Instructor Solution Manual for Accounting Information Systems, Third Edition Richardson, Chang, & Sm

Instructor Solution Manual for Accounting Information Systems, Third Edition Richardson, Chang, & Smith

richard@qwconsultancy.com

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

Chapter 1 – Accounting Information Systems and Firm Value Multiple Choice Questions 1. c 2. a 3. a 4. c 5. d 6. b 7. d 8. a 9. d 10. a 11. a 12. c 13. b 14. d 15. a

Discussion Questions 1. How would an AIS help a company identify the products with the highest profit margin?

Accounting information systems keep track of the revenues and the costs of each product. If the information is reliable, exhibiting the faithful representation qualities, AIS can compute the highest profit margin and highest profit margin percentages. This will help the company know how best to grow its profits, potentially by increasing sales of the products with highest profit margins and perhaps deemphasizing those of lowest profit margin.

2. 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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

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

3. 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 Super Smash Bros. Nintendo Switch Game at GameStop all the way to giving 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 Nintendo Switch Game at Best Buy in the following way: The game will be recorded as sales revenue and then after deducting its costs will add to or subtract from corporate income. The cash from the game sale will also add to the operating cash flows.

The specific game will be recorded in the information as a sale to monitor which games are selling within Best Buy. This will help Best Buy and its suppliers know which games are selling and which type of games should be reordered. The type of game 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 game sale will also help decision makers know where its sales are occurring.

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

4. 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. The following represents potential answers: 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).

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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

5. After a NCAA women’s 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 NCAA women’s 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 exhibit the quality of faithful representation, 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.

6. 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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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.

7. How do you become a Certified Internal Auditor (CIA)? What do they do on a daily basis?

An individual can earn a CIA designation with a combination of required education, professional experience, character references and passing of the CIA exam.

The CIA designation identifies accountants with a broad range of knowledge about the company. They work inside an individual company, generally providing an independent assessment of the company’s operations, including the effectiveness of a company’s internal controls. They may be called upon to investigate the possibility of fraud in financial statement reporting, or investigate the throughput of a manufacturing system, among many other things.

On a daily basis, CIAs might evaluate internal controls associated with financial reporting, help devise a more efficient financial reporting system, or help audit an operational issue which the audit committee needs to better understand.

8. 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.

9. 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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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).

10. 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.

11. 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.

12. 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.

13. 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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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.

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

For Airbus, understanding its customers is of paramount importance. Airbus 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, Embraer, Comac, 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 Airbus tailor its offering and propose new offerings based on the needs of the customer.

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

1. Accenture recently wrote an article entitled, “Meet the Finance 2020 Workforce” (2017) suggesting that accountants will need to not only embrace traditional financial questions of "What happened" and "Why did it happen" questions, but also the questions of "What should we do"? How is that consistent with the idea that the accountant should serve as a business analyst argued in the chapter?

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 exhibits faithful representation.

Other accounts are only needed periodically, such as estimates and allowance accounts, so realtime 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 exhibit less faithful representation. 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.

Accenture recently wrote an article entitled, “Meet the Finance 2020 Workforce” (2017) suggesting that accountants will need to embrace new financial roles to analyze new

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

business opportunities and way the organization can profit from them. Consider the internal and external business processes and give ideas of how they might allow the accountant to analyze business opportunities and how the company might able to profit from them.

3. If enterprise systems do much of the traditional work of recording transactions and processing journal entries and other accounting information, what role is left for the accountant to perform?

Answers may vary. With computers doing much of the recording and processing of accounting information, the accountant can become more of a business analyst, knowing what information is available and knowing what information is needed to help management make important decisions.

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.

(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.

6.

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

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?

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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.

7.

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 10 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.

8.

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

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)

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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

9.

(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.

1. Digital Health Records - automate 2. Google Maps that recommend hotel and restaurants along a trip path - transform 3. Customer Relationship Management Software - informate 4. Supply Chain Management Software - informate 5. Enterprise Systems - automate 6. Airlines Flight Reservations Systems - informate 7. PayPal - transform 8. Amazon.com Product Recommendation on your homepage - transform 9. eBay – informate or transform 10. Course and Teacher Evaluation conducted online for the first time (instead of on paper) – automate 11. Payroll Produced by Computer - automate

10. (Connect) Information systems have an 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

Revenues

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

Supply chain system Enterprise system Supply chain system All of these

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

Probability of Job Loss 0.004 0.007 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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

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) 13. (Connect) Which firm information system (Enterprise System, Customer Relationship

Management, Supply Chain) would address each of the following questions?

Questions

Information System (Customer Relationship Management, Enterprise System, Supply Chain Management) Enterprise System

What is the value of fixed assets (property, plant and equipment) on the balance sheet?

How much does Boeing owe General Electric for its turbine engines?

When will the shampoo products from Procter and Gamble arrive at the Walmart distribution center?

Which customers should we no longer sell to due to poor credit?

When was the depreciation adjusting journal entry made?

How long does it take Microsoft to get electronic parts from Taiwan?

Who is Apple’s most profitable customer?

What is the salary of the web page designers most recently hired at Ebay?

Customer Relationship Management Supply Chain Management

Customer Relationship Management Enterprise System Supply Chain Management Customer Relationship Management Enterprise System

14. (Connect) Management has questions. Accountants have answers. These answers should come

from either internal or external business processes. And come from which firm information system (Enterprise System, Customer Relationship Management, Supply Chain)?

Questions

Internal or External Business Process

What is the value of fixed assets (property, plant and equipment) on the balance sheet?

Which shoes are least desired by Zappo’s customers?

When will the United Parcel Service (UPS) deliver the inventory?

Internal Business Process

External Business Process External Business Process

Information System (Customer Relationship Management, Enterprise System, Supply Chain Management) Enterprise System

Customer Relationship Management Supply Chain Management

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 1

What is the salary of the accounting staff most recently hired at Home Depot headquarters?

How long does it take to close the books at the end of the period?

How long does it take to deliver tires from General Motors to its car dealers?

Internal Business Process

Enterprise System

Internal Business Process

Enterprise System

External Business Process

Supply Chain Management

15. (Connect) Identify the certification required to address each of the following questions/tasks

including Certified Internal Auditor (CIA), Certified Public Accountant (CPA), Certified Information Technology Professional (CITP) and Certified Information Systems Auditor (CISA) Questions

Certification (Certified Internal Auditor (CIA), Certified Public Accountant (CPA), Certified Information Technology Professional (CITP) and Certified Information Systems Auditor (CISA)) Certified Internal Auditor (CIA)

Who helps determine if the internal controls are designed properly and working?

Who helps an individual file taxes with the IRS? Who performs IT audits for PWC (a Big 4 auditor)?

Who designs a more efficient financial reporting system?

Who looks for fraudulent financial transactions and works for the audit committee?

Who performs an external audit for a company before filing with the Securities and Exchange Commission?

Who helps design and implement a financial reporting system be done without paper?

Who evaluates whether there is a threat of a cybersecurity breach to the financial reporting system of a company it is auditing?

Certified Public Accountant (CPA) Certified Information Technology Professional (CITP) Certified Information Systems Auditor (CISA) Certified Internal Auditor (CIA) Certified Public Accountant (CPA)

Certified Information Technology Professional (CITP) Certified Information Systems Auditor (CISA)

16. The appropriate amount of an Allowance for Doubtful Accountants (that serves as a contra asset

to Accounts Receivable) is generally determined by figuring out how long the underlying receivables have remained unpaid? How might a customer relationship management system be able to help determine whether an outstanding accounting might be paid?

Answers will vary. The CRM might be able to provide the following information about the customer and whether they will be able to be paid. CRMs can help: • •

see if the customer has a dispute with the items received (causing the non-payment). see if the customer is continuing to purchase from the company.

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•

develop statistical models that predict allowances and collections based on all available data in the CRM.

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

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 collected 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. The answer to this question depends on the individual but most students should be forming foundational and intermediate skills by the time they graduate.

4. The answer to this question depends on the individual but most students should be forming basic and applied knowledge by the time they graduate.

5. The IMA Competency Framework was a specific section titled Technology & Analytics so at first glance, students are more likely to say the IMA framework emphasizes technology more.

However, technology and analytical skills are implicit in many of the topics.

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6. If students search for the word: processes in the IMA Competency Framework document, they will find it on almost every page. This is a good opportunity to discuss the importance of processes and process documentation to accounting and business functions.

7. The CGMA Competency Framework foundational skills require basic understanding of business structure, operations and financial performance. Almost every skill could be facilitated by business models, so this is an opportunity to select a skill and discuss how or why models could aid the development of that skill.

8. 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.

9. 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

Sequence Flows

Gateways/ Decisions

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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.

10. The stewardship and reporting function relates to regulatory/tax compliance. Accountants would need to collect information on regulatory regimes, tax rates, laws and regulations imposed and the performance of the company to comply with those laws and regulations.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

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

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. Of course, a Starbucks’ employee could answer menu questions or advise that certain items are not available at that time.)

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.

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

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.

b. 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).

b. 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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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 2

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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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. d 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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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: Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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

If the diagram is drawn from the University’s perspective, the answer would depend on the purpose of the information. In the most likely case that the purpose is to collect students’ education history, then the answer would be the same.

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

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).

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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 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 each room reservation involves one room.

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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, 3rd Edition – Chapter 4

Chapter 4 – Relational Databases and Enterprise Systems Multiple Choice Questions 1. b 2. a 3. c 4. b 5. b 6. d 7. a 8. a 9. c 10. b 11. d 12. c 13. b 14. a 15. a 16. a 17. c 18. d 19. c 20. b 21. c 22. d 23. b 24. b 25. d Discussion Questions 1. Explain the differences between hierarchical, network and relational data models. What makes the relational data model the most popular data model in use today?

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.

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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. What are the basic requirements of a relational database?

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.

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. Structured Query Language (SQL) is used to retrieve data from a database. Why would an accountant need to learn SQL? 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. Figure 4.32 lists the modules available from SAP. List and explain which modules would be most appropriate for either Maytag or a manufacturing company you are familiar with.

—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.

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—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. Given the description of Hershey’s failed enterprise system implementation from the chapter, which of the four challenges of the enterprise described in the chapter seem to best explain what happened? Use Google or Yahoo! to get more details on this case to help answer this question.

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.

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

1.

Account# BA-6 BA-7 BA-9

Balance 253 48,000 950

Account# BA-9 BA-6

Balance 950 253

2.

3. (Connect) Use the Cash Table below to write a SQL query to show a list of checking accounts.

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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

Answer: SELECT * FROM Cash WHERE Type = “Checking”; 4. (Connect) Use the Cash Table below to write a SQL query to show the total of all of the account balances.

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; 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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.

(Connect) Access Practice using Access_Practice.accdb to complete the required tasks.

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:

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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.

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:

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

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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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.

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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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.

c. Calculate the total dollar amount of each sale & Name the Query Sale_Amount_Calculation

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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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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.

d. Calculate total sales for each inventory item.

1) Create new query and select SalesItems and Inventory under the Tables tab.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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

4) Click

and select Sum for Amount in the Total row.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

5) Format Amount as Currency.

6) Select

, you will get total sales for each inventory item.

Save the query as Sales_for_Inventory_Items.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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.

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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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)

4) Select

, and see the result:

5) Save the query as Sales_Month.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

g. Calculate the sum of sales for each month.

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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

5) Format Sales_Month as Currency using the Property Sheet.

6) Click

and save the query as Sales_by_Month.

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

a. Link the five tables, enforcing referential integrity: 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, 3rd Edition – Chapter 4

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

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, 3rd Edition – Chapter 4

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

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

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

8) Click in the Show/Hide section of Design tab, select Group By for Customer ID and CompanyName, select Sum for Amt. 9) Format Amt as Currency.

10) Click

and save the Query as Total_Customer_Sales.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd 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.

and save the

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Richardson, Chang, Smith – Accounting Information Systems, 3rd 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, 3rd 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 which customer had the highest average sales amount.

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, 3rd Edition – Chapter 4

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

f. Calculate the total commission due to each employee. Use two queries to do these calculations.

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, 3rd 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, 3rd Edition – Chapter 4

Problems 10 to 14 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 AU-1 AU-2 AU-3 AU-4 AU-5 AU-6

Last Name Adams Brown Davis Newport Pham 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

Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

25

Richardson, Chang, Smith – Accounting Information Systems, 3rd 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];

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

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26

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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 found 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 Principles B-2 Cost Management B-3 B-4

Accounting Information Systems Individual Taxation 2017

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

Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

27

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

B-5 B-6

Intermediate Accounting Advanced Accounting

Customer Table Customer ID C-1 C-2 C-3 C-4 C-5 C-6 C-7

Last Name Black Brown Easton Jennix Venable White 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

Financial Accounting Financial Accounting

First Name Emily Jack Anderson May Judy Ashley Eric

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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28

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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

13. Ellen 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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29

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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

14. Ellen 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];

Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

30

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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

15. (Connect) The Cash Receipt table below contains seven attributes. Which of those could possibly be foreign keys?

Cash Receipt Table Remittance Date 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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31

Richardson, Chang, Smith – Accounting Information Systems, 3rd 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) Problems 17-20 17. (Connect) 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.

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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32

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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) Based on the three tables and the attributes below, write SQL commands for each question 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: SELECT InventoryID, Name, PurchasePrice FROM Inventory WHERE PurchasePrice > 6500;

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33

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

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; 19. (Connect) Identify the primary key of each table in the following partial database.

Author Table Author ID AU-1 AU-2 AU-3 AU-4 AU-5 AU-6

Last Name Adams Brown Davis Newport Pham Sviokla

First Name Eric Jennifer Keith Kevin John Julia

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

Accounting Information Systems Individual Taxation 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

Year

Edition Publisher

Financial Accounting Management Accounting Information Systems

2016 2017

8 3

Wiley McGraw-Hill

2017

2

McGraw-Hill

Taxation Financial Accounting

2018 2016

6 1

Pearson Wiley

Financial Accounting

2017

1

McGraw-Hill

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 Customer Table Customer ID Last Name

First Name

Email

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34

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 4

C-1 C-2 C-3 C-4 C-5 C-6 C-7

Black Brown Easton Jennix Venable White Williams

Sales_Line_Item Sales Date Customer ID 9/1/2020 C-7 9/1/2020 C-7 9/1/2020 C-1 9/2/2020 C-5 9/2/2020 C-5 9/2/2020 C-3 9/2/2020 C-3 9/2/2020 C-3 9/3/2020 C-2

Emily Jack Anderson May Judy Ashley Eric

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

Solution: Table name Author Table Book Table Author_Book Table Customer Table Sales_Line_Item

Attribute(s) as the primary key Author ID Book ID Author ID Book ID Customer ID Customer ID Book ID

20. (Connect) Given the above partial database, indicate the table name(s) that are linked with the listed tables.

Solution: Table name Author Table Book Table Author_Book Table Customer Table Sales_Line_Item

linked with Author_Book Table Author_Book Table Sales_Line_Item Author Table Book Table Sales_Line_Item Customer Table Book Table

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35

Richardson, Chang, Smith – Accounting Information Systems, 3rd 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 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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

1

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 5

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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2

Richardson, Chang, Smith – Accounting Information Systems, 3rd 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):

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.

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3

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 5

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.

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

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 located in the Instructor Resources Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

4

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 5

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):

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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

5

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 5

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)] 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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

6

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 5

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] 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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7

Solutions – Chapter 6 Solutions to 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 Solutions to 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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1

4. Figure 6.4 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 6.7 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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2

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.

Solutions to problems 1. Tablet Store Purchases a. UML Class Diagram

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3

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. Quick Jet, Inc. Purchases. a. Basic BPMN activity model of Quick Jet Purchases:

b. UML Class diagram:

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4

C/D = cash disbursements Misc. Supplies = miscellaneous supplies 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# (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)] Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

5

Cash Disbursements [Check # (PK), Check amount, Check date, Date this misc. purchase billed by credit card company, Employee # (FK), Vendor # (FK), Account # (FK)] Agents 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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

6

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]] 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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7

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 7

Chapter 7 – Conversion Business Process Multiple Choice Questions 1. e 2. c 3. d 4. a 5. e 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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

1

Richardson, Chang, Smith – Accounting Information Systems, 3rd 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, 3rd 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 7.7 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 7.6 and 5.11, one similarity is that both include resources, events, and agents.

However, figure 7.6 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.

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

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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 7

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)] 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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 7

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, 3rd 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)] Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd 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, 3rd Edition – Chapter 9

Chapter 9: 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 9.2 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 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 9.2 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 9

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?

Support your answer.

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 Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 9

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 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 9.5.

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?

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 9

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.

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

1. Using Figure 9.1 and 9.2 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, 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?

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 9

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?

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 companies and then analyzing them separately.

1 http://online.wsj.com/article/SB124967937642715417.html, accessed May 2016

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 9

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.

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 A. Reporting Independent required by internal finance, accountants B. System independent and creditors. -- D C. Consolidation 2. Any developer can create import and D. Flexibility 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 8. (Connect) Match the description of these XBRL terms with their descriptions.

1. A document containing XBRL elements -A A. XBRL Instance Document 2. Adds presentation elements to XBRL B. XBRL Specification instance documents to make them C. XBRL Style Sheet more readable to people -- C D. XBRL Taxonomy 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 9. (Connect) Match the description with these business process terms.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 9

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. B. C. D.

Business Intelligence Data Mart Data Warehouse Decision Support Systems (DSS)

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

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: a. The sales of General Electric - 1 b. The detail of the sub-business - 9 c. The previous day’s orders - 1 d. The current GE stock price - 15 e. The column reporting the most recent update - 7 f. The “alerts” that need to be investigated further -4 g. The column reporting the current performance - 5 h. The conversion cost percentage - 3 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.

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

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.

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

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

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 AVOID THESE TERMS WHEN DISCUSSING CORRELATION (but are acceptable when asserting Get causation) Have Cause Linked Increase/decrease More, Benefits more/ less, less Impacts Tied Enhances/undermines Connected/Related Effect/affect Tend 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. 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 AVOID THESE TERMS WHEN DISCUSSING CORRELATION (but are acceptable when asserting Get causation) Have Cause Linked Increase/decrease More, Benefits more/ less, less Impacts Tied Enhances/undermines Connected/Related Effect/affect Tend Improves/Boosts If > Then type statements (implies one-direction) Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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

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) 3. Your parents are correct, scholars report: Studying pays off - Causal 4. Snooze or lose: Memory retention enhanced by sleep - Causal 5. Tooth loss in elderly linked to mental impairment –Correlation (non-causal) 6. Eating fatty fish lowers risk of dementia - Causal 7. Political bias affects brain activity, study finds - Causal 8. 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 15.

For Current Liabilities: XBRL Tag Name: LiabilitiesCurrent Documentation/Description: Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer.

For Land: XBRL Tag Name: Land Documentation/Description: Amount before accumulated depletion of real estate held for productive use, excluding land held for sale.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

Chapter 10 – Data Analytics in Accounting Multiple Choice Questions 1. b 2. d 3. c 4. b 5. c 6. b 7. a 8. b 9. c 10. d

Discussion Questions 1. 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 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.

2. 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 write-downs, predict audit issues and outcomes, and as a basis for managerial decision making.

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 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

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. Descriptive analysis is usually more factual, stating what happened that doesn’t require a lot of extra analysis. A sum of assets, a count of customers, or a histogram of aged accounts receivable would be a typical descriptive analysis. In contrast, diagnostic analysis requires more detailed analysis to figure out what happened. For example, while descriptive analysis would figure out we earned more profit this year, diagnostic analysis would figure out why that occurred – was it more revenue or less expense, were we more profitable in some regions than in others? Were customers responding to higher quality or better advertising, etc.?

7. Prescriptive analysis would be required to find the needed level of performance on your final exam based on assignment and midterm exam performance. Prescriptive analysis is defined as identifies best possible options given constraints or changing conditions. Prescriptive analysis would allow us to change the performance on earlier assignments and midterms and see how it might impact the needed score on the final exam to achieve a particular grade.

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

1. (Connect) Data Analytics can be disaggregated into four steps as part of the ARMS. Classify each of these ARMS processes would be considered Master the Data (or ETL (Extract Load and Transfer)) or Perform the Analysis. a. Removing extraneous data and noise. – Master the Data b. Looking for trends in the data that might predict new sales opportunities. – Perform the Analysis c. Finding the necessary data from the financial reporting system to give to the external auditor for analysis. - Master the Data d. Performing tests of internal controls by the external auditor. - Perform the Analysis Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

e. Considering Champaign, IL weather patterns to predict corn production in the immediate area. - Perform the Analysis f. Consolidating large volumes of data from multiple sources and platforms. – Master the Data 2. (Connect) Match these definitions with either of the four V’s to describe Big Data, namely, Volume, Velocity, Variety or Veracity. 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 d. Opinions or Facts – Veracity e. Data with a lot of missing observations - Veracity f. Stock market data that updates every five seconds - Velocity g. Financial statement data that appears in tables – Variety h. All Twitter Data from 2021 - Volume 3. (Connect) Match the definition of the key words with their terms, including Audit Data Standards, Big Data, Descriptive Analysis, Diagnostic Analytics, AMPS: Master the Data, and AMPS: Share the Story. 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 process of cleaning and scrubbing the data before data analysis can take place. – Master the Data d. Process of determining how separation of duties was violated at the company. – Diagnostic Analysis e. Process of summarizing accounts receivable by how long it has been outstanding. – Descriptive Analysis f. Delivering the findings to the decision maker of which firms our company should approve for credit. – Share the story 4. These problems come from working Lab 1 – Accounts Receivable Aging performed in the chapter text.

Required: 1. Perform the analysis and take a screenshot of your aged receivables and label it “Lab 1 Submission 1.jpg”. Submit to your instructor

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

2. Take a screenshot of your detailed receivables in the 61-90 day aging bucket and label it “Lab 1 Submission 2.jpg”. Submit to your instructor.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

5. (Connect) Answer the following multiple-choice questions pertaining to Lab 1 – Accounts Receivable Aging performed in the chapter text.

1. If Home Depot has an invoice due date of 12/2/2021 and today’s date is 12/31/2021, what is the number of days past due? a. 27 b. 30 c. 28 d. 29

Answer: d.

2. What is the total receivables due in the 1-30 day A/R aging bucket? a. $35,641.82 b. $23,958.44 c. $27,312.04 d. Cannot be determined

Answer: b.

3. What is the gross amount of accounts receivable for this data set? a. $137,723.45 b. $127,312.04 c. $134,499.08 d. $169,144.34

Answer: d.

4. In the detailed 151-180 A/R aging bucket, what is the amount owed by Coca-Cola? a. $1,249.67 b. $471.33 c. $289.16 d. $729.16

Answer: a.

5. In the detailed 1-30 A/R aging bucket, what is the amount owed by Canon? a. $747.12 b. $1,447.32 c. $1,162.88 d. $658.05

Answer: b.

6. (Connect) Lab 1 Alt - Accounts Receivable Aging Apply the same steps as Lab 1 performed in the chapter text to the Lab 1 Alt Data.xlsx dataset.

Open Excel File Lab 1 Alt Data.xlsx Required:

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

1. Age the receivables in six 30-day buckets (similar to Lab 6 above) including 1-30 days, 31-60 days, 61-90 days, 91-120 days, 121-150 days, and 151-180 days.

2. Detail the receivables from the 31-60 day bucket.

Solution: 1. Age the receivables in six 30-day buckets (similar to Lab 6 above) including 1-30 days, 31-60 days, 61-90 days, 91-120 days, 121-150 days, and 151-180 days.

2. Detail the receivables from the 31-60 day bucket.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

Answers to multiple choice questions: 1. C 2. A 3. D Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

4. A 5. B

7. (Connect) These problems come from working Lab 2 – Segregation of Duties performed in the chapter text.

Assessment: 1. Perform the analysis and take a screenshot of your final pivot table and label it “Lab 2 Submission.jpg”. Submit to your instructor.

2. Answer the multiple-choice questions.

Solution:

Answers to multiple choice questions: 1. According to the instructions, who is authorized to Enter Transactions? a. VR, MW and AC and DH b. AC and DH c. VR and MW d. AC, DH, and VR Answer: c.

2. According to the instructions, who is authorized to Approve Transactions? a. VR and MW b. VR, MW and AC and DH c. AC, DH, and VR d. AC and DH Answer: d.

3. According to the Pivot Table, who violated the separation of duties? a. VR b. MW c. AC d. DH Answer: a.

4. If we entered “Count of Credit” instead of “Count of Debit” into the ΣValues, would the pivot table count be any different since the accounting rules require debits be equal to credits? a. No Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

b. Yes Answer: b.

5. Using the pivot table to summarize, who approved the most dollars (in total debits) of journal entries? a. AC b. VR c. MW d. DH Answer: a

8. (Connect) Apply the same steps as Lab 2 to the Lab 2 Alt Data.xlsx dataset performed in the chapter text.

Open Excel File Lab 2 Alt Data.xlsx and follow similar directions: Assessment: 1. Perform the analysis and take a screenshot of your final pivot table and label it “Lab 2 Alt Submission.jpg”. Submit to your instructor.

2. Answer the multiple-choice questions.

Solution:

1. A pivot table allows you to _____________: a. change the underlying the database. b. reorganize and summarize selected rows and columns.

Answer: b.

2. According to the Pivot Table, who violated the separation of duties? a. VR and AC b. VR and DH c. MW and DH d. MW and AC Answer: a.

3. Using the pivot table to summarize, VR entered how many transactions that were also approved by AC? Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

a. b. c. d.

30 22 19 14

Answer: c.

4. Using the pivot table to summarize, who entered the most dollars (in total debits) of journal entries? a. MW b. AC c. DH d. VR Answer: d.

5. Using the pivot table to summarize, who entered the least dollars (in total debits) of journal entries, that was an authorized approver? a. VR b. MW c. DH d. AC Answer: c.

9. (Connect) These problems come from working Lab 3 – Predicting Bankruptcy Using Altman’s Z. performed in the chapter text.

1. Perform the analysis and take a screenshot of the top 10 rows of calculations in your spreadsheet (including columns including X1:X5 and the Altman Z calculation and label it “Lab 3 Submission.jpg”. Submit to your instructor.

2. Answer the multiple-choice questions: Solution: 1. Perform the analysis and take a screenshot of the top 10 rows of calculations in your spreadsheet (including columns including X1:X5 and the Altman Z calculation and label it “Lab 3 Submission.jpg”. Submit to your instructor.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

2. Answer the multiple-choice questions: 1. How many firms have an Altman Z-score less than 1.8 and fall in the “Distress Zone”? a. 305 b. 310 c. 300 d. 27 Answer: a.

2. How many firms have an Altman Z-score greater than or equal to 1.8, but less than 3.0 and fall in the “Gray Zone”? a. 510 b. 523 c. 530 d. 516 Answer: d.

3. Based on the Altman Z’s formulas, the ________ each of the five factors (or financial ratios), the _______ the chance of going bankrupt. a. lower; lower b. higher; higher c. higher; lower Answer: c.

4. With recent financial pressure from e-commerce firms like Amazon and bricks and mortar store like Walmart, would you predict in more recent years that firms would go bankrupt more or less? a. More likely to go bankrupt b. Less likely to go bankrupt Answer: a.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

5. How many companies/years are considered in this dataset? a. 2,330 b. 2,331 c. 2,329 d. 2,332 Answer: c.

10. (Connect) Following the instructions of Lab 3 performed in the chapter text, analyze the chance of bankruptcy for manufacturing firms included in the Lab 3 Alt Data.xlsx dataset.

Assessment: 1. Perform the analysis and take a screenshot of the top 10 rows of calculations in your spreadsheet (including columns including X1:X5 and the Altman Z calculation and label it “Lab 3 Alt Submission.jpg”. Submit to your instructor.

2. Answer the multiple-choice questions.

Solution: 1. Perform the analysis and take a screenshot of the top 10 rows of calculations in your spreadsheet (including columns including X1:X5 and the Altman Z calculation and label it “Lab 3 Alt Submission.jpg”. Submit to your instructor.

2. Answer the multiple-choice questions.

1. How many firms have an Altman Z-score less than 1.8 and fall in the “Distress Zone”? a. 3,662 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

b. 9,683 c. 18,741 d. 5,396 Answer: d.

2. How many firms have an Altman Z-score greater than or equal to 1.8, but less than 3.0 and fall in the “Gray Zone”? a. 5,396 b. 9,683 c. 3,662 d. 18,741 Answer: c.

3. Based on the Altman Z’s formulas, the ________ each of the five factors (or financial ratios), the _______ the chance of going bankrupt. a. lower; lower b. lower; higher c. higher; higher Answer: b.

4. For factor X4, what is the appropriate weight based on Altman’s Z? a. 0.6 b. 1 c. 3.3 d. 1.4 Answer: a.

5. How many companies/years are considered in this dataset? a. 18,740 b. 18,742 c. 18,743 d. 18,741 Answer: d.

11. (Connect) These problems come from working Lab 4 What if solver/Breakeven/Goal Seek performed in the chapter text.

Assessment: 1. Perform the analysis and take a screenshot of the table following step 10 and label it “Lab 4 Submission.Jpg”. Submit it to your instructor.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

2. Answer the multiple-choice questions.

1. In the analysis of Lab 4, the breakeven point in October is _____. a. 330 units b. 313 units c. 286 units d. 334 units Answer: d.

2. In the analysis of Lab 4, the company could only have a positive net income in August if its unit sales are higher than _____. a. 270 b. 270 c. 250 d. 360 Answer: c.

3. In the analysis of Lab 4, the company could only have a positive net income in June if its unit sales are higher than _____. a. 286 b. 313 c. 250 d. 334 Answer: a.

4. In this lab, the company could only have a positive net income if the number of units sold is higher than 400 in _____. a. January, November b. June, July, August c. April, June, October d. January, November, December Answer: d.

5. Which is not an objective of what-if analysis? a. Predict future sales b. Predict breakeven point c. Make sales strategy d. Set threshold for minimum sales Answer: a.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

12. (Connect) Apply the same steps as Lab 4 to the Lab 4 Alt.xlsx dataset performed in the chapter text. The dataset Lab 4 Alt.xlsx includes sales information of product A, B, C, D, E, F and G in 2020. Estimate the breakeven point of unit of sales for each product when net income equals to zero.

Assessment: 1. Perform the analysis and take a screenshot of the output and label it “Lab 4 Alt submission.jpg”. Submit to your instructor.

2. Answer multiple choice questions.

1. What-if analysis could be used for? a. predict the cause-effect relationship b. estimate breakeven point c. clustering d. classification Answer: b.

2. In the analysis of Lab 4 Alt, is the breakeven point of product A higher than the current level of sales? a. Yes b. No Answer: a.

3. In the analysis of Lab 4 Alt, the breakeven point of unit sales for product E is _____. a. 155 b. 200 c. 400 d. 160 Answer: d.

4. In terms of the output of Lab 4 Alt, the company could only have a positive net income for product C if its unit sales are higher than _____. a. 200 b. 154 c. 152 d. 116 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 10

Answer: b.

5. In the analysis of Lab 4 Alt, is the breakeven point of product G higher than the current unit of sales? a. no b. yes Answer: a.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Chapter 11 – Data Analytics in Accounting: Tools and Practice Multiple Choice Questions 1. d 2. a 3. e 4. c 5. d 6. b 7. e 8. e 9. d 10. d 11. a 12. b 13. d 14. a 15. d Discussion Questions 1. Answers will vary. Tableau and Power BI are substantially easier for some visualizations. They connect with more kinds of datasets and handle more data. They are designed for data analytics and Excel requires pivot tables first.

2. Students should recognize the substantial similarities and consider the elements listed in the Data Visualization Concepts section as well as the Common Elements section. To prepare a quality report, a student would need to understand the audience, the data, and the questions to be addressed, gather data, organize the data, and present it in the best way to communicate the information to the intended audience.

3. The Common Elements section provides a good start to a list of required capabilities. Various data analytics software products can be compared based on what data they connect with, the ease of setting relationships among tables, the ability to select and/or create attributes, and the ability to present the data in a variety of easy to use charts/visualizations.

4. Answers will vary. Both products are very capable.

5. Most students will say they use pie, bar, and line charts. This can lead to a discussion of why they chose those charts, what the advantages are, and whether there are any disadvantages.

Problems See the related EXCEL (Problem_Data_CH11_solutions.xlsx), Tableau (Tableau_11 and CH11 problems 5 to 8 solution), and Power BI (PowerBI_11 and PowerBI_11_problems_9_to_11) solutions files.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Chapter 11 – Data Analytics in Accounting: Tools and Practice Chapter 11 Problems 1 to 4 See accompanying Excel spreadsheet, Problem_Data_CH11_solutions.xlsx, for an implemented solution.

1. Open the Problem_Data_CH11.xlsx EXCEL workbook. Review the four worksheets, then a create table for the data in each worksheet (Hint: Insert > Tables > Table. Name each table the same as the worksheet.

Click within the data, select Insert > Tables > Table.

Click Design > Properties and change the table name.

a. Then, establish relationships between Sales and the other three worksheets (Hint: Data > Data Tools > Relationships).

Create relationships. Note that the table with the “foreign key” should be listed first and the table with the primary key is listed as the Related Lookup Table.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

b. Summarize the data with a pivot table using the workbook’s data model (Hint: Design > Tools > Summarize with PivotTable; select the box related to use of data model on the dialog box).

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

c. Drag ChannelName to the Rows box and SalesAmount to the Values box. Format Sum of SalesAmount as currency. Change the custom name to Channel Sales.

Click on the Sum of SalesAmount in the Values area and select Value Field Settings from the dropdown menu. Click on the number format button to format the field as currency. Close the number format window. Replace Sum of SalesAmount with Channel Sales in the Custom Name box.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

The pivot table should look like this:

d. Add a PivotChart. Accept the default clustered column chart.

Click Analyze > Tools > PivotChart.

Click OK to accept the default.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

The chart should look like this:

e. Change the title of the pivot chart to “Channel Sales 2020.”

Click on the chart title, Total, and change it to Channel Sales 2020.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

f.

Change the name of the worksheet to Problem 1.

2. In the same spreadsheet – after completing problem 1, return to the Sales worksheet. a. Summarize the data with a pivot table using the workbook’s data model (Hint: Design > Tools > Summarize with PivotTable; select the box related to use of data model on the dialog box).

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

b. Drag ChannelName to the Rows box and SalesAmount to the Values box. Go to Value Field Settings. Select the Show Values As tab in the middle of the dialog box, use the pull-down menu to select Percent of Column Total. Close the Value Field Settings dialog box.

First, click on the Show Values As tab in the Value Field Settings. Use the pull-down menu to show values as % of Column Total. Change the Custom Name to Percent of Sales.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

c. Add a PivotChart. Select the Pie Chart option. Change the title to “Percent of Sales by Channel” and add data labels to the outside end of each slice (Hint: Design > Chart Layouts > Add Chart Element; select data labels > outside end).

Click Analyze > Tools > PivotChart.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

The chart should look like this:

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

d. Change the name of the worksheet to Problem 2.

e. Save the spreadsheet as solutions11.xlsx.

LO4 3. Open Tableau desktop (download the trial version and optionally sign up for a student license).

Connect to the Problem_Data_CH11.xlsx EXCEL workbook. Drag the four sheets to the canvas and connect them (Sales connects to Stores by StoreID, Channels by ChannelID, and Products by ProductID). Go to Sheet1.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

a. Create a vertical bar chart that shows the sum of Sales Amount by Channel Name. (Hint: drag Channel Name to the Columns shelf and Sales Amount to the Rows shelf). Change the title of the sheet (currently Sheet 1) to “Channel Sales 2020.” Rename the worksheet to “Channel Sales Bar.”

b. Insert new worksheet. Make sure the Show Me options are displayed on the right.

Select Channel Name (dimension) and Sales Amount (measure) (holding down the CTRL key). Review the potential chart options. Choose the pie chart. Change the view (ribbon bar) from Standard to Entire View so the pie chart appears larger and in the center of the sheet. Click on the (SUM) Sales Amount pill next to the pie slice icon under the Marks area. Select Quick Table Calculation > Percent of Total so the pie chart shows the percent of total sales for each slice. Drag Channel Name to the label mark to label each

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

slice with the channel name. Change the title to “Channel Sales Percentages.” Rename the worksheet to “Channel Sales Pie.” Select Pie Chart while holding down Channel Name and Sales Amount (and CTRL key).

Select Entire View.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Right-click on Sum(Sales Amount) pill next to the pie slice. Select Quick Table Calculation to change to percent of total.

c. Insert new worksheet. Drag Date (dimension) to the Columns shelf. Drag Sales Amount to the Rows shelf. Click on the plus in the Year(Date) pill and then click on the plus in the Quarter(Date) pill (the Columns shelf should now show three pills: Year(Date), Quarter(Date), and Month(Date). Remove the Year(Date) and Quarter(Date) pills to leave only the Month(Date) pill on the Columns shelf. The result should be a line chart showing the sum of sales by month. Drag Channel Name to Filters. Select all channel names. Click on the Channel Name pill down arrow and select Show Filter. The filter now appears on the right. Click on the down arrow in the filter and change the filter to a single value list. Hide the label field at the top and change the title to “Sales by Month.”

Change the worksheet name to “Sales Trend.”

Remove year and use dropdown menu to select Month (for the Date field).

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Drag Channel Name to Filters.

Right-click on Channel Name pill (or use down arrow) to show menu and select show filter. Use the down arrow to show the filters menu on the right side of the screen. Select single value list.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

d. Insert new dashboard. Add your three worksheets to the dashboard. Use the Sales by Month graph as a filter (click the funnel on the top right of that graph and toggle until it is set as the filter or use the down arrow below the funnel and select the use as filter option). Select a month and verify that all the graphs change with your selection.

e. Save your work. Save Tableau as a Tableau workbook named Tableau_11.

LO5 4. Open Power BI desktop (note that it only runs on Windows-based computers but it is a free download). Connect to the Problem_Data_CH11.xlsx EXCEL workbook (Home > Get Data > Excel; browse to the file location). Select all four worksheets and click the Load button to load the data. Go to relationships view and ensure the tables are connected as described in problems 1 and 3.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

a. In report view, select the Stacked Column Chart visualization. Select ChannelName (in Channels) and SalesAmount (in Sales) by checking the box next to those fields. Change the chart title to “Channel Sales Bar.” (Hint: click on the paint roller icon).

Click stacked column chart icon in the Visualizations panel.

Drag ChannelName and SalesAmount to the visualization. Those fields will be listed in the Fields panel (below the Visualizations panel).

Change the chart title (click on the paint roller and then change the title) so it looks like this.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

b. Ensure the first visualization is NOT selected. Click on the Pie Chart visualization icon.

Select Channel Name and SalesAmount, again. Change the chart title to “Channel Sales Pie.” Create a new visualization for a pie chart. Click on the Pie Chart icon in the Visualizations panel.

Again, drag ChannelName and SalesAmount fields to the pie chart, so they appear in the fields panel.

Click on the paint roller (to show the Format panel), change the chart title so it looks like this.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

c. Ensure neither of the first two visualizations are selected. Select the line chart visualization icon. Select Date and SalesAmount from the Sales table. In the Axis area (below the visualizations options), delete the Year, Quarter, and Day options by clicking the x on each. This should show sales by month. Change the chart title to “Sales Trend.”

Select the line chart icon.

Follow the steps to make your chart look like this.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

d. Click on any bar in the Channel Sales Bar chart to verify that all charts on the page change with the selection. Do the same for the pie slices in the Channel Sales Pie chart. e. Save your work. Name the Power BI file: PowerBI_11.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Chapter 11 – Data Analytics in Accounting: Tools and Practice Chapter 11 Problems 5 to 8 After Tableau opens, connect to Excel data and browse to the location of the chapter 9 problem data.

After importing, there will be two worksheets, Customers and Orders. Drag both of those to the box that says Drag sheets here. The two sheets will join and the joined data will appear in the bottom box. You can click on the two icons between the boxes to toggle between showing data and showing file structure.

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1

Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

You can click on the two icons between the boxes to toggle between showing data and showing file structure.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Click on Worksheet 1 at the bottom of the page to go to the worksheet associated with the data. Now you are ready to analyze the data.

Initial data panel.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

1. Graph the quantity sold. Drag the Qty Sold measure to the Columns shelf. Notice that the measure is automatically summed.

2. Change the measure to show the average quantity sold.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Click on drop down arrow.

Change from Sum to Average.

1. Drag the measure from the Columns shelf to the Rows shelf. What changes?

2. Compare the average quantity sold by state. Drag the State dimension to the Columns shelf.

What changes in the graph? Which state has the highest average sales quantity? Which state has the lowest average sales quantity?

Move State to the Columns shelf.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Chapter 11 – Data Analytics in Accounting: Tools and Practice Chapter 11 Problems 9 to 11 See accompanying Power BI file for implemented solutions.

9. Prepare the visualization described in Problem 5 using Power BI instead of Tableau.

Open Power BI. Click on Home > External Data > Get Data. Select Excel and browse to the location of the datafile: Ch11_problems_set_2.xlsx. Load the data. Then, click on the Relationships icon on the left side of the screen to ensure that the two tables are linked as shown below.

Click on the clustered bar chart icon. Drag the State and Qty_Sold fields to the visualization. In the fields panel, select the down arrow next to Qty_Sold and change the summary to Average.

Click on the paint roller and change the Title of the visualization to Average Quantity Sold by State so it looks like this:

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

10. Calculate and new amount field (qty_sold * sale_price) and prepare the visualization described in Problem 6 using Power BI instead of Tableau; place all the visualizations on one page since Power BI does not use dashboards.

Click on the Data icon on the left side of the screen to view the tables.

Click on the Orders table (on the right), then click Modeling > Calculations > New Column.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

Then, enter the formula for the new column. Click on the check mark icon to implement. Then, change the format of the column to currency (Modeling > Formatting).

Click on the Report icon to return to the Report level. Select a new stacked bar chart, drag the Name (Customers) and Amount (calculated field in Orders) to the visualization. Change the title to “Sales by Customer” so the chart looks like this.

11. Use Power BI to prepare a treemap showing the sum of sales amounts (the amount field calculated for problem 10) by store number (store#).

Click on the Treemap icon in the Visualizations panel. Drag the Amount and Store# fields (from the Orders table) to the visualization. Change the title so the chart looks like this.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 11

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 12

Chapter 12 Emerging Technologies: Blockchain and AI Automation Multiple Choice Questions 1. c 2. d 3. a 4. b 5. d 6. c 7. d 8. b 9. d 10. d 11. e 12. a 13. c 14. a 15. c 16. a 17. c 18. b 19. a 20. c 21. d 22. a 23. d 24. a 25. b 26. d 27. c 28. d 29. d 30. c Discussion Questions 1. Bitcoin was introduced in 2009. The total bitcoins that exist today is much more than the total bitcoin amount in 2009 or 2010. How can this happen?

Answer: A new block is being added to the blockchain roughly every 10 minutes. When a new block is added, the system awarded the successful miner with new bitcoins. Hence, the overall number of bitcoins grew at the speed of the system generated coins every 10 minutes.

2. Since bitcoin uses blockchain technology and is cheaper than the traditional way of doing business, why is bitcoin not an accepted by many government agencies?

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 12

Answer: One feature that led to the popularization of Bitcoin is that its transaction are anonymous. Bitcoin is a public blockchain which allows everyone to join the network and examine the transactions. However, the parties in the transaction records are represented by the addresses of the owners, not by the real identities. The government agencies forbid bitcoin payment since real identities are almost always required by these agencies.

3. Why is Ethereum a better choice over Bitcoin for business related applications?

Answer: Bitcoin is a peer-to-peer, cryptocurrency application. It only deals with bitcoin currency transactions. Ethereum, on the other hand, introduces smart contracts which incorporate business rules to transfer assets. Furthermore, since smart contracts are designed to be programmable, they are able to serve all kinds of industries. Obviously, Ethereum is a much better choice for business related applications.

4. What are the three types of blockchain? What are major differences amongst these blockchains?

Answer: public blockchain, private blockchain, and consortium blockchain.

Differences: public blockchain has no access restrictions to the viewing and participation in the blockchain network. This type of blockchain is not allowed in many industries, such as finance. In the financial industry, permission is usually required to join the network. This type of blockchain is called private blockchain or permissioned blockchain. Instead of using proof of work for validation in public blockchain, transaction data and validation are restricted in private blockchain. Consortium blockchain is a permissioned blockchain but the participants constitute multiple organizations. In addition, the consensus protocol is executed only on a limited set of trusted nodes for consortium blockchain.

5. You have been tasked with forming an audit and assurance team to work with companies that have adopted Blockchain technology. What skill sets will you emphasize when choosing your team members and why?

Answer: It is important for your team members to understand the terms mentioned in blockchain technology such as distributed ledger, mining, consensus, immutability, proof of work, proof of authority, Bitcoin, Ethereum, Hyperledger, and R3 Corda etc. In addition, Ethereum and other blockchain applications use smart contract to represent business rules. It is important for the audit and assurance team to understand how business rules are represented in smart contracts and to make sure that the business conduct is compliant with government agencies.

6. Recently, over 20% of companies surveyed indicated they were testing or considering artificial intelligence applications in their business but only 4% were actively using AI. Why do you think companies a) are interested in AI, and b) are having trouble implementing AI? The interest in AI follows from the belief that AI will increase revenues or reduce costs. The implementation problems could be several: lack of data, lack of data science skills, long development cycles.

7. Review the five basic questions that AI/machine learning can answer. Develop additional business questions for each question.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 12

1. Is this customer likely to buy? Is this transaction fraudulent? Should we hire this applicant?

2. Is this user name and password suspicious? Is this contract risky? Are revenues for this store in line with other stores?

3. What is the value of goodwill? How much is this used car worth?

4. Which types of inventory will be attractive to this customer? Which types of songs would this person like?

5. How much should we bet now? Where is the stock market going next?

8. Visit the websites of major accounting firms. Search for what they are doing with AI/machine learning? How do you think this will impact the accounting profession over the next 10 years?

Open-ended question, but the answer should address changing skillsets, changing mindsets.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

Chapter 13 – 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 16. a 17. d 18. c 19. c 20. 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 2004 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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

Components: Internal Environment, Objective Setting, Event Identification, Risk Assessment, Risk Response, Control Activities, Information and Communication, Monitoring.

3. Two frameworks by COSO have been updated in recent years: the COSO 2013 Internal Control framework and the COSO ERM 2017 framework. What are the differences between the two frameworks?

COSO 2013 focuses on internal controls. It is a general framework with 17 principles to provide a benchmark for most companies to evaluate their internal controls. Internal control is an integral part of enterprise risk management. COSO developed the ERM framework to help companies evaluate risk and opportunity with a broader view on risk management to maximize firm value. `ERM identifies potential events that may affect the companies. ERM manages risk to be within the companies risk appetite. ERM provides reasonable assurance regarding the achievement of the firm’s objectives.

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 • meets regulatory requirements by being consistent with generally accepted corporate governance standards (e.g., COSO) and IT controls expected by regulators and auditors.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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.

10. Describe the control activities in the COSO framework. Why are these control activities important for most firms?

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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.

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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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 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?

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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 × Decreased Likelihood Control A: 300,000 × (10% - 4%) = 18,000 = 18,000 Control B: 300,000 × (10% - 6%) = 12,000 > 10,000 Control A&B: 300,000 × (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? a) 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) b) Theft of funds by the cashier, who cashed several checks and did not record their receipt.

Segregation of duties (record keeping and asset custody) c) 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.

Supervision, independent verification, and documents and records to track custody of goods and determine responsibility. d) 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)

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

e) 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) 6. (Connect) Which types of input controls would best mitigate the following threats? a) 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. b) A customer entering too many characters into the five-digit zip code while making an online purchase, causing the server to crash.

Size Check c) An intern’s pay rate was entered as $150 per hour, not $15 per hour.

Reasonableness Check d) Approving a customer order without the customer’s address so the order was not shipped on time.

Completeness Check e) 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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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

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:

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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).

i. Authorization

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, restrictively endorse or stamp checks “For Deposit Only.”

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

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 2004

ii.

Provide management an information technology (IT) governance model that helps in delivering value from IT and understanding and managing the risks associated with IT.

c. COBIT 2019

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, 3rd Edition – Chapter 13

11. (Connect) The COSO ERM 2017 framework codifies 20 principles associated with the five components of enterprise risk management. Match the following principles with the five components.

COSO ERM Principles

COSO ERM Components

a. Report on risk, culture, and performance

i.

Governance and Culture

b. Review risk and performance

ii.

Strategy and Objective-setting

c. Pursue improvement in ERM

iii.

Performance

d. Exercise board risk oversight

iv.

Review and Revision

e. Attract, develop, and retain capable individuals

v.

Information, Communication and Reporting

f.

Prioritize risks

g. Define risk appetite h. Assess substantial change

Answer: a.

v

b.

iv

c.

iv

d.

i

e.

i

f.

iii

g.

ii

h.

iv

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 13

12. (Connect) COBIT 2019 is a comprehensive framework for information and technology governance and management. This framework has five domains. Indicate the purpose of each domain.

COBIT domains

Purpose

a. Align, plan and organize b. Build, acquire and implement c. Deliver, service and support d. Evaluate, direct and monitor e. Monitor, evaluate and assess

Answer: a.

Management

b.

Management

c.

Management

d.

Governance

e.

Management

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

Chapter 14 – 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 16. b 17. d 18. b 19. c 20. a 21. b 22. d 23. c 24. a 25. 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

3. What is the goal of each of the general security objectives (e.g., confidentiality, integrity, availability, access control)? Why should a company care about these?

Confidentiality: the goal of confidentiality is for information to not be accessible to unauthorized individuals or processes. A company should care about keeping the confidential data of its clients/users/customers/visitors private, due to litigation/regulatory/reputation/security risks.

Integrity: the goal of data/information integrity is for information to be accurate and complete.

That is, it has not been degraded or impaired by unauthorized manipulation or hardware failure.

Companies should care about the integrity of the data/information that they use to support decision making.

Availability: Information and systems are available and accessible on demand. Conversely, companies should be concerned that only authorized users have access to systems and data.

Access Control: Limits access to systems and information to only those individuals, by nature of their job responsibilities, that require access to it. Companies must be very concerned about access controls enforcement, to maintain the CIA of the data.

4. There are restrictions on how U.S. companies store and share customer data. For health care providers, HIPAA is designed to protect patient data. A handful of states require companies processing customer payments to comply with PCI-DSS. Search the Internet for more information about these regulations and discuss the major requirements of each.

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 patient records. Standards cover topics such as establishing a secure infrastructure, monitoring network and security information, and guaranteeing access controls are established.

5. Consider the following scenarios and identify the incentive, opportunity, and rationalization that exist that would enable a person to commit fraud: a. A manager increases the value of inventory in the computer system so she can show higher cost of goods sold. As a result, she embezzles the additional income. b. A college student pirates a newly released movie over the Internet. c. An employee creates a new vendor account for his spouse and submits invoices for services that were never performed.

A. Incentive: Could be disgruntled employee, financial pressures, etc.

Opportunity: as manager, she has access to a higher level of programs in the system Rationalization: Mindset that excuses the fraud as “OK” or “Justified” B. Incentive: the student needs funds to pay college tuition, room and board bills.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

Opportunity: The student gained access to the movie as it was mistakenly available online and was able to download it before it was pulled offline.

Rationalization: Mindset that excuses the fraud as “OK” or “Justified” C. Incentive: He and his spouse need funds for any number of reasons.

Opportunity: Employee has access to the vendor center due to a lack of access controls enforcement in the company.

Rationalization: Mindset that excuses the fraud as “OK” or “Justified”

6. 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.

7. 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.

8. What is hashing? Does it serve the same purpose as encryption? Why? Hashing is a one way process that turns a document (or a dataset) 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. Hashing does not serve the same purpose as encryption. Encryption is reversible (the cybertext can be decrypted) and the main purpose is for confidentiality.

9. How can data integrity be ensured when conducting e-business? Why is it critical to e-business?

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

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.

10. The previous chapter identifies COBIT and ISO 27000 as information security frameworks. How do they relate to GTAG’s Vulnerability Assessment? What similarities and differences exist among these three?

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. GTAG’s Vulnerability Assessment is a vulnerability approach as opposed to a risk assessment process, where vulnerability management is a tactical short-term approach. COBIT and ISO 27000 are more risk assessment based, requiring a more comprehensive tong term approach that may take many months or years to implement.

11. Disaster recovery planning (DRP) and business continuity management (BCM) help businesses manage security risks. What similarities and differences exist between these two approaches?

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.

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 do companies prefer one method over the other? If a company chooses to use both methods, what might be the reasons? How can the company truly use 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

2. Many internal auditors and IT professionals believe 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 the Internet to find a few public firms that are CAs. 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.

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

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

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 during the loss of power

Answer: a. b. c. d. e. f.

v iv iii iv ii i

6. (Connect) Identify the activities of vulnerability management and assessment.

Activities a. Prioritize vulnerabilities

i.

Category Vulnerability management

b. Design a risk response plan

ii.

Vulnerability assessment

c. Monitor vulnerabilities

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

d. Establish policy and requirements e. Identify vulnerabilities Answer:

a. b. c. d. e.

ii i i i ii

7. There are computer fraud schemes in systems development life cycles (refer to Figure 14.6). 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

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.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

• • •

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.

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”

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

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 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

•

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 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 14

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.

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, 3nd Edition – Chapter 15

Chapter 15 – 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 16. c 17. e 18. d 19. a 20. b

Discussion Questions 1. What are the main reasons for using a VPN? 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 from one or more of them?

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, 3nd Edition – Chapter 15

3. We often use regression analyses in data mining. Are accountants required to understand data mining? Why? 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? 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-it-work (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? 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? 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 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 15

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?

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. 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_2 010/CPA/Jan/CAATS.jsp (accessed 7/7/2016) 10. When would an auditor prefer to conduct a black-box audit? A white-box audit? 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. b. Auditors would prefer a white-box audit if there are suspicions of internal fraud or to determine weaknesses in the internal control environment.

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? 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 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 15

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 b. 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? 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

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

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 15

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.

2.

ii ii i iii iv ii

(Connect) Match correct descriptions with each network devices.

COSO ERM Principles a. Using IP address to transport packets

i.

Network Devices Hubs

b. Using MAC address to transport packets

ii.

Switches

c. Using rules to screen incoming and outgoing packets

iii.

Firewalls

d. Do not use source or destination addresses to transport packets

iv.

Routers

e. Always used for Internet transportation of packets f.

Broadcast to all devices when transport packets for internal networks

Answer: a. b. c. d. e. f.

iv ii iii i iv i

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 15

3. 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 1. 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 increasing the effective amortization period of the amounts in question.

2. Benchmark key ratios (e.g., E/R) against industry averages and generate an alarm when there is a 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)”.

3. 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.

4. 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 4. (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.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 15

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.

5. Describe how an auditor would use each of the following audit techniques: ITF, parallel simulation, EAM, GAS. 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. 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.

a. Identify the key feature and components of a continuous audit. 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 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3nd Edition – Chapter 15

features, how an auditor would incorporate the tool into the audit, and recommend one or two of the tools for purchase. 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 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, 3rd Edition – Chapter 16

Chapter 16 – The Balanced Scorecard, Business Model Canvas, 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 27. a 28. a 29. b 30. c 31. a 32. d 33. e

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 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

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 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

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 organization’s strategy. Do the amounts spent on IT technology and software address important requirements?

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, 3rd Edition – Chapter 16

11. Consider a large, Fortune 500 company. They are probably too complicated for one business model canvas. What advice would you give them about how to divide up their business into multiple business model canvases?

The answer depends on the company, but in general, the answer should address the homogeneity of the value proposition as well as the nature of the customer segment.

12. Name a company that sells to a mass market customer segment. What are some characteristics of that company’s products?

The answer depends on the company, but consumer goods, for example, sell to the mass market. These products usually compete on price, marketing/image, availability, and functionality. Think of toothpaste, breakfast cereal, etc.

13. Name a company that sells to a niche market customer segment. What are some characteristics of that company’s products?

Niche market retailers usually sell relatively few types of products to a specific customer segment. One example is Lululemon apparel; another is Harley Davidson motorcycles. Their products are designed to appeal to their target customer group, so the value proposition would focus on image and uniqueness but not price.

14. Name a company that segments their customer segment. What are some characteristics of that company’s products?

Segmented markets require different versions of the product line for each segment. Hotel chains offer different hotel brands to attract different customer segments. For example, Hilton owns Doubletree, Hilton Garden Inn, Hampton Inns, Embassy Suites, etc. Each brand provides a hotel designed to appeal to a customer segment based on price, features (such as suites), locations.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

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

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, 3rd Edition – Chapter 16

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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

Purchase new, more efficient, production equipment Train employees

Renovate older retail stores Implement a business intelligence/ business analytics system Create new advertising campaign

Internal Business Processes Learning & Growth Internal Business Processes

Number of product warranty claims; Percent of defective products Employee turnover; Employee Satisfaction Number of new customers; Sales Growth Percentage; Percent of repeat customers

Learning & Growth Internal Business Processes

This could support directly or indirectly all the measures Number of new customers; Sales Growth Percentage; Percent of repeat customers

6. Select a prominent public company, such as Apple, Google, or Microsoft. Obtain recent annual reports and news articles about the company. Using that information, develop a business model canvas that describes their business. Start by defining their value proposition.

7. Use the company that you selected for problem 6. Identify examples of their key resources and explain how those might affect their business model performance.

8. Use the company that you selected for problem 6. Identify examples of their key activities and explain how those might affect their business model performance.

9. Use the company that you selected for problem 6. Identify ways that they use information technology in each building block of the canvas. Structure your answer like table 16.4 and be as specific as possible.

10. Use the company that you selected for problem 6. Find a direct competitor of that company.

Develop a business model canvas that describes the competitor’s business. Start by defining their value proposition. Examine differences in the two business model canvases. Which company is better? Why? Answers 6-10. The answer depends on the company selected but there are some sample business model canvases shown below. Other examples are available for free use at www.vizologi.com, which also offers an online tool that students can use to create canvases.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 16

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 17

Chapter 17: 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): Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 17

=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 IRR after 2 years IRR after 4 years IRR after 5 years

-$60,000 $10,000 $12,000 $15,000 $21,000 $26,000 -46% -1% 10%

MIRR considering finance and reinvestment (round to two digits)

12.35%

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) -$262,000 Return per year $60,000 Number of years 8 Discount rate 10% PV of initial investment PV of 8 years annual return NPV

($262,000.00) $320,095.57 $58,095.57

Project 2 -$390,000 $70,000 8 8% ($390,000.00) $402,264.73 $32,264.73

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 17

Maximum initial investment -$320,095.57 -$402,264.73 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 $8,584,326.58 $7,000,000.00 $7,938,322.41 8%

$12 million five years from now $2.15 million each year for 5 years $7 million cash today $10 million 3 year from now Discount rate Select the $2.15 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, 3rd Edition – Chapter 17

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) Operating Cost (annual licenses, upgrades, support) Training

Year 0

Year 1

Year 2

Year 3

Average

$400,000

$10,000

Total

$400,000 $50,000

$50,000

$50,000

$5,000

$5,000

$5,000

$50,000

$150,000

$5,000

$25,000

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

Increase sales by 5%

$200,000

$300,000

$300,000

$266,667

$800,000

Improve inventory turnover by 10%

$100,000

$150,000

$150,000

$133,333

$400,000

$300,000

$450,000

$450,000

$400,000

$1,200,00 0

Year 0

Year 1

Year 2

Year 3

Average

Total

($430,000)

$245,000

$395,000

$395,000

$345,000

$605,000

Benefits

Totals

$0

Net Benefits Net Benefits

$20,000

Payback = Initial investment/average net benefits initial investment

$430,000

Average net benefits

$345,000

Payback

1.25

NPV

years

$378,129.91

IRR

at 10%

55%

Accounting rate of return

80.23%

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 17

Cost Element Acquisition Cost (new software and implementation) Operating Cost (annual licenses, upgrades, support) Training

Year 0

Year 1

Year 2

Year 3

Average

$400,000

$10,000

Total

$400,000 $50,000

$50,000

$50,000

$5,000

$5,000

$5,000

$50,000

$150,000

$5,000

$25,000

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

75% chance increase sales by 5%

$150,000

$225,000

$225,000

$200,000

$600,000

25% chance increase sales by 3% 75% chance to improve inventory turnover by 10% 25% chance to improve inventory turnover 5%

$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

$1,020,00 0

Year 0

Year 1

Year 2

Year 3

Average

Total

($430,000)

$200,000

$327,500

$327,500

$285,000

$425,000

Benefits

Totals

$0

Net Benefits Net Benefits

$20,000

Payback = Initial investment/average net benefits initial investment

$430,000

Average net benefits

$285,000

Payback

1.51

NPV

$244,122.67

IRR

40%

Accounting rate of return

years at 10%

66.28%

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, 3rd Edition – Chapter 17

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

a.

1) Payback period at $.15 per tag initial investment average increase in cash flow at $.15 per tag payback

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

-$425,000

$120,000

$120,000

$120,000

$120,000

$120,000

-$425,000

$120,000

$120,000

$130,000

$130,000

$130,000

Savings Net at $.15 per tag Net at $.10 per tag after 2 years

Year 1

$425,000 $120,000 3.54 years

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, 3rd Edition – Chapter 17

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, 3rd Edition – Chapter 17

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

at 10% discount rate Assuming immediate expenditure Other costs do not differ and are not relevant

At year 3

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 17

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. (Connect) 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. (Connect) 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. (Connect) Match the description of these financial metrics to their terms.

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 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 17

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. (Connect) 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. (Connect) Which of these project costs would be considered acquisition costs and which would be considered 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, 3rd Edition – Chapter 17

11. (Connect) 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. (Connect) 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. (Connect) 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 Year 4 Year 5

Option 1 -1,000,000 1,000,000 100,000 200,000 300,000 400,000

Option 2 -1,000,000 500,000 500,000 400,000 300,000 200,000

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 17

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 1 Option 1

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

Chapter 18: The Systems Development Life Cycle and Project Management: Addressing the Challenges of Building AIS Systems Multiple Choice Questions 1. b 2. b 3. a 4. a 5. c 6. d 7. c 8. b 9. d 10. a 11. b 12. b 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, 3rd Edition – Chapter 18

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 the tasks, including all 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 Model discussed in the chapter to determine whether she will actually use a new music player if she received it as a birthday present.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

A. iPod touches do not require cassette tapes that might actually finally get damaged or wear out.

B. 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.

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 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

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 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 Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

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.)

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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

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, Walmart is implementing its SAP system throughout its worldwide operations. If Walmart 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.

If Walmart 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.

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

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 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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

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

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%

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 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

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

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Richardson, Chang, Smith – Accounting Information Systems, 3rd Edition – Chapter 18

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

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