oven 36. standard labor hours for this recipe step 37. total labor hours for this baking step The blank fields below represent missing information in the Connect table for students to fill in. The correct choices from the attributes are represented below in bold.

Resources Equipment Finished product Ingredients

Events Baking order Baking step

[equipment# (PK), 12 , equipment manufacturer] [ 19 (PK), finished product description, finished product QOH, finished product price, finished product number of calories] [ 26 (PK), ingredient description, ingredient cost, ingredient QOH, ingredient unit of issue]

Issue ingredients

[baking order# (PK), 2 , employee #(FK)] [ 4 (PK), total labor hours for this baking step, batch#(FK), 33 (FK)] [batch# (PK), batch finish time, batch start time, quantity of this baked product prepared in this batch, 3 (FK), baked product#(FK), emp#(FK)] [issue# (PK), issue date/time, emp#(FK), baking order#(FK)]

Agents Employee

[

Type images Ingredient list

[ingredient list# (PK),

Batch

8

(PK), employee name, employee pay rate]

23 ..

15

, finished product#(FK)]

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition

Recipe step

[ 33 recipe step,

Linking tables Issue–Ingredient issue# Ingredient list–Ingredient

(PK), recipe step description, standard labor hours for this 19 (FK)]

[issue# + ingredient# (PK), quantity of this ingredient issued on this

[ingredient list# + 26 (PK), quantity of this ingredient required for this finished product] Recipe step–Equipment [recipe step# + equipment# (PK), standard baking time for this recipe step with this oven] Baking step–Equipment [ 4 + equipment# (PK), actual baking time for this baking step and this oven] Baking step–Employee [baking step# + emp# (PK), employee hours] Baking order–Finished product [baking order# + finished product# (PK), quantity of this baked product ordered by this daily baking order]

Problem 3 (Available in Connect Only) Ralph Wilson started his machine shop in Santa Ana, CA with a small business loan about 10 years ago.

Since then, he has built a thriving business making products for companies such as Boeing, Walt Disney Corporation, and several others. This case describes the process by which Wilson Precision Products (WPP) converts a variety of materials into finished products. Although WPP sells its finished products to customers and purchases its materials from vendors, those processes are not part of this case.

Production After WPP receives an order from a customer, Ralph or another supervisor signs one production order for each finished product that the customer ordered. This starts the production process. The inventory manager checks the bill of materials for that finished product and prepares one or more materials issue lists depending on when the materials are needed. For some products, materials are issued multiple times, since not everything is needed at once. The manager then removes the materials from their designated bins and gets them ready for use in production.

As soon as the materials are available, WPP manufacturing employees begin labor operations following the labor plan. Production usually involves cutting, treating, machining, assembly, testing, etc., but the specific steps depend on the particular finished product. Precision machining is characterized by the tight tolerances for hard-to-machine materials, so WPP only allows qualified employees to work on each step. Employees scan their ID cards to record when they start and end work on each production labor step. Each labor operation step is assigned a labor operation control #, and each operation corresponds to one labor plan step. When production finishes, the manager updates the production order to record that production is complete, and the inventory manager places the finished products on designated racks. Each rack holds one finished product so WPP can plan for packaging and delivery. Of course, there are often open racks which do not hold finished goods.

Inventories WPP maintains a materials inventory required for manufacturing its finished products. The materials inventory includes both metallic and non-metallic materials. Materials typical of aerospace machining ..

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include lightweight aluminum, hard and temperature-resistant metals including titanium and carbonfiber composites. For other customers such as theme parks, WPP works with both common and engineering thermoplastics as well as advanced, expensive thermoset laminates. Additionally, some government customers need products that require composite materials such as carbon fiber reinforced plastic (CFRP), Kevlar and quartz-epoxy composite. WPP tracks its materials inventory by material # and each material is placed in a separate bin for ease of access. However, some bins occasionally contain no material, and materials may not be in any bin.

WPP also maintains an inventory of finished products, but in most cases, it only produces those products after it receives a firm order from a customer. It tracks its finished products by product #. Over time, WPP works with its customers to develop precise specifications for each finished product. From those specifications, WPP creates a bill of materials that itemizes the materials necessary to create each finished product, although typically WPP establishes its finished products before it creates the bill of materials. The bill of materials specifies the quantity, quality, structural integrity, etc. of each material used for that finished product. Some materials are used in several finished products, and each finished products uses one or more materials.

Production planning Over time, WPP has developed precise labor plans for constructing each finished product and controlling its labor costs. It implemented its labor plans as a series of control cards for each step in the production process. Each labor plan step is assigned a labor plan control #. The labor plan specifies the type of employee that will execute each step, the number of hours required, and the standard labor rate. Each labor plan step involves only one type of employee. Of course, WPP decides on finished products before it establishes labor plans for the products.

Miscellaneous WPP keeps all employee records in one class. Employee information is recorded before employees they issue production orders, issue material, or work in production. It categorizes employees based on their qualifications to perform particular jobs in the production process. It records materials in its inventory records before they are first issued. It records each finished product in its inventory records before it is first produced. There are some employee types that are not yet specified in labor plans. There are also some employee types for which there are no qualified employees, yet.

Required: Using the narrative above and the attributes list, answer the following questions. It is strongly recommended that you complete the UML class (REA) diagram, table listings, and BPMN diagram before attempting the questions.

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UML Class Diagram

Part 1 1. Refer to the UML Class Diagram above. Answer the questions to replace the letters with the correct class names and the numbers with correct multiplicities.

1. The best class name for class A is which of the following? a. Racks b. Bins c. Bill of Material d. Materials e. None of these 2. The best class name for class B is which of the following? a. Racks b. Bins c. Bill of Material d. Materials e. None of these ..

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3. The best class name for class C is which of the following? a. Materials issue b. Labor operations c. Bill of Material d. Materials e. None of these 4. The best class name for class D is which of the following? a. Materials issue b. Bins c. Bill of Material d. Materials e. None of these 5. The best class name for class E is which of the following? a. Employees b. Labor plan c. Bill of Material d. Materials e. None of these 6. The best class name for class F is which of the following? a. Racks b. Bins c. Bill of Material d. Materials e. None of these 7. The best class name for class G is which of the following? a. Materials issue b. Labor operations c. Labor plan d. Employee type e. None of these 8. The best multiplicity to replace the number 1 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 9. The best multiplicity to replace the number 2 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 10. The best multiplicity to replace the number 3 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these ..

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11. The best multiplicity to replace the number 4 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 12. The best multiplicity to replace the number 5 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 13. The best multiplicity to replace the number 6 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 14. The best multiplicity to replace the number 7 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 15. The best multiplicity to replace the number 8 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 16. The best multiplicity to replace the number 9 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 17. The best multiplicity to replace the number 10 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 18. The best multiplicity to replace the number 11 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these ..

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19. The best multiplicity to replace the number 12 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 20. The best multiplicity to replace the number 13 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 21. The best multiplicity to replace the number 14 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 22. The best multiplicity to replace the number 15 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 23. The best multiplicity to replace the number 16 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 24. The best multiplicity to replace the number 17 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these 25. The best multiplicity to replace the number 18 multiplicity is which of the following? a. 0..1 b. 1..1 c. 0..* d. 1..* e. None of these

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Part 2 2. Refer to the following table listing. Answer the questions to replace the numbered blanks with the correct attribute numbers shown below.

Attributes 1. Bill of material # 2. Bill of material created date 3. Bin # 4. Bin location 5. Employee # 6. Employee name 7. Employee type 8. Employee wage rate 9. End time for this employee on this labor operation step 10. Finished product # 11. Finished product price 12. Finished product QOH 13. Finished product standard cost 14. Labor operations control # 15. Labor operations date 16. Labor plan control # 17. Labor plan step description 18. Material # 19. Material cost 20. Material description 21. Material issue # 22. Material issue date 23. Material QOH 24. Material special handling instructions 25. Number of employees qualified for this employee type 26. Number of hours to qualify for this employee type 27. Production order # 28. Production order date 29. QOH of this finished good on this rack 30. Quantity of this finished product ordered on this production order 31. Quantity of this material issued on this material issue 32. Quantity of this material planned for this bill of material 33. Rack # 34. Rack location 35. Standard labor hours 36. Standard labor rate 37. Start time for this employee on this labor operation step 38. Total labor hours for this labor operation step

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Put the number of the attribute in the appropriate blank in the table list below.

Resources Bins = Bin # (PK), Bin location, 1 (FK) Racks = Rack # (PK), Rack location, QOH of this finished good on this rack, 2 (FK) Materials = Material # (PK), 3 , Material description, Material QOH, Material special handling instructions Finished products = Finished product # (PK), finished product price, finished product QOH, finished product standard cost Events Materials issue = Material issue # (PK), Material issue date, Employee # (FK), Production order = Production order # (PK), Production order date, 5 (FK), Finished product # (FK) Labor operations = Labor operations control # (PK), Labor operations date, control # (FK), 7 (FK) Agents Employees = Employee # (PK), Employee name, Employee wage rate,

8

4

(FK) , Employee #

6

, Labor plan

(FK)

Type Images Employee types = 9 (PK), Number of employees qualified for this employee type, Number of hours to qualify for this employee type Bill of materials = Bill of material # (PK), Bill of material created date, 10 (FK) Labor plan = 11 (PK), Labor plan step description, Standard labor hours, Standard labor rate, Finished product # (FK), Employee type (FK) Linking Tables Bill of Materials – Materials = Bill of material # + Material # (PK), Materials issue – Materials = Material issue # + Material # (PK), Labor operations - Employees = Labor operations control # + employee on this labor operation step, 15

12 13 14

(PK), Start time for this

Part 3 3. Consider the diagram of the Wilson Precision Products conversion process and the ten possible task names shown below.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition

1. Move Materials from Bins 2. Order Materials 3. Pay Suppliers 4. Perform Labor Operations 5. Place Finished Products on Racks 6. Prepare Material Issue List 7. Receive Customer Order 8. Receive Payment from Customers 9. Sign Production Order 10. Update Production Order 3-1. Answer the questions below to assign the correct task name per the process description outlined in the case.

A. B. C. D. E. F.

9 6 1 4 10 5

3-2. Answer the following questions about the BPMN diagram.

G. Which of the following would be the best way to show that the production order was cancelled? a. Place an END event after task A. b. Include an exclusive gateway after task A where one sequence flow goes directly to the END event. c. Show a message flow coming into the WPP pool from a customer pool. d. Add an intermediate boundary cancellation event to task A. H. Which of the following would be the best way to show that labor operations repeated until the products were completed? e. Annotate the diagram to describe the repeating task. f. Add an intermediate boundary event to task D. g. Change the task symbol to a looping activity symbol. h. Add a gateway that redirects the sequence flow back to the beginning.

I. Why does the diagram show a plus sign in the branching gateway? i. To show that the two remaining tasks are added to the earlier tasks. j. To show that the process flow branches both ways following the gateway. k. To show that the process flow branches only one way following the gateway. l. To show that the sequence flow is returning to lanes used earlier for additional activity.

J. What is the best way to depict the document that the supervisor prepares in task A? m. Add a data object for the production order. n. Add a message flow to link task A to a separate accounting pool. o. The document is already implied by the name of task A. p. Add a new lane in the pool to show the documents created or used in the process.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

Chapter 9 – Data Analytics in Accounting Multiple Choice Questions 1. d 2. a 3. c 4. c 5. a 6. b 7. b 8. c 9. a 10. b 11. d 12. a 13. b 14. e 15. e 16. d 17. e 18. c

Discussion Questions 1. Big Data is defined as datasets that are too large and complex for businesses’ existing systems to handle utilizing their traditional capabilities to capture, store, manage, and analyze these datasets while Data Analytics is the science of examining raw data (now often Big Data), removing excess noise from the dataset, and organizing the data with the purpose of drawing conclusions for decision making. Big Data seems to highlight the size of the data, that it is simply so big and unmanageable, but Data Analytics uses context to figure out what is needed to draw conclusions to be useful in decision making. Specifically, Data Analytics provides a way to search through large and unstructured data to identify unknown patterns or relationships.

As an example, Big Data might collect all tweets since the beginning of Twitter to answer questions. Data Analysis might take that data, extract the appropriate information to answer a question and then address questions like:  What do tweeters think about Christmas?  How do investors (those that are on Twitter) respond to a share buyback?  Do tweeters retweet earnings announcement information to others?

Accountants may incorporate data analytics into their work by using it to assess estimates, predict goodwill writedowns, predict audit issues and outcomes, and as a basis for managerial decision making.

2. Data Analytics might be used in an airline setting to maximize revenue of selling to business and casual travelers in many ways. For example, data analytics might define business travelers by the time before travel that a ticket is purchased (say in the final week before travel is made) and define casual travelers also by the time before travel (say before the final week before travel is ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

made). Data Analytics could then look at questions like baggage charges and giving one rate for those who purchase baggage more than a week ahead of time versus those who purchase baggage less than a week ahead of time.

3. For software that companies and/or audit firms consistently use (like SAP), it would be very helpful to have an option to output information in conformance with Audit Data Standards.

That would make it a relatively effortless exercise to export or import data from an external party. If the software vendors know these standards well in advance, they can make it much easier for their customers and be a highly value-added option to the software the vendors provide.

4. Before an audit, external auditors ask the company being audited for certain information. In the past, they have generally been flexible as to how the data is extracted and formatted for their use. The external auditors then have to spend time doing Extract, Transform and Load to get it ready for analysis and testing.

If both the company being audited and the external auditor are able to communicate electronically using Audit Data Standards (ADS), then the transfer of information will be relatively effortless and error free. The time that was used to extract and reformat the data can now be used for the arguably more important testing and analysis performed by external auditors.

5. External auditors perform tests of controls to analyze segregation of duties and other internal controls. For this reason, the Audit Data Standards maintains a field that tells not only who entered a journal entry (Field #14 in Figure 1), but who authorized that journal entry (Field #17 in Figure 1). Understanding who modified a journal and the date of such modification might help one understand who has the ability to modify a journal entry to make sure it is consistent with established internal controls.

6. In an information age, the loss of identity is a big concern to most individuals. Privacy is important making it important for firms to set standards and do their utmost to protect personal identifying information. The DATA law also suggests that the country as a whole sees this as an important issue for its citizens to have a law that protects them and penalizes companies that are negligent in their duties to protect such information.

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1. (Connect) Identify which of the following, on their own, are personal identifying information (PII) and which are not personal identifying information (Non-PII). a. Date of Birth – Non-PII b. Place of Birth – Non-PII c. Credit Card Number - PII d. Religion – Non-PII e. Retina Scans - PII f. Email Address (Personal) - PII g. Race – Non-PII 2. (Connect) Identify which of the following, on their own, are personal identifying information (PII) and which are not personal identifying information (Non-PII). a. Financial Information – Non-PII b. Address of Employment – Non-PII c. Personal Telephone Number - PII d. Fingerprints - PII e. Social Security Number - PII f. Geographic Indicators – Non-PII g. Vehicle ID Number – PII 3. (Connect) Data Analytics can be disaggregated into two parts: ETL (Extract, Transform and Load) or Analysis. Classify each of these processes as either ETL or Analysis. a. Removal of extraneous data and noise. - ETL b. Looking for trends in the data that might predict new sales opportunities. - Analysis c. Finding the necessary data from the financial reporting system to give to the external auditor for analysis. - ETL d. Performance of a test of internal controls by the external auditor. - Analysis e. Considering Champaign, IL weather patterns to predict corn production in the immediate area. - Analysis f. Consolidating large volumes of data from multiple sources and platforms. – ETL 4. (Connect) Match these definitions with either of the three V’s to describe Big Data, namely, Volume, Velocity and Variety. a. Unstructured and unprocessed data, such as comments in social media, emails, Global Positioning System measurements, etc. - Variety b. The massive amount of data involved. - Volume c. Data coming in at fast speeds or in real time, such as streaming videos and news feeds. Velocity 5. (Connect) Match the definition of the key words with their respective terms, including Audit Data Standards, Big Data, Breach of Security, DATA (2009), Data Analytics, Extract, Transform and Load, and Personal Identifying Information.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

a. A standard format for data files and fields typically needed to support an external audit.

– Audit Data Standards b. Datasets that are too large and complex for businesses' existing systems to handle using their traditional capabilities to capture, store, manage, and analyze these datasets. – Big Data c. The science of examining raw data, removing excess noise from the dataset and organizing data with the purpose of drawing conclusions for decision making. – DATA ANALYTICS (2009) d. The unauthorized access to or acquisition of data in electronic form containing personal information. – Breach of Security e. The process of cleaning and scrubbing the data before data analysis can take place. – Extract, Transform and Load f. Social Security Numbers or Driver's license numbers – Personal Identifying Information 6. Explain the penalties accruing to companies that are not in compliance with the Data Accountability and Trust Act of 2009 (DATA), including (a) failure to comply with security program requirements and (b) failure to follow the breach notification rules. Assume a company had a data breach involving failure to notify 100 customers' of the loss of their personal identifying information. What are the penalties? What is the penalty for a data breach involving failure to notify 100,000 customers?

The amount for security program penalties is based on the number of days the organization is found to be non-compliant multiplied by a maximum of $11,000 per day. Notification penalties are calculated by multiplying the number of violations --individuals they failed to notify -- by an $11,000 maximum. Each failure to send notification is considered a separate violation. The Act sets the maximum civil penalty for violations of each type to $5 million, making it possible for a single organization to pay up to $10 million for a combination of security program and notification violations.

If there is a data breach involving failing to notify 100 customer’s personal identifying information would be 100 customers multipled by $11,000 = $1,100,000 If there is a data breach involving failing to notify 100,000 customer’s personal identifying information, the maximum loss would be $5,000,000.

7. Open a blank EXCEL workbook and bring in the FactSales data from the ContosoSales Access database as follows. Select Data > Get External Data > From Access. Browse to the ContosoSales Access database. When the Select Table box appears, select the FactSales table and click OK. When the Import Data box appears, select PivotTable Report and click OK. i. Then, create a PivotTable Report with the channelKey field as the rows and SalesAmount field as the values. Change the number format of the SalesAmount field to currency and rename the column to Total Sales. ii. Next, insert a bar Pivot Chart and change the name of the chart to Total Sales by Channel. iii. Finally, insert a Slicer to allow selection of one or more channelKeys. Change the Slicer style to Light 2 and change the number of columns in the slicer to 2. ..

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First, open a new EXCEL spreadsheet; select the Data tab. Select the “From Access” icon.

When the Select Table popup opens, select the FactSales table and click OK.

When the Import Data popup appears, choose to view the data as a PivotTable Report and click OK.

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After the import, you will see a blank pivot table and the PivotTable Fields screen. Move the ChannelKey field to the Rows area and the SalesAmount field to the values area.

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Right click on the Sum of SalesAmount field and select the Value Field Settings… option.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

Click on the Number Format button to change the format of the Sum of SalesAmount field to currency. Note that you can also change the name of the value field by modifying the Custom Name.

To insert the Pivot Chart, select the Analyze tab and the PivotChart icon. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

Choose the default chart type and click OK. Then, change the chart title to “Total Sales by Channel.”

Next, to insert a Slicer, select the Analyze tab and click on the Insert Slicer icon.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

When the Insert Slicers popup appears, select the channelKey field and click OK.

The slicer should initially look like this.

To change the Slicer style, select the Options tab and click on the Light 2 (second) style.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

Then, select the Options tab, Buttons, and change the number of columns to 2.

After those changes, the Slicer should look like this. You can adjust the height using the selection point at the bottom.

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8. Move to a new worksheet. Be sure that you have activated the PowerPivot add-in. Select Power Pivot > Manage to open the Power Pivot screen. Move to the Power Pivot for Excel screen.

Select Home > Get External Data > From Database and then select the option to connect to an Access database. Browse to the directory containing the ContosoSales database and select it.

When the Table Import Wizard appears, select the DimChannel, DimProduct, and FactSales tables and click FINISH. After the import finishes, click CLOSE to close the Table Import Wizard.

Go to Diagram View and make sure that the three tables are linked. Return to Data View and the FactSales table. Add a new calculated column on the right and calculate the month for the datekey field.

Be sure that you have the Power Pivot tab available. Select Power Pivot tab and then click on the Manage icon.

That will open the separate Power Pivot screen. Select the Home tab and the “From Database” icon.

When the Table import wizard starts, browse to the location of the ContosoSales database and select that database.

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At the next screen, choose the option to Select from a list of tables …

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

Then, select the three tables to import, and click on Finish. Note that the FactSales table contains almost 2,300,000 rows, so you may want to pare some of those to speed up the import.

After importing the three tables, you will see three worksheets in the Power Pivot screen.

Select the Home tab and the Diagram View icon to set the relationships between tables.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

When the diagram view appears, ensure that the three tables are linked as expected. The relationships look much like the relationships in Access.

Select the FactSales worksheet. Go to the first blank column. Enter the formula “=Month([DateKey])” or enter the month function and point to the DateKey field. Unlike a normal Excel function, the PowerPivot calculations use field names. When you complete the function and hit Enter, the column will populate with the month of the DateKey field.

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9. Continuing from problem 8. Select Home > Pivot Table to create a Pivot Table Report from your integrated Power Pivot tables. i. Use the ChannelName from the DimChannel table as the first rows field. Use the calculated column 1 field from the FactSales table as the second rows field. Use the SalesAmount field from the FactSales table as the values field. Change the number format to currency if necessary, change the name of the calculated column 1 in the Pivot Table Report to Month, and change the values column name from Sum of SaleAmount to Total Monthly Sales. Change the report layout to tabular form. ii. Insert Slicers for both ChannelName and Month. iii. Which channel had the highest total sales in January? iv. Add a column Pivot Chart. Change the title to Total Monthly Sales. Use the slicers to show the comparison among channels for sales in January.

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From the Power Pivot screen, select the Home tab and the PivotTable icon.

At the Pivot Table worksheet, select the ChannelName field from the DimChannel table and the Month field and the Month field (this is the field you calculated in problem 8) from the FactSales table for the rows. Then, select the SalesAmount field from the FactSales table as the values. Set the format for the Sum of SalesAmount field to currency and change the Custom Name to Total Monthly Sales (refer to Problem 7).

Insert two Slicers: ChannelName and Month.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

To compare sales by channel for January, click on the 1 button on the Month Slicer.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

Then, insert a Pivot Chart (Analyze tab, Pivot Chart icon).

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

Solutions 10.

First, make sure that the chapter 9 Excel file is available. Open Tableau. Open the chapter 9 Excel file.

Drag and connect the two worksheets, Customers and Orders.

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Click on sheet 1 to start the analysis:

Follow the directions to see what happens when Qty Sold is first placed on the Columns shelf (graphed horizontally as the sum), Rows shelf (graphed vertically as the sum). Then change the measure to compute the average.

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Adding the State dimension to the Columns shelf produces a bar chart showing average Qty Sold

by State as shown below where the largest average quantity is sold in MA.

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Rename Sheet 1 to “ave orders by state” by right-clicking on Sheet 1 and selecting Rename from the menu. Then, create a new Dashboard by clicking on the Dashboard tab and selecting New Dashboard.

Add the chart to the dashboard by dragging the ave orders by state sheet from the list of Sheets on the left into the blank area of the dashboard.

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11.

Select the Worksheet tab and click on New Worksheet from the dropdown menu.

Select the Analysis tab and click on Create Calculated Field from the dropdown menu.

Create the new Amount field in the pop up box.

Move the Amount field to the Columns shelf and move the Customer Name (Name) dimension to the Rows shelf. You can update the chart by adding the Customer # at any time as shown below.

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Rename the worksheet to “sales by customer” and add this chart to the dashboard in the same manner as in problem 10.

12.

In this problem, you are summarizing sales (the Amount field calculated in Problem 11) by store.

Drag the Amount measure to the Rows shelf. Drag the store# dimension to the Columns shelf.

Use the Show Me palette to change the presentation to a highlight table.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 9

The range of values is shown on the right of the screen.

Change the sort order by clicking on the icon at the top of the screen to show descending sales values.

Rename the workbook and add it to the dashboard as in problems 10 and 11.

13.

In this problem the student will create a summary of sales by state and month.

Create a new worksheet (click on the Worksheet tab and select New Worksheet from the dropdown menu or from the keyboard enter CTRL-M).

Create a new calculated field. Click on the Analysis tab and select Create Calculated Field from the dropdown menu. Click on the arrow in the popup box to show functions available.

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Use the dropdown menu to change All to Date to show date-related functions.

Select the Month function by double-clicking.

Add the Sale Date dimension as the argument to the Month function.

Drag and drop the calculated Month field from Measures to Dimensions.

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Add Amount to the Columns shelf and Month to the Rows shelf.

Add the State dimension to the Rows shelf and then use the Show Me palette to select a treemap.

Filter the Month by using the dropdown menu for the Month dimension. ..

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Uncheck the box to drop sales in April (month 4).

Your treemap should now show relative sales sums by month and state for the first 3 months of the year.

Add the treemap to your dashboard as in problems 10 – 12.

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Chapter 10: Reporting Processes and eXtensible Business Reporting Language (XBRL) Multiple Choice Questions 1. b 2. b 3. e 4. a 5. d 6. c 7. c 8. b 9. b 10. c 11. d 12. d 13. b 14. c 15. a

Discussion Questions 1. Using Figure 10.2 as a guide, name three internal and three external databases that you think should be included in a data warehouse for Bank of America, Wells Fargo or your local bank.

Support your answer.

Internal Databases might include the following: General Ledger Loan Portfolio (Including loan products) Vendor Database Potential Customer Database Current Customer Database (and related demographics) External Databases might include the following: General Economy Information (GDP, Interest Rates, etc.)

Focal Customer Demographics Banking/Finance Industry Information Data warehouses are made for different purposes. The databases proposed above presume an interest in selling new loan products to existing and potential customers. We get profitability information of the various loan products from the internal databases. We also get information on ..

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potential customers, economic and industry trends from the external databases. In sum, these databases can spot trends and opportunities for a bank.

2. Using Figure 10.2 as a guide, name three internal and three external databases that you think should be included in a data warehouse for your university. Support your answer.

Internal Databases might include the following: Student Recruitment Database Student Course Catalog Database Student Performance Database (include ACT, SAT, high school grades, college grades) External Databases might include the following: General Economy Information (GDP, Interest Rates, etc.)

Focal Student Demographics University Industry Information Data warehouses are made for different purposes. The databases proposed above presume an interest in gathering information to attract the highest quality students to a university. Getting information on recruitment means, scholarships, grades, and courses taken might all be helpful in attracting prospective candidates. Information can also be gleaned from external databases to learn trends of universities, students (via focal student demographics) and the general economy. All of this information might be helpful in attracting students to a university.

3. Name five items that you think would be included in a digital dashboard for ESPN or for Disney.

Why are these critical business processes for them?

A digital dashboard for ESPN might include the following:  Current viewership/subscribers (Last two weeks and trends from recent months)  Advertising Revenues (Last two weeks and trends from recent months)  Current game/conference contracts in progress  Current website hits/Fantasy Football, Baseball etc. game participation  Status of negotiations with various cable subscribers.

This dashboard is meant to capture the status of operations, advertising and new game revenues for ESPN. A similar solution might be rendered for Disney.

4. Who will rely on XBRL data for decision making? Why is assurance needed on XBRL data?

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XBRL might be used by investors, financial analysts, regulators, and creditors (banks, etc.).

As these various XBRL users rely on the information to make important decisions, it is important that the XBRL data be accurate. Thus, assurance is needed for XBRL data in addition to the financial statements underlying that XBRL data.

5. Why is there a different XBRL taxonomy for each country, including XBRL Australia, XBRL Canada, XBRL Germany, XBRL Japan, XBRL-Netherlands, XBRL-US, and XBRL-UK? What would happen if there were only one XBRL taxonomy for all countries?

Different countries have different financial standards (IFRS, FASB, country-specific) and have various practices that are reflected in their XBRL taxonomy. Moreover, there are also tags and extensions that are company-specific to reflect the business model used by that particular company.

As financial standards converge toward a harmonized standard (such as IFRS), there is increasingly a chance that one XBRL standard emerge. However, since XBRL is also used for regulatory purposes (such as taxes, banking, etc.) that is country-specific, it is not realistic to expect that a single world-wide standard to emerge.

A sole XBRL taxonomy for all countries would allow users to be able to access data from around the world in a similar fashion, allowing economy of effort, etc.

6. How would the XBRL style sheets be different for financial analysts as compared to the Securities and Exchange Commission? How would XBRL style sheets be different for a firm’s web site as compared to bank loan officers?

Style sheets for financial analysts would be more interest in models supporting earnings and cash flow predictions. The SEC, in contrast, would be more interested in protecting investors as well as disclosure and regulatory issues and providing fraud analysis. The style sheets supporting these models would thus be quite different.

The XBRL style sheet for a company web site might only access the highlights for the retail investor. In contrast, the XBRL style sheet for bank loan officers would attempt to assess ability to pay back a loan and would tailor their style sheet to access that information that allows them to monitor liquidity and solvency.

7. Why is XBRL needed in the financial community? In your opinion, why did the Securities and Exchange Commission mandate its usage? What does it provide that was not available before XBRL? XBRL is needed as a means to rapidly and efficiently information to the investing public, including all financial statement users. An explanation as to why might the SEC might be ..

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interested is that it quickly and efficiently allows the SEC to gather data for its own usage to ensure that a thorough disclosure is available to the investing public.

8. Why would XBRL be used for internal uses such as management accounting? Hint: See Figure 10.5.

Just as information is useful for external purposes, XBRL allows management to collect an extensive amount of disaggregated that might be used for internal purposes. As the firm’s financial and non-financial information is automatically tagged by either the enterprise system (e.g. SAP) using XBRL GL or tagged manually by professionals knowledgeable of the business, this information might be used for managerial accounting purposes. Moreover, XBRL might be the means of organizing management accounting information.

9. Why do companies need both internal and external databases in a data warehouse?

Firms work to collect data that will be useful in optimizing performance. Data helpful to address the questions or provide support for decisions can come from a variety of sources both internal and external to the firm. A data warehouse therefore, will keep data from internal and external databases in such a way as to be ready for the analyst to gather, analyze and provide important information that might be useful for decision making.

10. How is a digital dashboard different from a financial report?

A digital dashboard tracks a firm’s process or performance indicators or metrics to monitor critical performance. The data for the digital dashboard may come from the financial report but may also track other non-financial indicators as well.

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1. Using Figure 10.1 and 10.2 as guides, name four internal and four external databases that you think should be included in a data warehouse for marketing function of Procter and Gamble or the consumer packaged goods company with whom you are most familiar. Procter and Gamble has products like Gillette razors, Charmin Tissue and Head and Shoulders Shampoo. Why are these eight databases you recommend critical to the effective functioning of the marketing department to sell more products? Support your answer.

Internal Databases might include the following: General Ledger – to help determine basic profitability of various products Customer Database (and related demographics) – to learn more about who buys Point-of-Sale Sales Data (who purchases, where and at what price points) Inventory Data (What products are available for sale, which have new innovations, etc.)

External Databases might include the following: General Economy Information (i.e., GDP, Interest Rates, etc.)

Focal Customer Demographics (what are important product characteristics for the consumer) Competitor Information (e.g., Unilever, Nestle, Kraft, etc.)

Retail/Consumer Packaged Goods Industry Information

2. Which of the four predicted assurance needs do you believe is most critical to ensuring XBRL accuracy? Support your answer.

The four predicted assurance needs in the near future include the following:  The most current, standardized XBRL taxonomy is used,  The underlying financial and nonfinancial data that is used in XBRL tagging is reliable,  The XBRL tagging is accurate and complete, and  The reports generated using XBRL are complete and received on a timely basis.

While all are four are important and require assurance to ensure XBRL accuracy, the third one with assurance that the selection of the appropriate XBRL tags is appropriate and complete is arguably the most important to ensure XBRL accuracy.

Answers will vary.

3. XBRL allows disaggregated data to be presented to interested external parties. Financial analysts often forecast earnings many years ahead and then suggest whether an investor should buy, sell or hold a stock. Which type of disaggregated data do you think financial analysts would be most interested in receiving when predicting one-year ahead earnings? Detailed sales data, ..

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detailed expense data, detailed asset data and/or detailed liability data? Support your answer.

In your opinion, which disaggregated XBRL data would be most useful information in predicting whether an investor should buy, sell or hold a stock?

Answers will vary. It is arguable that to come with up with a forecast of earnings, the detailed sales and expense and cash flows data would be most relevant as they would most directly lead to predictions of year-ahead data. Of course, depending on the nature of the underlying company and the balance sheet implications of the company, the detailed asset and liability may also be of importance.

4. The effectiveness of data mining has been criticized by the Wall Street Journal. In one article, the author notes that academic studies have shown that by using data mining, analysts could accurately predict changes in the stock market based on either the population of sheep in Bangladesh, or the number of nine-year-olds at a given time, or whether it is smoggy on a given day.1 While the statistical correlation may be valid, there must be a logical reason that a particular factor will predict stock returns..

Required: a. Do you think these findings represent valid relationships or spurious correlations?

While there may be a statistical association between smoggy days and stock market returns, such an association is a spurious correlation. Common sense suggests that smoggy days do not predict stock market returns. b. What measures do you think might be valid predictors of stock market returns?

Macroeconomic forces and accounting earnings are associated with annual stock market returns. A company that produces incremental profits in the current or unexpected prospects of profits in the future years, those companies will generally experience positive stock returns.

5. XBRL touts as its primary advantage that it will increase efficiency for the firm and those interested in its business reports.

Required: a. How is XBRL more efficient for the firm that reports its business performance? Does the use XBRL GL in a firm’s accounting software make XBRL more or less efficient than when XBRL GL is not used?

1 http://online.wsj.com/article/SB124967937642715417.html, accessed May 2016

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XBRL in and of itself may not make the reporting company more efficient in how it codes the data. However, the ultimate ability of XBRL to put the XBRL database in one location and let others access it for their particular needs will make it more efficient.

The use of XBRL GL makes it so the company will only have to code its information once directly into the XBRL GL package. b. How is XBRL more efficient for those using its business reports for regulator, investing or other purposes?

The users (such as regulators, investors, etc.) simply need to develop a style sheet to extract their reports from various companies via the GL. Developing one style sheet for multiple companies is much more efficient than inputting specific numbers from many company and then analyzing them separately. c. Are there any cases when it is less efficient to use XBRL? If XBRL is not an integral part of the financial reporting or if its tagging is an add-on process, it will certainly make the company less efficient.

6. How would Coca Cola use business intelligence to monitor Pepsi Cola’s operations in Russia?

What sources of data need to be gathered? How would it be analyzed?

Coca Cola could monitor Pepsi’s marketing campaigns, business operations, production, new factory production, capital expenditures, pricing structure, and sales (among other things) via its business intelligence. Business intelligence might be gathered using a web crawler, which systematically browses the Internet including such sources as press releases, internet chat rooms, web sites, google hits, blogs, annual reports of bottlers, electronic commerce web sites, etc.

Once the information has been gathered, the data should be analyzed to discern patterns or trends. Are prices of PepsiCo products increasing? Are they looking at new locations to build a factory, etc.? Based on the information gathered, decisions can then be made by Coca Cola as a strategic response to what Pepsi is doing in Russia.

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7. (Connect) There are four stated advantages of XBRL GL: Reporting Independent, System Independent, Consolidation, and Flexibility. Match the advantage with the characteristic of XBRL GL. 1. XBRL GL offers an extensible, multinational solution that can exchange the data required by internal finance, accountants and creditors. -- D 2. Any developer can create import and export routines to convert information from any system to XBRL GL format. -- B 3. Permits the representation of information using traditional summaries and through flexible links. --A 4. XBRL GL can be used to combine the operations of multiple organizations. --C

A. B. C. D.

Reporting Independent System independent Consolidation Flexibility

8. (Connect) Match the description of these XBRL terms with their descriptions.

1. A document containing XBRL elements -A 2. Adds presentation elements to XBRL instance documents to make them more readable to people -- C 3. Defines and describes each key data element (e.g., total assets, accounts payable, net income, etc.) -- D 4. Provides the underlying technical details of what XBRL is and how it works. -- B

A. B. C. D.

XBRL Instance Document XBRL Specification XBRL Style Sheet XBRL Taxonomy

9. (Connect) Match the description with these business process terms.

1. A subset of the information from the data warehouse to serve a specific purpose --B 2. A computer-based information system that facilitates business decisionmaking activities. --D 3. A collection of information gathered from an assortment of external and operational (i.e, internal) databases to

facilitate reporting for decision making and business analysis. --C 4. A computer-based technique for accumulating and analyzing data from databases and data warehouses to support managerial decision making. -A A. Business Intelligence B. Data Mart ..

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C. Data Warehouse D. Decision Support Systems (DSS)

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10. (Connect) The following figure represents a digital cockpit (or dashboard) for General Electric.

Source: http://www.ge.com/annual01/letter/cockpit/ The cockpit has fifteen items highlighted. Please answer the following questions.

The cockpit has 15 items highlighted. Identify which numbered item tracks or shows the following data: The sales of General Electric - 1 The detail of the sub-business - 9 The previous day’s orders - 1 The current GE stock price - 15 The column reporting the most recent update - 7 The “alerts” that need to be investigated further -4 The column reporting the current performance - 5 The conversion cost percentage - 3

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11. Data mining is the process of using sophisticated statistical technique used to extract and analyze data from large databases to discern patterns and trends that were not previously known. The patterns we find are correlations, but not necessarily causation.

Every time we see a link between the occurrence of one event or action with another, we generally assume that one event or action caused the other. But simply linking one occurrence with another does not always prove that the result has been caused by the other.

For example, such data mining might suggest the following relationship between arcade revenue and computer science doctorates awarded in the USA, with a correlation of 0.985.

Source: http://tylervigen.com/spurious-correlations; Used with permission.

A. Is this simply a correlation? Or is there a possibility that computer science doctorates impacts total revenue generated by arcades or vice versa? Explain your answer.

This is simply a correlation and a reasonably high correlation between the two. While there does exist the possibility that computer science doctorates are playing or are writing better games that an arcade can use, there is no evidence of a direct link between the two.

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B. Is this simply a correlation? Or is there a possibility that the number of people who drowned was affected by the films Nicolas Cage appeared in? Explain your answer.

This is simply a correlation. While some would say that Nicolas Cage is an influential and popular actor, there is no evidence of a causal impact between the two.

12. (Connect) Data mining is the process of using sophisticated statistical technique used to extract and analyze data from large databases to discern patterns and trends that were not previously known. The patterns we find are correlations, but we do not necessarily find causation.

Newspaper headlines often link one activity to another and imply causation, rather than a simple correlation or association. Jon Mueller, a professor at North Central College, suggests when describing a correlation between two variables that there are some acceptable ways to describe this relationship.

ACCEPTABLE TERMS for Correlations

Get Have Linked More, more/ less, less Tied Connected/Related Tend

AVOID THESE TERMS WHEN DISCUSSING CORRELATION (but are acceptable when asserting causation) Cause Increase/decrease Benefits Impacts Enhances/undermines Effect/affect Improves/Boosts

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If > Then type statements (implies one-direction)

In light of these suggestions, evaluate each of these headlines as to whether they suggest a causal or non-causal relationship.

1. Facebook users get worse grades in college –Correlation (non-causal) 2. Link between over-indebtedness and obesity identified –Correlation (non-causal) 3. Kids' TV habits tied to poorer test scores ; TV -- any TV -- harms toddlers, study claims – Correlation (non-causal) 4. Recession causes increase in teen dating violence - Causal 5. Snooze or lose: Memory retention enhanced by sleep - Causal 6. Soda causes obesity, researchers assert - Causal 7. Disciplinarian parents have fat kids–Correlation (non-causal) 8. Social isolation may have a negative effect on intellectual abilities – Causal Source: http://jfmueller.faculty.noctrl.edu/100/correlation_or_causation.htm 13. (Connect) Data mining is the process of using sophisticated statistical technique used to extract and analyze data from large databases to discern patterns and trends that were not previously known. The patterns we find are correlations, but we do not necessarily find causation.

Newspaper headlines often link one activity to another and imply causation, rather than a simple correlation or association. Jon Mueller, a professor at North Central College, suggests when describing a correlation between two variables that there are some acceptable ways to describe this relationship.

ACCEPTABLE TERMS for Correlations

Get Have Linked More, more/ less, less Tied Connected/Related Tend

AVOID THESE TERMS WHEN DISCUSSING CORRELATION (but are acceptable when asserting causation) Cause Increase/decrease Benefits Impacts Enhances/undermines Effect/affect Improves/Boosts If > Then type statements (implies one-direction)

In light of these suggestions, evaluate each of these headlines as to whether they suggest a causal or non-causal relationship.

1. Obese girls less likely to attend college, research shows –Correlation (non-causal) 2. Migraine often associated with psychiatric disorders –Correlation (non-causal)

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3.

4.

5.

6.

7.

8.

Your parents are correct, scholars report: Studying pays off - Causal Snooze or lose: Memory retention enhanced by sleep - Causal Tooth loss in elderly linked to mental impairment –Correlation (non-causal) Eating fatty fish lowers risk of dementia - Causal Political bias affects brain activity, study finds - Causal Child anxiety link to ecstasy use –Correlation (non-causal)

Source: http://jfmueller.faculty.noctrl.edu/100/correlation_or_causation.htm

14. (Connect) Consider each of the following statements and state whether they are true or false.

1. XBRL allows tagging to highly disaggregated data --True 2. XBRL GL allows the representation of anything that is found in a chart of accounts, journal entries, or historical transactions – financial and nonfinancial. --True 3. XBRL style sheets take the instance documents and adds presentation elements to make them readable. --True 4. XBRL stands for Extensible Base Reporting Language. --False 5. XBRL Instance Documents contain the actual dollar amounts or the details of each account. --True 6. XBRL for US GAAP has approximate 2,000 element labels or tags. --False 7. Assurance of XBRL is required by the Securities and Exchange Commission. --False 8. XBRL GL serves as a ledger using the XBRL standard for internal purposes. --True 9. XBRL GL does not allow consolidation of the financials of multiple organizations. --False 10. There is a specific XBRL style sheet required by financial analysts. --False

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Chapter 11 – Accounting Information Systems and Internal Controls Multiple Choice Questions 1. c 2. b 3. b 4. a 5. b 6. a 7. d 8. b 9. c 10. b 11. c 12. d 13. b 14. a 15. d

Discussion Questions 1. How has the Sarbanes-Oxley Act affected the audit profession and corporate governance of public firms?

SOX requires public companies registered with the SEC and their auditors to annually assess and report on the design and effectiveness of internal control over financial reporting. SOX also established the Public Company Accounting Oversight Board (PCAOB) to provide independent oversight of public accounting firms.

2. What are the objectives and components of COSO ERM framework?

Objectives: Strategic — high-level goals, aligned with and supporting the firm’s mission and vision Operations — effectiveness and efficiency of operations Reporting — reliability of internal and external reporting Compliance — compliance with applicable laws and regulations Components: Internal Environment, Objective Setting, Event Identification, Risk Assessment, Risk Response, Control Activities, Information and Communication, Monitoring.

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3. COSO developed two frameworks: the COSO 2013 Internal Control framework and the COSO ERM framework. Why did COSO develop the ERM framework? What are the differences between the two frameworks?

COSO developed the ERM framework to help firms manage risk and opportunity. All firms encounter uncertainty in daily operations. Uncertainty presents both risk and opportunity, with the potential to reduce or enhance the firm’s value. ERM identifies potential events that may affect the firm. ERM manages risk to be within the firm’s risk appetite. ERM provides reasonable assurance regarding the achievement of the firm’s objectives.

Difference: Internal control is an integral part of enterprise risk management. COSO 2013 Internal Control framework is the basis for existing rules, regulations, and laws. It has been incorporated into this ERM framework. In addition to internal controls, COSO ERM expands the COSO Internal Control framework to provide a broader view on risk management to maximize firm value.

4. Use a few sentences to describe IT general controls and application controls. Give a few examples of these two types of controls.

IT general controls (ITGC) relate to enterprise-level controls over IT. Most general controls limit access to the IT systems and prevent unauthorized use.

Examples: Passwords, Anti-virus software, Disaster Recovery Planning, change management process.

IT application controls are activities specific to a subsystem’s or an application’s input, processing, and output.

Examples: Closed-loop Verification, Validity Check, Batch Totals 5. Why would a manager be inclined to use the COBIT framework as a guide for IT governance and management?

COBIT provides a supporting tool set that bridges the gap among IT control requirements, technical issues, and business risks. The COBIT framework: • provides a business focus to align business and IT objectives; • defines the scope and ownership of IT process and control; • is consistent with accepted IT good practices and standards; • provides a common language with a set of terms and definitions that are generally understandable by all stakeholders; and

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•

meets regulatory requirements by being consistent with generally accepted corporate governance standards (e.g., COSO) and IT controls expected by regulators and auditors.

6. ISO 27000 series serve different purposes from ITIL. Which one could be more important to accounting professionals and why?

ISO 27000 series could be more important to accounting professionals. ITIL is a framework focusing on IT infrastructure and IT service management. ISO 27000 series is a framework for information security management. ISO 27000 series, particularly ISO 27001 and ISO 27002, have become the most recognized and generally accepted sets of information security framework and guidelines. The main objective of the ISO 27000 series is to provide a model for establishing, implementing, operating, monitoring, maintaining, and improving an Information Security Management System (ISMS).

7. Segregation of duties is an important internal control. What functions must be separated? If ideal segregation of duties is not economically feasible, what are some compensating controls that would help reduce the risk of fraud or error?

The general guideline for segregation of duties (SOD) is that transaction authorization, record keeping and asset custody should be separated from each other. If ideal segregation of duties is not economically feasible, supervision can be used to mitigate the risk posed by imperfect segregation of duties. The supervising individual might be a superior within the organization, or in the case of a small business the owner of the firm.

8. Using a diagram to explain the risk assessment process.

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Identify the risks

Estimate the likelihood of each risk occurring

Estimate the impact, or potential loss, from each risk

Identify controls to mitigate the risk

Estimate the costs and benefits from instituting controls

Is it cost beneficial to protect the firm from the risk?

No

Avoid, share, or accept risk

Yes Reduce risk by implementing controls

9. There are three types of controls: preventive, detective, and corrective. List some examples of each type. Explain which type of control auditors would focus on while evaluating a company's effectiveness of controls and why.

Preventive controls are designed to deter problems before they arise. Preventive controls require compliance with preferred procedures and thus stop undesirable events from happening. Examples: closed-loop verification, validity check. Detective controls find problems when they arise. These controls are procedures and techniques designed to identify undesirable events after they have already occurred. Examples: bank reconciliations, monthly trial balances. Corrective controls fix problems that have already occurred and been identified; These can include activities such as using backup files to recover corrupted data. Detective controls are often linked to accompanying corrective controls to remediate any issues that are discovered. Examples: Disaster Recovery Planning, periodic backups.

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Control activities are the policies and procedures that help ensure that necessary actions are taken to address risks to achieving the firm’s objectives. There are two categories of control activities: physical controls and IT controls. Physical controls are mainly manual but could involve the physical use of computing technology. IT controls involve processes that provide assurance for information and help to mitigate risks associated with the use of technology.

A firm must establish control policies, procedures, and practices that ensure the firm’s objectives are achieved and risk mitigation strategies are carried out. Control activities occur throughout a firm at all levels and in all functions.

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1. The global economic crisis in years 2008 to 2010 has stimulated many boards of directors and executives to reevaluate how they assess and manage risks. Use a flowchart to describe the process of risk assessment.

Identify the risks

Estimate the likelihood of each risk occurring

Estimate the impact, or potential loss, from each risk

Identify controls to mitigate the risk

Estimate the costs and benefits from instituting controls

Is it cost beneficial to protect the firm from the risk?

No

Avoid, share, or accept risk

Yes

Reduce risk by implementing controls

2. A newly hired internal auditor discovered that immaterial thefts by employees are pervasive in the company; employees take books from the company’s library, tools from the company’s laboratories, supplies, products, etc. By interviewing with some of the employees, the internal auditor discovered that most employees thought their behavior was not detrimental to the company as each item did not have significant value. What should the company do to prevent this type of employee behavior?

The company should set the tone at top and influence the control consciousness of its employees. Employees should be educated on integrity and ethical values of the

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company as well as the company’s policies. Ongoing monitoring can also be done to prevent and detect immaterial thefts.

3. The sales department of a company received several claims from its customers that their payments were not credited to their accounts. Investigation uncovered that the accounts receivable clerk has been stealing some of customer payments. What are some of the internal control procedures that could prevent and detect the problem?

Segregation of Duties. Record keeping and asset custody should be separated so that one person cannot have access to remitted payments and be responsible for recording the customers AR balances.

Send out monthly statements to customers to confirm their balances and reconcile differences.

4. (Connect) The information system of Carlsbad Bottle Inc. is deemed to be 90% reliable.

A major threat in the procurement process has been discovered with an exposure of $300,000. Two control procedures are identified to mitigate the threat. Implementation of control A would cost $18,000 and reduce the risk to 4%. Implementation of control B would cost $10,000 and reduce the risk to 6%. Implementation of both controls would cost $26,000 and reduce the risk to 2.5%. Given the information presented above and consider an economic analysis of costs and benefits only, which control procedure(s) should Carlsbad Bottle choose to implement?

Expected benefit of an internal control = Impact X Decreased Likelihood Control A: 300,000 X (10% - 4%) = 18,000 = 18,000 Control B: 300,000 X (10% - 6%) = 12,000 > 10,000 Control A&B: 300,000 X (10% - 2.5%) = 22,500 <26,000 Carlsbad should implement control B. 5. Which internal control(s) would you recommend to prevent the following situations from occurring?

1) Authorization of a credit memo for a customer’s account (on receivables) when the goods were never actually returned.

Documents and records (must require a receiving report before authorizing a credit memo) 2) Theft of funds by the cashier, who cashed several checks and did not record their receipt.

Segregation of duties (record keeping and asset custody) 3) Inventory was stolen by receiving dock personnel. The receiving clerk claimed the inventory was sent to the warehouse but the warehouse clerk did not record properly.

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Supervision, independent verification, and documents and records to track custody of goods and determine responsibility.

4)

Writing off a customer’s accounts receivable balances as uncollectible in order to conceal the theft of subsequent cash collections.

Segregation of duties (transaction authorization and asset custody) 5) Billing customers for the quantity ordered when the quantity shipped was actually less due to back-ordering of some items.

Documents and records (cross check the sales order and the packing slip to check whether the quantity ordered is the same as quantity shipped; bill a customer on quantity shipped)

AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Blooms: Apply Difficulty: 3 Hard Learning Objective: 11-02 Explain the objectives and components of COSO internal Control framework and those of COSO Enterprise Risk Management (ERM) framework Source: Original Topic: Accounting Information Systems and Internal Controls

6. (Connect) Which types of input controls would best mitigate the following threats?

1) Posting the amount of a sale to a customer account that does not exist.

Authorization (for sales transactions) or the use of a validity check on the customer number.

2) A customer entering too many characters into the five-digit zip code while making an online purchase, causing the server to crash.

Size Check 3) An intern’s pay rate was entered as $150 per hour, not $15 per hour.

Reasonableness Check 4) Approving a customer order without the customer’s address so the order was not shipped on time.

Completeness Check ..

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5) Entering the contract number of a critical contract as 13688 instead of 16388, which is a serious mistake to the company.

Check Digit Verification 7. (Connect) The COSO 2013 internal control framework codifies 17 relevant principles associated with the five components of internal control. Match the following principles with the five components.

COSO Principles

COSO Components

a. Management establishes, with board oversight, structures, reporting lines, and appropriate authorities and responsibilities in the pursuit of objectives.

i.

Control environment

b. The organization deploys control activities through policies that establish what is expected and procedures that put policies into place.

ii.

Risk assessment

c. The organization considers the potential for fraud in assessing risks to the achievement of objectives.

iii.

Control activities

d. The organization holds individuals accountable for their internal control responsibilities in the pursuit of objectives.

iv.

Information and communication

e. The organization obtains or generates and uses relevant, quality information to support the functioning of internal control.

v.

Monitoring activities

f.

Answer: a. b. c. d. e. f.

The organization evaluates and communicates internal control deficiencies in a timely manner to those parties responsible for taking corrective action, including senior management and the board of directors, as appropriate.

i iii ii i iv v

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8. (Connect) Identify each of the following internal controls as primarily preventive, detective or corrective control. a. b. c. d. e.

Limit access to petty cash funds.

Reconcile the petty cash fund before replenishing it.

Require two signatures on checks above a specified limit.

Enable hidden flags or audit trails on accounting software.

Examine credit card statements and corresponding receipts each month, independently, to determine whether charges are appropriate. f. Keep checks in a locked box or drawer and restrict the number of employees who have access to the key. g. Backup accounting records daily.

Answer: Internal Controls

Type of control

a. Limit access to petty cash funds.

Preventive control

b. Reconcile the petty cash fund before replenishing it.

Detective control

c. Require two signatures on checks above a specified limit.

Preventive control

d. Enable hidden flags or audit trails on accounting software.

Detective control

e. Examine credit card statements and corresponding receipts each month, independently, to determine whether charges are appropriate.

Detective control

f.

Preventive control

Keep checks in a locked box or drawer and restrict the number of employees who have access to the key.

g. Backup accounting records daily.

Corrective control

9. (Connect) Match the following internal controls with the categories of control activities.

Internal Controls

Control Activities

a. Separate handling cash (receipt and deposit) functions from record keeping functions (recording transactions in the accounts receivable subsidiary ledger).

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i. Authorization

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 11

b. Require purchases, payroll, and cash disbursements to be authorized by a designated person.

ii. Segregation of duties

c. Require accounting department employees to take vacations.

iii. Supervision

d. Separate purchasing functions from payables functions.

iv. Accounting documents and records

e. Ensure that the same person isn’t authorized to write and sign a check.

v. Access control

f.

vi. Independent verification

When opening mail, endorse or stamp checks “For Deposit Only.”

g. Periodically reconcile the incoming check log against deposits. h. Require supervisors to approve employees’ time sheets before payroll is prepared. i.

List customer checks on a log before turning them over to the person responsible for depositing receipts.

Answer: a. b. c. d. e. f. g. h. i.

ii i vi ii ii v vi i iv

10. (Connect) Match the following control frameworks with their main purposes.

Control Frameworks

Purposes

a. COSO 2013

i.

Expand internal controls to provide a broader view on risk management to maximize firm value

b. COSO ERM

ii.

Provide management an information technology (IT) governance model that helps in delivering value from IT ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 11

and understanding and managing the risks associated with IT. c. COBIT

iii.

Manage IT infrastructure and service delivery

d. ITIL

iv.

Provide a framework and guidelines for information security.

e. ISO 27000 series

v.

Improve quality of financial reporting through internal controls and corporate governance

Answer: a.

v

b.

i

c.

ii

d.

iii

e.

iv

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 12

Chapter 12 – Information Security and Computer Fraud Multiple Choice Questions 1. b 2. d 3. a 4. b 5. d 6. d 7. a 8. d 9. c 10. d 11. c 12. d 13. c 14. d 15. d

Discussion Questions 1. Phishing is a type of social engineering. Give two examples of phishing.

An email that requests the victim to log into a website that looks legitimate but is actually controlled by the attacker. An attacker clones a legitimate website and distributes a broken link to victims in an attempt to convince them to enter sensitive information.

2. If social engineering is a common reason that confidential information was revealed, what needs to be done to prevent this from occurring?

User training is often employed to counter social engineering attacks. By teaching users the dangers of social engineering and establishing a policy governing the dissemination of any information like login data, the users will be much more knowledgeable if a social engineering attempt is made.

3. Payment Card Industry Data Security Standards (PCI-DSS) and Health Insurance Portability and Accountability Act (HIPPA) are examples of the laws related to information security. Discuss the major requirements of these legislations.

PCI-DSS and HIPAA both establish standards for protecting and disseminating personal identifiable information (PID). They establish frameworks for data security management that must be complied with to either participate in electronic card transactions or store electronic

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patient records. Standards cover topics such as establishing a secure infrastructure, monitoring network and security information, and guaranteeing access controls are established.

4. Give an example of employee fraud and identify reasons why it may occur.

An employee facing the threat of layoff plants a logic bomb in the system that will require the company to rehire the employee as a consultant to remediate the problem. The fraud triangle has been developed to explain and predict fraudulent behavior. It states that three conditions must exist for fraud to occur: incentive, opportunity, and the ability to rationalize the fraud they intend to commit.

5. What are the differences between authentication and authorization?

Authentication ensures that users are who they claim to be. Authorization is the level of permission to interact with system resources granted to each individual.

6. Explain how to use the asymmetric-key encryption method to maintain confidentiality in transmitting a business document electronically?

1) The sender encrypts a challenge message with the receivers public key 2) Receiver decrypts with his own private key, answers the message, and sends the response encrypted with their own private key 3) Sender decrypts the message with the receivers public key and validates the challenge message 4) The process is reversed to authenticate the sender.

5) Either the sender (or the receiver) generates a symmetric key (called session key because it is valid for a certain timeframe only) to be used by both parties.

6) Use asymmetric-key encryption method to distribute the session key.

7) After both parties have the session key, use the session key to transmit confidential data/information. This is because using symmetric key for encryption is faster in data transmission.

7. What is hashing? Does it serve the same purpose as encryption? Why? Hashing is a one way process that turns a document of any length into a key of fixed length. The process cannot be reversed and is used as part of validation of data integrity or to generate a message digest to encrypt as part of the digital signature process.

8. How to ensure data integrity in conducting E-business? Why is it critical to E-business?

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Data integrity can be ensured by comparing a message digest created by the sender with that generated from the sent over document. If the two hashes match, then the message has not been altered.

9. Both COBIT and ISO 27000 series are security frameworks. Are there significant differences between the two frameworks?

The main objective of the ISO 27000 series is to provide a model for establishing, implementing, operating, monitoring, maintaining, and improving an Information Security Management System (ISMS). COBIT is a more general IT governance framework that considers the governance of a firm’s entire IT infrastructure. COBIT does not go into as much detail on security issues as ISO 27000, however, the two standards may be implemented together to improve corporate IT governance.

10. Compare disaster recovery plan (DRP) and business continuity management (BCM).

A disaster recovery plan seeks to allow the business to quickly recover from a catastrophic event, while a business continuity plan is related to ensuring that the business can continue activities during conditions that would otherwise cause a service outage.

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1. Compare and contrast symmetric-key and asymmetric-key encryption methods in conducting Ebusiness. Why companies may prefer one method over the other. If a company chooses to use both methods, what are the reasons and how the company uses both methods for E-business?

Answer: Asymmetric key encryption is very slow but allows for only 2 keys to be needed per user.

Additionally, asymmetric key encryption can be used to authenticate users. Symmetric key encryption is much faster, but requires a separate key for every pair of users. In addition, these pairs must be physically distributed to users no matter how greatly dispersed. This is not an effective practice for an e-commerce company. Most companies will utilize both of these methods. The company will establish a connection to its users utilizing asymmetric key encryption and generate a symmetric session key to conduct all further business.

2. Many internal auditors and IT professionals consider wireless networks and mobile devices pose high risks in a firm’s network system. Collect information to examine whether this concern is valid. If so, identify the risks and the general controls to help reduce these risks.

Answer: A company should have all of its mobile devices require VPN’s into the company’s network if it allows them to connect at all. This can allow a mobile device to connect through an un-trusted wireless network. The company should also keep any of its own wireless networks separated physically from the wired more secure networks that business is conducted through.

3. Under PKI, Certification Authority (CA) plays a critical role in the success of maintaining information security. Search over the Internet to find a few public firms who are CA’s. Compare these firms and provide suggestions on how to choose a CA as part of information security management.

Answer: DigiCert: A large organization approved by several government organizations.

VeriSign: Part of Symantec; a large public security firm that is a trusted in the security industry.

When selecting a PKI CA provider, it is important to focus on trustworthiness and proven history of security and confidentiality. In addition, the provider must possess sufficient resources to meet your needs. As always, third party service providers should have reports available to its customers providing third party assurance over the security of its systems. ..

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4. (Connect) Match the descriptions with each encryption method.

Descriptions a. Good for large data sets

i.

Encryption Method Symmetric-key encryption

b. Slow in processing

ii.

Asymmetric-key encryption

c. Convenient for key distribution & key management d. Each user has a public-key and a private key e. Good for authentication Answer: a. b. c. d. e.

i ii ii ii ii

5. (Connect) Match correct statement(s) with each term regarding system availability.

Internal Controls a. Activities required to keep a firm running during a period of displacement or interruption of normal operations

System Availability Terms i. Uninterruptible power supply

b. A process that identifies significant events that may threaten a firm’s operations and outline the procedures to ensure that the firm will resume operations if such events occur

ii. Fault tolerance

c. A service model in which a third-party service provider offers computing resources, including hardware and software applications, to cloud users over the Internet, and the service provider charges on a per-user basis

iii. Cloud computing

d. A clearly defined and documented plan that covers key personnel, resources including IT infrastructure and applications, and actions required to be carried out in order to continue or resume the systems for critical business functions

iv. Disaster recovery planning

e. Using redundant units to provide a system with the ability to continue functioning when part of the system fails

v. Business continuity management

f.

A device using battery power to enable a system to operate long enough to back up critical data and shut down properly ..

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during the loss of power Answer: a. b. c. d. e. f.

v iv iii iv ii i

6. (Connect) Identify the main components of vulnerability management and assessment.

Component a. Prioritize vulnerabilities

i.

Category Vulnerability management

b. Design a risk response plan

ii.

Vulnerability assessment

c. Monitor vulnerabilities d. Establish policy and requirements e. Identify vulnerabilities Answer: Please refer to Figure 12.10 in the textbook. a. b. c. d. e.

ii i i i ii

7. There are computer fraud schemes in systems development life cycles (refer to Figure 12.1). Identify an example in each phase of systems development life cycles.

Answer: a. b. c. d. e.

Lack of authentication and/or role based access control Lack of consideration for security vulnerabilities Lack of code reviews Lack of enforcement of documentation and back-up procedures End-user access to source code ..

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8. Internal auditors are often tasked with testing vulnerabilities. How would you suggest testing for system intrusion, logical access control, natural disasters, and intentional destruction of information?

Answer: System intrusion: • Broad Detection Range: Internal auditors should measure the ability of the system to detect different type of intrusions. o Work with a 3rd party IT team to try to hack the system.

• Economy in resource usage: Internal auditors should also measure the consumption of computer resources by the intrusion detection system.

• Resilience to stress: Auditors are supposed to look at operational impairment in the case of high computing activity.

Logical access control:  The company has formal policies and procedures for logical access, physical access and IT security.  Requests for New or Revised Access Form are approved by the Department Manager.  Administrator access to active directory, application and database is limited to authorized personnel.  Department Manager performs access review for applications and the active directory domain.  Event logging is activated and configured per policy.  All employees are required to have three things to access the system; something they have, know and are. Testing is done to see if system can be accessed without one of these three items.

Natural disasters:  The company should develop an IT disaster recovery plan. It begins by compiling an inventory of hardware (e.g. servers, desktops, laptops and wireless devices), software applications and data. The plan should include a strategy to ensure that all critical information is backed up.  Vendors should be able to provide “hot sites” for IT disaster recovery. These sites are fully configured data centers with commonly used hardware and software products. Subscribers may provide unique equipment or software either at the time of disaster or store it at the hot site ready for use.  It’s better for the company to have access to more than one facility. Hardware at an alternate facility can be configured to run similar hardware and software applications when needed. Assuming data is backed up off-site or data is mirrored between the two sites, data can be restored at the alternate site and processing can continue.  Agreement with another company of similar size in a different location to utilize their system as a database backup. Agreement could include doing the same for the “sister” company. ..

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Intentional destruction of information:  Periodic testing and evaluation of the effectiveness of information security policies, procedures, practices, and security controls to be performed with a frequency depending on risk, but no less than annually.  A process for planning, implementing, evaluating, and documenting remedial actions to address any deficiencies in the information security policies, procedures, and practices of the organization  Procedures for detecting, reporting, and responding to security incidents  Plans and procedures to ensure continuity of operations for information systems that support the operations and assets of the organization.  Frequent and regular tests to ensure information is present. Knowledge of this process could deter destruction of information.  Keeping important information with limited access. Or in a situation where two people must be present to access.  System Configuration Review: Internal auditors should conduct a review of how the system is configured. (GTAG, Auditing Application Controls, IIA) o “Review the three-way match system parameters” o “Query the underlying programming code of the application report generation process for appropriate logic” o “Rerun the query to compare the report to the one management generated”

9. Browse the Internet to identify some recent cases related to system availability. What are the risks and issues in system availability of these cases? Indicate possible controls to mitigate the risks.

Answer: Students’ answers may vary. http://blogs.wsj.com/cio/2016/06/16/fbi-says-corporate-email-impersonation-scams-growing/ http://www.wsj.com/articles/cisco-proposes-plan-to-monitor-data-centers-1466019703 Typical risks are: • Unauthorized access to the system leads to system intrusion and data corruption.

• • • •

The more complicated the system, the longer it takes to restart it. Hence, outages that require system shutdown and restart can dramatically affect your ability to meet a challenging availability target.

A support person who is called in afterhours could easily take an hour or two simply to arrive to diagnose the problem.

Unsuspecting users opening e-mails that appear genuine and without viruses From the Cisco article: “Analysts add that most of existing tools track individual pieces of hardware, or take samples of information flows rather than tracking every packet of data.

Because of Cisco’s central position in hardware plumbing, the information they have “gives ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 12

you granularity that no one has ever had before,” said Zeus Kerravala, an analyst at ZK Research.”

Possible controls to mitigate risks: Test the Change Control Process Applications are always evolving to fit new business requirements and improve behavior. Even mission-critical applications change over time. Because the change control process is a large source of downtime-causing errors. A business- or mission-critical application must not go into production until it can be repeatedly performing error free change control.

Test Catastrophic Failure Before deploying new application, companies should make sure that the catastrophic recovery procedures are created work as expected. Is the recovery team ready? It must be trained, equipped, and well-rehearsed. The plan is not useful if the recovery plan is not effective.

Test for Resource Conflicts  Availability engineering requires in-depth consideration of an application's interactions with other system processes. Auditors must look at how a particular service is provided, evaluate all the ways some other application might interfere with the intended service, test for conflicts, and possibly consider design alternatives.  Update system belong the Secure E-mail Gateway (SEG) and educate employees through training to identify scams. Be clear about communicating how information will be requested and be consistent in following your own policies.  From Cisco article above: “Security is a key focus. One reason companies struggle in stopping network attacks is the constant changes in where they originate, which make it hard to keep a list of suspicious machines or internet addresses to block.  Cisco said its new technology makes it easier, instead, to enforce a “white list” of authorized systems, so that servers can only accept connections from approved devices and no others.”

10. Consider each of the following fraud cases. Identify the incentive, opportunity, and rationalization present in each case. a. An employee of a telecommunications firm’s payroll department moved to a new position within the department in which she no longer has privileged access to payroll accounts.

However, when changing positions, her access rights to the payroll accounts were left unchanged. An associate told her that he was starting a financial service business and needed some contact information. Using the privileged access rights that she had retained, the employee provided her associate with confidential information of many employees, including 401k account numbers, credit card account numbers, and social security numbers, which he then used to commit more than 100 cases of identity theft. The insider’s actions caused more than $1 million worth of damages to the firm and its employees. b. A database analyst of a major check authorization and credit card processing company went beyond his authorized computer access rights. The employee obtained his firm’s consumer ..

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information of 8.4 million individuals. The stolen information included names and addresses, bank account information, and credit and debit card information. He sold the data to telemarketers over a five-year period. c. An IT consultant working under contract for an offshore oil platform company was denied an offer for a permanent job with the same company. He then accessed the firm’s computer systems without approval and caused damage by impairing the integrity and availability of data. d. A manager responsible for payment authorization hired an offshore programmer to insert a couple of independent contractors to the vendor table of his company’s database. He then authorized payments to the independent contractors on fictitious services for personal gain.

He spent the stolen money on luxury items and extravagant purchases for himself, his family, and friends.

Answers: a.

Incentive: The insider’s action involves more than $1 million worth to the firms and its employees. The employee may be jaded that her new position no longer has privileged access to payroll accounts. This may have been felt as a demotion.

Opportunity: When changing positions, her access rights to the payroll accounts were left unchanged. She realizes her access rights were not changed. She may not have received training that indicated this would be unacceptable behavior.

Rationalization: She was an employee of payroll department and hence she might feel it is not wrong to access to those payroll accounts. She may have felt she HAD to give this information to the associate if he was in a higher position of responsibility. b.

Incentive: He could sell 8.4 million consumers’ information to telemarketers over a five-year period.

Opportunity: The data analyst has been authorized with computer access rights to 8.4 million consumers’ information. The analyst was not authorized, but apparently had the capability to extend his computer access rights.

Rationalization: Being a database analyst, he might feel it is acceptable and justifiable to sell that information to external parties. He probably rationalized that if it was not secure enough to keep him out why would it matter if he sold the information. c.

Incentive: He was able to access the firm’s computer systems without approval and thus he was able to revenge the company for not offering a permanent job to him. Deny an offer of permanent employment after working as a consultant.

Opportunity: He was able to access the firm’s computer systems without approval and caused damage even as a contractor. Since he was an IT contractor he already know the companies systems well and had the capability to access the data. ..

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Rationalization: As an IT consultant, he might feel it was easy for him to conceal his action and caused damage without being notice. He may have felt that the company deserved these actions since they did not value him. d.

Incentive: He could authorize payments on fictitious services for personal gain and spent money for himself, his family and his friends. The incentive is the luxury items and extravagant purchases for himself, family, and friends.

Opportunity: He had the opportunity to authorize payments to the independent contractors on fictitious services. The opportunity arises from having access to an offshore programmer who can hack the system to input vendors in a way unrelated to him.

Rationalization: He might feel that he is the manager and would not be caught for fraudulent payment authorization. As a manager he may feel that he is authorized to use the funds however he sees fit as long as it appears that it is being used for business purposes. Or maybe he feels he deserves a better lifestyle and is currently underpaid.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 13

Chapter 13 – Monitoring and Auditing AIS Multiple Choice Questions 1. a 2. c 3. b 4. a 5. d 6. d 7. d 8. b 9. c 10. b 11. a 12. a 13. c 14. d 15. a

Discussion Questions 1. What are the main reasons for using a VPN? LO 13-1 There are several reasons for an enterprise to use a VPN: a. The enterprise would like to connect widely dispersed offices without leasing a direct, private line from its service provider. The use of a VPN allows the company to securely simulate a WAN environment using the otherwise unsecure internet. b. The company would like geographically dispersed employees to be able to access the company network to work remotely. This can be particularly desirable for personnel such as outside sales representatives who, due to the nature of their jobs, are often on the road away from the secure corporate LAN. c. VPNs are cheaper than leased lines. d. Companies are able to maintain high levels of productivity as would be achieved using a LAN with a widely dispersed workforce.

2. Consider the computer attacks in the previous chapters. How would a VPN protect a user for one or more of them? LO 13-1 The VPN encrypts data so that only the VPN can interpret it. So if the data is intercepted by a hacker it will lack meaning.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 13

3. We often use regression analyses in data mining. Are accountants required to understand data mining? Why? LO 13-1 Data mining is becoming a requirement for accountants as investors are demanding continuous auditing. Continuous auditing relies on data mining to see if trends in ratios are shifting indicating that fraud could be occurring.

4. What is the main purpose of using firewalls? LO 13-1 a. Firewalls are intended to prevent certain types of unwanted data packets from entering the enterprise’s network. This activity can prevent certain types of network intrusion such as a message bearing a telnet (an unsecure remote connection protocol) command. They are generally not sufficient to protect an enterprise network alone, but can be an integral part of a company’s IT security plan. b. The main purpose of using a firewall is to prevent rejected data from entering or leaving a company’s private network. This is done by using accept and reject rules to filter the incoming or outgoing data. Filtering data in this way “prevents attackers from accessing your servers in malicious ways.” https://www.digitalocean.com/community/tutorials/what-is-a-firewall-and-how-does-itwork (accessed 7/7/2016) 5. Firewalls rely on a list of allowed and blocked services and locations. What would happen if a company's firewall rules were too weak? If the firewall rules were too strict? LO 13-1 a. If a firewall’s rules were too weak, hackers could access the company’s servers, obtain, destroy, corrupt or take data. b. If a firewall’s rules were too strict, employees would not be able to efficiently complete their work, if at all, as their access would be so limited.

6. Are there differences among hubs, switches, and routers? LO 13-1 a. Hubs, switches, and routers connect computers to other computers through ports, or connectors. b. Hubs are simple, cheap, and unintelligent. All data that is put in, is sent out to all other computers. Whatever response is made by the computer is sent back to the hub and sent to all other computers. c. Switches learn locations. Each data that enters the switch teaches it where it originated and is destined. Any response will only be sent to the location of origin. This location will be remembered for future use. This enhances efficiency. d. Routers are smart, complicated, and can serve as a firewall. They are programmed to understand, manipulate as needed, and route data. They learn locations just like switches. They also perform Dynamic Host Configuration Protocol (DHCP) and Network Address Translation (NAT). During DHCP routers assign IP addresses externally and internally. NAT is how the router assigns IP addresses to external computers. It then ..

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only accepts responses from computers to which local computers initiated communication. This is how they serve as firewalls.

7. Identify a few critical security issues in using a wireless network. LO 13-1 a. Passive Monitoring b. Unauthorized Access c. Denial of Service Attacks

8. Using a brute-force attack, hackers can crack the password to a WEP access point in about 5 minutes. WPA2 in about 2 days. What does this tell you about the security of wireless networks? LO 13-1 Wireless networks are only as secure as the complexity of the algorithms that protect their authentication and encryption.

9. Auditors are constantly developing new CAATs analyses to help them in the assurance process. Use a search engine to identify some of the techniques that are being used currently. LO 13-2 a. Filter/Display Criteria b. Aging c. Expressions/Equations d. Join/Relate e. Gaps f. Trend Analysis g. Statistical Analysis h. Regression Analysis i. Duplicates j. Parallel Simulation k. Sort/Index l. Benford’s Law m. Summarization n. Matching o. Stratification p. Combination of One or More https://www.aicpastore.com/Content/media/PRODUCER_CONTENT/Newsletters/ Articles_2010/CPA/Jan/CAATS.jsp (accessed 7/7/2016) 10. When would an auditor prefer to conduct a black-box audit? A white-box audit? LO 13-2 a. Black-box audits are preferential when an auditor is determining how well a network will hold up to an attack from an external source which knows nothing about the internal structure of the company.

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b. Auditors would prefer a white-box audit if there are suspicions of internal fraud or to determine weaknesses in the internal control environment.

b.

11. Continuous auditing allows auditors to validate data and monitor transactions in near real-time.

What advantages does this provide to auditors? What are some potential problems with continuous auditing? LO 13-3 a. Advantages i. Prevent and catch fraud early ii. Reduction of errors iii. Catch breakdown of internal controls and recommend response to management iv. Increase operational effectiveness v. Enhance compliance with laws and regulations vi. Increase management confidence in control effectiveness and financial information vii. Monitor transaction data in a timely manner viii. Understand critical control points, rules, and exceptions, ix. Performance of control and risk assessments in real or near real time x. Reduction of routine testing xi. Increase focus on investigation activities Potential Problems i. Expensive ii. Alterations of previously audited data iii. Collusion of auditor due to regular engagement with client A breakdown in independence due to formed relationship iv. Disruptive of business operations

12. Auditing an accounting information system requires knowledge and skills in both accounting and computers. However, most auditors may not have sufficient expertise in the technical side of computing and information systems. Given today’s business environment, how much computer- and information systems-related knowledge and skills must an auditor have to be effective in performing auditing? LO 13-2, LO 13-3 a. Auditors need to have a working knowledge of the ERP system in which financials are audited i. If an auditor does not know the weaknesses of an ERP system, they will not be able to pin point where fraud may be occurring ii. Employees who use a specific system will know how to manipulate it well b. Auditors will need to know how to query and recreate queries of databases c. Auditors will need to understand strengths and weaknesses of the security of the information system and what are quality tests d. Auditors will need to understand how cloud-based technologies alter the workplace environment and security

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Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1. (Connect) Match the descriptions with each type of network.

Descriptions a. This computer network covers a broad area (e.g., includes any network whose communications links cross metropolitan, regional, or national boundaries over a long distance).

i.

Network LAN

b. The Internet is a good example of this type of network.

ii.

WAN

c. This type of network often uses Layer 2 devices like switches and bridges and Layer 1 devices like hubs and repeaters.

iii.

VPN

d. The purpose of this type of network is mainly for remote access.

iv.

Wireless LAN

e. This type of network comprises of two fundamental architectural components: stations and access points. f.

This type of network has a large geographical range generally spreading across boundaries and often need leased telecommunication lines.

Answer: a. b. c. d. e. f.

ii ii i iii iv ii

2. (Connect) Match the continuous auditing alarms to flag the fraud schemes.

Fraud Scheme a. Operating expenses were illegitimately reclassified as capital expenditures, which improved the “expenditure-to-revenue” (E/R) ratio by reducing the amount of expenses recorded in the current fiscal year.

Continuous Auditing Alarms i. Generate an alarm if the allowance for doubtful accounts differs significantly from the last months ratio (i.e. to Accounts Receivable).

b. Book values of acquired entities were illegitimately reclassified as goodwill on the books, which improved the E/R ratio by

ii. Benchmark key ratios (e.g. E/R) against industry averages and generate an alarm when there is a

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 13

increasing the effective amortization period of the amounts in question.

significant discrepancy between the two.

c. Excessively write down the assets included in the corporate acquisitions, which gave “the false impression that expenses were declining over time in relation to revenue (i.e., reducing the E/R ratio and increasing net income from operations)”.

iii. Create an alarm that identifies increases in plant, property, equipment, and goodwill that differ significantly from historical averages.

d. Allowance for doubtful accounts was underestimated (along with the corresponding expense entry, bad debts expense) to falsely improve the E/R ratio.

iv. Create an alarm that simultaneously identifies (1) reductions in operating expenses that exceed the industry average and (2) increases in capital expenditures that exceed the industry average.

Answer: a. b. c. d.

iv iii ii i

3. (CIA adapted) As an internal auditor, you have been assigned to evaluate the controls and operation of a computer payroll system. To test the computer systems and programs, you submit independently created test transactions with regular data in a normal production run. Identify advantages and disadvantages of this technique. LO 13-3 This is not the preferred method of testing the production system. The auditor has disrupted the integrity of the data system by entering what is essentially false data into the live database. The data that is entered is now part of the legal records of the company even though it is not real. This could be construed as fraudulent data entry. If the auditors were concerned about the production environment, they should have analyzed the real payroll transactions to determine if any of them would adequately fulfill the test objectives and monitored those real transactions. If tests still need to be entered, the auditors should utilize the Quality Assurance environment.

4. Describe how an auditor would use each of the following audit techniques: ITF, parallel simulation, EAM, GAS. LO 13-2 a.

Integrated Test Facility: uses auditor live master files which are placed into the live client system. Test transactions are run so that only the auditor’s files are affected.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 13

b. Parallel simulation: is used to reprocess client data in the auditor’s GAS. The output is compared to the client’s actual output for verification. c. Embedded Audit Module: is used to continuously audit a client by embedding a sequence of code into the client’s system. This code monitors transactions and creates a log of suspicious items. https://www.aicpa.org/interestareas/frc/assuranceadvisoryservices/downloadabl edocuments/whitepaper_evolution-of-auditing.pdf (accessed 7/8/2016) d. Generalized Audit Software: is used for statistical analysis of data extracted directly from the client to identify exceptions for further testing or determine the likelihood of material misstatement in accounts.

5. Identify the key feature and components of a continuous audit. LO 13-3 a. Components i. Database Management Systems ii. Transaction logging and query tools iii. Data warehouses iv. Data mining v. Computer-assisted audit techniques (CAATs) b. Features i. Accessing and normalizing data from across the enterprise ii. Extracting large transactional volumes without negatively impacting system operations iii. Testing data and reporting results in a timely manner

6. (CMA adapted) As chief executive auditor, Mallory Williams heads the internal audit group of a manufacturing company in southern Texas. She would like to purchase a CAAT tool to assist her group in conducting internal audit functions. She has asked you to prepare a report on the following tools: ACL, IDEA, Microsoft Visio, Oversight, and Tableau. In your report, identify key features, how an auditor would incorporate the tool into the audit, and recommend one or two of the tools for purchase. LO 13-3 a. Tools for audit 1) ACL i. Manage projects across Audit, Risk, Compliance, Finance & IT; Visualization of risk and control analysis; Continuously monitor and analyze risks and controls ii. This would be used to manage the flow of audits as well as see where fraud may occur and monitor it 2) IDEA i. Big data analysis software able to analyze 100% of data quickly with integrity ii. This would be used to analyze the data about accounts 3) Microsoft Visio i. Flowchart preparation software ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 13

ii. This would be used to document business processes to see where internal controls might breakdown 4) Oversight: i. A web-based expense analysis software enabling identification of fraud and waste though expense report, purchase card and account payable review ii. This would be used to see where expenses are being manipulated 5) Tableau i. Business intelligence software that helps “people to see and understand data” ii. This would be used to present concerning data to upper management b. Tools recommended for purchase 1) ACL would provide the most comprehensive support to the internal audit process 2) Visio would be a good tool for developing flow charts to understand processes and where internal controls have potential for breakdown

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

Chapter 14 – The Balanced Scorecard and Business Value of Information Technology Multiple Choice Questions 1. e 2. e 3. a 4. e 5. a 6. b 7. a 8. e 9. b 10. d 11. e 12. d 13. b 14. d 15. e 16. e 17. d 18. b 19. d 20. e 21. d 22. a 23. c 24. a 25. d 26. b

Discussion Questions 1. In answering this question, the students should recognize that the fundamental reason for differences between Wal-Mart and Starbucks is that they have different value propositions.

Wal-Mart aims to compete on price, while Starbucks competes on other value proposition factors, such as quality, availability, relationship, and brand image. Since Wal-Mart seeks low prices, their business processes must be structured to minimize costs. Starbucks, on the other hand, is more focused on creating a consistent customer experience at all its stores. Students should be encouraged to consider differences in the value proposition require differences in the importance of specific processes, as well as differences in the learning and growth perspective.

2. Students should consider the impact of balanced scorecard measures in a multi-divisional, multilevel organization. Since the balanced scorecard typically requires measurement of performance along four perspectives, a multi-division organization could need to collect information on numerous measures to assess performance. However, the balanced scorecard also requires 1

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

organizations to select the relatively few, most important, measures for each organizational element. Some divisions may only be responsible for managing one or two measures. So, while the possibility of information overload exists, the judicious use of the balanced scorecard should avoid the development of more measures than can be easily managed.

3. Students should recognize that organizations do not need to implement a comprehensive system to measure performance to benefit from articulating their strategy in a strategy map.

The map is a communications tool that allows managers to discuss and clarify performance cause-and-effect relationships. This is especially true when the organization is considering changes. The strategy map augments capital budgeting techniques by placing proposed investments in the context of the organization’s strategy.

4. Students should recognize that any well-managed organization has formed objectives and key performance indicators. They need to know whether they are meeting their objectives. So, their existing systems already collect information about their key performance indicators. Thus, the advantages of using current objectives and KPIs are several. They exist, they are already measured, and systems do not need to be changed. Conversely, the disadvantages would relate to the way that the existing objectives and measures were developed. It is likely that they are not truly balanced in terms of leading and lagging indicators and internal and external perspectives. It is also possible that the organization has not clearly linked the KPIs in a series of cause-and-effect chains aligned with their overall strategy. Additionally, organizations may form KPIs based on the ease of collecting the information, rather than the true importance of the KPI to their strategy.

5. The students could develop arguments for both: the balanced scorecard framework provides a performance measurement system as well as a performance management system. In truth, one requires the other. Measures provide feedback on the organization’s performance with respect to its objectives. This feedback allows management to improve what the organization is doing or, in some cases, revisit the strategy.

6.

The answer should describe a chain of cause and effect relationships. The biotech company investment in an IT system to track drug approval is an example of an investment to improve information capital (Learning & Growth Perspective). Such an investment would support the biotech company’s innovation processes (Internal Process Perspective) and allow them to manage resource allocation within that process. The innovation process links to elements of the biotech company’s value proposition, such as product availability, product quality, and product function. Successfully addressing those value proposition factors would attract new customers (Customer Perspective) and grow revenue (Financial Perspective), which in turn would increase shareholder value.

7. Students should describe the strengths and weaknesses of using the amount spent on information technology and software as a KPI for the development of information capital (Learning & Growth Perspective). A strength of this KPI is that the investment should increase the organization’s information processing capability, and most organizations cannot improve their information systems without new investment. However, KPI weaknesses relate to whether the investments are aligned with the organizations strategy. Do the amounts spent on IT technology and software address important requirements?

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

8. It is more difficult to develop a balanced scorecard for a non-profit organization, since they do not have shareholders and customers in the for-profit sense. Students should start with defining the business school’s stakeholders and then describe elements of the value proposition that the school delivers. Then, they should describe the internal processes that deliver the school’s value proposition while also controlling costs. Finally, they should describe the kinds of investments in human capital, information capital, and organizational capital to support ongoing improvements to the internal processes.

9. This question is closely related to the previous question. Students should recognize differences in stakeholders and goals of the stakeholders. For-profit shareholders seek increased value, but non-profit stakeholders have other objectives. So, students could argue that the two external perspectives would be substantially different. The two internal perspectives, however, could be similar.

10. ERP systems require complementary changes in business processes to create value. To make those changes, the organization could also need changes in human capital necessary to put the right people in place to make the best use of the system. These changes to the Learning & Growth Perspective would allow the organization to improve processes, which in turn allows improvements to the value proposition while controlling costs. Ultimately, the organization should see improvements to financial performance (Financial Perspective). The students strategy map should look something like the following:

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect. The Connect-based solutions for Problems 4 and 5 can be found in the following section beginning on Page 7.)

1. The answer to this question depends on the company that the student chooses. Students will find that it is relatively easy to find financial and customer perspective information. We find that students can usually find an abundance of information on the company’s value proposition from the company’s press releases. It will take more work to find information on the company’s internal business processes, although the business press often describes business processes more completely than the company itself does in its financial statements (e.g., in the MD&A).

Perhaps the most difficult task is to find information about Learning & Growth. Again, the business press may be most helpful here.

2. As described above, it will be difficult to find specific information about these companies’ Learning & Growth investments. The students should be encouraged to think about the unique culture of their company and how that culture affects how the firm conducts its business processes. One other aspect that can generate discussion is the role of incentive compensation (investments in human capital) and how incentives affect employees’ alignment with company goals and commitment to improving business processes.

3. The answer to this question depends on the company selected. The main issue that affected Bank of America during the recent economic crisis related to mortgages, especially mortgage loans to customers that may not have been fully creditworthy. Goldman Sachs problems relate to how they marketed mortgage-backed securities to their customers and whether they knew the problems with those securities when they sold them to their customers, e.g., banks and investors. AIG, a large multi-national insurance company, was involved in the credit default swaps and collateralized debt obligations. These products were sold to customers to insure those customers against losses. Of course, when customers incurred substantial losses, AIG could not honor its insurance obligations, and the corresponding liquidity crisis led to U. S. government intervention to bail out AIG. In all these cases, the companies emphasized revenue generation without dealing with the corresponding risk. Thus, students should be encouraged to define where the companies should have considered the risk.

4. (Connect) The strategy map should look something like the following:

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

Examples of measures are the following: Objectives a) Manage the product portfolio for superior innovation b) Acquire new customers c) Improve fixed asset utilization d) Lower cost of serving customers e) Grow revenue f) Create a climate of knowledge sharing g) Implement an IT infrastructure necessary to support growth h) Improve return on assets i) Increase market share j) Achieve just-in-time supplier capability

Example Measures New products added to portfolio; Number of products in portfolio Number of new customers; Sales to new customers Asset time available; Asset time in use Cost per customer served; Customers served per employee Revenue change in 1 year; Revenue change in 3 years Perception of access to shared knowledge; Number of internal online pages Extent to which IT infrastructure accomplishes optimal support; Number of employees with access Change in ROA over 1 year; Change in ROA over 3 years Increase in Market Share; Increase in Customers' Wallet Share Number of JIT suppliers; Average Delivery Time

5. (Connect) Here is one solution, although students could support other options: Initiatives

Perspectives

Performance measures

Purchase new, more efficient, production equipment

Internal Business

Number of product warranty claims; Percent of defective products 5

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

Train employees Renovate older retail stores Implement a business intelligence/ business analytics system Create new advertising campaign

Processes Learning & Growth Internal Business Processes Learning & Growth Internal Business Processes

Employee turnover; Employee Satisfaction Number of new customers; Sales Growth Percentage; Percent of repeat customers This could support directly or indirectly all the measures Number of new customers; Sales Growth Percentage; Percent of repeat customers

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

Problems – Solutions for Connect

Problem 4 1. Fill in the correct abbreviation for the perspective in the blanks next to the objectives.

Perspectives: LG = Learning & Growth BP = Business Processes C = Customer F = Financial a) b) c) d) e) f) g) h) i) j)

BP C BP BP F LG LG F C BP

Manage the product portfolio for superior innovation Acquire new customers Improve fixed asset utilization Lower cost of serving customers Grow revenue Create a climate of knowledge sharing Implement an IT infrastructure necessary to support growth Improve return on assets Increase market share Achieve just-in-time supplier capability

2. For each performance measure, identify the objective that it measures. Fill in the letter designation of the objectives listed above in the blank next to the performance measure. a) b) c) d) e) f) g) h) i) j) k) l) m) n) o) p) q) r) s) t)

c c j h h d d g i i a g f j b a f e e b

Asset time available Asset time in use Average Delivery Time Change in ROA over 1 year Change in ROA over 3 years Cost per customer served Customers served per employee Extent to which IT infrastructure accomplishes optimal support Increase in Customers' Wallet Share Increase in Market Share New products added to portfolio Number of employees with IT systems access Number of internal online pages Number of JIT suppliers Number of new customers Number of products in portfolio Perception of access to shared knowledge Revenue change in 1 year Revenue change in 3 years Sales to new customers 7

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

Problem 5 A company has elected to pursue the initiatives listed in section a below. For each initiative, describe which balanced scorecard perspectives that the initiative will address and specifically which of the performance measures in section b that it will affect.

Perspectives: LG = Learning & Growth BP = Business Processes C = Customer F = Financial a. Initiatives. Fill in the blank with the abbreviation of the perspective that will be affected first by the initiative.

1) 2) 3) 4) 5)

BP LG BP LG BP

Purchase new, more efficient, production equipment Train employees Renovate older retail stores Implement a business intelligence/business analytics system Create new advertising campaign

b. Performance measures. For each initiative, select the measures that would be directly affected by that initiative through a chain of cause and effect links.

Initiative: Purchase new, more efficient, production equipment x x x o x

Sales growth percentage Percent of repeat customers Employee turnover Percent of defective products Number of new customers Number of product warranty claims Employee satisfaction

Initiative: Train employees o o x o o x

Sales growth percentage Percent of repeat customers Employee turnover Percent of defective products Number of new customers Number of product warranty claims Employee satisfaction

Renovate older retail stores o x

Sales growth percentage Percent of repeat customers 8

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 14

o x o

Employee turnover Percent of defective products Number of new customers Number of product warranty claims Employee satisfaction

Implement a business intelligence/business analytics system o x o o x o o

Sales growth percentage Percent of repeat customers Employee turnover Percent of defective products Number of new customers Number of product warranty claims Employee satisfaction

Create new advertising campaign x x

x

Sales growth percentage Percent of repeat customers Employee turnover Percent of defective products Number of new customers Number of product warranty claims Employee satisfaction

X = direct link 0 = possible link

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

Chapter 15: Evaluating AIS Investments Multiple Choice Questions 1. e 2. c 3. a 4. f 5. e 6. e 7. c 8. c 9. b 10. c 11. d 12. a 13. b 14. d 15. e

Discussion Questions 1. The balanced scorecard framework helps companies assess their business requirements for IT by placing the investment in a cause-and-effect structure. A strategy map could show how the proposed investment either reduces business process costs (the process perspective) or improve the organization’s value proposition and thereby lead to revenue growth (customer and financial perspectives). It also helps mitigate alignment risk by showing how the investment is consistent with the organization’s strategy. Additionally, it can reduce change risk by helping identify required training and employee incentives necessary to support the process changes necessary to make the IT effective.

2. All three types of IT could affect business performance; however, the enterprise IT by its nature would seem most likely to have the greatest impact. Enterprise IT technologies restructure interactions within the organization as well as with external partners, while Network IT technologies simply allow people to communicate with one another, and Function IT technologies support single, standalone functions. Similarly, since Enterprise IT often results in changes to business processes, those technologies would require the most complementary changes.

3. The benefits of an IT initiative should be compared to the revenues and costs expected if the IT initiative is not implemented. The biggest issue faced in making this comparison is that an IT project is most likely to exceed expected costs while also failing to achieve expected benefits.

Thus, the evaluation team should carefully test the sensitivity to cost overruns as well as the failure to achieve benefits. In other words, the team should pay careful attention to project risk and financial risk.

4. EXCEL solution (using NPV function): ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

=NPV(rate, initial, return1, return2, return3) Initial investment (made at end of year 1) Returned amount 1st year Returned amount 2nd year Returned amount 3rd year Discount rate Discount rate

-$250,000 $150,000 $150,000 $150,000 10% 15%

NPV at 10% NPV at 15%

$111,843 $80,421

Higher discount rates result in lower NPV 5. EXCEL solution (using IRR function and MIRR function) =IRR(initial, year1, year2, …)

Initial investment (made at end of year 1) Returned amount 1st year Returned amount 2nd year Returned amount 3rd year Returned amount 4th year Returned amount 5th year

-$70,000 $12,000 $15,000 $18,000 $21,000 $26,000

IRR after 2 years IRR after 3 years IRR after 5 years

-44% -18% 9%

MIRR considering finance and reinvestment

11%

It would be lower if the reinvestment return is less than the finance rate 6. EXCEL solution (using PV function for PV of return per year) =PV(rate, nper, pmt) Project 1 Initial investment (made immediately) -$272,000 Return per year $60,000 Number of years 8 Discount rate 10%

Project 2 -$380,000 $70,000 8 8%

PV of initial investment PV of 8 years annual return NPV

($272,000.00) $320,095.57 $48,095.57

($380,000.00) $402,264.73 $22,264.73

Maximum initial investment

-$320,095.57

-$402,264.73

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

The results would differ if the initial investment is assumed made during the 1st year rather than immediately.

7. The major IT initiative took longer than expected and the bar code readers did not work as well as expected. However, the employees unexpectedly embraced the change and made the technology work better than expected.

This situation provides an example of Project Risk (the project will not be completed on time) and Technological Risk (the technology will not deliver expected benefits). The technological risk is mitigated by employee commitment to the use of the technology. The project risk was not mitigated.

8. EXCEL solution (using NPV function) Present Values $8,166,998.36 $8,983,597.58 $7,938,322.41 8%

$12 million five years from now $2.25 million each year for 5 years $10 million 3 year from now Discount rate Select the $2.25 million per year for 5 years

9. Moore’s law suggests that costs will decrease and computing power will increase. The affects IT planning, since delays could reduce costs and option new technological options. It also suggests that current technology will become obsolete fairly quickly, so the payback should be over a short time frame.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1.

Please see related EXCEL spreadsheet for details on calculations.

a. Analysis not considering risks Cost Element Acquisition Cost (new software and implementation)

Year 0

Year 1

Year 2

Year 3

Average

$50,000

$50,000

$50,000

$5,000

$5,000

$5,000

$50,000 $5,000

$400,000

Operating Cost (annual licenses, upgrades, support)

Total $400,000 $150,000 $25,000

Training

$10,000

Lost productivity during implementation

$20,000

Totals

$430,000

$55,000

$55,000

$55,000

$55,000

$595,000

Year 0

Year 1

Year 2

Year 3

Average

Total

$200,000

$300,000

$300,000

$266,667

$800,000

$100,000

$150,000

$150,000

$133,333

$400,000

$300,000

$450,000

$450,000

$400,000

$1,200,000

Year 1

Year 2

Year 3

Average

Total

Net Benefits

($430,000) $245,000 $395,000

$395,000

$345,000

$605,000

Payback = Initial investment/average net benefits initial investment Average net benefits Payback

$430,000 $345,000 1.25 years

Benefits

Increase sales by 5% Improve inventory turnover by 10% Totals

$0 Net Benefits

NPV IRR Accounting rate of return

Year 0

$378,129.91 55% 80.23%

b. Analysis consider risks that benefits will not be achieved

..

4

$20,000

at 10%

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

Cost Element Acquisition Cost (new software and implementation)

Year 0

Year 1

Year 2

Year 3

Average

Total

$400,000 $150,000 $25,000 $20,000

$400,000

Operating Cost (annual licenses, upgrades, support)

$50,000

$50,000

$50,000

$5,000

$5,000

$5,000

$50,000 $5,000

Training

$10,000

Lost productivity during implementation

$20,000

Totals

$430,000

$55,000

$55,000

$55,000

$55,000

$595,000

Year 0

Year 1

Year 2

Year 3

Average

Total

$150,000

$225,000

$225,000

$200,000

$600,000

$30,000

$45,000

$45,000

$40,000

$120,000

$75,000

$112,500

$112,500

$100,000

$300,000

$12,500

$18,750

$18,750

$16,667

$50,000

$255,000

$382,500

$382,500

$340,000

$1,020,000

Year 0

Year 1

Year 2

Year 3

Average

Total

($430,000)

$200,000

$327,500

$327,500

$285,000

$425,000

Benefits

75% chance increase sales by 5% 25% chance increase sales by 3% 75% chance to improve inventory turnover by 10% 25% chance to improve inventory turnover 5% Totals

$0 Net Benefits

Net Benefits Payback = Initial investment/average net benefits initial investment Average net benefits Payback NPV IRR Accounting rate of return

$430,000 $285,000 1.51 years $244,122.67 40% 66.28%

at 10%

c. The value proposition for SlowRider, Inc. should discuss the costs, benefits, and risks of the BI investment outlined above. Based on the financial measures and risk analysis shown above, SlowRider should pursue the project. However, this analysis has not considered whether SlowRider’s employees will be willing to change (change risk) or whether this investment is consistent with SlowRider’s strategy (alignment risk). Additionally, the sensitivity analysis is limited.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

2. Please see related EXCEL spreadsheet for details on calculations.

Year 0 System costs Training costs RFID tags at $.15 RFID tags at $.10 after 2 years Total costs with tags at $.15 Total costs with tags at $.10 at 2 years

Year 1

Year 2

Year 3

Year 4

Year 5

$400,000 $25,000 $30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$20,000

$20,000

$20,000

$425,000

$30,000

$30,000

$30,000

$30,000

$30,000

$425,000

$30,000

$30,000

$20,000

$20,000

$20,000

0

$150,000

$150,000

$150,000

$150,000

$150,000

Net at $.15 per tag Net at $.10 per tag after 2 years

-$425,000 -$425,000

$120,000 $120,000

$120,000 $120,000

$120,000 $130,000

$120,000 $130,000

$120,000 $130,000

a.

1) Payback period at $.15 per tag initial investment average increase in cash flow at $.15 per tag payback

$425,000 $120,000 3.54 years

Savings

2) NPV 3) IRR 4) ARR = average income/initial cost

$75,927.98 13% 28.24%

b.

1) payback period 2) NPV 3) IRR 4) ARR

3.37 years $98,371.10 14% 29.65%

c.

Potential risks are those listed in Table 14.1. There is a risk that the project is not aligned with their strategy. There is a risk that the project will not generate expected financial and other benefits. There is a risk that the project will not be completed on time and on budget. There is a risk that Beach Dude’s employees will not accept the change. There is the technological risk that the technology will not work as expected. The students’ solutions should provide examples or situations in which those risks might occur.

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

3. a. One stated goal for Starbucks Digital Ventures is to “enhance the customer experience.”

On its face, that is clearly a difficult goal to measure. Starbucks provides it digital ventures services, e.g., online content, free Wi-Fi, to customers at the retail outlets for free. Thus, there is no direct revenue connection and improvements to customer satisfaction resulting in sales growth are hard to measure. Additionally, customers are influenced by the human interaction with baristas and various forms of marketing in general, so it is difficult to identify the cause of sales increases unambiguously. It is also possible that certain customers who visit Starbucks to take advantage of free internet access could crowd out higher paying customers. Consequently, the digital ventures services could reduce sales; however, it is inherently difficult to measure lost sales. b. Despite the problems outlined above, Starbucks indicates that it does measure ROI on its digital ventures. For examples, Starbucks creates special offers via its digital services and then tracks how many customers take advantage of those special offers.

Additionally, it uses data about customer preferences to structure special offers that the customer is most likely to be interested in. Finally, Starbucks expects that there is a strong correlation between the time that customers spend in the store and the amount that they spend per visit. By using the special offers, coupons, QR codes, etc., it can track whether or not their expectations are true.

4.

Initial investment Discount rate

$100,000 10%

Project Information

Year Initial 1 2 3 4 5

Project 1 ($100,000) 30,000 30,000 30,000 30,000 30,000

Project 2 ($100,000) 0 20,000 20,000 50,000 75,000

Average Total

$30,000 $150,000

$33,000 $165,000

$12,476.00 3.33 15%

$11,159.09 3.03 13%

$30,000 20,000 10,000

$33,000 20,000 13,000

a. NPV Payback years IRR b. Accounting rate of return: Annual benefits Depreciation Net annual income ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

Initial investment ARR

$100,000 10%

$100,000 13%

Although the depreciation expense affects the income statement, it is not relevant for this analysis, since we've already considered the initial investment. c.

When the discount rate increases to 15%, the net present value of both projects decreases and Project 2 now has a negative NPV of approximately -$5,100. Project 1 remains the preferred project when considering NPV, although the NPV for Project 1 is marginal (approximately $500). The IRR for Project 1 is approximately equal to the discount rate and the IRR or Project 2 is below the discount rate. d.

When the discount rate increases to 6%, the net present value of both projects increases. The NPV for Project 2 now exceeds the NPV for Project 1, although the IRR and payback periods for both projects remain unchanged. A lower interest rate makes Project 2 more attractive. e.

For technology investments, it is common to see a delay before realizing benefits, so Project 2 seems the more likely scenario.

5.

Cloud system Cloud system cost per month Number of months Loss on old equipment New computers

$1,500 36 $2,000 $2,200

Alternative system initial investment Loss on old equipment New computers

$40,000 $2,000 $2,200

Discount rate a. Comparing alternatives PV cloud system PV alternate Net savings alternate system Alternative is best solution b.

Alternative system upgrade

10%

($46,486.85) ($40,000.00) $6,486.85

$15,000 ..

8

at 10% discount rate Assuming immediate expenditure Other costs do not differ and are not relevant

At year 3

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

Cloud system cost

$1,200

PV cloud system first 36 mos.

PV cloud system next 36 mos.

Total cloud system PV

($46,486.85) ($34,926.26) ($81,413.11)

PV alternate initial investment PV upgrade at 3 years Total alternative PV

($40,000.00) ($11,269.72) ($51,269.72)

Net savings alternate

$30,143.39

Per month for 3 years beginning month 37.

The future value at 3 years is the same as the PV of the first 3 years

Total PV alternative minus total PV cloud system.

6.

Each alternative IT initiative carries risk of failing to achieve the respective benefits and exceeding the estimated costs.

Match the description of risk with each risk term.

1.

2.

3.

4.

The solution will not generate projected benefits. – B. Solution Risk The solution is not aligned with the strategy of the firm. – C. Alignment Risk The project will not be completed on time within budget. – A. Project Risk The solution will not deliver expected financial performance. – D. Financial Risk

7.

After identifying relevant risks, the project team often employs risk-minimization techniques to lessen the probability or impact of the risk.

Match the description/example of the risk mitigation technique with the type of risk being mitigated.

1. Ensure active top management support for the project – B. Project Risk 2. Use sensitivity analyst to consider likely alternative benefit levels – D. Solution Risk 3. Ask Microsoft to demonstrate that their software can meet the system requirements – C. Technological Risk 4. Give employees adequate incentive to use the new IT – A. Change Risk 8.

Match the description of these financial metrics to their terms. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

1. The average annual income from the IT initiative divided by the initial investment cost – A. Accounting Rate of Return 2. The sum of the present value of all cash inflows less the sum of the present value of all cash outflows – C. Net Present Value 3. The discount rate (return) that makes a project’s net present value equal to zero – B. Internal Rate of Return 4. The amount of money necessary to recoup a project’s initial investment – D. Payback Period

9.

Project benefits may come from a variety of sources.

Match the examples of these project benefits to their terms.

1. The new system will be able to identify additional products that customers might be interested in. –A. Revenue Enhancement 2. Installing an accounting system that supports international financial standards will lower the cost when international financial standards are required – D. Cost Avoidance 3. A supply chain system will help us source cheaper sources of raw materials to build our projects. – C. Cost Savings 4. Adding tracking information to shipments was important to not lose sales to competitors. -- B 10.

Which of these projects costs would be considered to be acquisition costs and which would be considered to be operating costs?

1. Hardware Replacement – Operating Costs 2. Help Desk Support -- Operating Costs 3. Software Upgrade -- Operating Costs 4. Development -- Acquisition Costs 5. Initial Training -- Acquisition Costs 6. Ongoing Training -- Operating Costs 7. Maintenance Contracts -- Operating Costs 8. Project Management -- Acquisition Costs

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

11.

There are several approaches to quantifying expected project benefits. Which of the following use simulation, external benchmarks, real option theory or expert opinion to help with the quantification?

1. Software that allows you to consider the impact under a variety of assumptions -- Simulation 2. Compare and contrast the results with projects of competitors or similar firms -- External Benchmarks 3. Sophisticated financial analysis comparing the probability of achieving expected benefits -- Real Option Theory 4. Consulting with a seasoned consultant to establish a likely benefit -Expert Opinion

12.

A firm is considering two projects. Both have an initial investment of $1,000,000 and pay off over the next five years in this fashion. The cost of capital is 6%.

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Option 1 -1,000,000 1,000,000 0 0 0 100,000

Option 2 -1,000,000 250,000 250,000 250,000 250,000 250,000

a. Which of these has a faster payback period? b. Which of these options has a higher net present value? c. Which of these options has a higher internal rate of return (IRR)?

Option Option 1 Option 2 Option 2

13.

A firm is considering two projects. Both have an initial investment of $1,000,000 and pay off over the next five years in this fashion. The cost of capital is 8%.

Year 0 Year 1 Year 2 Year 3

Option 1 -1,000,000 1,000,000 100,000 200,000

Option 2 -1,000,000 500,000 500,000 400,000 ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 15

Year 4 Year 5

300,000 400,000

300,000 200,000

a. Which of these has a faster payback period? b. Which of these options has a higher net present value? c. Which of these options has a higher internal rate of return (IRR)?

..

12

Option Option 1 Option 1 Option 1

Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

Chapter 16: The Systems Development Life Cycle and Project Management: Addressing the Challenges of Building AIS Systems Multiple Choice Questions 1. b 2. d 3. a 4. a 5. b 6. c 7. c 8. b 9. d 10. a 11. b 12. d 13. b 14. c 15. b

Discussion Questions 1. Rank the ten core principles of effective information technology planning in order of importance in your opinion. Provide support for your top five important principles.

Answers will vary.

While all of the core principles of effective planning are important, I would argue that the following are the most important.

• RELEVANT SCOPE — The overall scope of the planning phase should be established to facilitate formulation of effective strategies.

• BENEFITS REALIZATION — Costs of implementation should be justified through both tangible and intangible benefits that can be realized. The expected benefits should be bigger than the costs.

• ACHIEVABILITY — The planning phase should recognize the capability and capacity of the firm to deliver solutions within the stated planning timeframe.

• ACCOUNTABILITY — Identification of those responsible for implementing the plan should be explicitly clear.

• COMMITMENT — Management commitment to the plan’s implementation should be clear and evident.

The relevant scope helps us make sure there are bounds on the project. We know what is needed to be done and we’ll know when we are done. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

Benefits realization makes sure that the project benefits are greater than the costs and there is still a reason to do the project.

Achievability makes sure we can do what we expect to do. That the results will actually be achievable.

Accountability suggests knowing who is in charge and who will be implementing the plan.

Having accountability is critical to an IT project, especially when follow up is needed by the project sponsor.

Having commitment from management for the project and a clear project sponsor is critically important to garner the necessary resources and buy-in from the company.

2. Imagine the role of the project sponsor when a leader of the accounting bookkeepers comes to complain that the new information system could possibly result in the loss of five bookkeeper jobs. The bookkeepers argue that they will get the union involved if needed to protect their jobs. What should the project sponsor do?

One possible direction the project sponsor could follow would be to explain that technology is continuing to change our world. To keep current positions, companies need to save where they can and this new technology allows the company to save money, yet keep some bookkeeper jobs, instead of having them outsourced to another company, or even India. While the loss of bookkeeper positions will be painful, especially for those who lose their jobs, keeping the company efficient and lean is also important for the company.

3. Explain the 100% rule. Assume you are telling your roommate about this rule and use an example that is relevant to him or her.

The 100% Rule, therefore, requires thorough and complete project planning, that is, during the planning phase, being able to define all of the tasks, including all of the internal, external and interim tasks.

Perhaps a relevant example would be planning for a hiking trip and having every task planned in advanced, from packing a poncho to making sure food is included (as well as emergency provisions in case you get lost on your trip), to preparing for the weather (like rain).

These same tasks are required during project management to make sure all contingencies are planned and scheduled to allow complete communication of the needed project support to the project sponsor. The more thorough the planning, the less cost and time overruns will be experienced even when the unexpected occurs.

4. Your grandmother regularly listens to oldies music on collection of cassette tapes using a Sony Walkman (vintage 1989). She appreciates the ability to take her music with her when she goes on walks. You are convinced that a newer music player, such as an iPod touch, would bring her into the current era, even though cassettes are making a comeback among the hip crowd. a).

What features of the music player would you point out to her to help ease her concerns of "perceived usefulness" and "perceived ease of use"? And b). Use the Technology Adoption

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

Model discussed in the chapter to determine whether she will actually use a new music player if she received it as a birthday present. iPod touches do not require cassette tapes that might actually finally get damaged or wear out.

Showing the features of the iPod touch and how easy it is to use in finding new songs (no rewinding or fast forwarding required, etc.) and that perhaps all of her cassette tapes that be put on a really small device (that isn’t so heavy, or need to carry all her cassette tapes along, etc.). Usually elements of the technology acceptance model as a guide, showing her that it is easy to use and actually useful will likely enhance her desire to try it.

5. What are the differences between the situation in discussion question #4 above and that of users of a brand new accounting information system?

The technology acceptance model would suggest perceived usefulness and perceived ease of use would be predictive of the intention to use and ultimately on the actual adoption.

Hopefully, a complete systems analysis and ultimate design of the new accounting information system have been built with the users in mind, so perceived usefulness and perceived ease of use are considered. However, in either case, it is helpful to point out features of the new system that are helpful for the users of the accounting information system. It would also facilitate adoption by showing some features that are very easy to use (and perhaps are quite similar to the old system).

6. Compare and contrast a PERT chart and a Gantt chart. How do they complement each other?

The PERT and the Gantt charts each have strengths are weaknesses. As was pointed out in the chapter, The PERT chart is sometimes preferred over the Gantt chart because it clearly illustrates task dependencies. On the other hand, the PERT chart can be much more difficult to interpret, especially on complex projects. When used together, they overcome these deficiencies and complement each other.

7. Using the 15-15 Rule as a guide, when would a project manager and/or project sponsor proceed with completion of a project even if it is both 15 percent over budget and 15 percent off the initial schedule?

The 15-15 Rule states that if a project is more than 15 percent over budget or 15 percent off the desired schedule, it will likely never recoup the time or cost necessary to be considered successful. If the project is mission critical or related to a key competency of the company, it will likely be completed even if it is over budget and 15 percent off the initial time schedule.

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

Problems (Note – Problems with “Connect” in parentheses below are available for assignment within Connect.)

1. As part of effective IT planning in systems development life cycle, a return on investment (ROI) calculation may be performed as part of the economic feasibility analysis. Often, many of the benefits from a new information system may be intangible benefits (e.g. system is easier to use or system enhances customer service, etc.) that are hard to quantify in an income statement.

How would you suggest this be included in the economic feasibility analysis?

Sometimes ROI is computed only using hard dollars and may underestimate the total return. In order to include the intangible benefits, it may be important to clearly state what advantages are expected to occur and why they are expected to occur. If there is a quantifiable benefit, it should be real clear that this is just an estimate and how the estimate was derived. Intangible benefits are often the most important returns, so in our view, they should be included in the analysis.

2. In the chapter, we discussed an example of Starbucks using the systems development life cycle to develop the capability to analyze what type of pastries sell best with its various hot and cold drinks. Now, let’s suppose that NASDAQ requires all of the firms trading on the exchange to report their financial statements not only using GAAP but also International Financial Reporting Standards (IFRS). Since Starbucks’ current system cannot handle the IFRS requirements, the financial reporting system must be modified. Using Starbucks as an example, explain what types of activities would occur in each of the five phases of the systems development life cycle in preparation for reporting financial results according to IFRS. Intel is traded on NASDAQ, so we’ll use them as the focal company to answer this question.

The planning phase of the SDLC begins with a business need for a new or better information system. In the case of Intel, if they hope to continue to list on NASDAQ and NASDAQ requires IFRS as well, it would appear that a future business case is not needed.

The analysis phase of the SDLC involves carefully analyzing the needs of the end user and refining project goals into carefully defined functions and operations of the intended system. A system that reports U.S. GAAP (FASB) standards in addition to IFRS, the analysis is relatively clear. However, it is important to build in some flexibility so that perhaps the system would be useful for financial preparers to do a what-if analysis to show how various transactions would affect both the financials under U.S. GAAP (FASB) and IFRS. Intel may also want to consider the functionality of the system to make sure it is user friendly, etc.

The design phase of the SDLC involves describing in detail the desired features of the system that it uncovered in the analysis phase. Intel should design the needed features in in detailed screen layouts, business rules, process diagrams, pseudo code and other documentation to ensure that it is user friendly and gets the needed information in as efficient a manner as ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

possible. The design should also ensure that it meets NASDAQ standards and the reports needed for that formatting.

Implementation: The implementation phase of the SDLC involves development, testing and implementation of the new proposed system. The Intel systems developers write the computer code and test it. Maintenance: The maintenance phase of the SDLC is the final phase of the SDLC and includes making changes, corrections, additions, and upgrades (generally smaller in scope) to ensure the system continues to meet the business requirements that have been set out for it. The Intel system has continuous and regular maintenance to ensure that it meets the NASDAQ requirements for IFRS. 3. Accountants generally do not have all of the necessary systems analyst and systems development skills needed to develop accounting information systems. Why should you be interested in project management of an accounting information system?

Understanding the various phases of the SDLC and what systems analysts and systems designers may help accountants to communicate their needs to those designers. Systems analysts and designers may also not understand the important need of internal controls associated with financial reporting systems. To the extent that accountants can understand the system and help design that system, they can help address those internal controls.

Not surprising, there is quite an active and potentially lucrative market for those that have both accounting and systems skills. To the extent this interests you and jobs are available, it may make sense to take further courses in this area and prepare for a career as an IT auditor, among other designations discussed in chapter 1.

4. For your personal consulting business, you decide to set up an accounting information system to help with taxes as well as to help monitor your revenues and expenses. You’ve heard that the QuickBooks is easy to set up, so you buy it, install it on your computer, enter in recent transactions and begin to use it.

Required: 1. Explain one or two ways you could be a user of this accounting information system. (Hint: Use the discussion in the text considering the role of accountants in accounting information systems.)

As a user of the AIS, disaggregating the sources of revenues and expenses would be of critical importance. Also consistent with one of the themes for chapter 1, that accountants are business analysts, helping businesses to address subsequent business opportunities.

2. Explain one or two ways you could be a manager of this accounting information system.

(One possibility: What practices do you employ to make sure your system is safe.) ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

As you manage the AIS, you may want to establish certain practices to ensure the information in the system is accurate. This might include doing cash reconciliations between the AIS and the bank. You may want to ensure only certain individuals can access these accounts, or that it is not accessible from the Internet by others, etc.

3. After a few months, you decide to expand your QuickBooks with additional modules (payroll, inventory, etc.). Access the QuickBooks website (http://quickbooks.intuit.com) and consider one or two ways you could be a designer of your accounting information system.

You have many choices to consider on what modules are added and what functionality they have with the overall accounting systems. These choices affect the overall functionality of the system and add capabilities that may aid in the overall, efficient running of the business.

5. Brainstorm a list of reasons why 61% (including 43% challenged + 18% failed) of the information technology projects either failed or were challenged in 2012. Consider specifics of each of the elements of the triple constraints model and any other common delays including the challenges of working with programmers, software and hardware suppliers and vendors, etc. What is the best way to overcome these issues and decrease the number of projects failed or challenged?

Potential Reasons For Failed or Challenged IT Project Scope creep?

Incomplete work breakdown structure.

Lack of consistent use of PERT and Gantt charts Improper communication between business users, systems analysts, systems designers and programmers.

Unanticipated costs.

Unanticipated problems with the software.

Improper training Lack of training Lack of desired functionality Lack of Project Sponsor to get needed resources Use of the work breakdown structure where 100% of the tasks are identified and use of the PERT and Gantt planning tools, all would be helpful. A strong project sponsor that gets the needed resources for the project would ensure company support.

6. As mentioned in the opening vignette, Wal-mart is implementing its SAP system throughout its worldwide operations. If Wal-mart has the choice, should it implement this system in China before, at the same time, or after the implementation in the United States? Use the Technology Acceptance Model as a model (in particular, perceived ease of use) to explain your answer. ..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

If Wal-mart rolls this out worldwide all at once, they may be rolling out a program with bugs or that does not have the desired functionality. At a minimum, they need to ensure that the program works and has the desired functionality.

Ofttimes, the philosophy is to make the program highly functional with an interested and motivated set of users that can communicate the success of that system, its perceived usefulness and the perceived ease of use to others in other geographical locations to promote their use.

7. The PERT chart below represents the tasks to be done to implement a system. Can you think of other steps that should be included? Is there adequate time for training given the Technology Acceptance Model’s recommendation to focus on perceived usefulness and perceived ease of use? What is the critical path for this project?

(Comp: Insert Chapter 15 Pert Chart in Problems here) It seems like more steps need to be taken to get user acceptance. Have they had enough time for the initial analysis of the business needs (or is that assumed to be already done)? Is there enough time for user acceptance? What happens at node 12? Do they have a further time period to test it out or it expected to be used? Will the old system be running at the same time to allow a transition period?

The critical path, or longest path, is node 1 to 2 to 3 to 5 to 6 to 7 to 11 to 12.

8. Consider the Triple Constraint figure in Figure 15.3. Why is quality included in that figure even if it is not a triple constraint? Why is quality a concern (or not a concern based on your point of view) for the project manager and project sponsor?

While the triple constraints do need to be carefully addressed, some level of quality must be met to be useful to the firm, to gain user acceptance and actually be used. While oft times the focus for the project manager is that a project must be completed by a certain date or for a certain amount of money (cost) or both. But in many cases, just as important is that the deliverable (or result) of your project must also meet some minimum specifications (quality) to meet the firm’s intended purposes.

9. (Connect) We discussed 10 core effective information technology planning principles.

Match the description of each with each their respective principle.

1. The planning phase should support and complement the business strategy of the firm – A. Alignment

2. Costs of implementation should be commensurate with the tangible and

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

intangible benefits expected to be realized – D. Benefits Realization 3. An appropriate planning horizon should be developed – C. Relevant Timeframe 4. The overall scope of the planning phase should be established to facilitate formulation of effective ways to address the business needs – B. Relevant Scope

10. (Connect) We discussed 10 core effective information technology planning principles.

Match the description of each with each their respective principle.

1. The resulting plan that comes out of the planning phase should be communicated widely – B. Awareness 2. The planning phase should recognize the capability and capacity of the firm to deliver solutions within the stated planning timeframe – A. Achievability 3. The plan should be periodically reassessed to ensure it is relevant to the evolving business strategy of the firm. – C. Reassessment

4. The planning phase should provide a means to measure and monitor project performance and a means of communicating success to both stakeholders both inside and outside the firm. – D. Measurable Performance

..

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Richardson, Chang, Smith – Accounting Information Systems, 2nd Edition – Chapter 16

11. (Connect) The textbook emphasized the challenges of IT project management. In 2012, what were the outcomes of IT projects (as reported in the text)?

1. Successful – B. 39% 2. Challenged (late, over budget, and/or with less than the required features and functions) – C. 43% 3. Failed (canceled prior to completion or delivered and never used) – 18%

12. (Connect) There are five phases in the systems development life cycle (SDLC).

Match the description of each phase to the correct phase.

1. The phase of the SDLC that involves a complete, detailed analysis of the systems needs of the end user as well as a proposed solution. – A. Analysis Phase 2. The phase of the SDLC that involves development, testing, and implementation of the new proposed system. – C. Implementation Phase 3. The phase of the SDLC that involves describing in detail the desired features of the system that were uncovered in the analysis phase. – B. Design Phase 4. The final phase of the SDLC that includes making changes, corrections, additions, and upgrades (generally smaller in scope) to ensure the system continues to meet the business requirements that have been set out for it. – D. Maintenance Phase 5. The phase of the SDLC that summarizes the business needs with a high-level view of the intended project. – E. Planning Phase

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Chapter 16 - The Systems Development Life Cycle and Project Management: Addressing the Challenges of Building AIS Systems

13. (Connect) Decide whether each of these statements regarding the Technology Acceptance Model are True or False.

1. The technology acceptance model predicts whether systems will be adopted or scratched.

- True 2. Perceived usefulness is the extent to which users believe the system will help them perform their job faster. – False 3. Perceived ease of use is the extent to which a person perceives that the use of a particular system will be relatively free from effort. – True 4.To help users adopt a new system, systems analysts and developers may mock up the computer screen to show the look and feel of the system well before the new system is written. – True 5. To help users adopt a new system, systems analysts and developers may stop discussing with users features of the new system after the planning phase to make sure the users get exactly what they say they need. - False

14. (Connect) For each of the following, please define these as either Work Breakdown Structure, Triple Constraint, 100% Rule or 15-15 Rule.

1. The process of identifying all tasks needed to complete a project. – Work Breakdown Structure 2. Three factors that constrain information technology and other projects: cost, scope, and time – Triple Constraint 3. A rule requiring 100 percent planning of all tasks, including all of the internal, external, and interim tasks. – 100% Rule 4. A rule suggesting that if a project is more than 15 percent over budget or 15 percent off the planned schedule, it will likely never recoup the time or cost necessary to be considered successful. At this point a decision needs to be made on if or how to proceed from that point. – 15-15 Rule

16-10 ..

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