Solutions Manual for Accounting Information Systems The Crossroads of Accounting and IT 2nd Edition.

Accounting Information Systems The Crossroads of Accounting and IT 2e Donna Kay Ali Ovlia (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) All Chapters Solutions Manual Supplement files download link at the end of this file.

Active Review

1.1 Refer to the chapter opener, Meet Business Intelligence. In your opinion, how can business intelligence create value using the accounting system?

Students’ opinion may differ. However, their opinion should include: Increase profitability, improve customer relationship, increase sales by targeting the right customer category, and in general improving all aspects of business activities.

1.2 Refer to the chapter opener, Meet Business Intelligence. Discuss the importance of sales data in creating business intelligence for an organization.

Business intelligence allows organization to continuously monitor their sales transaction. By monitoring sales, enterprise can fine-tune other business processes such as purchasing, production, advertising, and customer service.

1.3 Pick your favorite Accounting Insight from Chapter 1. Discuss why it’s your favorite.

The answer to this question depends on the student selection and his/her reason for selecting it.

1.4 What are the modules in the baseline accounting system model? Discuss the purposes and transactions associated with each module.

1. Vendors. This module encapsulates all data and business processes related to vendors. The transactions associated with Vendors module are: Create purchase Order, Receive Items, and Enter Bills.

2. Customers. This module encapsulates all data and business processes related to customers. The processes associated with Customers module are: Create Invoice, and Receive Customer Payments.

3. Employees. This module encapsulates all data and business processes related to employees. The processes associated with Vendor module are: Enter Time and Calculate Payroll.

4. Banking. This module encapsulates all data and business processes related to organization banking. The processes associated with Banking module are: Pay Bills, Make Deposit, Pay Employees, and Pay Payroll Liabilities.

5. Financials. This module encapsulates all data and business processes related to the organization financials. The processes associated with Financial module are: Adjusting Entries, Correcting Entries, Closing, and ad-hoc financial activities.

6. Reports. This module encapsulates all data and business processes related to the accounting reports. The processes associated with Reports module are: Management Reports, Tax Reports, External Financial Reports, and Sustainability Reports.

1.5 Discuss how the features of a spreadsheet and a database are similar and how they are different.

A spreadsheet shows rows and columns of a table and that is same as database table’s records and fields features. Actually, a spreadsheet row is a record and a column is a field in a database table 1.6 Discuss the potential risks if a company’s accounting system is not well secured.

Unauthorized access to the accounting data and software could result in valuable information being stolen or damaged and virus or other malicious software damage accounting systems software.

1.7 Discuss the benefits of an integrated enterprise system.

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An integrated enterprise system allows data to be shared among various enterprise departments. For example, an advertising department can use data collected about sales to cluster customers into categories and target customers-categories with different adverting methods.

1.8 Discuss how value chain activities are related to accounting transaction cycles.

The value chain facilitates coordination of activities with suppliers and customers, including purchasing and sales transactions.

1.9 Discuss the significance of information technology to the accounting professional.

Today, most accounting systems are computerized systems. These accounting systems are installed on the enterprise computers and used on the enterprise internal networks as well as the Internet. To effectively work with computers and use accounting systems, accountants must know enough about computers and networks to be able to use computerized accounting systems.

1.10 Discuss problems that enterprises may experience with shadow data.

Shadow data little or lack of documentation and lack or inadequate security and control are two major problems experienced by enterprises.

Key Terms Check 1.11 Match the following terms and definitions. a. enterprise system b. integrated enterprise system c. business processes d. value chain e. transaction cycles f. purchasing cycle g. payroll cycle h. sales cycle i. baseline accounting system

d 1. An organizing framework for business processes, beginning with vendors and ending with customers h 2. Exchanges or transactions between an enterprise and its customers e 3. Accounting transactions related to specific business processes b 4. Shares data across functional areas within the enterprise g 5. Transactions with employees c 6. Related activities performed by an enterprise to create value by transforming input into output a 7. A system that supports business activities throughout the enterprise, including inputs, processing, and outputs f 8. Transactions related to purchasing items from vendors i 9. A model that provides an enterprise-wide view of the firm’s accounting system

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1.12 Match the following terms and definitions. a. vendors module b. customers module c. employees module d. banking module e. financial module f. reports module g. adjusting entries h. correcting entries i. closing entries j. financial reports k. tax reports l. management reports m. sustainability reports

f 1. A module that relates to output from the accounting system. e 2. A module that includes adjusting and correcting entries. a 3. A module related to purchasing goods and services. d 4. A module that involves cash received and cash paid. c 5. A module related to the payroll cycle. b 6. A module related to selling the customer a product or service. m 7. Reports used to evaluate an enterprise’s sustainability performance. k 8. Reports used when filing federal, state, and local returns. l 9. Reports prepared to assist managers in making decisions. j 10. Reports that include a company’s income statement, balance sheet, and statement of cash flows. g 11. Entries to bring accounts up to date at year end. i 12. Zeros out income and expense accounts at year end. h 13. Entries to correct errors.

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1.13 Match the following terms and definitions. a. field b. record c. primary key d. relational database e. operational database f. business intelligence g. OLAP cubes

c 1. A unique identifier for each record. g 2. An online application that permits users to view data in a multidimensional way. b 3. A collection of related database fields. f 4.Data analytics and predictive modeling used to gain insights from data to improve the quality of business decisions. a 5. A piece of information. e 6. A database that stores transactions related to business operations. d 7. A collection of related database tables.

1.14 Match the following terms and definitions. a. people b. processes c. technology d. information technology (IT) e. IT architecture f. IT infrastructure g. system development life cycle (SDLC) h. plan i. analyze j. design k. build/buy l. install m. deploy

g 1. A framework for organizing the complex, multifaceted undertaking of developing a system. k 2. Includes testing databases and computer programs for the new system. h 3. Includes scheduling, budgeting, and staffing a project. i 4. Includes evaluating new system requirements. m 5. Using the new system on an ongoing basis and maintaining and updating it as necessary. l 6. Setting up new IT hardware, software, and databases. j 7. Prepare models for business processes and databases for the new system. b 8. One of the three keys of opportunity that focuses on how business activities are impacted. c 9. One of the three keys of opportunity that focuses on software, hardware, and networks. a 10. One of the three keys of opportunity that focuses on how employees, customers, and vendors are impacted. d 11. Consists of software, hardware, and network technology used by an organization. f 12. How specific software, hardware and networks are used to build IT architecture for an enterprise. e 13. The design or blueprint for an enterprise’s information technology.

Practice Test 1.15 In addition to accounting systems, which of the following are member of enterprise systems? a. SCM and OPS b. CRM and SCM c. HRM and Financial d. SCM, OPS, CRM, and HR (Correct Answer) 1.16 The value chain is useful for: a. Coordinating accounting system activities. b. Coordinating activities with suppliers and customers (Correct Answer) c. Linking business values like a chain. d. Everything we do in a business.

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1.17 In businesses, the system that supports financial and accounting activities in an organization is often called: a. Accounting system b. General ledger c. Enterprise accounting system d. All of the above (Correct Answer) 1.18 In which of the baseline accounting system modules are pay employee and pay payroll liabilities included? a. Employee module b. Reports module c. Banking module (Correct Answer) d. All of the above 1.19 Which of the following modules are included in the purchasing cycle? a. Vendors and customers (Correct Answer) b. Vendors and banking c. Employees and vendors d. Vendors, banking, and reports 1.20 In the accounting systems context, which of the following is NOT correct? a. To understand accounting, the accountant today must understand databases. b. Most accounting information is not entered using debits and credits. c. The accounting information system is used to perform accounting activity faster. (Correct Answer) d. Business intelligence provides organizations with a competitive advantage.

1.21 The three key factors that impact the accounting system are: a. Customer, supplier, and employee b. People, technology, and accounting processes (Correct Answer) c. Computers, networks, and accounting software d. Business processes, database, technology 1.22 An accounting system does all the following except: a. Capture accounting information about a transaction b. Reduce the cost of accounting transactions (Correct Answer) c. Generate financial reports d. Process the captured accounting information 1.23 Which of the following is not an accounting transaction? a. Payroll cycle b. Purchasing cycle c. Accounting cycle (Correct Answer) d. Sales cycle 1.24 When IT professionals say business processes, they mean: a. Computer programs b. Accounting cycles (Correct Answer) c. Accounting modules d. Accounting system

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Exercises Short Exercises 1.25 Match each of the following accounting events to the baseline accounting system module in which it occurs. (Q1.3) Vendors module Customers module Employees module Banking module Financial module Reports module 1. Create purchase orders Vendors module 2. Adjusting entries Financial module 3. Make deposits Banking module 4. Calculate payroll Employees module 5. Receive customer payments Banking module 6. Pay bills Banking module 7. Tax reports Reports module 8. Enter time Employees module 9. Enter bills Vendors module 10. Create invoices Customers module 11. Pay employees Banking module 12. Receive items Vendors module 13. Sustainability reports Reports module 14. Pay payroll liabilities Banking module 15. Correcting entries Financial module 16. Management reports Reports module 17. Closing Financial module 18. Financial reports Reports module 1.26 Match each of the following accounting events to the accounting transaction cycle.

(Q1.3)

Purchasing cycle Sales cycle Payroll cycle 1. Create purchase orders Purchasing cycle 2. Create invoices Sales cycle 3. Make deposits Sales cycle 4. Calculate payroll Payroll cycle 5. Receive customer payments Sales cycle 6. Pay bills Purchasing cycle 7. Enter time Payroll cycle 8. Enter bills Purchasing cycle 9. Receive items Purchasing cycle 10. Pay employees Payroll cycle

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1.27 Identify which of the following are internal agents to an enterprise and which are external agents.

(Q1.4)

1. Vendors 2. Customers 3. Employees 4. Delivery service 5. Internal Revenue Service 6. Bank External: Vendor, Delivery service, Internal Revenue Service, and Bank Internal: Employee 1.28 Can you match the following terms used by accounting professionals and those used by IT professionals?

(Q1.1)

a. Rows b. Columns c. Software _c__ 1. Applications _a__ 2. Records _b__ 3. Fields 1.29 Match each of the following transaction cycles to the integrated enterprise system module that generates the transactions.

(Q1.2)

a. Purchasing cycle b. Payroll cycle c. Sales cycle b 1. Human resources management (HRM) a 2. Supply chain management (SCM) c 3. Customer relationship management (CRM) b 4. Operation/production system (OPS) 1.30 Look at the CUSTOMER table for EspressoCoffee appearing in Figure 1.12. Can you answer the following questions? (Q1.3) 1. How many fields do you see in the database table in Figure 1.12?

2. How many records do you see in the database table?

3. Are there any other fields that you would recommend that EspressoCoffee add to the CUSTOMER table? Is there any additional information that EspressoCoffee might need about customers?

1. 8 2. 2 3. For every additional piece of information, an additional field must be added to the table in Figure 1.12.

Some of these additional pieces of information are: customer’s email addresses, country, and phone numbers.

1.31 For the following functions of the accounting system, identify technologies used by each function.

(Q1.3)

1. Storing accounting data: Relational database 2. Analyzing accounting data: Business analytics 7 © 2014 Pearson Education. All rights reserved.

3. Safeguarding accounting data: checking user ID and password 1.32 Using the three keys of opportunity, identify the impact of an enterprise changing accounting software on people, processes, and technology. (Q1.4) The answer to this question depends on the current type of the enterprise accounting system and the new system. A few impacts of the change are listed below: 1. People: Accounting employees should learn how to use the new system. Some employees may lose their jobs or new employees are hired.

2. Processes: Change in the workflow and the way certain accounting activities were performed. More automated activities.

3. Technology: Data migration into the new system’s database. Addition of the new hardware such as computers, network routers might be necessary.

It’s Your Call 1.33 Your firm has announced that in order to meet earnings targets, 10% of its workforce must be let go.

As chief financial officer you have been asked to explain the value that your staff of accounting and IT professionals provide to the firm. You realize that your response may affect the number of staff that you keep employed. What would you say? (Q1.1) Your response may show the proper IT knowledge of your accounting staff and how this facilitates communication between your IT and accounting staffs. Also it could indicate that accountants and IT professionals who work together and communicate well underscores the need for accountants who understand accounting and IT. In conclusion, you can emphasize how this seamless communication could reduce the cost of accounting projects and their risk of failure.

1.34 You are working as an intern in the payroll department of a large company. Your best friend, who helped you get the job, works at the same company in sales. Your friend calls you when he is traveling and says his login for the system is not working. IT told him it might take up to 24 hours to fix it. He asks you to share your login with him so he can access the system. What would you do? (Q1.3) Under no circumstances you should share confidential information with person or persons who don’t have the authorization for that confidential information. You are the only one who is allowed to know your login and password information. Organizations are very strict about this rule.

1.35 To meet a tight deadline, you download spreadsheet files to your company laptop to take work home with you. What are the risks to safeguarding the information on your laptop? (Q1.3) When an organization secured and sensitive data is copied or moved into a potable devices (for example a laptop) then the organization data is available for whoever might steals that device. Also, since data is outside of the organization’s secured network, it is then easily accessed by a computer hacker.

1.36 Your younger brother calls you from college. He is registering for classes. He wants to know why he needs to take an accounting information systems course. How will the course help him to be successful in his future career? What do you tell him? (Q1.3) Most organizations’ accounting data is stored in databases. These databases reside in the database servers and can be accessed and manipulated by using computer applications. The accounting information systems course provides the required knowledge and skills to accountants for them to find their way at the crossroads of accounting and IT. These knowledge and skills include: 8 © 2014 Pearson Education. All rights reserved.

1. Computerized accounting transactions 2. Proper IT concepts and applications

Tech in Practice Tech Exercises 1.37 Tech Tool: Spreadsheet Software Software Video: Spreadsheet Data Tables EspressoCoffee has given you the following work assignment.

1. Using spreadsheet software and the following information, create a C USTOMER table for EspressoCoffee.

2. Identify the primary key by highlighting the column in yellow.

3. Populate the CUSTOMER table by entering the following customer information.

Customer No.: 127127 Name: Angela Ashuer Address: 13 Joseph Ave, Appleton, WI, 54911 Customer No.: 913691 Name: Vincent Pico, EspressoBar Address: 58 Dante, Pisa, Tuscany, 56100 Customer No.: 127000 Name: Becky Cornell Address: 1203 N Lake Shore Drive, Chicago, IL 60610 Customer No.: 1958361 Name: David Kolse, Creamy Coffee Address: 702 Ensenada Street, Orlando, FL 32825 Customer No.: 532700 Name: Fred Olhman, Coffee Shoppe Address: 7011 Second Street, San Francisco, CA 94102 See Tech Ex1.37 in the Chapter 1 Exercises Solutions folder .

1.38 Tech Tool: Database Software Software Video: Database Tables EspressoCoffee has given you an assignment to create a database table for tracking customer information.

1. Using Microsoft Access database software and the following fields, create a C USTOMER table for EspressoCoffee Customer No. Last Name First Name Company Name Street Address City

State ZIP Country Email Address Web Site

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2. Using Microsoft Access, select the primary key for the CUSTOMER table.

3. Populate the CUSTOMER table by entering the following customer information.

Customer No.: 127127 Name: Angela Ashuer Address: 13 Joseph Ave, Appleton, WI, 54911, USA Email: ang@gmail.com Customer No.: 913691 Name: Vincent Pico, EspressoBar Address: 58 Dante, Pisa, Tuscany, 56100, Italy Email: vpico@yahoo.com Web site: espressobar.it Customer No.: 127000 Name: Becky Cornell Address: 1203 N Lake Shore Drive, Chicago, IL 60610, USA Customer No.: 1958361 Name: David Kolse, Creamy Coffee Address: 702 Ensenada Street, Orlando, FL 32825, USA Email: creamycoffee@flash.net Web site: creamycoffee.com Customer No.: 532700 Name: Fred Olhman, Coffee Shoppe Address: 7011 Second Street, San Francisco, CA 94102, USA Email: coffeeshoppe@gmail.com Web site: coffeeshoppe.com See Tech Ex1.38 in the Chapter 1 Exercises Solutions folder.

1.39 Tech Tool: Database Software Software Video: Database Tables EspressoCoffee has asked you to create an ORDER database table.

1. Using Microsoft Access database software and the following fields, create an O RDER table for EspressoCoffee.

Order No. Date Customer No. 2. Using Microsoft Access, select the primary key for the O RDER table.

3. Populate the ORDER table by entering the following information for three orders.

Order No.: 5819 Date: 12.21.2010 Customer No.: 127127 Order No.: 5820 Date: 12.23.2010 10 © 2014 Pearson Education. All rights reserved.

Customer No.: 913691 Order No.: 7200 Date: 07.01.2011 Customer No.: 127000 Order No.: 9723 Date: 12.21.2012 Customer No.: 1958361 Order No.: 12631 Date: 12.27.2013 Customer No.: 1958361 See Tech Ex1.38 in the Chapter 1 Exercises Solutions folder.

The ORDER table is created in the Tech Ex 1.38 file.

1.40 Tech Tool: Spreadsheet Software Software Video: Spreadsheet Data Tables 1. Using spreadsheet software, construct a table that will collect data for an application of your choice (for example, data regarding dogs for a dog walking business).

2. Identify the appropriate fields.

3. Identify the primary key.

4. Populate at least two records with test data.

The answer to this question depends on the students’ choice of business.

1.41 Tech Tool: Database Software Software Video: Database Tables 1. Select an authentic enterprise of your choice. Using Microsoft Access database software, develop a CUSTOMER table for the enterprise, identifying the appropriate fields.

2. Using Microsoft Access, select the primary key for the CUSTOMER table.

3. Populate the CUSTOMER table by entering test data for at least three customers.

4. What customer reports would the enterprise need to create? Would the database table you created be able to provide the information required?

The answer to this question depends on the students’ choice of business. However, the answer is similar to the Tech Ex 1.38.

1.42 (Continuation of TIP 1.41) Tech Tool: Database Software Software Video: Database Tables 1. Using Microsoft Access database software and information from the prior exercise, create an O RDER table, identifying the appropriate fields.

2. Using Microsoft Access, select the primary key for the O RDER table.

3. Populate the ORDER table by entering test data for three orders.

4. What queries can you envision that the enterprise might need that would use information from both the CUSTOMER table and the ORDER table?

The answer to this question depends on the students’ choice of business. However, the answer is similar to the Tech Ex 1.38 and Tech Ex 1.39 combined.

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1.43 Tech Tool: Database Software Software Video: Database Tables 1. Download the Tech Ex 1.43.accdb in the Chapter 1 Exercises Solutions folder for this exercise.

2. Open the Microsoft Access database file.

3. How many tables exist in the database?

Four tables 4. How many records are in the CUSTOMER table?

There are two records in the CUSTOMER table 5. What is the primary key in the CUSTOMER table?

CUSTOMER NO is the primary key in the CUSTOMER table.

6. What field in the CUSTOMER table connects it to the ORDER table?

Customer NO in the CUSTOMER table and CUSTOMER NO on the ORDER table.

1.44 Tech Tool: Spreadsheet Software Software Video: Spreadsheet Graph and Data Organization 1. Download the data file for this exercise.

2. Graph the items on-hand quantity.

3. Identify items with on-hand quantity less than the re-order quantity.

4. Sort items based on their on-hand quantity.

Hint: To answer the third question, use the pivot table tool to select item name, quantity on hand, and reorder point. Use an IF statement to identify items that must be reordered.

Download Tech Ex. 1.44 Solution.xlsx file for answers.

1.45 Tech Tool: Spreadsheet Software Software Video: Spreadsheet Graph and Data Organization 1. Download the data file for this exercise.

2. Find out who is the most long-standing and most recent customer.

3. Find out who is the customer with the highest balance.

4. What is the average of customers’ balances?

5. Graph customer balances to identify the customer with highest and lowest balance.

Download Tech Ex. 1.45 Solution.xlsx file for answers.

Go Online 1.46 You have decided to start your career planning. Your first step is to go online and search for job openings for entry-level accounting professionals. What skills and competencies do the job openings require? Compare the requirements with your current status. How do you plan to gain the skills and knowledge needed?

The answer to this question depends on the search results. One possible result could be the following table.

As you notice, the level of computer knowledge is ranked high to very high.

Skill People skills Sales skills Communication skills Analytical skills

Audit Accounting Medium Medium Medium High

Tax & Financial Medium Medium Medium Very High

Management Accounting Medium Low High High

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Ability to synthesize Creative ability Initiative Computer skills Work hours

Medium Low Medium High 40-70/week

Low Medium Medium High 40-70/week

High Medium Medium Very High 40-50/week

1.47 You have been in your current accounting position for five years. You want to continue advancing in your career. Go online and search for your ideal accounting professional position five years after you graduate from college. What are the positions that you would apply for? What skills and competencies do the job openings require? Compare the requirements with your current status. How do you plan to gain the skills and knowledge needed?

The answer to this question depends on the search results. One possible result could be the following job requirements posted for a senior accounts payable specialist. Its requirements include a BS in accounting and 5 to 7 years of experience. Notice that the knowledge of SAP is a must!

Knowledge and Abilities 5 to 7 years related experience and/or training; or equivalent combination of education and experience.

Strong Accounting knowledge in Accounts Payable and General Ledger Strong SAP experience is a must Ability to operate a telephone, fax machine, calculator, copier, scanner, and other non-specified office equipment a computer with the following software: Microsoft Office: Word, Excel, Outlook, and PowerPoint; Lotus Notes, Tiny Terms, FoxPro Forwards, and other proprietary software Written and verbal fluency in English Ability to read and interpret documents such as operating instructions, procedure manuals, and financial statements; to write routine reports and correspondence; to speak effectively before groups of customers or employees of organization. The applicant must have the: • Ability to perform numerous data-entry task and multi-tasks Ability to focus and pay attention on details Ability to calculate figures and amounts.

• Ability to apply common sense understanding to carry out instructions furnished in written, oral, or diagram form such as simple AP procedures and datelines.

• Ability to deal with problems involving several concrete variables in standardized situations.

• Ability to deliver good customer service when handling vendors’ inquiries and assisting employees and clients.

• Ability to maintain invoices and other documentations in an organized manner Industry knowledge of accounting in oil and gas industry.

1.48 You have been asked by the CFO to prepare a brief presentation to management about how business intelligence could benefit your company. Go online to research how other companies are using business intelligence. Prepare a brief presentation as requested by the CFO. The answer to this question depends on the search results. However, when business intelligence is properly implemented and used, it delivers many benefits. The key benefits include the following: 1. Alignment of an organization around a consistent set of Key Performance Indicators (KPIs) and Metrics 2. Quicker, fact-based decision making 3. Simplified graphical presentation of KPIs and metrics 4. Reliable presentation of information (“One version of the truth”) 5. Combination of multiple data sources (ERP, CRM, Spreadsheets, Budgets...)

6. Faster collection and dissemination of information (Source link: http://www.excellenceleadership.com/microsites/altimus/Benefits%20of%20Business%20Intelligence.pdf) 1.49 You are working for a business solutions consulting company that hired you because of your knowledge of accounting systems and IT. You have been asked to select the two accounting software applications that you believe have the best features. Go online and search for two accounting software applications commercially available. Identify whether the software is predominantly used by small, 13 © 2014 Pearson Education. All rights reserved.

midsize, or large enterprises. List the features these products offer to customers. Briefly summarize the advantages and disadvantages of each and why these two are your top picks.

Students could compare accounting software based on the following: 1. Eased of use 2. Help and support 3. Offered accounting modules (that is, account receivable, account payable, payroll, etc) 4. Cost 5. Flexibility of use with other software and operating systems The following link to the Top Ten Review could be helpful for small size enterprise. http://accounting-software-review.toptenreviews.com/ 1.50 Your accounting colleagues are debating the differences between data, information, and business intelligence. Go online and search for definitions of data, information, and business intelligence. Construct your own definition for each that you like best that you can share with your colleagues.

The following could be a possible definition for data, information, and intelligence in the business context: 1. Data is a collection of facts, figures and statistics related to an object. For example, customers fill in a sales order form. The sales order form consists of facts (data) about customers (for example, customer name), and the sales order event (for example, sales order date).

2. Information is the manipulated and processed form of data. It is interpreted data. An example would be a graph showing a customer average sales order in dollar amount.

3. Business intelligence refers to computer-based methods and techniques used to find meaningful relationship among business facts, such as sales amount and product type.

Technology Projects Technology Project 1 Tech Tool: Spreadsheet Software, Database Software Software Videos: Spreadsheet Data Tables, Database Tables iSportDesign, an online retailer of sporting goods that the customer can custom design, needs help in modernizing its accounting system. Nick, the owner and operator, has asked for your assistance. He wants to hire you as an intern. This is your opportunity to get some experience with accounting and technology, so you agree.

The first project he has for you is putting customer data into electronic form for easier retrieval. You decide to put the customer data into both a spreadsheet and a database so Nick can choose which he likes best for his company.

Your deliverables for the project include the following: Deliverable 1. A spreadsheet containing customer data for iSportDesign Deliverable 2. A CUSTOMER database table Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 1 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay See Technology Project 1 MS Access file and Technology Project 1 MS Excel file in the Chapter 1 Exercises Solutions folder.

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Active Review 2.1 Refer to the chapter opener, Meet Ingenix. In your opinion, what could have been done to prevent the faulty database from costing consumers billions of dollars? How would you clean up the Ingenix database?

Students’ responses may differ. However, their response should include: data inconsistency and duplication as well as dirty data are the major causes of faulty data. To remove data inconsistency and duplication a database must be normalized. Database cleansing is a technique used to remove dirty data. Refer to the chapter text for normalization and database cleansing.

2.2 Discuss the differences between an operational database and a data warehouse. Is the accounting database considered an operational database or a data warehouse?

The difference between the operational database and the data warehouse is that the data warehouse is not used for routine business activities. Instead, the data warehouse is often used for business intelligence purposes to improve management decision making. The accounting database is an operational database.

2.3 What is a DBMS? Discuss its role in the accounting system.

The database management software (DBMS) is a computer program. It is used to insert, update, and delete data in the database. A database engine includes a DBMS. 2.4 Discuss the importance of primary keys to the accounting database.

A primary key is used to select a specific record among a table of records. It is also used to connect/relate to related database tables. For example, the Customer table is related to the Order table. To implement this relationship, the Customer table primary key field is copied into the Order table.

2.5 Discuss the role of the accounting database in the accounting system. Which components are behind the screen?

An accounting system consists of three tiers: the accounting database, the DBMS, and front-end accounting software. Accounting data is stored in the accounting database. The DBMS and the accounting database are behind the screen.

2.6 Discuss the roles of accounting professionals in designing and building accounting databases. Why it is important for accounting professionals to know about enterprise databases?

Accounting professionals can assist IT professionals when designing an accounting application or an accounting database. For example, an accounting professional can help a database designer decide on the number and the types of fields required for a Sales Order table.

2.7 Discuss how modern database systems support the growth of large enterprises, such as Wal-Mart.

Modern enterprise databases consist of operational and data warehouses. These databases store data in different structures. These structures are supporting many different business needs. Relational databases are used to store daily business operations. Data warehouse structures support complex business decision making processes. Modern databases are shared by the enterprise integrated systems. A centralized and shared database helps faster and more efficient communication within various business functions. It reduces data duplication and inconsistency, which are caused by various databases in a non-integrated

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system. Integrated centralized databases provide accurate and up-to-date intelligence for efficient decision making and monitoring overall business performance.

2.8 What is an intersection table? Why is it created?

To remove a many- to-many relationship between two tables a special type of table called an intersection table is placed at the intersection or junction of the two tables with a many-to-many relationship. The many-to-many relationship between the original tables becomes a one-to-many relationship between each of the original tables and the new intersection table.

2.9 What is a foreign key? Discuss its importance to a relational database.

In relational databases, tables are related to each other using common fields in two different tables. These common fields are referred to as the primary key and the foreign key. That means, the primary key of a table is copied into a related table. The copied field is called a foreign key.

2.10 Discuss the advantages of a database accounting system versus a manual accounting system.

The advantages of a database accounting system versus a manual accounting system include: 1.

Large amount of data can be stored and maintained much easier.

2.

Data is stored much more accurately.

3.

Much less space is needed 4.

Information is retrieved much faster--seconds versus days, weeks, or even months.

5.

Data is better secured and controlled.

Key Terms Check 2.11 Match the following terms and definitions.

a. database fields b. database records c. database tables d. database e. database forms f. database queries g. database reports

e 1. Onscreen interface used for entering and updating data g 2. Used to view output of the accounting system c 3. A collection of related records with a unique name a 4. Pieces of information about events, people, or objects f 5. Used to search the database and retrieve data from one or more database tables. b 6. A collection of related fields d 7. A collection of related tables

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2.12 Match the following terms and definitions. c 1. Responsible for managing the enterprise’s databases g 2. Ensures that the database contains accurate, valid data. b 3. Stores data from a variety of sources and is used for business intelligence a 4. Databases used to store data related to business operations and transactions f 5. A process for removing database anomalies or problems e 6. Used when more than one field is required to uniquely identify a record d 7. Placed at the junction of two tables to eliminate a manyto-many relationship

a. operational database b. data warehouse c. database administrator d. intersection table e. composite primary key f. normalization g. database integrity

2.13 Which of the following statements are true?

T F T T F F T

1. Accounting transactions are stored in the operational database.

2. A database administrator is responsible for designing the database.

3. The result of a query could be a report.

4. Deletion, insertion, and update problems are solved by normalization.

5. A data warehouse stores only future data.

6. An intersection table refers to the intersection of queries and reports.

7. A composite primary key consists of more than one field.

Practice Test 2.14 Enter data once means: a. Data is entered into the database only one time and it is reused from various locations when it is needed (Correct Answer) b. Data is entered only one time and it cannot be entered again c. Data is used only one time and it can not be reused d. Data is entered into the database from various locations at the same time.

2.15 ________transfers data from the accounting software to the database. a. CRM. b. DBMS (Correct Answer) c. User Interface d. Relational database 2.16 Internal databases consist of: a. DBMS b. Operational database c. The database stored in the employee computer d. Operational and data warehouse (Correct Answer) 2.17 While auditing the Account Receivable records, the auditor discovers an entry for Cambiz Coffee shop with an address of 721 Sweet Water Pond, St. Peters MO and another entry for Cambiz Coffee

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a. b. c. d.

shop with an address of 721 Sweet Water Pond, Saint Peters MO. Each entry has a different customer number. Which of the following statements is false?

The DBMS views these as two separate accounts.

Data is entered into the computer incorrectly (Correct Answer) Customer has two shops The data needs scrubbing

2.18 ______is a collection of related records. a. Database engine b. Database table (Correct Answer) c. Database field d. Object Oriented database 2.19 Which tier in the accounting system architecture consists of accounting software? a. Accountant tier b. Database tier c. User tier d. Application tier (Correct Answer) 2.20 An item table’s record has 5 fields: Item code, Item name, description, location ID, and warehouse ID. Which of these fields is a good candidate for the primary key? a. Location ID b. Item Code (Correct Answer) c. Warehouse ID d. Item name 2.21 An item may appear on many orders. An order contains many items. The relationship between Item table and Order table is: a. Many-to-one b. Many-to-many (Correct Answer) c. One-to-many d. One-to-one 2.22 Sandy, an accountant, wants to search for a specific customer address. She should search using: a. Customer name b. Customer address c. Customer ID (Correct Answer) d. a and b 2.23 Which of the following is NOT a database essential? a. Form b. Table c. Query d. DBMS (Correct Answer)

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Exercises Short Exercises 2.24 Match the following database fields with the appropriate database table. (Q2.3) a. VENDOR table b. CUSTOMER table c. EMPLOYEE table d. ACCOUNTS table e. SALES ORDER table f. SALES ORDER LINE table g. PURCHASE ORDER table h. PURCHASE ORDER LINE table b 1. Customer name d 2. Account number b 3. Customer number c 4. Employee address f 5. Item quantity sold h 6. Item quantity purchased e 7. Sales order number e 8. Sales order date g 9. Purchase order date g 10. Purchase order number a 11. Vendor address e 12. Sales order total g 13. Purchase order total a 14. Vendor number d 15. Account type 2.25 Identify the relationship between the following tables. (Q2.3) a. one-to-one b. one-to-many c. many-to-many 1. STUDENT table and COURSE table: a 2. TEACHER table and STUDENT table: a 3. EMPLOYEE table and DEPARTMENT table: b 2.26 Suppose data about vendors and the items they sell are stored in a single database table. Do you think this table is anomaly-free? Why or why not? If you think there are anomalies in this table can you suggest a solution for removing them? (Q2.4) The table is NOT anomaly-free! The following is a list of anomalies in such a table: 1. Update anomaly: a vendor sells many items. Therefore, there is a record for every item that is sold by that vendor. This causes update anomaly. To update vendor information, many records must be updated. An item maybe sold by many vendors; therefore, item information could appear in many records. To change item information many records must be updated.

2. Deletion anomaly: a vendor may supply a specific item. If that vendor’s records are deleted from the table, all information about that specific item is also deleted.

3. Insertion anomaly: both the vendor ID and item code must be used to retrieve item purchase information, such as quantity. Therefore, the table primary key is the combined vendor ID and item code. Let’s say we decide to enter information about a vendor who did not sell any items yet. This

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vendor record cannot be inserted since the other part of the primary key (the item code) is not available yet.

One possible solution is to divide this table into three tables: a vendor table, an item table, and an item/vendor table. The vendor table stores solely information about vendors. The item table stores only information about items, and the item/vendor table stores information about items sold by vendors.

2.27 Which of the following database tables would be used in a purchase order form? (Q2.3) 1.

SALES ORDER table 2.

PURCHASE ORDER table 3.

ITEM table 4.

VENDOR table 5.

CUSTOMER table 6.

PURCHASE ORDER LINE table 7.

SALES ORDER LINE table 8.

CASH RECEIPTS table The VENDOR, PURCHASE ORDER, PURCHASE ORDER LINE, and ITEM tables are used in a purchase order form.

2.28 An enterprise’s EMPLOYEE table contains the following fields. Which of these employee fields is a good choice for the EMPLOYEE table primary key? Why? (Q2.3, 2.4) • First Name • Last Name • ID No • Address • Phone Number • Hours Worked • Hourly Pay • Deductions The only possible choice is the employee ID No. The content of any other field may not be unique.

2.29 Identify the following as either internal or external databases. (Q2.2) a. Internal database b. External database a 1. Data warehouse for business intelligence b 2. EDGAR Online containing annual reports for publicly traded companies a 3. Accounting database b 4. Eurostat containing economic and financial statistics about the European Union a 5. Operational databases for storing business transactions b 6. Factiva, a database with financial data provided by Dow Jones & Reuters Company 2.30 Identify in which tier each of the following items belong. (Q2.1) a. Database tier b. Application tier c. User tier a 1. DBMS a 2. Customer table b 3. Accounting software c 4. Customer data entry form c 5. Vendor report a 6. Item table

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2.31 Using the following database tables, answer the following questions. (Q2.3)

1. What is the relationship between the VENDOR table and the PURCHASE ORDER table? One-to-many. A vendor received many purchase order. A specific purchase order belongs to only one vendor.

2. What is the primary key for the VENDOR table? VendorID 3. What is the primary key for the PURCHASE ORDER table? PurchaseOrderID 4. What is the foreign key for the PURCHASE ORDER table? VendorID 2.32 Using the following purchase order for EspressoCoffee, answer the following questions. (Q2.3)

1. Name the database tables that EspressoCoffee should use to record its purchase transactions.

The purchase order transaction is recorded in the PURCHASE ORDER, PURCHASE ORDER LINE, VENDOR, and ITEM tables.

2. Identify the primary key(s) for each table that would uniquely identify each record in the table.

VENDOR table primary key: Vendor No. PURCHASE ORDER table primary key: PO No. ITEM table primary key: Item No. PURCHASE ORDER LINE table primary key: PO No. plus Item No. 3. Identify the relationships among the tables as one-to-one, one-to-many, or many-to-many.

• The relationship between VENDOR and PURCHASE ORDER is one-to-many.

• The relationship between PURCHASE ORDER and ITEM is many-to-many.

4. Identify the intersection table that should be used to remove any many-to-many relationships.

The many-to-many relationship is removed by adding the PURCHASE ORDER LINE intersection table.

The relationship between the PURCHASE ORDER and PURCHASE ORDER LINE is one-to-many.

The relationship between ITEM and PURCHASE ORDER LINE is one-to-many.

5. Identify foreign keys used to connect the tables.

The vendor number is the foreign key in the PURCHASE ORDER table.

The purchase order is the foreign key in the PURCHASE ORDER LINE.

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The Item number is the foreign key in the PURCHASE ORDER LINE table.

It’s Your Call 2.33 Since your background is in AIS, you have been asked to provide training to the other accountants in your company about the new accounting system design. How would you explain to your colleagues about the three tiers in an accounting system architecture? (Q2.1) The three-tier architecture of the accounting system explained in the Accounting Databases: Behind the Screen section and figures 2.1 and 2.2 in the textbook could be a good start. Your explanation could include that an accounting system is divided into three separate but related components: 1. Accounting Database and database software (DBMS) that manipulates the accounting database (database tier) 2. Accounting application that performs accounting transactions such as creating invoice (application tier).

3. The user interface application which provide graphical user interface tools such as forms and reports (user tier).

2.34 You have been called in as a consultant to act as a liaison between the accountants and the IT professionals at a company. The accountants are complaining that they must re-enter all the customer information each time an order is placed. The accountants see this as inefficient and time consuming with no value added.

The only response from the IT professionals has been to say that the database tables need to be normalized. The accountants have asked you what this means. Communication between the two groups of professionals has deteriorated.

How would you facilitate communication between the accountants and the IT professionals? How would you explain to both sides what is needed to resolve the issue? (Q2.4) Here is one way to facilitate communications between your department and IT: Entering same piece of data several times into the database is a sign of data duplication in one or more database tables. First you have to explain to accountants what data duplication in a database table is and why this is a problem. In this chapter data duplication and associated problems are discussed in a language that is understandable by accountants. Second, you explain that a technique called normalization by IT professionals could be implemented to remove duplicate data.

2.35 Your company is expanding its operations to include overseas markets. Your supervisor asked you to prepare a summary explaining changes to the CUSTOMER database table that need to be implemented as a result of the overseas expansion. (Q2.3, 2.4) When a customer table contains data about customers who live in different countries, then the customer table should contain some additional fields. At the same time some existing fields’ size and type should be modified. The list of additional fields includes: • Name type (in some culture first name comes after last name) • Additional Address Info • Province (that is State in the U.S.) • Country • Additional tables also needed to include information for drop down lists used in the data entry forms.

For example, there should be a table to hold country names.

2.36 You work at a university and have been assigned to a project team to update the university database to include information about employee dependents. The university provides tuition free to all employee dependents and wants to track dependent information to estimate free tuition in the future.

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One of the project team members has suggested simply adding the employee dependent information to the EMPLOYEE database table. What do you think? Is this advisable? Prepare your notes to respond to his suggestion at the next team meeting. (Q2.3, 2.4) An employee may have more than one dependent. If you want to add the employee dependents’ information to the employee table, then you need to add, for each dependent, an additional record for that employee. That would cause data duplication. The best solution is to add a new table and store employee dependent information in that table. The employee ID that is the primary key in the employee table will be the foreign key in the new table. The dependent ID could be used as the primary key for the dependent table.

2.37 Your supervisor would like to know why calculated fields are typically not included as database fields in accounting software. Prepare a short report on advantages and disadvantages of including and not including the calculated field for your advisor.

Answer: Your report should include an explanation of the calculated field and different types of it and the advantages and disadvantages of saving calculated fields within the record. The following is a brief explanation and states the advantages and disadvantages of saving calculated field in a record.

Calculated fields are of two specific types. The first type of calculated filed is a database table field that allows you to generate information that can change when other table fields’ value changes, such as age. The value of this type of calculated field is not stored within the database record, but is instead calculated or computed based on the values of other fields within that record, using specific formulas.

These formulas can consist of values from other fields, constants, and the results of other formulas or functions.

The second type of calculated field is a database field whose value is calculated only once since the value of fields used to calculate this field value remain constant though time, such as sales order total amount. Usually, the value of these types of fields is stored within the database record. It will be much faster to extract and display this type of calculated field since redundant calculation is avoided. However, storing these values increases the space used by the database tables on the storage devices.

Tech in Practice Tech Exercises 2.38 Tech Tool: Database Software Software Videos: Database Tables, Database Table Relationships EspressoCoffee asked for your assistance in building database tables to record sales transactions.

1.

Using Microsoft Access database software and information in Figure 2.21, build the following database tables. Identify the primary key for each table.

2.

CUSTOMER table • SALES ORDER table • SALES ORDER LINE table • ITEM table 3. Identify the table relationships between the CUSTOMER, SALES ORDER, SALES ORDER LINE, and ITEM tables. Use database software to create the database table relationships.

Relationships: • CUSTOMER and SALES ORDER: one-to-many • SALES ORDER and SALES ORDER LINE: one-to-many • ITEM and SALES ORDER LINE: one-to-many

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4. Print the table relationships.

See Tech Ex 2.38 SOLUTION in the Chapter 2 Exercises Solutions folder.

2.39 (Continuation of Tech Ex 2.38) Tech Tool: Database Software Software Video: Database Tables This is a continuation of the previous exercise. EspressoCoffee asked for your assistance in entering data into database tables to record sales transactions.

1. Using Microsoft Access database software and your database file from the previous exercise, enter the following customer information into the CUSTOMER table.

CUSTOME R NO 127127

COMPANY NAME

913691

EspressoBar

LAST NAME Ashuer

FIRST NAME Angela

STREET ADDRESS 13 Joseph Ave

Pico

Vincent

58 Dante

CITY Apple ton Pisa

STA TE WI Tusc any

ZIP 549 11 430 01

COUN TRY USA

ACCOUNT BALANCE $1080.00

Italy

$530.00

2. Enter the following items into the ITEM table.

ITEM NO

ITEM NAME

ITEM DESCRIPTION

9XB

Espresso Machine Lux

Espresso Machine Lux Model 2009 all electronic

ARQ1

Pure Arabica

Pure Arabica from Colombia and Africa

ARXC

Arabica Colombian Mix

Arabica Colombian Mix - 60% Arabica 40% Colombian

BB6-1

Espresso Machine Base

Espresso Machine Base Model 2001 with foam feature

WC1

Small Cups

Small Cups - White small espresso cups

WC2

Small Cup Lux

Small Cups Lux - White small espresso cups quality

3. Enter the following sales into the SALES ORDER table and the SALES ORDER LINE table.

• On December 5, 2012, customer Angela Ashuer places an order to buy the following items: a. (2) Item No. ARXC for $40 each • On December 22, 2012, customer Vincent Pico places an order to buy the following items: a. (1) Item No. 9XB for $400 each b. (12) Item No. WC1 for $15 each Tables’ integrity is enforced in MS Access. You cannot enter an order in the Order table for a non-existing customer. You cannot enter an order line record if there is no order for that order line record. You cannot enter an item in the Order Line Table if there is no such an item in the Item table. To enter data without violating the table’s integrity, follow these steps: 1. Enter customers in the CUSTOMER table.

2. Enter items in the ITEM table.

3. Enter orders in the SALES ORDER table using for example order number 100 for Angela and 101for Vincent.

4. Enter the orders’ details in the SALES ORDER LINE table.

5. Print the CUSTOMER, SALES ORDER, SALES ORDER LINE, and ITEM tables.

See Tech Ex 2.39 SOLUTION in the Chapter 2 Exercises Solutions folder.

2.40 Tech Tool: Database Software Software Videos: Database Tables, Database Table Relationships Complete the following: 1.

Select an authentic enterprise of your choice. Using Microsoft Access database software, 10 © 2014 Pearson Education. All rights reserved.

develop the following tables for the enterprise, identify appropriate fields, and select the primary keys.

Customer table • SALES ORDER table • SALES ORDER LINE table • ITEM table 3. Identify the relationships between the tables as one-to-one, one-to-many, or many-to-many.

4. Use Microsoft Access database software to create the database table relationships.

5. Print the table relationships.

6. Populate the tables with at least three records of test data.

2.

The answer to this question depends on the students’ choice of enterprise. However, the solution should not be far from the answer to the preceding question. One of the major differences could be the number of the fields in these tables, since organizations collect difference types of data from business entities.

2.41 Tech Tool: Database Software Software Videos: Database Tables, Database Table Relationships EspressoCoffee buys coffee beans from vendors in South America and Africa and needs a database table to collect information about the company’s vendors.

1.

Use the following fields to build a VENDOR table.

Vendor No. Vendor ZIP Vendor Name Vendor Country Vendor Street Address Vendor Email Vendor City Vendor Web Site Vendor State 2. Identify and add the primary key for the VENDOR table.

See Tech Ex 2.41 SOLUTION in the Chapter 2 Exercises Solutions folder.

2.42 Tech Tool: Database Software Software Videos: Database Tables, Database Table Relationships EspressoCoffee has asked for your assistance in building database tables to record purchase transactions.

Use the following EspressoCoffee purchase order and MS Access database software to complete the following.

1.

Build the database tables for EspressoCoffee purchase transactions. (Hint: You should have four tables.)

2.

Enter the fields you think appropriate for each database table.

3.

Select the primary key(s) for each database table.

4.

Remove any many-to-many relationships using intersection tables.

5.

Build the relationships among the tables and print.

We can identify VENDOR, PURCHASE ORDER, and ITEM tables from this form.

A purchase order form includes one or more items and an item may appear in more than one purchase order therefore, the relationship between the ITEM table and PURCHASE ORDER table is many-to-many. We should follow the same steps explained in the text to remove this type of relationship. The result will be the PURCHASE ORDER LINE intersection table.

As you can see, certain data are missing from this form. These missing fields may include tax amount and shipping charge. But these pieces of data are not necessary missing from the database tables.

Also, there must be a way that the detailed purchase order information is displayed.

See Tech Ex 2.42 SOLUTION in the Chapter 2 Exercises Solutions folder.

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2.43 Tech Tool: Database Software Software Video: Database Tables Ethan, your coworker, who unfortunately didn’t take accounting information systems course while studying accounting, wants you to help him to understand database anomalies. To help your coworker, build a table in MS Access with the following fields and data. Show Ethan deletion, update, and insertion anomalies.

Vendo r No

Item Code

Vendor First Name

Vendor Last Name

Vendor City

Item Name

Item Description

Quantit y

Unit Price

120

Mark

Kwinsky

St. Louis

Accx 202

$60

Jim

Maranda

Chicago

SW6B

Accelerator gas pedal Switch pin

3

234

23M X 10SP

12

127

10U2

Mary

Vedette

Tulsa

52SET

Under seat bar

1

$7.2 0 $56

120

PP10

Mark

Kwinsky

St. Louis

BrkL

Left Break

1

$150

120

WX3 0

Mark

Kwinsky

St. Louis

BrkR

Right Break

1

$150

Answer: To select a specific record you need the Vendor No and Item Code. The Vendor No plus Item Code together represent the primary key (record key).

Update anomaly: If you want to update a field (for example, Vendor City for Mark Kwinsky), you have to update three records (redundancy).

Deletion anomaly: If you have to delete a field (for example, Mark Kwinsky), you not only delete Mark’s information, but information about items he sold!

Insertion anomaly: If you want to insert a new Vendor who didn’t sell any items yet, then you don’t have the record key partial value! Actually, no database engine allows you such action.

See Tech Ex 2.43 SOLUTION in the Chapter 2 Exercises Solutions folder.

2.44 Tech Tool: Database Software Software Video: Database Tables Use information provided in the 2.43 exercise table and your understanding of the database anomalies to create database tables that hold the same data, which is in the exercise 2.43 table but do not have any anomalies.

Answer: You can break this table into three tables, none of which have any insertion, deletion, and update anomalies These three tables are: • Vendor Table • Item Table • Vendor/Item Table Use the “Tech Ex 2.44 SOLUTION.accdb” database and try to update, delete, and insert new records. The following figure shows the database tables and relationship among them.

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Go Online 2.45 The CFO has asked you to research which external financial databases might be of value to the accounting department. Go online, search, and then prepare a list of external databases related to finance and accounting that you would recommend to the CFO. There are many financial databases available online, the following are four examples of many online financial databases.

• The Global Financial Database (GFDatabase) - The GFDatabase provides data never before compiled into a single electronic format, spanning more than 200 global markets and extending coverage back to 1265. The GFDatabase includes the Six Original Topics below: o Asset Allocation Database o Commodity Database o Economic Database o Equity Database o Exchange Rate Database o Fixed Income Database • The US Stocks Databases • The UK Database • The Real Estate Database Source: http://www.globalfinancialdata.com/Databases/GFDatabase.html 2.46 You are a member of the project team evaluating available database engines. Your assignment is to research the Oracle database engine. Go online and search for Oracle database products, such as Oracle 11g. Prepare a summary to take to your next team meeting.

The Oracle current database engine is Oracle 11g. All characteristics and available features of this database engine is available at http://www.oracle.com/us/products/database/index.html 2.47 You are a member of the project team evaluating available database engines. Your assignment is to research the Microsoft SQL Server database engine. Go online and search for Microsoft SQL Server database. Prepare a summary to take to your next team meeting.

The most recent version of MS SQL Server is 2008 R2. You can find all information about this product at http://www.microsoft.com/sqlserver/2008/en/us/overview.aspx 2.48 You have been talking to your project team about the importance of scrubbing dirty data. Some team members have asked you for examples of dirty data and its impact on companies. They don’t see it as a problem. Go online and search for examples of dirty data to present to your team at the next team meeting.

The following sources are (May 30, 2011) used to answer the dirty data question: 1. http://www.gartner.com/it/page.jsp?id=501733

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2.

http://searchdatamanagement.techtarget.com/answer/Data-cleansing-The-business-impact-ofdirty-data

Students may find different sources and examples.

First we clarify the difference between dirty data and non-normal data. Sometimes, dirty data disguises as non-normal data. For example, if there isn’t strong coding or strong data entry rules in place, you’ll end up with inaccurate or redundant data, like this: FName

LName

Street

City

State

Zip

Patrick

Shaw

403 23rd Ave S

Seattle

WA

98144

Pat

Shaw

403 23rd Ave S

Seattle

WA

98144

Shaw

403 23rd Ave S

Seattle

WA

98144

In this example it can be challenging to figure out if each of those contact records is the same person. For example, if a person has two bank accounts, and one has a PO Box and the other has a street address, then that person ends up with the same first and last name but a different address. This is not a case of dirty data but this is redundant, or non-normal, data and dirty data is different.

Here are some examples of dirty data: 1. A date field that has various information in it: • 03/31/2007 • March • 2nd Quarter • Not sure 2.

• • •

Number fields that contain a combination of numbers and text: 3 At least three Not sure

3. Variations and misspellings of names: • WA • Wash.

• Washington 4. Phone fields that contain more than one phone number or text: • 206-286-8880 • (206) 957-8880 • (206) 286-8880-Home 5. Addresses that aren’t split into consistent fields for Street, City, State, Zip You can see the challenges posed by dirty data and how it can be hard to fix. Dirty data problem fixes usually involve Excel, auto filtering, search and replace, and so on.

Technology Projects Technology Project 2 Tech Tool: Database Software Software Videos: Database Tables, Database Table Relationships

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Technology Project 2 is your opportunity to practice building database tables and relationships for iSportDesign. With this project, you will use Microsoft Access database software.

Your deliverables for this project include: Deliverable 1. CUSTOMER table Deliverable 2. SALES ORDER table Deliverable 3. SALES ORDER LINE table Deliverable 4. ITEM table Deliverable 5. VENDOR table Deliverable 6. PURCHASE ORDER table Deliverable 7. PURCHASE ORDER LINE table Deliverable 8. Table relationships Visit www.pearsonhighered.com/kay to: 1. Download Technology Project 2 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay See Technology Project 2 SOLUTION (MS Access) file in the Chapter 2 Exercises Solutions folder.

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Active Review 3.1 Refer to the chapter opener, Meet Scott Cook. In your opinion, why is the QuickBooks accounting interface user friendly and so successful?

The QuickBooks accounting interface has all features of an efficient user interface. These features are identified in this chapter. Some of the QuickBooks user interface advantages are: • Streamlined, and uncluttered design • Effortless navigation and guidance • Customizable preferences • Enhanced productivity 3.2 Discuss why the user interface is important in an accounting system.

In an accounting system, the user interface is important because it allows accountants to: • Enter accounting data accurately • View accounting data the format that accountants are familiar to • Extract required desired accounting data for decision making 3.3 What features would you like to see in an accounting interface to make it more user friendly? Why? Accounting system users may have different opinions on what features should be more user friendly.

However, the search for the right data is one of most difficult tasks and therefore, it should be a very userfriendly one.

3.4 Discuss the features of an accounting interface that could reduce data entry errors.

The data validation feature and auto entry are user interface features that help the user to enter valid and error-free data into the database.

3.5 Discuss the differences between a database form to enter data and a database form to search for data.

How would these differences affect the way you design these forms?

A search form is used to search for existing data in the database. It is a form where the search question can be entered. By clicking on the search button, a search query will be activated and the query output will be displayed on the form. Search forms are generally used for updating or viewing specific records.

A data entry form is just used for entering new data into the database.

3.6 Discuss the relationship of queries to database forms and reports used by the accounting interface.

Queries are computer programs in SQL imbedded in a search form or a report. Users can activate the query by pressing a button on the search form or entering data in a specific field. The query output will be displayed on the form or report.

3.7 Discuss the impact that voice data entry could have on the accounting interface database forms.

A voice data entry feature could reduce the complexity of the data entry process and reduce the data entry time. Because of the importance of the accounting data and its accuracy, and considering the current state of the voice data entry technology, this feature my not be appropriate yet.

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3.8 Discuss the impact that an avatar (graphical computer images of a person) could have on the accounting interface.

Graphical computer images, which represent a specific person’s image, can be used as a passimage (instead of password). Also, the computer image can be used to guide the user through steps of a user interface feature.

3.9 Discuss how database forms can streamline accounting data entry for online accounting applications, such as NetSuite or QuickBooks Online.

An accounting system form or report built in an Internet browser could allow the accountant to access accounting database from the outside of the enterprise networks. Besides this advantage, the second advantage is that most people are already familiar with web browsers’ icons and navigational features.

3.10 Discuss the differences between live and real-time reports. Which would you prefer?

Real-time reports provide up to-the-minute data without a time lag. Live reports continuously provide live, up-to-the minute data. Both types of reports are useful. It depends on the user requirements.

Key Terms Check 3.11 Match the above terms and definitions. a. graphical user interface (GUI) b. data validation c. real-time reports d. live reports e. structured query language (SQL) f. query builder tools

b 1. Tools used to minimize data entry errors, such as dropdown lists. f 2. Streamlines query development. e 3. Code used to search and retrieve data. c 4. Reports that provide up-to-the-minute data without a time lag d 5. Reports that provide up-to-the-minute data continuously a 6. User interfaces containing images and icons

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Practice Test 3.12. Which of the following is NOT an accounting interface component? a. Navigation b. Database management system (Correct Answer) c. Database queries d. Reports 3.13. In an accounting system, what is NOT behind the screen? a. Database b. DBMS c. Report (Correct Answer) d. Database query 3.14. Graphical user interface tools are use to: a. Make the software appear more complex than necessary b. Help the user to interact with the system (Correct Answer) c. Increase the amount of time needed to enter data d. Decrease the cost of the software 3.15. _______ are used to enter data into the database a. Reports b. Queries c. Forms (Correct Answer) d. Radio Buttons 3.16. ______ are used to conduct the search and retrieval functions. a. Database navigation b. Forms c. Reports d. Queries (Correct Answer) 3.17. Which SQL statement is used to search one or more database tables? a. SELECT (Correct Answer) b. SEARCH c. FIND d. LOOK 3.18. The ability of an interface to guide the user in a self-explanatory, logical manner is part of which user interface characteristics? a. Streamlined, uncluttered design b. Effortless navigation (Correct Answer) c. Customizable preferences d. Enhanced productivity 3.19. Which of one of the user interface tools is used to start an action? a. Text box 3 © 2014 Pearson Education. All rights reserved.

b. c. d.

List box Radio button Command button (Correct Answer)

3.20. Which one of the following baseline accounting systems doesn’t have a data entry form? a. Vendor b. Banking c. Report (Correct Answer) d. Customer 3.21. Real-time reports: a. Continuously provide live, up-to-the-minute data b. Are used by external parties to make decisions c. Are used by stakeholders to evaluate an enterprise’s responsiveness to economic, environmental, and social sustainability challenges d. Provide up-to-the-minute data without a time lag (Correct Answer)

Exercises Short Exercises 3.22 For the following accounting interface forms identify the appropriate accounting system module.

(Q3.2)

a. Vendors module b. Customers module c. Employees module

2 1 5

d. Banking module 3 e. Financial module 4 f. Reports module none

3.23 For the following reports identify the type of report. (Q3.3) a. Financial report b. Tax report

3 2

c. Management report d. Sustainability report

1 none

3.24 The following figure shows a Microsoft Access query design screen for an employee query. Use information provided on this figure to answer the following questions: (Q3.4) 1. How many tables are used in this query? One 2. What fields will be displayed when the query is run? a. EMPLOYEE FIRST NAME b. EMPLOYEE LAST NAME c. EMPLOYEE STREET ADDRESS d. EMPLOYEE CITY e. EMPLOYEE ZIP 3. What is the search criterion?

EMPLOYEE LAST NAME equal to “Wilder”

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3.25 Using the figure from the prior exercise for an employee query, complete the following for the SQL query statement: (Q3.4) 1. SELECT EMPLOYEE.[EMPLOYEE FIRST NAME], EMPLOYEE.[EMPLOYEE LAST NAME], EMPLOYEE.[EMPLOYEE STREET ADDRESS], EMPLOYEE.[EMPLOYEE CITY], EMPLOYEE.[EMPLOYEE ZIP] 2. FROM EMPLOYEE 3. WHERE (((EMPLOYEE.[EMPLOYEE LAST NAME])=”Wilder”)); 4. Write the complete SQL query statement for the employee query.

SELECT EMPLOYEE.[EMPLOYEE FIRST NAME], EMPLOYEE.[EMPLOYEE LAST NAME], EMPLOYEE.[EMPLOYEE STREET ADDRESS], EMPLOYEE.[EMPLOYEE CITY], EMPLOYEE.[EMPLOYEE ZIP] FROM EMPLOYEE WHERE (((EMPLOYEE.[EMPLOYEE LAST NAME])=”Wilder”)); 3.26 The following figure shows a Microsoft Access query design screen for a vendor query. Use information provided on this figure to answer the following questions: (Q3.4) 1. How many tables are used in this query?

There are three tables: Vendor, Purchase Order, and Purchase Order Line table 2. What fields will be displayed when the query is run?

VENDOR NO, VENDOR NAME, PO NO, ITEM NO, PO SUBTOTAL 3. What is the search criterion?

VENDOR NAME equal to “OnlineOffice”

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3.27 When RDBMS processes the following SQL SELECT statement: (Q3.4) SELECT Customer No, Customer Name, Invoice No, Date FROM Customer, Invoice WHERE Customer No = “3099”; 1. What tables are accessed? Customer and Invoice tables.

2. What fields are retrieved when the query is run? Customer No, Customer Name, Invoice No, Date 3. What is the search criterion? Customer No equal to “3099” 3.28 You have been asked to build a database form for entering vendor data into a V ENDOR table. The VENDOR table has the following fields: (Q3.2) Vendor ID Vendor State Vendor Name Vendor ZIP Code Vendor Street Address Vendor Email Vendor City Vendor Phone 1. What text boxes do you need to use on the database form?

There should be a data entry text box for each field, except for the Vendor Name, which needs two text boxes, one for the Vendor First Name and one for the Vendor Last Name.

2. How would you label the text boxes?

To make a form a user-friendly interface, labels should spell out the field names. However, in this example, the fields’ names are already spelled out.

3. What command buttons would you use?

Command buttons should include CANCEL and SAVE. Others could be Exit, Continue, GoBack, and Help.

3.29 Using information from the previous exercise, design a user-friendly vendor data input form. Sketch the design on paper or use Microsoft Excel (clip art, shapes, and text boxes) to design your interface.

(Q3.1, 3.2)

The following form is one of the solutions to this question. This form has the least number of control buttons. Students may come up with more. As you can see, the vendor state is a dropdown list. This feature ensures vendor state spelling and format.

6 © 2014 Pearson Education. All rights reserved.

See Tech Ex 3.19 SOLUTION Chapter 3 Exercises Solutions folder.

3.30 What are the database fields you might see on a database report for an aging of accounts receivable?

(Q3.3)

The aging of accounts receivable report includes the following fields: • Account number • Customer name • Invoice number • Invoice date • Past due (in days) • Amount due • Past due (days) and amount due for each period.

For every account, amount due for the period of 1-30 days, 31-60 days, etc.

3.31 Now that you know how database forms and queries are used, for the next week track the following: (Q3.2, 3.3)

1.

2.

3.

4.

How many database forms do you use?

List the various database forms you use during the week.

What database queries do you use?

List the different types of database queries you used during the week.

Students’ answers to this question will vary based on their interaction with computers. However, every time they fill out an electronic form or view information on a computer screen, they are possibly dealing with a form or report. A search performed by any web search engine such as Google activates one or more queries.

3.32 You have been asked to write a SQL query to retrieve information about customer’s sales orders.

(Q3.4)

1.

What database tables would be used in the query?

Customer, Sales Order, Sales Order Line, Item tables

2.

What database fields would be used in the query?

It depends on the information you are looking for. However, the list of fields should include: 7 © 2014 Pearson Education. All rights reserved.

• Customer ID • Customer name • Order number • Order date • Order balance 3.33 The following figure shows a Microsoft Access query design screen for a rental items query. Use information provided on this figure to answer the following questions: (Q3.4) 1. What fields will be displayed when the query is run?

Cust First Name (from CUSTOMER table) Cust Last Name (from CUSTOMER table) Emp First Name (from EMPLOYEE table) Emp Last Name (from EMPLOYEE table) Item Description (from RENTAL ITEM table) 2. What is the search criterion?

Customer last name equal to “Kettle.”

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It’s Your Call 3.34 Your colleague in IT has designed the following New Employee database form. You have been asked to sign the approval authorization for the form, indicating that you have reviewed and approved the form.

List all the changes that you would ask your IT colleague to make to the form. What would you say to the designer? (Q3.1, 3.2) The following are changes you will ask your colleague to make to the form: • Employee Name field must be broken into two separate fields: first and last name.

• Employee Address field must be broken into five separate fields: street address, city, state, ZIP, and country.

• Based on your company policy you may need to collect other types of information from your employees, such as their marital status, gender, date of birth, and bank account.

• Close and Cancel button function is unclear. Better choices are Continue, Clear the form, and Exit.

3.35 A pharmaceutical company is planning to evaluate its regional sales for the past year. Your coworker, a newly hired accountant with limited database experience, prepared the following report design. Do you have any advice for her design? Document your answer, including a reason for each design issue you see.

Provide her with possible solutions for each issue. (Q3.1, 3.3) The following are suggestions for a better design of the regional sales report.

1. No date and time. A report should have the date and the time indicating when the report’s query had been ran and when data had been extracted from the database.

2. Page number. A report requires page number on each page, since the extracted data may require more than one page.

3. This is a report of the pharmaceutical products sales in different regions. Therefore products must be grouped by region with the region name being displayed on each region’s sales.

4. Within each region product should be grouped by store, their type, names and code, package size, and amount. The following grouping hierarchy could be use as an example for grouping the data: REGIONAL MEDICATION SALES Region: Midwest Store Code Product type: Pain killer Name: ADVIL Product Code Package size Sales amount

3.36 You have been asked to prepare a report showing monthly sales by geographic region. Most of the managers using the report are not accountants, so your supervisor thought they would be more likely to use the report if it contained some images instead of just numbers. Your supervisor has asked you to add some charts and graphs to the report since “one picture is worth a thousand words.” (Q3.1, 3.3) 1. What types of graphs and charts do you think are best to show the monthly sales by geographic region?

A two-dimensional bar chart, each bar representing the sales amount for a specific region.

2. What data would you display in the charts and graphs?

• The date and time that the data was extracted and displayed on the report.

• Sales amount on the vertical axis and regions by month for the year on the horizontal axis.

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3. How would your answer change if the company had international sales?

One option could be one chart for each geographical region for countries within that region. For example, sales in Africa would compare sales in different countries within Africa. You may also need to prepare a chart comparing total sales of these regions.

3.37 You have been called in as a consultant liaison for a dispute between sales, accounting, and IT professionals. The sales professionals are claiming that sales reports are distorted, and are blaming the accounting department for a decrease in their sales bonuses. The accounting professionals have reviewed the sales reports and are concerned that the queries used to retrieve the sales data are not reporting all the sales for each region. So the accounting professionals are blaming the IT staff. The IT professionals reply that they are just doing what they are told. IT claims they are understaffed and doing the best they can shorthanded.

You have been called in to facilitate a resolution of this dispute. When reviewing the database tables used by the sales query, you notice that the names of countries in which sales occurred were not entered consistently. For example, you found that Italy was entered by the French as Italie, by the Italians as Italia, by the Germans as Italien, and by the English as Italy. When the query was run, you notice that the search criterion was Italia.

How do you resolve this dirty data dispute? (Q3.1, 3.2, 3.3, 3.4) When sales transaction is conducted, sales data for a specific customer is stored in the SALES ORDER and SALES ORDER LINE tables. To prepare a regional sales report, sales data are extracted from CUSTOMER and SALES ORDER tables. The customers’ addresses are used to identify the region (or country). Therefore, the root of the problem is in the data entry form for updating an existing customer or adding a new customer into the CUSTOMER table. There is no data validation on the country field. Here are your suggestions to the IT staff: 1. Cleanse the existing customer table for dirty data. Enter, for each country, only one country name spelling.

2. Redesign the new and update customer forms. Change the format of the customer country field to a dropdown list. Then, the country name could be selected from the given list.

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Tech in Practice Tech Exercises 3.38 Tech Tool: Database Software Software Video: Database Forms EspressoCoffee has asked for your assistance in completing the Update Customer database form.

1. Download the Microsoft Access database file for this exercise.

2. Using Microsoft Access database software and information in Figure 3.7, complete the Update Customer database form.

3. Print the Update Customer database form.

See Tech Ex 3.28 SOLUTION in the Chapter 3 Exercises Solutions folder. Below is a print out of a sample Update Customer database form.

3.39 Tech Tool: Database Software Software Video: Database Reports EspressoCoffee has asked for your assistance in completing an annual sales database report.

1. Download the Microsoft Access database file for this exercise.

2. Using Microsoft Access database software and the information in Figure 3.12, complete the EspressoCoffee annual sales report.

3. Print the annual sales report.

See Tech Ex 3.39 SOLUTION in the Chapter 3 Exercises Solutions folder. Below is a print out of a sample regional sales report.

11 © 2014 Pearson Education. All rights reserved.

3.40 Tech Tool: Database Software Software Video: Database Queries EspressoCoffee has asked for your assistance in creating a query to retrieve customer information.

1. Download the Microsoft Access database file for this exercise.

2. Using Microsoft Access database software, create the query shown in Figure 3.15.

3. Run the query and print the result.

See Tech Ex 3.40 SOLUTION in the Chapter 3 Exercises Solutions folder. Below is a print out of the query result.

4. Select the SQL view. Copy and paste into Excel and print.

The query statement for this assignment is: SELECT Customer.[CUSTOMER NO], Customer.[COMPANY NAME], Customer.[FIRST NAME], Customer.[LAST NAME], Customer.[STREET ADDRESS], Customer.CITY, Customer.STATE, Customer.ZIP, Customer.COUNTRY FROM Customer WHERE (((Customer.[LAST NAME])="Pico")); 3.41 Tech Tool: Database Software Software Video: Database Queries EspressoCoffee has asked for your assistance in creating a customer order query.

1.

Download the Microsoft Access database file for this exercise.

2. Using Microsoft Access database software, create the query shown in Figure 3.17.

3. Run the query and print the result.

12 © 2014 Pearson Education. All rights reserved.

See Tech Ex 3.41 SOLUTION in the Chapter 3 Exercises Solutions folder. Below is a print out of the query result.

4.

Select the SQL view. Copy and paste into Excel and print. The query statement for this assignment is:

SELECT Customer.[CUSTOMER NO], Customer.[FIRST NAME], Customer.[LAST NAME], [Sales Order].[SALES ORDER NO], [Sales Order].[ORDER DATE], [Sales Order Line].[ITEM NO], [Sales Order Line].[LINE ITEM TOTAL] FROM (Customer INNER JOIN [Sales Order] ON Customer.[CUSTOMER NO] = [Sales Order].[CUSTOMER NO]) INNER JOIN [Sales Order Line] ON [Sales Order].[SALES ORDER NO] = [Sales Order Line].[SALES ORDER NO] WHERE (((Customer.[LAST NAME])="Ashuer")); As you see three tables are joined together (inner join in SQL terminology) on primary key and foreign key of the related tables.

3.42 Tech Tool: Database Software Software Video: Database Forms EspressoCoffee has asked for your assistance in creating a Vendor database form.

1. Download the Microsoft Access database file for this exercise.

2. Using Microsoft Access database software, create a Vendor database form that displays the following fields: Vendor No. State Vendor Name ZIP Street Address County City Telephone

3. Print the Vendor database form.

See Tech Ex 3.42 SOLUTION in the Chapter 3 Exercises Solutions folder. Below is a print out of the vendor data entry form.

13 © 2014 Pearson Education. All rights reserved.

3.43 Tech Tool: Database Software Software Video: Database Reports EspressoCoffee has asked for your assistance in creating a database report.

1. Download the Microsoft Access database file for this exercise.

2. Using Microsoft Access database software and the following information, create the EspressoCoffee vendor list.

3. Print the vendor report.

See Tech Ex 3.43 SOLUTION in the Chapter 3 Exercises Solutions folder. Below is a print out of the vendor data entry form.

14 © 2014 Pearson Education. All rights reserved.

3.44 Tech Tool: Database Software Software Video: Database Queries EspressoCoffee has asked for your assistance in creating a query to retrieve vendor information.

1. Download the Microsoft Access database file for this exercise.

2. Using Microsoft Access database software, create a query to retrieve information about vendors from the state of Texas.

3. Run the query and print the result. When your query is run, your results should appear as follows.

4. Select the SQL view. Copy and paste into Excel and print.

SELECT Vendor.[VENDOR NAME], Vendor.[STREET ADDRESS], Vendor.CITY, Vendor.STATE, Vendor.ZIP, Vendor.COUNTRY FROM Vendor WHERE (((Vendor.STATE)="TX")); See Tech Ex 3.44 SOLUTION in the Chapter 3 Exercises Solutions folder. Below is a print out of the vendors from the state of Texas query.

15 © 2014 Pearson Education. All rights reserved.

3.45 Tech Tool: Database Software and Spreadsheet Software Software Video: Database Search EspressoCoffee’s management has asked your assistance in searching the VENDOR table. They wish to search this table in Microsoft Access as well as Excel.

1. Download the Microsoft Access and Microsoft Excel data files for this exercise.

2. Use the Microsoft Access query-by-example (QBE) to retrieve vendor information with name equal to “International.”

3. Use the Microsoft Excel search tool to retrieve vendor information with name equal to “International.”

Notice that the search tool in Microsoft Excel is different than the Find tool. The Find tool shows only the search item, but the search tool shows the record (row) containing the search item.

Solution: MS Excel 1. Make sure Form Button is available in the Quick Access toolbar otherwise add it.

2. Click on the Form button 3. Click the Criteria button in the data form. This action will clear all fields on the form 4. Enter “International” in the name field of the form.

5. You can use wildcards (such as a ? for a single character and * for multiple characters) as well as comparison operators (for example =<, >=, >, <).

6. Click on the Find Next Button MS Access 1. Create a query for the Vendor table 2. In the query builder screen, for the name field criteria, enter open and close brackets ([]).

3. Close query builder and run the query.

4. In the dialog form enter “International” and click on the Ok Button.

See Tech Ex 3.45 SOLUTION.accdb in the Chapter 3 Exercises Solutions folder.

3.46 Tech Tool: Database Software Software Video: Database Search EspressoCoffee’s management has asked your assistance in viewing all records in a database table. They want you to build a form that allows a user to browse vendors’ information, starting from the first e.

1. Download the Microsoft Access data file for this exercise.

2. Create a vendor form that satisfies the EspressoCoffee requirement.

3. Print the form Solution: 1. Use MS Access Form Wizard tool to create the Vendor report 2. Choose the Vendor table as the report data source 3. Select all fields.

4. Choose the columnar format and save your report. You must provide a name for your report when you try to save, for example “Vendor Report” 5. Click on the Vendor Report 6. You can navigate through records of various vendors by clicking on the Record Navigation at the bottom of the report.

See Tech Ex 3.46 SOLUTION.accdb in the Chapter 3 Exercises Solutions folder.

16 © 2014 Pearson Education. All rights reserved.

Go Online 3.47 Your company is considering expanding its retail operations to an online storefront. You have been asked to make recommendations for the design of the storefront interface. Go online and find two examples of online storefronts with user-friendly interfaces. Prepare a briefing to the design team summarizing the features of these two storefronts that you liked best.

Students can find many digital storefront examples online. One example can be found at Starbucks’s Interactive Storefront Window site.

3.48 Your firm is considering the purchase of new small business accounting software. The options have been narrowed to QuickBooks software and SAP Business One. You have been assigned to the project team to evaluate these two software options. The team has asked you to evaluate the user interface for each option. (See Chapter 4 for samples of the QuickBooks interface. See Chapter 6 for samples of the SAP Business One interface.)

Go online to research and view the user interfaces for each option. What would you report back at the next team meeting? Which interface would you prefer? Why? After viewing and evaluating these different software’s interfaces, students would realize that QuickBooks interfaces are much easier to follow and use than other accounting software. They should realize that QuickBooks interface is designed for small businesses. Obviously, small businesses do not have access to experience IT professional as large companies do. Therefore, QuickBooks must offer an easy-to-use graphical user interface.

Technology Projects Technology Project 3 Tech Tool: Database Software Software Videos: Database Forms, Database Reports, and Database Queries Technology Project 3 is your opportunity to practice building database forms, queries, and reports for iSportDesign. With this project, you will use Microsoft Access database software.

Your deliverables for this project include the following: Deliverable 1. Update customer database form Deliverable 2. New customer database form Deliverable 3. New item database form Deliverable 4. Sales order database form Deliverable 5. Sales report Deliverable 6. Customer report Deliverable 7. Inventory report Deliverable 8. Customer query Deliverable 9. Sales order query Deliverable 10. Item query Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 3 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay See Project Chapter 3 SOLUTION (MS Access) file in the Chapter 3 Exercises Solutions folder.

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Active Review 4.1 Refer to the chapter opener, Meet Social Business. In your opinion, is it easier to document business processes when working together as a team? Or as an individual?

It is easier to document business processes as team because an individual may not know about the entire chain of activities in a business process. Team members could share their knowledge of clusters of activities within a business process. This could save time and provide more accurate results.

4.2 Refer to the chapter opener, Meet Social Business. In your opinion, how important is it to document business processes?

Documenting business processes is an important activity in management and improvement of business activities. It allows businesses to: • • •

Analyze business, identify inefficient activities, and redesign business processes.

Find interrelationships among business processes.

Answer who, what, when, why questions regarding a business process functionality

4.3 Discuss how the baseline accounting system model corresponds to the value chain shown in Figure 4.1.

As figure 4.1 shows, the first phase of the value chain is Purchase. In this phase items are purchased from vendors, received, and warehoused. The vendor module in the baseline accounting system includes create purchase orders, receive items, and enter bills events, which correspond to Purchase phase events.

Next is the Make phase. In this phase enterprise employees use items purchased to manufacture products, provide services, or prepare them for sales. In all these cases, employee time must be tracked and recorded and employee pay must be calculated. The employee module includes enter times and calculate payroll events, which identify these tasks.

The last phases of value chain are Sales and Support. These two phases activities are included in customer module. The customer module provides create invoice and receive customer payment events to reflect the Sales and Support phases’ tasks.

The other three modules of the baseline accounting system model, banking, financial, and reports, identify those events, which are used in all phases of the value chain.

4.4 List activities in the customers module of the baseline accounting system. Why are these events commonly found in most enterprises?

The customer module events are: 1. Create Invoices.

2. Receive Customer Payments.

3. Make Deposits.

Most enterprises conduct transactions with their customers. Enterprises sell products or/and services to their customers. These transactions include the create invoices, receive customer payments, and make deposits events.

4.5 List activities in the vendors module of the baseline accounting system. Why are these events commonly seen in most enterprises?

The vendor module events are: 1. Create Purchase Orders 2. Receive Items (Inventory) 3. Enter Bills.

1 © 2014 Pearson Education. All rights reserved.

Most enterprises purchase raw material, products, or/and services. Even service enterprises need items for their business: for example, cleaning materials, computers, and office appliances. Therefore, the vendor module events are common to most enterprises.

4.6 Discuss how information is collected to prepare business process maps.

Your discussion should include a discussion on each of the following: 1. Review current accounting system documentation.

2. Observe business processes.

3. Interview employees.

4. Conduct surveys.

5. Prepare narratives.

Narratives could be prepared just based on the knowledge of a process’s activities or by using information collected during reviews, observations, interviews, and surveys.

4.7 Discuss the process of developing annotated narratives.

Labeling or highlighting each activity in the narrative annotates a narrative. Since business processes represent an action during a business transaction then, look for verbs and the subjects those verbs represent, for example verify invoice, in the narrative.

4.8 Discuss how Accounting Insight No. 13 solves the dilemma that many enterprises face.

Regarding accounting systems processes, the enterprise dilemma is solved by using the ABCs of accounting systems. They start with the baseline accounting system, which is a generic accounting system that includes the workflow and business processes frequently used by most enterprises. Then they create a customized accounting system, by configuring or customizing the baseline accounting system to accommodate the unique needs of their specific enterprise.

4.9 Discuss the advantages and disadvantages of BPMN 2.0 compared with other process mapping techniques.

BPMN 2.0 diagrams are best fit for learning business processes for a number of reasons: They don’t require extensive training to use, making it a better choice for accounting professionals to understand and use to communicate with IT professionals; they are easily transformed from general representation of a business process into detailed format; BPMN 2.0 diagrams provide greater detail than flowcharting to meet the needs of IT professionals for successful system implementation.

So BPMN provides a balance between simplicity and complexity to facilitate communication between the accounting and IT professionals.

4.10 Discuss why an enterprise might need to customize the baseline accounting system.

Most enterprises’ accounting systems include the module shown in the baseline accounting system. This model comprised of modules and events common to most enterprises can be customized to meet enterprise-specific needs.

For example, if a company’s only distribution channel is ecommerce, then the customer module must be customized to satisfy this difference. In the customization stage, the enterprise drills down to develop a more detailed view of the accounting system and seed how certain business processes are performed.

4.11 Discuss how BPMN 2.0 process mapping can allow accountants to customize accounting processes.

Business processes are conducted differently in different organizations. The differences come from the organization policies and procedures as well as the type of organization. For example, organization sales channels are only online. So business process mapping allows organizations to document their processes. Business process mapping, 2 © 2014 Pearson Education. All rights reserved.

BPMN 2.0, just as satellite mapping can zoom in to see the detailed street view, we can zoom in to see a detailed view of business processes. This feature allows organizations to start with the process maps of the baseline accounting system and customize while moving into detail of processes.

4.12 Discuss the similarities and differences between flowcharting and BPMN. • Flowcharts do not always provide the level of detail that IT professionals need to develop accounting systems and applications. This can lead to miscommunication and flawed systems.

• BPMN 2.0 provides a business process mapping standard for bridging the gap between IT professionals and business users, such as accountants.

• BPMN 2.0 provides greater detail than flowcharting to meet the needs of IT professionals for successful system implementation.

Key Terms Understanding the language used at the crossroads of accounting and IT is key to your success.

4.13 Match the following terms and definitions a. Process map diagrams. b. Flowchart c. DFD d. UML e. BPMN 2.0

b d c e a

1. A series of activities and decisions 2. A modeling language popular among IT professionals 3. Graphically, describes process and data flow.

4. Provides greater detail than flowcharting 5. Graphically describes the process of accounting system.

4.14 Match the following BPMN 2.0 terms and definitions a. Event b. Activity c. Gateway d. Data Store e. Data Object f. Swimlane g. Start h. End

h 1. A red circle, used to show a process termination in a BPMN 2.0 diagram f 2. A rectangle, used to group and organize activities in a BPMN 2.0 diagram c 3. Are used for forking and merging process flows a 4. Triggers, intermediate, and end process b 5. It shows actions performed in a process map e 6. Documents or data records d 7. Database g 8. A green circle, it is used to show a process initiation in a BPMN 2.0 diagram

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Practice Test 4.15 A business process typically associated with the vendors module of the baseline accounting system is: a. Create invoices b. Receive payments c. Make deposits d. Receive items (Correct Answer) 4.16 A business process typically associated with the customers module of the baseline accounting system is: a. Pay bills b. Receive items (Correct Answer) c. Make deposits d. Create purchase orders 4.17 A business process typically associated with the employees module of the baseline accounting system is: a. Enter time (Correct Answer) b. Make deposits c. Pay bills d. Receive payments 4.18 Which of the following is most likely happen as a result of Business Process Management? a. Business processes will be streamlined to reduce costs and improve efficiency (Correct Answer) b. The accounting database table will be updated c. More complexity is added to accounting processes d. Business size is increased 4.19 In a BPMN diagram, a gateway : a. Triggers, interrupts, or ends a process b. Is an activity performed c. Is used to for forking and merging process flows (Correct Answer) d. Shows how data enters a system, how it moves through a system from process to process, where it is stored, and how exit the system.

4.20 A decision symbol in the flowchart is similar to the ___________ symbol in a BPMN diagram. a.

Data Object b.

Activity c.

Gateway (Correct Answer) d.

Event 4.21 In a process, there are five major participants. Three of these participants are internal to the company and two are external. How many swimlane are there in the process map depicting this process? a. 2 b. 3 c. Cannot be determined at this time d. 5 (Correct Answer) 4.22 Annotating a narrative involves: a. Creating a business process map organizer 4 © 2014 Pearson Education. All rights reserved.

b. c. d.

Writing general description of the business activity Identifying and underlining the activities in the narrative (Correct Answer) Identifying and underlining the participants in the narrative

4.23 Which columns of the business process map organizer do you use if you are developing a flowchart? a. Activity, Gateway, and Swimlane b. Data store, Activity, and Gateway (Correct Answer) c. Activity, Swimlane, and Gateway d. All columns 4.24 A streamlined, effective approach to business process mapping is to: a. Learn about different process map modeling languages b. Start with the baseline accounting system (Correct Answer) c. Start to draw flowchart for the business process d. Identify activities included in the business process

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Exercises Each Exercise relates to one of the major questions addressed in the chapter and is labeled with the question number in green.

Short Exercises 4.25 Match the following BPMN 2.0 terms with the appropriate example. (Q4.5) a. Activity b. Gateway c. Data store d. Data object e. Swimlane

e c a e a d b a d e

1. Customer 2. CUSTOMER table 3. Verify customer credit 4. Credit Card Company 5. Generate shipping labels 6. Customer lack of credit notification email 7. Is customer credit verified?

8. Authorize shipping 9. Shipping confirmation notification 10. Warehouse

4.26 Match the following processes and their sequence with the appropriate baseline accounting system module.

(Q4.2)

Transaction Cycle Purchasing Cycle Purchasing Cycle Purchasing Cycle Purchasing Cycle Sales Cycle Sales Cycle Sales Cycle Payroll Cycle Payroll Cycle Payroll Cycle Payroll Cycle

a. Create invoices b. Receive items. c. Enter bills. d. Create purchase orders. e. Enter time. f. Pay employees. g. Calculate payroll. h. Pay bills. i. Make deposits. j. Receive customer payments. k. Pay payroll liabilities.

4.27 Write the following activities in the correct sequence flow. a. Authorize payroll b. Calculate withholding c. Calculate net Pay d. Calculate gross pay 6 © 2014 Pearson Education. All rights reserved.

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

The correct order is: Calculate gross pay, Calculate withholding, Calculate net pay, and Authorize payroll 4.28 For a bank ATM transaction, identify the following: (Q4.6) 1. Swimlanes (major participants): Bank client, Bank accounting system 2. Activities – ATM activities include: a. Enter pin number b. Make a withdraw c. Make a deposit d. Verify balance e. Change pin number (some ATM may not allow this action) 3. Gateways a. Is customer authentic (through its credit card and pin number) b. Is customer is authorized to withdraw c. Is customer is authorized to change the pin number 4. Data Stores a. Customer master table b. Transaction tables 5. Data Objects a. Customer transactions receipt b. Other notifications 4.29 Select an authentic enterprise of your choice, and describe how the enterprise processes sales transactions with customers.

List the following: (Q4.6) 1. Swimlanes (major participant) 2. Activities 3. Gateways 4. Data Stores 5. Data Objects Student’s answer depends how that business sales activities are performed. However, student’s answer should include: Swimlanes: Customer….

Activities: Process customer order, Generate invoice,…

Gateway: Is customer credit verified, …

Data stored: Possibly Inventory or Good Sold, …

Data Object: Invoice, …

4.30 Annotate the following narrative, labeling and numbering the activities. (Q4.6)

1

2

Customers select items to purchase and place them in their online shopping cart on

3

Amazon.com. When customers are ready to check out, the credit card information is entered . To process the order,

4

customers click the checkout button .

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4.31 Identify errors in the following BPMN 2.0 diagram

• • •

Processes A2 and A3 are black holes Process A4 is a miracle Data store cannot trigger a Data Object. Only an activity or a gateway can generate a data object.

4.32 Write a narrative for the following flowchart

To order a pizza, customers call the pizza delivery. They select their pizza, and place the order. Customers call again if the pizza is not delivered within 30 minutes, otherwise, they pay for the pizza upon delivery and eat the pizza.

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4.33 Write a narrative for the following BPMN 2.0 diagram.

To order a pizza, a customer calls Mama Toscana pizzeria. The customer places the order after selecting pizza toppings. Mama Toscana calculates deductions if the customer provides any coupons; otherwise, she calculates total pay and prints the bill. Mama Toscana updates the Goods Sold table. Kitchen bakes the pizza and places it in a box.

Store clerk attaches bill to the pizza box. The store delivery person delivers the pizza and customer pays the bill and eats the pizza.

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It’s Your Call 4.34 You have been called in as a consultant to verify the accuracy of the BPMN 2.0 diagrams documenting Soleil Corporation’s current business processes. What steps would you take to verify the accuracy of the BPMN? How would you document any discrepancies to include in your consultant’s report?

Prepare a short email to the president of the company outlining your plan for verifying the accuracy of the BPMN diagrams. (Q4.2, 4.3, 4.5, 4.6) Answer: Your email should include: The best way to verify the accuracy and correctness of a business process map diagram is to follow the same required steps for building a process map. Skip the first step, which is reviewing the current documentation, and conduct the rest of steps. After preparing the narrative for a certain business process compare the narrative with the documented process map and try to see if they match. Document any exceptions.

4.35 Your supervisor has asked you to represent the accounting department on a project team charged with streamlining business processes to cut costs. Your assignment is to observe and document all current business processes as performed by accounting professionals. Some of your coworkers have approached you and asked if your job is to eliminate their jobs. What do you say? How do you communicate with your accounting colleagues what you are doing? (Q4.3, 4.4, 4.5, Q4.6) Answer: Streamlining business processes is also called business process reengineering. Business process reengineering may result in the elimination of redundant activities or addition of new activities. At the end the processes would run more efficiently. Therefore, positions are not necessarily positions eliminated. Business process reengineering may cause changes in job responsibilities or creation of new positions.

4.36 You are the accounting representative on a project team to streamline business processes for your company.

The team leader has asked you to prepare a short email for the team that outlines the steps that would be used to document the business processes using flowcharts and BPMN 2.0 diagrams. He asked that you keep it short and simple so that team members can use it as a checklist.

Prepare a short email to the team leader responding to his request. (Q4.3, 4.4, Q4.5) Here is what you should include in your email: To create a flowchart and BPMN 2.0: 1.

2.

3.

4.

Collect information about the tasks and activities involved in an enterprise’s business processes. The following techniques could be used to collect information. a. Review current accounting system documentation. b. Observe business processes. c. Interview employees. d. Conduct surveys. e. Prepare narratives.

Annotate the narrative.

Prepare the business process map organizers for processes Use business process map organizers to develop flowcharts and BPMN 2.0

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4.37 MiaPizza is a small family-run pizza parlor that accepts only cash. One of the owner’s sons has just graduated from college and is urging his dad to begin accepting credit cards in order to increase sales. The son is one of your good friends. Knowing that you are taking an AIS course, he offers a free pizza dinner in exchange for talking to him about how to implement credit card processing into the business. He wants to know more about the steps (activities) you would advise he take to document the new business process.

To prepare for your free pizza dinner, write a short summary of your notes with the steps he should use to document the proposed business process. (Q4.6) Answer: You explain to your friend the following differences between the cash and credit card sales process: When a customer pays with credit card, the customer credit should be verified by sending a verification request to the credit card company. When the credit approval is received, receipt is printed and signed by the customer.

Therefore, two activities should be added to the sales process. These processes are “verify customer credit” and “charge customer credit card.”

4.38 Your supervisor has asked you to represent the accounting department on a process-improvement team charged with optimizing processes workflow. Your assignment is to observe and document the online current sales process as performed by accounting professionals. What do you include in your document? (Q4.5, 4.6) Answer: In your document include the benefits of the business process mapping diagrams for understanding, analyzing, and reengineering accounting processes. Discuss how business process mapping is a valuable tool to envision how an accounting system workflow can be improved and streamlined while at the same time maintaining security and control over confidential information.

Then include the importance of accounting processes observation, interviewing involved employees, and conducting surveys. Specify how during accounting processes observation, the team can find ways in which the business operations and business processes can be improved. Based on the outcome of observation, interviews, and surveys, new narratives for streamlined business processes are developed and consequently new BPMN are created.

After a thorough analysis of the new BPMN diagrams the process reengineering can be implemented.

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Tech in Practice Tech Exercises 4.39 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or Ms Visio BPMN Diagram Drawing Use the following business process map organizer to complete the corresponding BPMN 2.0 and flowchart diagrams.

Activity Place Order Process Customer Order

Authorize Shipping Pick Items Ship Items with Pick List Notify Accounting Items Shipped

Generate Invoice

Business Process Map Organizer Swimlane Gateway (BPMN Only) Customer Accounting Verify Customer Identity Accounting Verify Customer credit Accounting Verify items available Accounting Accounting Warehouse Warehouse

Date Stores (BPMN Only)

Customer Table Customer Table Item Table Item Table

Warehouse

Accounting

Customer Table Sales Order Table Sales Order Line Table Item Table Account Receivable Table

Notice in this business process that customers do not pay when they receive their order’s items. They will pay on the due date stated on the billing statement.

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4.40 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing MiaPizza customers place an order by calling the store. They place their order after selecting the type of pizza.

Often, customers will call the store if their order is not delivered after 60 minutes. They pay for the pizza when it is delivered. (This exercise is only focused on customer’s side ordering and receiving, not the pizza delivery process.)

1.

Annotate the narrative.

MiaPizza customers place an order by calling the store. They place their order after selecting the type of pizza.

Often, customers will call the store if their order is not delivered after 60 minutes. They pay for pizza when it is delivered. (This exercise is only focused on customer’s side ordering and receiving not the pizza delivery process.)

2.

Create business process map organizer.

Activity Call Store Select Type of Pizza Place Order Check Delivery Status

Pay the Pizza

Business Process Map Organizer Swimlane Gateway (BPMN Only) Customer Customer Customer Customer Verify Delivery Customer (Pizza Delivered) Verify Time Customer (60 minutes passed) Customer

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Date Stores (BPMN Only)

3.

Build the corresponding flowchart.

4.

Build the corresponding BPMN

4.41 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing Use the following narrative to complete the accompanying requirements. MiaPizza is a small family-run pizza parlor that accepts only cash. A customer places a pizza order by calling the store. MiaPizza takes the order over the phone.

The order is entered into the system. Customer pizza is prepared and boxed. A customer receipt is printed and taped to the pizza box. Then the pizza is delivered.

1. Annotate the narrative.

MiaPizza is a small family-run pizza parlor that accepts only cash. A customer places a pizza order by calling the store. MiaPizza takes the order over the phone. The order is entered into the system. Customer pizza is prepared and boxed. A customer receipt is printed and taped to the pizza box. Then the pizza is delivered.

Notice:

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• • 2.

Placing an order and taking an order activities seem to be the same activity but are viewed from different sides (customer and store). However, since each participant (customer and store) does different things, thus they should be shown as two activities.

The customer places a pizza order by calling store activity can be broken into two activities: calling store and placing order.

Prepare a business process map organizer.

Business Process Map Organizer Swimlane Gateway (BPMN Only) Customer Customer MiaPizza MiaPizza MiaPizza MiaPizza MiaPizza MiaPizza MiaPizza

Activity Call Store Place Order Take Order Enter Order into system Prepare Pizza Box Pizza Print Receipt Tape Receipt to the Box Deliver Pizza 3.

Build the corresponding flowchart.

4.

Build the corresponding BPMN 2.0 diagram.

15 © 2014 Pearson Education. All rights reserved.

Date Stores (BPMN Only)

Database

4.42 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing Select an authentic enterprise of your choice.

1.

2.

3.

4.

5.

Observe the sales transactions of this enterprise.

List the swimlanes, activities, gateways, data stores, and data objects that you observe.

Draw a flowchart to document the sales transaction showing activities as well as flow of activities.

Draw a BPMN diagram to document the sales transactions showing swimlanes, activities, gateways, data stores, and data objects.

Do you see any improvements the enterprise might make? List your recommendations to streamline and improve the business process.

Answer to this question depends on the selected enterprise. Student may choose an enterprise such as Amazon.com, whose sales channel is only online, or a company such as Best Buy, which has in-store and online sales.

4.43 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing Use the following BPMN 2.0 diagram for Bamboo Furniture and the narrative to complete the accompanying requirements.

1.

Annotated narrative.

Bamboo Furniture customers view and make furniture selections on the showroom floor. Employees check item availability using the enterprise database. If the items are available in the warehouse, the employee obtains the customer information to place the sales order. If the items are not available, the customer is notified. If the customer chooses to still place the order, the customer information is obtained and the order is placed with the manufacturer.

Customer credit is verified by sending an authorization request to the credit card company for the amount of the purchase. After the customer credit is verified, sales order information is stored in the SALES ORDER and SALES ORDER LINE tables. If the customer does not have a good credit standing, the customer order is rejected and the customer is notified.

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2.

The business process map organizer.

Activity Select Furniture Check Item Availability

Business Process Map Organizer Swimlane Gateway (BPMN Only) Customer Employee Is Item available Employee

Notify Customer of Item Availability

Item Table

Employee Continue with Order

Place order with Manufacturer Obtain Customer Info Verify Customer Credit Is Credit Card Verified

Customer Employee

Manufacturer Table

Employee Credit Card Company Employee

Customer Table

Notify Customer of Bad Credit

Employee

Store Sales Info

Employee

3.

Date Stores (BPMN Only)

The flowchart diagram for the Process Customer Order subprocess.

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Sales Order and Sales Order Line

4.

The BPMN diagram for the Process Customer Order subprocess.

4.44 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing Use the following BPMN 2.0 diagram for Bamboo Furniture and the narrative to complete the accompanying requirements.

1.

Annotated narrative.

After a customer order is placed with Bamboo Furniture and the furniture is located in the warehouse, the delivery date for the furniture is scheduled. The customer is notified of the delivery date, the customer address is verified, and the appropriate database tables are updated.

2.

The business process map organizer.

Activity Locate Item Schedule Delivery Verify Customer Address Update Database

Business Process Map Organizer Swimlane Gateway (BPMN Only) Warehouse Delivery Delivery Accounting

18 © 2014 Pearson Education. All rights reserved.

Date Stores (BPMN Only) Item Table Schedule Table Customer Table Sales Order Table

3.

The flowchart for the Process Delivery subprocess

4.

The BPMN diagram for the Process Delivery subprocess.

4.45 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing Use the following BPMN diagram for Bamboo Furniture and the narrative to complete the accompanying requirements.

1. Annotated narrative.

After the delivery date is scheduled, customer and sales order information is updated. The invoice is printed and delivered with the furniture to the customer.

2.

The business process map organizer.

Activity

Business Process Map Organizer Swimlane Gateway (BPMN Only)

Print Invoice

Accounting

Deliver Invoice with Items

Delivery 19 © 2014 Pearson Education. All rights reserved.

Date Stores (BPMN Only) Sales Order, Sales Order Line Schedule

3.

The flowchart for the Generate Invoice subprocess.

4.

The BPMN diagram for the Generate Invoice subprocess.

4.46 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing An employee at the English Oak Furniture, after observing the sales quoting approval process, prepares the following short document.

Salesperson sets up an account detail, checks the product availability, and prepares customer price quote.

The sales person verifies if discount approval is needed. If an approval is needed, then, a sales manager approves sales discounts. Then, a salesperson sends a quote to the customer and update the sales data. Customer receives and reviews quote.

20 © 2014 Pearson Education. All rights reserved.

Prepare a business process map organizer for the sales quoting approval process.

Annotated narrative An employee at the English Oak Furniture, after observing the sales quoting approval process, prepares the following short document.

Salesperson sets up an account detail, checks the product availability, and prepares customer price quote.

The sales person verifies if discount approval is needed. If an approval is needed, then, a sales manager approves sales discounts. Then, salesperson sends quote to the customer and update sales data. Customer receives and reviews quote.

The business process map organizer for the sales quoting approval process

Activity

Business Process Map Organizer Swimlane Gateway (BPMN Only)

Setup an Account Detail Check Product Availability Prepare Price Quote Check Discount Approval Approve Sales Discount Send Quote to Customer Update Sales Data Review Sales Quote

Accounting – Salesperson Is Item Available Is Discount Approval Needed

Accounting – Salesperson Accounting – Salesperson

Date Stores (BPMN Only) Chart of Account table, Customer Table, Employee Table Item Table

Accounting – Salesperson

Item Table

Accounting – Manager Accounting – Salesperson Accounting – Salesperson Customer

Employee Table Customer Table Item Table

21 © 2014 Pearson Education. All rights reserved.

4.47 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing Use the English Oak Furniture sales quoting approval business process map organizer that you prepared for the preceding exercise and build a flowchart and BPMN diagram.

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Go Online 4.48 You have been assigned to the project team responsible for documenting business processes for accounting.

You are scheduled to make a short presentation about the pros and cons of different modeling tools used for documenting business processes. Go online and search for business process modeling techniques. What would you say in your presentation summary?

Student answers will vary.

4.50 You have been called in as a consultant to conduct a feasibility study for a new accounting system for a client, LaLune Enterprises. You have been asked to speak to the accounting department about purchasing a baseline system versus customizing the baseline system to meet the organization’s specific needs. Go online and research the advantages and disadvantages of customizing baseline systems. What would you say to the accounting department on this topic? Prepare your speaking notes for the meeting. Write a short email draft that you prepare in advance to send right after the meeting.

Student answers will vary.

4.51 You have been assigned to the process-improvement team responsible for documenting business processes for accounting. You are scheduled to make a short presentation about the pros and cons of different process mapping tools used for documenting business processes. Go online and search for business process mapping techniques.

What would you say in your presentation summary?

Student answers will vary.

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Technology Projects Technology Project 4 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram and flowchart Drawing or MS Visio flowchart or BPMN Diagram Drawing Technology Project 4 is your opportunity to practice building BPMN diagrams for iSportDesign. With this project, you will use either spreadsheet software or Visio software. (Ask your instructor which software you will be using to complete this technology project.) Your deliverables for the project include the following: Deliverable 1. A business process map organizer Deliverable 2. A flowchart diagram Deliverable 3. A BPMN 2.0 diagram Visit www.pearsonhighered.com/kay to do the following: 1.

2.

3.

Download Technology Project 4 instructions.

Download files provided online for your convenience in completing the project deliverables.

Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay iSportDesign Sales Business Process Map Organizer

Activity

Gateway

Swimlane (BPMN Only)

Date Stores (BPMN Only)

Customer Place Order Process Customer Order

Customer iSportDesign Credit Card Company

Process Shipping

Warehouse

• Item Table • Customer Table • Sales Order Table • Sales Order Line Table • Customer Address Table • Customer Address Type Table • Shipping Method

Generate Invoice

Customer Accounting

• Item Table • Customer Table • Sales Order Table • Sales Order Line Table

24 © 2014 Pearson Education. All rights reserved.

• Item • Customer Table • Sales Order • Sales Order Line • Product Table • Currency Rate Table • Credit Card Table

iSportDesign Sales Business Process Map Organizer (Detailed)

Activity

Gateway

Customer Place Order Verify Customer Identity Is Customer ID Valid Verify Order Items Is Item Available?

Process Customer Credit Verify Credit Card

Swimlane (BPMN Only) Customer Sales Sales Customer Inventory Inventory Customer Accounting

Store Order Information

Credit Card Company Accounting Customer Accounting

Generate Packaging Slip

Warehouse

Generate Shipping Labels

Warehouse

Update Customer Order Information

Accounting

Generate Invoice

Customer Accounting

Is Credit Card Verified?

25 © 2014 Pearson Education. All rights reserved.

Date Stores (BPMN Only) • Customer Table

• Item Table • Product Table

• Credit Card Table • Customer Table

• Sales Order Table • Sales Order Line Table • Currency Rate Table • Sales Order Line Table • Item • Customer Address Table • Customer Address Type Table • Customer • Shipping Method • Item Table • Customer Table • Sales Order Table • Sales Order Line Table • Customer Table • Customer Address Table • Customer Address Type Table

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Active Review 5.1 Refer to the chapter opener, Meet SAP. In your opinion, why was the first version of SAP accounting software?

It is like saying that all the roads end in Rome! The accounting system is the heart of every business.

Accounting and financial systems play an important role, not only in collecting and storing financial data, but also in providing information and intelligence for decision making. If the accounting system does not collect the information needed, makes errors in storing the information, or is unable to retrieve the information once stored, then the information needed for decisions is flawed or unavailable. If the information is flawed, the decision may be misguided, sometimes costing enterprises millions of dollars— simply because the accounting system did not provide useful information to decision makers.

5.2 Refer to the chapter opener, Meet SAP. In your opinion, can business processes be modeled in a standard way? How do you think businesses can benefit from software that incorporates best practices for business processes?

Yes, business processes can be modeled in standard way. SAP accounting system is based on standard business processes. However, as was discussed in chapter 4, enterprises are facing a dilemma. Do they change their business processes to fit a standard system? Or do they custom-build their system that fits their unique business needs?

5.3 Discuss why accounting professionals should learn about a business process mapping notation that is the best for communicating with IT professionals.

With the business process map, accountants can plan in advance and think through contingencies when needed. They can plan for each step of the accounting process and the most effective path to accomplish required accounting activities. Process mapping helps accountant to efficiently communicate and documents accounting activities 5.4 Discuss how an organization can customize the baseline accounting system to meet its specific needs.

The process of a system customization is discussed in this chapter. There are two distinct approaches, the Big Bang and stages approaches (see page 141).

5.5 What is a gap analysis, and when is it typically conducted? Can you think of any other applications for which you could use a gap analysis?

A gap analysis identifies the gap between the selected baseline system, such as SAP, and the customization required by the specific enterprise. It is conducted when an enterprise plans to acquire a standard system such as SAP software. Another application of this is when you are planning to purchase a car, which comes with standard options. You can customize it to fit your needs.

5.6 Discuss how a workflow management system can improve employee productivity.

The workflow management systems automate workflow by automatically forwarding the electronic document to the next step in the business process. An automated workflow could increase the output of a business process. It could reduce the micro-management by automating scheduling, review, and quality control. With automated transactions a small team of employees can control a large system. For example, by automating workflow of their customer service, companies reduce their customer service time.

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5.7 Discuss why a company might decide to change its business processes rather than customize a new accounting system.

By changing their current business processes to standard processes, enterprises would improve productivity and reduce costs. However, sometimes the high initial cost of changing current processes prevents enterprises from changing.

5.8 What are the benefits of documenting an enterprise’s business processes?

At least three advantages of business processes documentation are: • •

•

It allows business analysts to analyze business processes and change them into more efficient ones.

It allows finding out how a business process is performed without observing the process itself.

It allows comparing the processes’ designs with their actual current implementations .

5.9 Discuss how business sales processes differ for an online furniture retailer and a physical furniture store.

Differences include.

• In the brick-and-mortar furniture store: 1. Only receive customer payment process is automated 2. Customers can pay in cash, with credit card or check 1.

2.

• In an online furniture store: Customer order, create invoice, and receive customer pay processes are all automated.

Customer credit is the only method of payment

5.10 Discuss what information about a business process is not documented by a flowchart but is documented by the corresponding business process.

Flowcharts may not include the detail that IT professionals need. So IT professionals may prefer more detailed process maps. BPMN 2.0 notation closes the communication gap between business users, such as accountants and IT professionals.

Key Terms Check 5.11 Match the following terms and definitions a. SAP b. big bang. c. stages d. gap analysis

_a_ 1. Standardized enterprise software __ 2. Analyzing the gap between the actual cost of the accounting system project and the budgeted cost. _d_ 3. Analyzing the gap between the baseline modules and the customization required to meet enterprise-specific needs __ 4. An IBM super computer _b_ 5. When all system modules are built and implemented for the entire enterprise at the same time. _c_ 6. When modules or locations for a new system are built and implemented stage by stage instead of all at once. __ 7. System analysis and program development __ 8. Analyzing the gap between the IT capacity and the IT demand.

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Practice Test 5.12 The big bang approach to customization involves a. Customizing and installing one module at a time b. Piloting modules, testing, and resolving issues before moving on the next subsystem c. Resolving issues on a small scale d. Customizing and installing all the modules for the company at the same time (Correct answer)

Gran Prix Auto Part Sales Narrative: Gran Prix Auto Part Company sells luxury car spare parts online to car dealers and repair shops. Gran Prix Auto Part customers place an online order. Gran Prix Auto Part processes the customer order by verifying with the accounting department that the customer’s credit is in good standing with the company (the customer’s account is paid on time). The items are verified for availability from company stores near the customer. The nearest store is selected. The shipment is processed and sent to the customer’s store. An invoice is generated from the sales information and emailed to the customer. The corresponding database tables are updated.

5.13 Who are the major participants in the Gran Prix Auto Part Sales Narrative? a. Customer, Credit Card Company, Gran Prix Auto Part stores b. Customer, Accounting Department, Gran Prix Auto Part stores (Correct answer) c. Bank, Gran Prix Auto Part stores, Credit Card Company d. Gran Prix Auto Part, Bank, Gran Prix Auto Part stores 5.14 What are the processes in the Gran Prix Auto Part Sales Narrative? a. Process customer order, Process shipping, Generate invoice (Correct answer) b. Verify customer's credit, Verify item availability, Update the database tables c. Receive customer's order, verify customer's credit, Send shipment to customer d. Verify customer's credit, Send shipment to customer, Generate invoice 5.15 The Create Invoices and Receive Customer Payments are in which baseline accounting system module? a. Employees b. Vendors c. Customers (Correct answer) d. Banking 5.16 The Create Purchase Orders, Receive Items, and Enter Bills are in which baseline accounting system? a. Banking b. Customer c. Vendor (Correct answer) d. Reporting

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Gran Prix Purchase Narrative: Gran Prix needs to purchase more Audi spare parts. Gran Prix submits an order to the Audi Company online. When Gran Prix receives the spare parts shipment, the receiving department processes the shipment.

Gran Prix receives an invoice and processes the bill. The corresponding database tables are updated.

5.17 Who are the major participants in the Gran Prix purchase narrative? a. Gran Prix, Receiving department, Accounting department b. Gran Prix, Receiving department c. Audi, Receiving department (Correct answer) d. Audi, Receiving department, Accounting department 5.18 What are the activities in the Gran Prix purchase narrative? a. Submit Purchase Order, Process Shipment, Process Bills (Correct answer) b. Submit Purchase Order, Process Shipment, Receive Invoice c. Submit Purchase Order, Receive Shipment, Receive Invoice d. Submit Purchase Order, Receive Shipment, Enter Bills

Gran Prix Process Payroll Liabilities: Gran Prix has an automated process for paying the payroll liabilities. On the appropriate date, the accounting system automatically initiates the Process Payroll Liabilities. Data from the Employee and Payroll Liabilities Account database tables are used in this process. At the completion of this process, the Cash Payments Account and Cash Account database tables are updated and an email is sent to the accountant. The accountant authorizes the payroll liabilities. The Employee, Payroll Liabilities Account, Cash Payments Account, and Cash Account database tables are updated. Payment is sent to the appropriate government entities.

5.19 Who are the major participants in the Gran Prix Process Payroll Liabilities narrative? a. Employee and Accountant b. Government Entities and Bank c. Schedule and Employee d. Schedule, Accountant, and Government Entities (Correct answer) 5.20 What are the activities in the Gran Prix Process Payroll Liabilities narrative? a. Send Payment and Process Payroll Liabilities b. Process Payroll Liabilities and Authorize Payroll Liabilities (Correct answer) c. Update database tables and Authorize Payroll Liabilities d. Email Accountant and Send Payment 5.21 The financial modules usually include the following processes except: a. Pay interest expense (Correct answer) b. Make correcting entries c. Make closing entries d. Make adjusting entries

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Exercises Short Exercises 5.22 Compare and contrast using a baseline system versus customizing a system to meet enterprisespecific needs. Use the following organizer for your answer. (Q5.1) Compare (Same) Belong to the same business event Same input and output There is a costs associated with it them Their workflow could be automated

and

Compare (Different) Do not have the same detail (processes) Do not have the same efficiency Do not have the same costs Do not have the same workflow

5.23 Compare and contrast the big bang approach and the stages approach to customizing and implementing a system. What are the advantages and disadvantages of each approach? Use the following organizer for your answer. (Q5.1) Compare (Same) Baseline system is customized Customized system goes live

Both require a completion time Both require testing

and

Compare (Different) Do not have the same Customization process In stage approach, customized modules goes live in stages In big bang all modules goes live at once (disadvantage) Big bang finishes much faster (advantage) Stage approach provide more testing and troubleshooting time (advantage)

5.24 EspressoCoffee is considering permitting vendors to access certain parts of its vendor module, such as verifying orders placed and tracking items received by EspressoCoffee. This would represent significant time and cost savings to EspressoCoffee since its employees would not use time checking this information for vendors. The vendors would be able to access the information themselves.

In order to permit vendors to access EspressoCoffee’s system, the vendor would need to be authenticated by logging on with a specified user ID and password. EspressoCoffee would then verify the vendor and provide the vendor with access to the appropriate areas of EspressoCoffee’s system.

(Q5.1, 5.2, 5.3)

1. Identify which process maps and flowchart shown in Chapter 5 would need to be modified to provide vendor access to EspressoCoffee’s system.

Figures 5.9A and 5.9B. 2. Describe how the process map and flowchart would need to be modified if this change were made to EspressoCoffee’s system.

A separate flowchart should be created to show how a vendor can be authenticated and authorized to access 5 © 2014 Pearson Education. All rights reserved.

the appropriate areas of EspressoCoffee’s system. Although figure 5.9B can be modified to include vendor authentication and authorization to access appropriate processes in EspressoCoffee system, it is better to prepare a new BPMN for this purpose.

New processes can be added to figure 5.9B to allow vendors to log in and verify inventory levels, place purchase orders, and track the purchase orders. These processes also could send notifications regarding the vendor actions to the EspressoCoffee employees.

5.25 EspressoCoffee is considering opening a chain of espresso cafes that would sell the EspressoCoffee brand of coffee beans and espresso machines. (Q5.1, 5.2) 1.

Identify which process maps and flowcharts for EspressoCoffee in Chapter 5 would need to be modified.

2.

Which processes should be modified to accommodate this change in operations?

Actually additional flowcharts and BPMN must be created. These new diagram are a modified version of flowcharts and BPMN diagrams for create invoice and receive customer payment. These new diagram should consider: • When customer buys items in store his/her credit card may not necessarily need to be checked since he/she may pay with cash or check. Shipping process in most cases is not required.

Customer information is not collected. Additional tables are used to store information about goods sold (espressos, cappuccinos, cookies) and inventory used. (Changes in figure 5.3 create invoice.)

•

Customer may pay cash or check and he/she pays at the moment of sales (a change required in figure 5.6A and 5.6B receive customer payment).

•

We assume EspressoCoffee store sales policy will not allow return or exchange of any goods sold.

However, customers are refunded if they are not satisfied. This requires a new flowchart and BPMN to update the appropriate tables.

5.26 Sam’s Sports Car Galaxy, a supplier of sports car auto parts, uses a bar-code system for inventory of

1

the auto parts. Inventory is automatically checked on a regular basis to determine when reorders are

2

needed. The system automatically generates a purchase order (PO) that is sent electronically to an employee for authorization. After approval, the PO is sent 1.

2.

3.

4.

5.

5.27

3

electronically to the vendor. (Q5.3)

Annotate the preceding narrative – highlight activities Identify major participants – Sport Car Galaxy Purchasing, Employee, and Vendor Identify activates – activities are: Automatically Checking inventory, Generating purchase order, and sending purchase orders Identify possible gateways – possible gateways are: is inventory level is reached the reordering level? Is purchase order authorized?

Identify database tables – database tables are ITEM, EMPLOYEE, PURCHASE ORDER, AND PURCHASE ORDER LINE. Kayla Company pays its employees on the 30th of each month. An accounting employee initiates

1

the process. Employee pay is calculated based on a fixed salary or an hourly pay. Withholdings are

2

3

deducted from the gross pay to calculate net pay . An accounting supervisor reviews and

4

authorizes payroll. (Q5.4) 1. Annotate the preceding narrative – highlight activities 2. Identify major participants – accounting employee and accounting supervisor 6 © 2014 Pearson Education. All rights reserved.

3.

4.

5.

Identify activities – calculate pay, deduct withholding, calculate net pay, and review and authorize Identify possible gateways – Are there discrepancies in pay?

Identify database table. Withholding, Employee, Employee Type, Time, Wages, Salary, PAYROLL LIABILITIES ACCOUNT, PAYROLL EXPENSE ACCOUNT, AND GENERAL LEDGER tables.

1

5.28 When processing payroll , Kayla Company gives employees the option of receiving their paychecks

2

3

in the mail or having a direct deposit made to their bank accounts. (Q5.4) 1. Annotate the preceding narrative – highlight activities 2. Identify activities – processing payroll, mail paychecks, and deposit directly in the bank.

3. Identify possible gateways – does employee use direct deposit?

4. Identify major participants – accounting, employee, bank 5.

Identify database tables. EMPLOYEE, PAYROLL LIABILITIES, CASH PAYMENT ACCOUNT, and CASH ACCOUNT 5.29 Kayla Company has decided to go paperless throughout the organization. When processing payroll1,

2

the company will use direct deposit for all employees. (Q5.4) 1. Annotate the preceding narrative – Highlight activities 2. Identify activities – direct deposit 3. Identify possible gateways - None 4. Identify major participants – bank and employee 6.

Identify database tables – EMPLOYEE, PAYROLL LIABILITIES, CASH PAYMENT ACCOUNT, and CASH ACCOUNT

It’s Your Call 5.30 You have been hired as a consultant to MIPS Electronics, a chain of successful electronics stores.

MIPS would like to implement a workflow management system to streamline accounting procedures.

Prepare an email summary to the president of MIPS Electronics summarizing the benefits and limitations of a workflow management system. (Q5.1) Your email should include the following benefits and limitations of workflow management system.

Benefits: 1. Cost reduction – there is a direct benefit from lesser staff, increase productivity, and less training.

2. Control improvement – a workflow management system automates tasks, therefore reduces dependencies on managements and employees. It allows better control over business processes.

3. Management reduction – Reduce the need for management in routine and scheduled tasks.

4. Productivity increase – with automated transactions tasks, more tasks are done in a shorter amount of time.

5. Process improvement – a workflow management system allows a better look at the business processes, therefore it allows process re-engineering.

6. Customer satisfaction – a workflow management system allows a more efficient flow of information in the customer service tasks.

Limitations: 1. Workflow management system cannot be implemented over tasks where a management decisionmaking is required.

2. Implementation of workflow management on an entire system is not recommended. A successful workflow management system is when it is implemented during a process re-engineering.

(Source: http://www.thomasandalex.com/articles/reporting-solutions/whats-the-big-deal-with-workflows/)

7 © 2014 Pearson Education. All rights reserved.

5.31 You are a member of the project team for a new integrated enterprise system for Justin Enterprises.

The CEO has acquired a number of different companies over the past few years. This has resulted in different accounting systems that are not compatible, so the CEO has made the decision to convert to an integrated enterprise system. She has asked you to summarize in a short email whether you would recommend using the big bang or stages approach to the conversion and why. (Q5.1) An overall customization of many different and large systems into one at once is very risky. An error would cripple many companies. At the same time we are talking about accounting systems, which are the most critical system in most enterprises. Also, your company has little or no knowledge of these companies’ accounting systems functionalities. Thus, it is best to convert systems using a phased approach.

5.32 You are the accounting representative on a project team for a new integrated enterprise system that will include a new accounting system. The team is evaluating the following two options: • Option A: Use the SAP baseline system and modify the company’s business processes to match the baseline system.

• Option B: Customize the SAP system to correspond to your current business processes. You are charged with preparing an update for the president of the company regarding a recommendation for which option to pursue and the rationale. (Q5.1) Your report should include pros and cons of the both approaches and let the team make the decision.

In your reports, state the financial and scheduling limitations of modifying your company’s business processes to match the SAP baseline system’s processes. At the same time state the benefits of doing so.

Your accounting processes are based on best business practices.

For the option B, the benefits are that the new system will be in place and running much faster with much less costs. If the project schedule and the cost are not a limitation, then the option A might be a better choice.

Tech in Practice Tech Exercises 5.33 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Use the following business process map organizer for Ariel Enterprises. The company sells to customers on account. The following business process map organizer summarizes the activities, major participants (swimlanes), gateways, and database tables for the receive customer payment process for Ariel Enterprises.

1. Build a flowchart.

2. Build a BPMN 20 diagram.

Activity Customer send cash payment Process Customer payment

Gateway (decision)

Verify Cash Amount Record Customer payment Send Customer Receipt

Swimlane Customer

Data Store

Accounting

• CUSTOMER • SALES ORDER • SALES ORDER LINE • ACCOUNT RECEIVABLE

Accounting • UNDEPOSITED • ACCOUNT RECEIVABLE Accounting

8 © 2014 Pearson Education. All rights reserved.

As you notice the action regarding “Not enough cash payment” is not specified in the narrative.

9 © 2014 Pearson Education. All rights reserved.

5.34 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Use the following narrative to answer the accompanying questions. iBacci Chocolate sells fine European chocolates and candies. The company buys from local Italian artisans and sells the items online. The company’s Item database table used to account for inventory is

1

automatically checked at a specific time of the day to determine if the quantity has dropped below the

2

reorder point. If so, the system automatically processes a purchase order and forwards it to the appropriate

3

employee. The employee reviews it for authorization . If there are no discrepancies, then PO is

4

5

6

authorized ; otherwise, the purchasing department is notified . The PO is generated and sent to the specified vendor.

1. Annotate the narrative – highlight activities 2. Create a business process map organizer.

Activity

Swimlane

Data Store (BPMN Only)

Check Inventory Level for Item Need to be Ordered Process PO

Gateway (Decision)

Purchasing

• ITEM

Purchasing

• ITEM • VENDOR

Verify PO for Authorization

Accounting

• EMPLOYEE • EMPLOYEE

Notify Purchasing Department Authorize PO

Accounting Purchasing Accounting Purchasing D. Accounting

Generate Purchase Order

Purchasing Vendor

Is there a discrepancy?

• EMPLOYEE • PURCHASE ORDER • PURCHASE ORDER LINE • VENDOR • ITEM

10 © 2014 Pearson Education. All rights reserved.

3.

Build a flowchart.

4.

Build a BPMN 2.0 diagram.

11 © 2014 Pearson Education. All rights reserved.

5.35 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Use the following narrative to answer the accompanying questions. iBacci Chocolate sells fine European chocolates and candies. The company buys from local Italian artisans

1

and sells the items online. Vendor ships purchased items . When the items are received from the vendors, a

2

purchasing department employee records the Items . Another iBacci employees complete a two-way

3

match by counting the items received and comparing the count to the original PO. If there is no

4

discrepancy, then employee records the items received in the system . A receiving report is generated and

5

6

sent to the accounting department . Accounting department update the accounts . If there were

7

5

discrepancies, then purchasing department would attempt to resolve them , and generate receiving report ,

8

9

otherwise discrepancies are recorded , a discrepancy notification is generated and it is sent to the vendor .

1.

2.

Annotate the narrative – highlight narrative activities Create a business process map organizer.

Activity

Gateway (Decision)

Ship Items Record Items Received Complete 2-way Match

Swimlane Vendor Purchasing Purchasing

Data Store (BPMN Only) • ITEM • EMPLOYEE • ITEM • VENDOR • EMPLOYEE • PURCHASE ORDER • PURCHASE ORDER LINE

Is there any discrepancy?

Record Items

Accounting

Generate Receiving Report and Send to Accounting Update Accounts

Purchasing

Resolve Discrepancy

Purchasing

Accounting

Is Discrepancy Resolved Record Discrepancy Generate Discrepancy Report

• ITEM • PURCHASE ORDER • PURCHASE ORDER LINE

Purchasing Purchasing

• DISCREPANCY

Vendor

12 © 2014 Pearson Education. All rights reserved.

3.

Build a flowchart

4.

Build a BPMN 2.0 diagram

13 © 2014 Pearson Education. All rights reserved.

5.36 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Use the following narrative to answer the accompanying questions. iBacci Chocolate sells fine European chocolates and candies. The company buys from local Italian artisans

1

2

and sells the items online. A vendor sends a bill . When the bill is received from the vendor, the accounting department completes a three-way match, comparing the vendor’s bill with the receiving report

3

4

and the original PO . If bill matched purchasing order and receiving report, then the bill is recorded . If

5

4

there are any discrepancies, then the accounting department would try to resolve and record the bill ,

6

7

otherwise the discrepancies are recorded and a discrepancy notification is sent to the vendor.

1. Annotate the narrative – Highlight narrative activities 2. Create a business process map organizer.

Activity

Gateway (Decision)

Send Bill Receive Bill Complete 3-way Match

Swimlane Vendor Purchasing Accounting

Data Store (BPMN Only) • EMPLOYEE TABLE • VENDOR TABLE • EMPLOYEE • PURCHASE ORDER • PURCHASE ORDER LINE

Is there any discrepancy?

Record Bill

Accounting

Resolve Discrepancy

Accounting

• ACCOUNT PAYABLE TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE TABLE

Is Discrepancy Resolved Record Discrepancy

Accounting

Send Discrepancy Notification

Vendor

3.

• DISCREPANCY TABLE • VENDOR TABLE

Build a flowchart

14 © 2014 Pearson Education. All rights reserved.

Get complete Order files download link below htps://www.mediafire.com/file/heeq6bxs7etai2m/SM +Accoun�ng+Informa�on+Systems+The+Crossroads+of +Accoun�ng+and+IT+2e+Donna+Kay+Ali+Ovlia.zip/file

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

4.

Build a BPMN 2.0 diagram

5.37 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Use the following narrative to answer the accompanying questions. iBacci Chocolate sells fine European chocolates and candies. The company buys from local Italian artisans and sells the items online. On the first of each month, the accountant reviews and selects bills to

1

2

3

pay . Checks are prepared and printed . The controller reviews the checks and supporting documents and

4

5

signs the checks . The checks are mailed to the vendors.

1. Annotate the narrative – Highlight narrative activities 2. Create a business process map organizer.

Activity

Swimlane

Data Store (BPMN Only)

Select Bills to pay

Gateway (Decision)

Accounting

• ACCOUNT PAYABLE TABLE • EMPLOYEE TABLE • CASH ACCOUNT TABLE

Prepare and Print Check Review Checks

Accounting

Sign Check Mail Checks

Accounting Accounting

Accounting

• ACCOUNT PAYABLE TABLE • CASH PAYMENT TABLE • CASH ACCOUNT TABLE • GENERAL LEDGER TABLE

15 © 2014 Pearson Education. All rights reserved.

3.

Build a flowchart.

4.

Build a BPMN 2.0 diagram.

5.38 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing iBacci Chocolate needs your assistance in documenting its business processes for the payroll cycle for entering time worked. The following is a narrative for recording employee time.

When an hourly employee arrives at work, he or she logs on to his or her computer station with a unique

1

user ID and password. The log-on activity is recorded by the system as the starting time and saved in a TIME database table. When the employee leaves for the day, he or she logs off, activating the system to

2

record the end of the time worked .

3

Every Friday, the payroll clerk uses a database query with the T IME table to calculate the length of time worked for the week by each hourly employee. Total hours worked is stored in the T IME table. Complete the following.

1. Annotate the narrative – Highlight narrative activities

16 © 2014 Pearson Education. All rights reserved.

2.

Create a business process map organizer.

Activity

Gateway (Decision)

Swimlane

Record the Logon Time

Accounting

Record the Exit Time Calculate The Time Worked

Accounting Accounting

3.

Build a flowchart

4.

Build a BPMN 2.0 diagram

Data Store (BPMN Only) • EMPLOYEE TABLE • TIME TABLE • EMPLOYEE • TIME TABLE • TIME TABLE • EMPLOYEE TABLE • EMPLOYEE TYPE TABLE

5.39 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing iBacci Chocolate needs your assistance in documenting its business processes for the payroll cycle for calculating payroll. The following is a narrative.

1

Every Friday, the payroll clerk runs a database query to retrieve hours worked by each hourly employee.

2

The clerk runs another query to retrieve the pay information from the WAGES and SALARY tables. The

3

clerk then run an application to calculates withholding amounts . Net pay for employee paychecks is

4

5

calculated and stored in database tables. Payroll is reviewed for authorization . The payroll supervisor authorizes correct payrolls. Unauthorized payrolls are resolved and authorized by payroll supervisor.

Complete the following.

1.

Annotate the narrative – Highlight narrative activities

17 © 2014 Pearson Education. All rights reserved.

2.

Create a business process map organizer.

Activity

Swimlane

Data Store (BPMN Only)

Retrieve Hours Worked

Gateway (Decision)

Accounting

• TIME TABLE • EMPLOYEE TABLE • EMPLOYEE TYPE TABLE

Calculate Gross Pay

Accounting

Calculate Withholding Calculate Net Pay

Accounting Accounting

• WAGE TABLE • SALARY TABLE • TIME TABLE • WITHHOLDING TABLE • PAYROLL LIABILITIES ACCOUNT TABLE • PAYROLL EXPENSE TABLE • GENERAL LEDGER TABLE

Review Payroll Is Payroll Correct?

Authorize Payroll

Resolve Unauthorized Payroll

3.

Accounting Accounting Accounting

Accounting

• PAYROLL LIABILITIES ACCOUNT TABLE • PAYROLL EXPENSE TABLE • GENERAL LEDGER TABLE • PAYROLL LIABILITIES ACCOUNT TABLE • PAYROLL EXPENSE TABLE • GENERAL LEDGER TABLE

Build a flowchart

18 © 2014 Pearson Education. All rights reserved.

4.

Build a BPMN 2.0 diagram

5.40 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing iBacci Chocolate needs your assistance in documenting its business processes for the payroll cycle for paying employees. The following is a narrative.

Every Friday after calculating time and payroll, a second payroll clerk runs a database query to retrieve

1

2

payroll information . This payroll clerk performs a random check of employee time and pay to verify accuracy and validity. Then the payroll clerk, for accuracy inserts check forms and paystubs into a

3

dedicated laser printer and prints the paychecks and pay stubs. Pays with discrepancies are reviewed and

4

discrepancies are resolved ; then pays are forwarded the payroll clerk for printing. The controller reviews the paychecks and signs the checks. The payroll clerk inserts the checks and stubs into window envelopes

5

and mails the checks to employees.

Complete the following.

1. Annotate the narrative – Highlight narrative activities 2. Create a business process map organizer.

Activity

Swimlane

Data Store (BPMN Only)

Retrieve Payroll Information

Gateway (Decision)

Accounting (Payroll Clerk)

• EMPLOYEE TABLE • PAYROLL LIABILITIES ACCOUNT TABLE • CASH ACCOUNT TABLE • CASH PAYMENT ACCOUNT TABLE

Perform Random Check

Accounting (Payroll Clerk) Accounting (Payroll Clerk) Accounting (Payroll Clerk) Accounting (Payroll Clerk) Accounting (Clerk) Accounting (Payroll Clerk) Accounting (Controller) Accounting (Payroll Clerk) Accounting (Payroll Clerk)

Insert Check forms and Paystubs into laser Printer Print Check Review for discrepancy Is There Discrepancy?

Resolve Discrepancy Review and Sign Check Insert Check and Stub into Envelope Mail Envelope to Employee

19 © 2014 Pearson Education. All rights reserved.

4

3.

Build a flowchart.

4.

Build a BPMN 2.0 diagram.

5.41 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Select an authentic enterprise of your choice.

1. Write a narrative to describe how the enterprise processes customer payments.

2. Annotate the narrative.

3. Create a business process map organizer.

4. Build a flowchart.

5. Build a BPMN 2.0 diagram.

6. After reviewing the process map and flowchart diagrams you created, do you see any improvements the enterprise could make? List your recommendations to streamline and improve the business process.

Answer to this question is based how the customer payments process is performed in that enterprise.

20 © 2014 Pearson Education. All rights reserved.

5.42 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Go to your college’s office that collects student tuition payments and observe the steps used in this business process. Then complete the following: 1. Write a narrative summarizing what you observed.

2. Annotate the narrative.

3. Create a business process map organizer.

4. Build a BPMN 2.0 diagram and a flowchart for receive students (customers) payments, documenting the steps to collect and record student tuition payments.

Answer to this question is based how the tuition collection (receive customer payments) process is performed at that college or university.

5.43 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing The new CFO has asked you to update documentation for accounting procedures using BPMN 2.0 and flowchart. You have decided to start with a BPMN 2.0 diagram and flowchart for the closing process at year end.

An accounting system automatically performs the following processes to complete the year-end closing process 1. Move the Current Year Opening Balances (CYOB) to the Prior Year Opening Balance (PYOB) for each balance sheet account.

2. Create new Opening Balances for the new year for all the balance sheet accounts.

3. Calculate the current year's profit or loss and post it to the profit/loss account (this account should be selected by accountants).

4. Move all Net Transactions for all accounts in the general ledger from the Current Year column to the Prior Year column.

5. Reset the Current Year Net Transaction (CYT) column for each general ledger account to zero.

6. Save the current year's (CY) journals in an inactive journal.

7. Create and open new, empty journals for the new year.

21 © 2014 Pearson Education. All rights reserved.

1.

Create a business process map organizer.

Activity Move the Current Year Opening Balances (CYOB) to the Prior Year Opening Balance (PYOB) for each balance sheet account.

Gateway (Decision)

Swimlane

Data Store (BPMN Only)

Accounting

• BALANCE SHEET TABLE

Create new Opening Balances for the new year for all the balance sheet accounts (BSA) Calculate the current year's profit or loss and post it to the profit/loss account (this account should be selected by accountants.)

Accounting

• BALANCE SHEET TABLE

Accounting

• ACCOUNT PAYABLE TABLE • ACCOUNT RECEIVABLE TABLE • CASH PAYMENTS TABLE • CHART OF ACCOUNTS TABLE • GENERAL JOURNAL TABLE • GENERAL LEDGER TABLE

Move all Net Transactions for all accounts in the general ledger from the Current Year column to the Prior Year column

Accounting

• GENERAL LEDGER TABLE

Reset the Current Year Net Transaction (CYT) column for each general ledger account to zero.

Accounting

• GENERAL LEDGER TABLE

Save the current year's (CY) journals in an inactive journal Create and open new, empty journals for the new year.

Accounting

• GENERAL JOURNAL TABLE • INACTIVE JOURNAL TABLE

Accounting

• GENERAL JOURNAL

22 © 2014 Pearson Education. All rights reserved.

2.

Build a BPMN 2.0 diagram and flowchart to document closing.

Process labels are omitted due to the size labels and the figure size limitation.

5.44 The following table shows a series of business activities as well as how these activities are performed.

Next to each activity there are series of options. For each activity, select one of the options. Notice that the option you pick for an activity should match the choice you make for the preceding activities.

• Write a narrative for the resulting sequence of activities and the options that you have selected • Annotate your narrative.

• Create a business process map organizer.

• And build a flowchart and BPMN 2.0 diagram. What do you think of the activities 10 and 11 sequences in the table? Do you have any other options for conducting these activities?

Let’s pick the highlighted execution options.

23 © 2014 Pearson Education. All rights reserved.

Sequence 1

Activity Customer selects items

2

Customer places an order

3

Check item availability

4 5

If Items are in stock, then Pull Items from stock Items are not in stock

6

Proceed with order (items are not in stock)

7

9 10

Notify Customer of delay in delivery (items are not in stock) Proceed with customer order (items are in stock) Generate the invoice Give invoice to the customer

11

Customer pays

8

Execution Options 1.

Selects from a hardcopy catalog 2.

Selects from an online catalog 3.

Selects from store display 1. Enter selected items online 2. Call the store and store employee enters the items into the system 3. Take the items to the cashier 1. Customer sees item availability confirmation on the computer screen 2. On the phone, store employee confirms items availability N/A 1. Customer sees item availability confirmation on the computer screen.

2. On the phone, store employee tells you items are not in stock 1. Store employee records your order in the backlog order book.

2. Automated system saves backlog information 1. Delay information is emailed to customer 2. Delay information is mailed to the customer Ship items N/A 1. Invoice is emailed to the customer 2. Customer can download the invoice in PDF format 3. Invoice is mailed to the customer 1. Customer pays to the cashier and receive the receipt 2. Customer pays online with credit card 3. On the phone, customer give credit card number to the store employee

1

2

A Customer selects items on the store catalog and call store employee and place their order . Employee

3

4

enters items into the system . Employee notifies customer of item availability . If items are available, then

5

6

items are pulled out from stock . If the items are available then they are prepared for shipping . If items

7

are not available and customer wants to proceed then, employee records customer order in the backlog

8

9

order table and delay information are mailed to the customer. The invoice is mailed to customer. To make the payment customer provides his/her credit

10

card information on the phone.

24 © 2014 Pearson Education. All rights reserved.

Activity

Gateway (Decision)

Swimlane

Customer Select Items Customer Call Store and Place Order Enter Item into the System

Customer Customer

Notify Customer of Item Availability Pull out item from Stock

Customer Sales Sales Sales

Prepare Item for Shipping

Warehouse

Sales

Item Available?

Does customer want to proceed?

Data Store (BPMN Only)

• ITEM TABLE • CUSTOMER TABLE • EMPLOYEE TABLE

• SALES ORDER TABLE • SALES ORDER LINE TABLE • ITEM TABLE • ITEM TABLE • CUSTOMER TABLE • EMPLOYEE TABLE

Customer

Enter Item into Backlog

Sales

Mail Delay Information

Sales

Provide Credit Card Info Generate and Mail Invoice

Customer Accounting

• BACKLOG TABLE • EMPLOYEE TABLE • SALES ORDER TABLE • SALES ORDER LINE TABLE • ACCOUNT RECEIVABLE TABLE • CUSTOMER TABLE • EMPLOYEE TABLE

Note: Many assumptions are made for preparing this table. You could add credit card table, additional processes, or a different order of execution of these processes.

25 © 2014 Pearson Education. All rights reserved.

Note: If customer decides to abandon because of non- availability of item, transaction is terminated.

5.45 The following process map diagram shows the shipping process for Soccer Sport Store. As you see, Soccer Sport uses the US Postal service to deliver sporting goods to its customers. Management in Soccer Sport would like to provide other delivery options to its customers. You have been selected to help management implement this requirement.

Soccer Sport store offers the following delivery options 26 © 2014 Pearson Education. All rights reserved.

• • •

FedEx US Postal Service UPS

1. Identify activities that must be added or changed.

The Fill Out US Post Label must be changed since based on the customer decision different label could be used.

This process could break into: • Check Customer Delivery Choice.

• Fill Out the UPS Label • Fill Out the FedEx Label • Fill Out the US Postal Service Label BPMN 2.0 is provided but answers to the rest of questions are straightforward and easy to do.

2. Write a narrative to describe the new process.

3. Annotate your narrative.

4. Create a business process map organizer.

5. Build a flowchart for the new shipping process.

6. Build a BPMN 2.0 diagram for the new shipping process.

5.46 The following flowchart shows a fully manual purchasing process for a department.

27 © 2014 Pearson Education. All rights reserved.

PO: Purchase Order DB: Database

1. Write a narrative to fully computerize this process.

2. Annotate your narrative.

A company IT department employee runs a system to determine their IT needs by evaluating the number of users, system response time, and other system criteria and prepares an electronic PO. The IT director reviews the PO on the computer screen and authorizes the PO. An accountant in the accounting department reviews the electronic PO, which already authorized by the IT director. If the accountant does not approve the PO, then it is returned to the IT director for review, otherwise the accountant reviews the required budget. If the budget is approved, then the PO information is saved in the database; otherwise, the PO is sent to the IT director. Purchasing selects a vendor and sends the PO to the vendor and saves the updated PO into the database.

3. Create a business process map organizer.

Activity

Gateway (Decision)

Swimlane Data Store (BPMN Only) 28 © 2014 Pearson Education. All rights reserved.

Determine IT Needs Prepare PO Review and Authorize PO Review PO for approval Is PO Approved?

Review Required Budget Is Budget Approved?

Save PO Information

Select a Vendor Send PO to the Vendor

IT Department Purchasing IT Department (IT director) Accounting Accounting Accounting Accounting Accounting

Purchasing Vendor Purchasing Accounting

Save Updated PO Information

• IT NEEDS TABLE

• EMPLOYEE TABLE • BUDGET TABLE • ITEM TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE TABLE • VENDOR TABLE • ITEM TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE TABLE

4. Build a flowchart.

5. Build a BPMN 2.0 diagram.

29 © 2014 Pearson Education. All rights reserved.

6. Write a summary and explain why your new computerized process is more efficient than the manual one.

Remember that computerized processes are not always more efficient than manual ones!

The computerized flowchart is not much different with the manual system. However, certain actions are automatically done. For example, when the accounting department does not approve the PPO, the IT director can see this on the PO. 5.47 Fashion One, a department store in St. Louis, has two sales channels. Customers can make purchases at the company store in downtown St. Louis or place their orders over the phone. To place an order over the phone, customers browse the company’s mailed catalog and select their items, then call Fashion One to place their order. Customers provide the salesperson with their personal and order information. The salesperson verifies the customer information. New customers are added to the Customer table. The salesperson verifies item availability and customer credit card, and then sends the order information to accounting. The salesperson would notify the customer in case of a problem with item availability or the credit card.

Management at Fashion One has noticed the following problems with their over-the-phone sales process.

1.

Cost of printing and mailing catalogs is becoming too high for the company—currently, $500,000 per year.

2.

About 25% percent of the items sold are returned due to customer dissatisfaction with color, size, or fabric texture. This costs the company about $1 million per year.

3.

In recent years, some customers have become more reluctant to provide their credit card number on the phone; therefore, the number of customers buying over the phone has reduced drastically. The exact cost of losing customers due to this problem is unknown, but the data analytic department is trying to estimate it.

4.

Often items in the mailed catalogs do not match with the available items in the inventory.

Therefore, salespersons spend time just telling customers what items are available. This year, Fashion One had to add 10 more salespersons for its over-the-phone sales section. The cost of this problem is unknown, but data analytic is trying to estimate it.

The sales channel project team has provided the following BPMN 2.0 diagram for the over-the-phone sales process. You are a member of this team from the accounting department. Suggest a different sales channel that is more efficient and less costly than the current process. Identify new activities and document your suggestion with a BPMN 2.0 diagram. State how the new sales process could eliminate the current 30 © 2014 Pearson Education. All rights reserved.

problems and create new opportunities. Do you see any changes in the control the accounting department has over the new sales process?

Maybe the best solution is an online sales channel to replace the current catalog–based option.

With the new sales channel: 1.

The cost of printing a new catalog will be eliminated 2.

Customer will have a better and more accurate view of items. (However, this problem cannot completely be eliminated.)

3.

Customers are more willing to provide their credit card number on a secure site (i.e. https).

4.

Since the online system is directly connected to the store inventory system, therefore customers are notified if an item is out of stock.

5.

The new system would also eliminate the phone sales process and this way reduces the sales cost.

The following BPMN 2.0 diagram is a possible solution.

31 © 2014 Pearson Education. All rights reserved.

Go Online 5.48 The CEO of Beth&Company has announced that she believes the best return on investment in the future is going to be attained by improving operational performance through improved business processes.

Recent advances in technology have created even greater opportunities. She has asked you to research the business process management suites currently available and make a recommendation. Go online and research business process management suites. Prepare a short email to the CEO with an executive summary of your findings.

There is much available information online on this subject. A good start could be the search on workflow systems and the benefit of business process re-engineering through an automated workflow system.

5.49 The CEO of Beth&Company has asked you to get her up to speed on best practices and business process management. Go online and search for BPM and best practices. Prepare a short email to the CEO with an executive summary of your findings.

Again a good start could be the search of BPM and the workflow system.

5.50 Go online and research how business process mapping helps management streamline their business processes.

The following link could provide valuable information. http://smallbusiness.chron.com/streamline-work-process-improve-work-flow-3929.html

Technology Projects 32 © 2014 Pearson Education. All rights reserved.

Technology Project 5 Tech Tool: Spreadsheet Software or Visio Software Software Videos: MS Excel BPMN Diagram Drawing or MS Visio BPMN Diagram Drawing Technology Project 5 is your opportunity to practice building flowcharts and BPMN 2.0 diagrams for iSportDesign. With this project, you will use either spreadsheet software or Visio software. (Ask your instructor which software you will be using to complete this technology project.)

Your deliverables for the project include the following: Deliverable 1. Create a business process map organizer for create purchase orders process Deliverable 2. Build a BPMN 2.0 and a flowchart for create purchase orders process Deliverable 3. Create a business process map organizer for receive items process Deliverable 4. Build a BPMN 2.0 and a flowchart for receive items process Deliverable 5. Create a business process map organizer for enter bills process Deliverable 6. Build a BPMN 2.0 and a flowchart for enter bills process Deliverable 7. Create a business process map organizer for pay bills process Deliverable 8. Build a BPMN 2.0 and a flowchart for pay bills process Visit www.pearsonhighered.com/kay to complete the following: 1.

Download Technology Project 5 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay Business process map organizer for create purchase orders process.

Activity

Swimlane

Data Store (BPMN Only)

Check Inventory Level

Gateway (Decision)

Purchasing

Process Purchase Order

Purchasing

Authorize Purchase Order

Accounting

• ITEM TABLE • PRODUCT TABLE • PRODUCT TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE TABLE • VENDOR TABLE • SHIPPING METHOD TABLE • ITEM TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE • EMPLOYEE TABLE

Send Purchase Order

Accounting

• VENDOR TABLE

BPMN 2.0 and a flowchart for create purchase orders process

33 © 2014 Pearson Education. All rights reserved.

Business process map organizer for receive items process.

Activity

Swimlane

Data Store (BPMN Only)

Verify Received Items to PO

Gateway (Decision)

Purchasing

Record Item Received

Purchasing

• ITEM TABLE • PRODUCT TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE TABLE • EMPLOYEE TABLE • VENDOR TABLE • ITEM TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE TABLE • EMPLOYEE TABLE • VENDOR TABLE

Is There Missing Item or QA issue Generate Receiving Report Process Exceptions

Purchasing Purchasing Accounting

• VENDOR TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE • EMPLOYEE TABLE

BPMN 2.0 and a flowchart for receive items process.

34 © 2014 Pearson Education. All rights reserved.

Business process map organizer for enter bills process.

Activity

Gateway (Decision)

Verify Bill to PO and Receiving Report

Record Bill Is There Any Exception Generate Exception Notification

Swimlane

Data Store (BPMN Only)

Accounting

• ACCOUNT PAYABLE TABLE • PURCHASE ORDER TABLE • PURCHASE ORDER LINE TABLE • EMPLOYEE TABLE • VENDOR TABLE • ACCOUNT PAYABLE TABLE

Accounting Accounting Accounting

• VENDOR

BPMN 2.0 and a flowchart for enter bills process.

35 © 2014 Pearson Education. All rights reserved.

Business process map organizer for pay bills process.

Activity

Swimlane

Data Store (BPMN Only)

Select Bill to Pay

Gateway (Decision)

Accounting

Print Check

Accounting

• ACCOUNT PAYABLE TABLE • CASH ACCOUNT TABLE • EMPLOYEE TABLE • ACCOUNT PAYABLE TABLE • CASH ACCOUNT TABLE • CASH PAYMENT TABLE • GENERAL LEDGER TABLE • EMPLOYEE TABLE

BPMN 2.0 and a flowchart for pay bills process.

36 © 2014 Pearson Education. All rights reserved.

37 © 2014 Pearson Education. All rights reserved.

Active Review 6.1 Refer to the chapter opener, Meet Nestlé. In your opinion, what should Nestlé do about the vanilla issue? How can an integrated enterprise system address such issues?

Nestlé should pay one price for vanilla to all its vendors. With a non-integrated system this is an impossible task. But problem was solved when Nestlé installed their SAP system. This integrated system allowed Nestlé to share data and removed duplicate pricing issues including the Vanilla pricing.

6.2 Discuss the role of networks, such as LANs and the Internet, in the evolution of integrated enterprise systems.

Local Area Network (LAN) allows computers to be connected and be able to share data and programs but on a small scale such as a building floor or a room. The Internet provides the same advantage, but on a very large scale. Organizations use LAN architecture to build their network (intranet). The intranet allows all organization’s computers as well as other electronic devices such as printers to be connected. The organization network allows the various systems such as accounting, human resources, and production to be integrated.

6.3 Compare the silo and integrated architectures. Do you see any advantages associated with the silo architecture? Explain.

In a silo system, the various organizational systems are stand-alone systems. However, these separate systems are connected through custom-made programs developed and implemented by the organization’s IT department or contractors. In this approach each system uses its own database. A system may use the other systems data through spaghetti code.

An integrated system based on the integrated architecture is designed and built with an integrated approach. In this architecture a centralized database is shared by all systems.

6.4 Discuss the differences between an accounting system integrated with other enterprise system modules and a stand-alone accounting system.

The accounting system uses data collected by other business activities. If there is not a direct access to the other business divisions’ data, then these data should be re-entered into the accounting system database.

When an accounting system is integrated with other business systems, then it directly could access these systems databases.

6.5 Discuss the impact of an integrated enterprise system on an organization’s value chain and supply chain.

From a value chain and business process perspective, the integrated enterprise system technology now permits data to flow through functional areas as it passes through the value chain. Data entered for supply chain management (SCM) can be reused by the accounting system in the purchasing cycle. Time worked by shop floor employees, tracked by the operations/production system (OPS), is used in the accounting payroll cycle; customer transaction information can be shared by customer relationship management (CRM) and the accounting system sales cycle. These possibilities allow accounting systems to get the business activities data faster and more accurately.

6.6 Discuss the advantages of an integrated enterprise system when creating reports.

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Students can use the answer to the preceding question to discuss this question. Basically, an integrated enterprise system makes it possible to retrieve data from various modules and functional areas when compiling reports to meet the needs of users throughout the organization. The direct access to the enterprise data, in live or real-time formats, allows the accounting system to provide more accurate and realistic reports.

6.7 Discuss the obstacles an organization faces when it decides to implement a new enterprise system.

One of the obstacles in implementing an integrated enterprise system is staying on budget. Integrated enterprise system implementations tend to be a large investment. One of the challenges is staying within the budget for the project implementation to avoid cost overruns. Therefore, cost and schedule constraints are major obstacles to the implementation of an integrated enterprise system.

6.8 Discuss why implementing an integrated enterprise system can be more cost effective than a nonintegrated system.

The scope of implementation of an integrated system project covers the entire enterprise’s systems.

Obviously, when it is implemented many redundant and duplicate business processes are eliminated, many processes could run faster, and productivity is increased.

6.9 Discuss the role of each tier in three-tier architecture.

The database tier is comprised of a large centralized relational database. This database is shared by all enterprise systems.

The application tier consists of application servers. The application tier contains the modules for accounting, operations, sales, supply chain, and human resources. The accounting application software would interact with the RDBMS to update the appropriate account balances.

The user tier consists of front-end client computers. This would include the user interface that appears on the accountant’s computer screen. The user interface may be text-based or a graphical user interface (GUI).

6.10 Discuss security and control measures used in three-tier architecture.

To mitigate risk of unauthorized access and possible data theft or destruction, security and control measures are used to safeguard the information assets stored in the integrated enterprise system. Each tier of the three-tier architecture has unique security and control requirements. Typically there are firewalls constructed between each tier of the three-tier architecture.

6.11 Discuss why, with all the tremendous benefits of the cloud computing, some companies are still reluctant to migrate their systems into the cloud.

Security issues are still a major concern for companies when it comes to moving into cloud. Other issues are: • Companies have already invested in their current in-house IT architecture.

• 24/7 availability • Loss of control

2 © 2014 Pearson Education. All rights reserved.

Key Terms Check 6.12 Match the following terms and definitions a. order-to-cash b. procure-to-pay c. spaghetti code d. three-tier architecture e. database tier f. application tier g. user tier h. firewall i. business process management (BPM)

c 1. Programming code used to connect stand-alone systems i 2. Transforming business processes to improve efficiency b 3. Corresponds to the purchasing cycle a 4. Corresponds to the sales cycle g 5. Consists of front-end client computers and the user interface h 6. Software programs on a router that monitor network traffic e 7. Comprised of a centralized relational database and an RDBMS f 8. Consists of servers and application software d 9. When an enterprise system uses layers of IT components: enterprise database, application, and client computers

6.13 Match the following terms and definitions. a. Software as a service b. Infrastructure as a service c. Cloud computing d. Platform as a service

d 1. Provides the programming language and operating systems, networks, and servers needed for application development c 2. Providing on-demand off-site computing services a 3. Rents you the use of software applications such as an accounting system b 4. Lets you outsource the IT equipment needed to support your operations

Practice Test 6.14 Which of the following best explains an enterprise IT silo architecture? a. All enterprise systems are connected to a centralized database. b. Except the accounting system, various systems are integrated throughout the enterprise. c. Stand-alone systems within an enterprise (Correct answer) d. It was installed to fix the Y2K issue.

6.15 In the early 1990s, stand-alone computers were connected using a. The Internet b. Local Area Networks (Correct answer) c. The intranet d. Wide-area network 6.16 The three-tier architecture consists of a. Database tier, application tier, and user tier (Correct answer) b. Server computer tier, network tier, and personal computer tier c. User interface tier, database management system tier, and accounting tier d. None of the above 3 © 2014 Pearson Education. All rights reserved.

6.17 Which of the following is offered by BPMS? a. Automating the flow of documents among employees b. Automating the flow of information software modules and functional area c. Automating information flow among enterprise segments and other enterprises at remote sites d. All the above (Correct answer) 6.18 The term ERP is used generally to refer to a. Enterprise three-tier architecture b. Stand-alone systems connected with spaghetti programming code c. Enterprise resource planning (Correct answer) d. Integrated enterprise systems 6.19 What is the minimum number of firewalls protecting three-tier architecture? a. Three (Correct answer) b. One c. Four d. Two 6.20 The SAP order-to-cash is the equivalent of which modules in the baseline accounting system? a. Customers and banking (Correct answer) b. Vendors and banking c. Employees and banking d. Customers, banking, and financial 6.21 Which of the following best explains cloud computing? a. Third-party off-site and on-demand IT services to an organization (Correct answer) b. Off-site IT services owned by an organization c. An organization’s IT infrastructure residing in a remote location d. An organization’s IT infrastructure spread over many remote locations 6.22 Which of the following cloud computing services include accounting software? a. SaaS (Correct answer) b. PaaS and IaaS c. IaaS d. PaaS 6.23 Which of the following is NOT a benefit of cloud computing? a. Cloud computing helps organizations avoid the ongoing investments in upgrades and new technologies. b. Cloud computing provider will offer the security needed for cloud services. c. Cloud can be accessed whenever it is needed as long as there is an Internet connection. d. Cloud computing increases an organization’s control over IT services. (Correct answer)

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Exercises Short Exercises 6.24 Sales reps for Hamid Enterprises enter prospective customer information into customer prospects software. Sales reps use the data to periodically follow up on prospective customers. When a prospective customer places a sales order, the accounting department currently must re-enter all the customer contact information into the accounting system. When sales reps need to obtain information about whether a customer has placed an order, they are unable to access the accounting database. In addition, the prospective customer number used in the sales rep database is different than the customer number that the accountants use. In some cases, the customer’s name has been spelled differently in the two systems and there is no way to retrieve the proper information. How can you apply Accounting Insight No. 15 to improve this situation? (Q6.1) With an integrated system, the customer table and related tables such as Sales Order and Sales Order Line are shared between sales reps and the accounting department. The accounting department does not need to rekey data entered by the sales reps and the sales reps do not need to rekey any data entered by the accounting department.

6.25 An organization’s integrated enterprise system that includes accounting has the following components. Match the components with the appropriate tier. (Q6.1) a. Database tier b. Application tier c. User tier

a b a c

1. Oracle database 2. Back-end SAP applications for accounting and finance module 3. Oracle 11g RDBMS 4. Employee computers running the accounting interface for entering data and producing reports b 5. Application server a 6. Database server

6.26 An organization’s accounting system consists of the following hardware and software: Unix platform • Hardware: Dell Workstation and Dell Servers • Software: Oracle 11g database engine Oracle’s JD Edwards financial software Microsoft Excel In the same organization, the human resource department uses a system with the following characteristics: • Hardware: Sun Microsystems servers and workstation • Software: Microsoft .Net platform Microsoft SQL Server database Oracle PeopleSoft human resources module Can you answer the following questions that an auditor has asked you? (Q6.1, 6.2, 6.3) 1. Is this an integrated enterprise system? Why or why not?

This is not an integrated platform because the operating system and the database engines (DBMS) are different.

2. What is the process for accounting employees to access the human resource database and extract useful information?

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The only way that accountants can access the human resource data from their system and bring a copy into their MS Excel is to run spaghetti-coded patches or MS Excel data tools from their MS Excel.

6.27 Most integrated enterprise systems consolidate enterprise operational databases into a single database.

Using what you know about database forms, queries, and reports, explain the advantages of a centralized database. (Q6.3) A centralized database allows accounting system interface software to directly access and display data collected by other business systems such as supply chain management. Therefore, reports are generated fast (a smaller number of queries are required) and are accurate. Another advantage is that the accounting reports can be live or real-time.

6.28 Refer to the SAP Business One sales order form shown in Figure 6.7. For each of the following database fields shown in the form, identify the database table in which the field is stored. (Q6.4) a. CUSTOMER table b. SALES ORDER table c. SALES ORDER LINE table d. ITEM table

a a b b d c d b b b

1. Contact Person (the contact person in the customer organization) 2. Name 3. Delivery Date 4. Sales Employee 5. Item Description 6. Quantity 7. In Stock 8. Freight 9. Tax 10. Total

6.29 Refer to the SAP Business One purchase order form shown in Figure 6.16. For each of the following database fields shown in the form, identify the database table in which the field is stored. (Q6.4) a. VENDOR table b. PURCHASE ORDER table c. PURCHASE ORDER LINE table d. ITEM table

a a b b d c c b b b

1. Contact Person (the contact person in the vendor organization) 2. Name 3. Delivery Date 4. Buyer 5. Item Description 6. Quantity 7. Discount 8. Freight 9. Tax 10. Total Payment Due

6.30 Refer to the SAP duplicate invoices shown in Figure 6.20. What process does the SAP integrated enterprise system use to identify the duplicate invoices? If you were not using an integrated system, would the system be able to identify duplicate invoices? (Q6.4) SAP uses the management work center process to identify duplicate invoice exceptions. This process drills down to the list of duplicate bills found in the SAP system. This is only possible because SAP is an integrated system with a centralized database. With a non-integrated system it will take an enormous amount of time to track the duplicate invoices.

6 © 2014 Pearson Education. All rights reserved.

6.31 Refer to the SAP Business One SQL query shown in Figure 6.27. The SQL statement is shown in the top of the Queries window. (Q6.4) What is the search criterion in the SQL statement?

TO.Balance greater than 0 What database table(s) are referenced in the SQL statement?

[OCRD].TO which belongs to OCRD group. In MS SQL Server database, database tables are grouped based on their use. For example all tables related to the sales table start with the word “Sales.” For example, customer table name is Sales.Customer.

6.32 A bank wishes to use accounting software and data storage from a cloud computing provider. What type of cloud computing services would the bank be seeking? Should the bank request all required disk space at the beginning? Explain. (Q6.4) Infrastructure as a service provides hardware and data storage. Software as a service provides software application. This bank needs both the SaaS and IaaS.

It’s Your Call 6.33 You have been called in as a consultant in the role of liaison between the accounting and IT professionals. The IT department has put forth a plan for an integrated enterprise system. The plan calls for the accounting database to be integrated into an enterprise relational database. IT asserts that accounting can be improved when an enterprise system is integrated. An integrated system can improve management decision making.

The accounting department is resisting this change. The accountants have a strong preference to keep a stand-alone accounting system. They are concerned about the security of the confidential data stored in the accounting database. They are worried that after the integration the accounting database will be vulnerable to access by other employees.

Your job is to facilitate communication between the accounting and IT professionals to reach a resolution regarding the integrated enterprise system issue. Describe how you would handle this situation.

(Q6.2, 6.3)

Explain the benefits of the integrated accounting system to the accounting processes. In your explanation, include how an integrated accounting system will: • Eliminate most if not all data inconsistency and duplication.

• Reduce time required to generate accounting reports.

• Increase security and control over the data collected by business operations.

• Allow accountants to have live and real-time reports Regarding security and control, you will explain that the existing accounting system security and control would cover the rest of the enterprise system by integrating the accounting system into the enterprise system.

6.34 The CFO of Rosewater Corporation has asked you to prepare an executive summary for him to present at the next leadership team meeting. Currently, Rosewater uses stand-alone silo systems. The CFO would like you to summarize the problems experienced with the current silo systems and how these problems could be eliminated with an integrated enterprise system. He asked that you address any risks associated with an integrated enterprise system. (Q6.2, 6.3) Explain the disadvantages of silo systems and their detriment to the accounting system. In your explanation, include how an integrated enterprise system will: • Eliminate most if not all data inconsistency and duplication.

• Increase security and control over the data collected by various business operations.

7 © 2014 Pearson Education. All rights reserved.

•

Increase the search queries’ execution speed because a smaller number of queries is required.

Advantages of an integrated accounting system are stated in the question 6.33.

6.35 Your boss, the CFO, has asked you to resolve an issue between accounting and human resources.

You investigate to obtain the facts. Your friend in accounting tells you that in recent months after payroll checks are run, human resources complains that a few employees did not receive their paychecks. When you talk to human resources, you learn that the department enters all new employees immediately into the database. The department is baffled as to why accounting can’t seem to get it right. The new employees are very upset when they call human resources after they do not receive their first paycheck.

Your next step is to talk to IT to try to unravel what is occurring. When you explain the situation to IT, the database administrator tells you that accounting and human resources have stand-alone databases.

Although human resources enters new employees into its database immediately, the updated data is transferred to the accounting database on the first of each month. Payroll is run on the last day of each month.

After gathering the facts, how would you resolve this issue? What do you tell the CFO? What do you say to accounting? What do you tell human resources? (Q6.2, 6.3) You will explain to the accounting and human resources departments that this problem exists because their systems are not integrated together.

Your report to CFO will include the following: The problem is with the human resources department’s stand-alone system. The accounting department does not have access to the most recent human resources data. In some cases accounting uses month-old human resources data. If a new employee is entered into the system right at the beginning of the month, then accounting payroll processed on the first of the next month uses this employee data. Human resources data must be available to the accounting system when employee pay is processed. This problem would be solved if IT integrates the accounting system into the human resources system.

6.36 Your company is evaluating the option of renting some of its computing services from a cloud provider. After many discussions, your company is considering renting only the accounting module. Your supervisor has asked you to develop, as soon as possible, a short document about how this type of service is provided by a cloud computing provider and the necessary steps that should be taken to implement this service. (Q6.4, 6.5) Your report to your supervisor would include: 1. The problems with and opportunities for cloud migration 2. The risk associated with using a cloud accounting system 3. How important is the reliability of the service provider (for example Amazon.com)?

4. Issues associated with cloud service interruption Migrating into cloud is considered a project and like all IT technologies should go through all phases of systems development life cycle.

Tech in Practice Tech Exercises 6.37 Tech Tool: Database Software Software Videos: Database Tables Refer to the SAP Business One sales order form for an integrated enterprise system shown in Figure 6.7.

Your assignment is to build the database tables and fields to link to a database form similar to the one shown in Figure 6.7.

8 © 2014 Pearson Education. All rights reserved.

Use Microsoft Access database software and the following figure of MS Access tables to build the tables and fields.

1. Build the CUSTOMER table and select the primary key.

2. Build the SALES ORDER table and select the primary key.

3. Build the SALES ORDER LINE table and select the composite primary key.

4. Build the ITEM table and select the primary key.

5. Build the table relationships.

6. Print the table relationships.

7. Enter the following customer data into the CUSTOMER table and print.

Customer No.: C40000 Company Name: Alpha Corporation Contact Person: Daniel Brown Customer No.: C42000 Company Name: Beta Company Contact Person: Adam Green 8.

Enter the following item data into the ITEM table and print.

Item No.: A00001 Item Description: IBM Inforprint 1312 In Stock: 801 Item No.: A00006 Item Description: HP 600 Series Printer In Stock: 87 Item No.: A00007 Item Description: HP 10 Premium Toner Cartridges In Stock: 59

See Tech Ex 6.37 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a printout of tables’ relationships.

6.38 Tech Tool: Database Software Software Videos: Database Forms Your assignment is to build a database form to enter customer information into an integrated enterprise 9 © 2014 Pearson Education. All rights reserved.

system.

Download the data file for this exercise.

Use Microsoft Access database software and the following sample to build a Customer form See Tech Ex 6.38 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a sample of new customer data entry form sample.

6.39 Tech Tool: Database Software Software Videos: Database Queries Your assignment is to build queries to retrieve customer and item information using Microsoft Access database software. These are typical queries that would be used when completing a sales order form as shown in Figure 6.7 Download the data file for this exercise.

Build a query to retrieve the company name and contact person when the customer number is entered.

For this query, use a search criterion of Customer No. = C40000.

Build a query to retrieve item description and in stock information when the item number is entered. For this query, use a search criterion of Item No. = A00001.

See Tech Ex 6.39 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below are search for customer and search for item queries.

10 © 2014 Pearson Education. All rights reserved.

6.40 Tech Tool: Database Software Software Videos: Advanced Database Forms and Queries Your assignment is to build a database form to enter sales orders into an integrated enterprise system.

1. Download the data file for this exercise.

2. Use Microsoft Access database software and the following sample to build a Sales Order form for entering sales orders.

See Tech Ex 6.40 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a new order data entry form sample.

6.41 Tech Tool: Database Software Software Videos: Database Tables Refer to the SAP Business One purchase order form for an integrated enterprise system shown in Figure 6.16. Your assignment is to build the database tables and fields to link to a database form similar to the one shown in Figure 6.16.

Use Microsoft Access database software and the following information to build the required tables and fields.

1. Download the data file for this exercise.

2. Build the VENDOR table and select the primary key.

3. Build the PURCHASE ORDER table and select the primary key.

4. Build the PURCHASE ORDER LINE table and select the composite primary key.

5. Build the table relationships.

6. Print the table relationships.

7. Enter the following vendor data into the VENDOR table and print.

Vendor No.: V20000 Vendor Name: LaserCom Contact Person: Mary Brown Vendor No.: V21000 Vendor Name: SportMax Contact Person: Tina Sharp

11 © 2014 Pearson Education. All rights reserved.

Vendor No.: V22000 Vendor Name: Soccer World Contact Person: Tomas Angel See Tech Ex 6.41 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a printout of tables’ relationships.

6.42 Tech Tool: Database Software Software Videos: Database Forms Your assignment is to build a database form to enter vendor information into an integrated enterprise system.

1. Download the data file for this exercise.

2. Use Microsoft Access database software and the following sample to build a Vendor form See Tech Ex 6.42 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a new vendor data entry form sample.

12 © 2014 Pearson Education. All rights reserved.

6.43 Tech Tool: Database Software Software Videos: Database Queries Your assignment is to build queries to retrieve vendor and item information using Microsoft Access database software. These are typical queries that would be used when completing a purchase order form as shown in Figure 6.16.

1. Download the data file for this exercise.

2. Build a query to retrieve vendor name and contact person when the vendor number is entered. For this query, use a search criterion of Vendor No. = V20000.

See Tech Ex 6.43 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a new vendor data entry form sample.

6.44 Tech Tool: Database Software Software Videos: Advanced Database Forms and Queries Your assignment is to build a database form to enter purchase orders into an integrated enterprise system.

1. Download the data file for this exercise.

2. Use Microsoft Access database software and the following sample to build a purchase order form for entering purchase orders.

See Tech Ex 6.44 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a new purchase order data entry form sample.

13 © 2014 Pearson Education. All rights reserved.

6.45 Tech Tool: Database Software Software Videos: Database Queries, Calculated Fields Some database designers prefer to not including the calculated fields in the database tables. These fields’ values are calculated when they are needed for displaying in forms or reports. The data file for this exercise includes a sales order line with product id, quantity sold, and the unit price.

1. Download the data file for this exercise.

2. Create a query to calculate the total dollar amount for each sales order line 3. Use Microsoft Access database software and the following sample to build a form to display each sales order line fields as well as line total amount. Your form should display the total amount of sales at the bottom of the form.

See Tech Ex 6.45 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a new purchase order data entry form sample.

14 © 2014 Pearson Education. All rights reserved.

6.46 Tech Tool: Database Software Software Videos: Database Queries, Calculated Fields 1. Download the data file for this exercise.

2. Create a query to calculate the total dollar amount for each sales order line 3.

Use Microsoft Access database software and the following sample to build a form to display each invoice form with invoice line fields as well as line total amount. Your form should display the total amount of that sales order at the bottom of the form.

See Tech Ex 6.46 SOLUTION file in the Chapter 6 Exercises Solutions folder.

Below is a new purchase order data entry form sample.

Go Online 6.47 You are a member of the project team exploring integrated enterprise systems. Your role is to go online and research the following SAP products. Summarize your findings for reporting back to the rest of the project team.

SAP Business One. Students can find information on SAP Business One at: http://www.sapphiresystems.com/ SAP Business All-in-One Students can find information on SAP All–in–One at: http://www.sap.com/sme/solutions/businessmanagement/businessallinone/index.epx SAP ByDesign Students can find information on this SAP product at: http://www28.sap.com/mk/get/EXPBYD2?JS=F&_PRE=F&_POST=F&SOURCEID=51&MFAuthCode= X2FKNS73wfc9lJiePe8vYw-&_LOCALE=enUS 15 © 2014 Pearson Education. All rights reserved.

SAP Business Suite Students can find information on this SAP product at: http://www.sap.com/solutions/business-suite/index.epx

6.48 You are a member of the project team exploring integrated enterprise systems. Your role is to go online and research Oracle E-Business applications. Summarize your findings to report back to the rest of the project team.

Your report should include: Oracle E-Business Suite (EBS) is an Internet-based enterprise resource planning (ERP) software. It operates with a single centralized database, similar to SAP ERP products. It was released in February 2007 and contains a number of product lines. Oracle EBS product lines include enterprise resource planning (ERP) as well as supply chain management (SCM) and customer relationship management (CRM) applications. Your enterprise can purchase Oracle EBS applications separately. This way your company could select a combination that is suitable for their business processes.

Students can find more information about Oracle EBS at: Oracle.com 6.49 In the elevator on the way to your office this morning, the CEO of the company asked you what you knew about ERP versus integrated enterprise systems. He mentioned that his leadership team keeps throwing these terms out but nobody can give him a straight answer about what the difference is between these two terms. Are they the same? As he steps off the elevator, he asks you to send him a quick email with the answer so he can keep his leadership team on its toes. You race to your desk and go online to research the answer. What do you put in your email to the CEO? The following is a summary of what students can find on the sites about the integrated enterprise systems.

Basically, ERP refers to various systems used by an enterprise to support and manage its business resources. An ERP is not necessarily integrated and an ERP does not include all systems used by an enterprise. When an enterprise systems including ERP are integrated into one system, then we have an integrated enterprise system.

6.50 You have landed a consulting job for AsciBusiness Solutions, a firm that is contemplating an integrated enterprise system. Although the CFO realizes there are many benefits of integrating the accounting system with other systems and sharing data, she has asked you to prepare an executive summary of the challenges associated with converting from a stand-alone to an integrated system. The CFO is especially interested in the challenges related to business processes. Go online and research this issue. Then summarize your findings for the CFO. The following is a summary of what students can find on the sites about the integrated enterprise systems.

An integrated enterprise system allows implementation of an effective workflow of business activities. It allows the enterprise data to be shared among business divisions. However, there are many obstacles in implementing an integrated enterprise system. A few of these obstacles are: • Cost of implementation • Data migration from old systems into the integrated system centralized database • Limitation to implementation of an attainable schedule.

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6.51 You have been assigned to the cloud services evaluation team responsible for documenting cloud services for accounting. You are scheduled to make a short presentation about the different types of cloud accounting providers, especially SAP ByDesign. Go online and search for cloud accounting. What would you say in your presentation summary? (Q6.5) The following links could help you with your presentation 1. http://searchcloudcomputing.techtarget.com/photostory/2240149038/Top-10-cloud-providers-of2012/1/Introduction 2. http://www.webopedia.com/DidYouKnow/private-cloud-computing-vendors-to-consider.html

Technology Projects Technology Project 6 Tech Tool: Spreadsheet Software, Database Software Software Videos: DFD Drawing or Visio DFD Drawing, Database Tables, Database Queries, Database Forms, Database Reports, Advanced Database Forms and Queries iSportDesign, an online retailer of sporting goods that the customer can custom design, has asked for your assistance with its new integrated enterprise system.

Your deliverables for the project include the following: Deliverable 1. A DFD or BPMN 2.0 to document integrated purchasing and sales functions. (Ask your instructor whether you should use spreadsheet or Visio software to complete this deliverable.)

Deliverable 2. Database tables Deliverable 3. Database queries Deliverable 4. Database forms Deliverable 5. Database reports Visit www.pearsonhighered.com/kay to do the following: 1.

2.

3.

Download Technology Project 6 instructions.

Download files provided online for your convenience in completing the project deliverables.

Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay.

The following dataflow diagram shows the integrated sales and purchasing functions. For the rest of the project solutions see Project Chapter 6 SOLUTION files in the Chapter 6 Exercises Solutions.

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The Sales and Purchasing database tables are intentionally ommited to improve the figure clarity.

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Active Review 7.1 Refer to the chapter opener, Meet Kroger. In your opinion, if you are the consumer, would you prefer to receive targeted coupons even if it means the company is tracking your purchasing data?

The answer to this discussion depends on students’ concerns regarding tracking their purchasing data.

7.2 Discuss security concerns related to shadow data and business intelligence technologies.

The main security concern is that, by copying enterprise secured data into a personal computer or laptop, the copied data can now be easily accessed by any unauthorized person.

7.3 Discuss how centralizing the operational database and data warehouse improves the performance of intelligence queries.

If the enterprise data is not centralized, then intelligence queries should extract the necessary data from many stand-alone databases. This requires an unacceptable query-execution time, since these queries need to access different, unrelated databases. In some instances, when these stand-alone databases do not have the same database engines, the intelligence queries may not even execute.

7.4 Discuss differences between an operational database and a data warehouse.

• An operational database stores data about business operations but a data warehouse stores all types of data, including data about business operations and historical data.

• Operational database data is prepared to support business function but data warehouse data is prepared for analysis.

• An operational database has relational structure but a data warehouse has star or snowflake structures. The relational structure is suitable for organizing data based on business objects but data warehouse structures are suitable for organizing data based on data analysis subjects.

7.5 Discuss why running business intelligence queries using an operational database can be a slow process.

Why is it faster to use BI technologies with a data warehouse?

Because of the structure of the operational database (that is relational) a query may need to access many related tables to extract the required information. In a data warehouse, a query accesses only two tables to extract the required information for analysis.

7.6 Discuss the role of accounting professionals in the development of shadow data.

Spreadsheets are very popular among accountants because they provide a large number of spreadsheet analysis tools and these tools are easy to use. The end-user accountant can perform relatively complex data analysis from a desktop or laptop computer using spreadsheet analysis tools.

7.7 Discuss the role of accounting professionals in the development of business intelligence technologies.

Most BI technologies are developed to analyze the enterprise financial data and make intelligent decisions.

Accounting professionals often better understand the requirements and needs for applications that have specific requirements unique to accounting and finance. IT professionals may not have the requisite accounting knowledge to develop a product that meets all the needs of the accounting professional.

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7.8 Discuss the benefits and limitations of using shadow data versus BI technologies.

Students could use information provided by figure 7.26 to discuss the answer to this question.

7.9 Discuss the advantages of using a decision model. How does it help standardize your accounting system? Why is it important to consider qualitative factors when making a decision?

Integrative decision model (IDM) can be implemented in a spreadsheet. Quantitative data needed for decision making can be extracted from the database by BI tools and stored in the quantitative section of the model. Because the IDM provides a standard method for quantitative qualitative analysis, then it could standardize decision making. The accounting system is standardized when the IDM is implemented into the accounting system.

Quantitative data analysis doesn’t always provide the best indicators for business decision making.

For example, sometimes the social impact of a decision made based on just the numeric result could be very dire for the future enterprise sustainability.

7.10 Discuss the advantages of a dimensional database structure used for data warehouses.

A dimensional database has one fact table and two or more dimension (Dim) tables. The dimension tables in a star database are dimensions of the database, such as time dimension, product information, sales territory, currency, and so on. The dimensional database fact table and dimension tables contain data for specific intelligence. This makes them ready to use. The other advantage is that there are only two tables involved in any data extraction query. That is why BI queries execute much faster than those using relational databases.

Key Terms Check 7.11 Long-range, unstructured decisions with a high degree of ambiguity are called: a. routine operating decisions. b. tactical decisions. c. strategic decisions. (Correct answer) d. all of the above.

7.12 Decisions typically related to ongoing business activities are considered: a. routine operating decisions. (Correct answer) b. tactical decisions. c. strategic decisions. d. all of the above.

7.13 Semistructured decisions that are typically short term in nature and impact one year or less are considered: a. routine operating decisions. b. tactical decisions. (Correct answer) c. strategic decisions. d. all of the above.

7.14 A business intelligence technique that uses mathematical algorithms to predict future trends is: a. data mining. b. text mining. c. Web mining. d. predictive modeling. (Correct answer) 2 © 2014 Pearson Education. All rights reserved.

7.15 A business intelligence technique used on relatively unstructured data such as emails is called: a. data mining. b. text mining. (Correct answer) c. Web mining d. predictive modeling.

7.16 A business intelligence technique used to search social networking sites for customer preferences would be referred to as: a. data mining. b. text mining. c. Web mining. (Correct answer) d. predictive modeling.

7.17 A business intelligence technique used to search data stored in a data warehouse using mathematical algorithms to find patterns, trends, and relationships among data is referred to as: a. data mining. (Correct answer) b. text mining. c. Web mining. d. predictive modeling.

7.18 Match the following terms and definitions. a. integrative decision model (IDM) b. digital dashboard c. open database connectivity (ODBC) d. macros e. spreadsheet identifier (SSID) f. dimensional database g. algorithm

c 1. Translates data analysis query commands into commands that are compatible with RDBMS commands to extract data from an operational database g 2. A step-by-step solution to a problem f 3. Contains one fact database table and one or more dimension database tables e 4. Each spreadsheet is assigned a unique identifier d 5. Automatically perform a sequence of analysis tasks, step by step a 6. A framework to structure the decision-making process and incorporate both qualitative and quantitative considerations in the decision b 7. An interactive form that combines charts, graphs, figures, tables, and data cubes

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Practice Test 7.19 Business intelligence is used to a. Streamline business processes b. Make better business decisions (Correct answer) c. Make the enterprise database more intelligent d. Remove redundant data from the enterprise database 7.20 Tactical decisions are a. Routine operational decisions b. Semi-structured (Correct answer) c. Unstructured d. Made for merger and acquisition 7.21 Total sales on the corporate annual income statement is a. Data b. Information (Correct answer) c. Intelligence d. All the above 7.22 ___________ provides an organization with insights to improve future business performance. a. Customer relationship management b. An information system c. Enterprise resource planning d. Predictive analysis (Correct answer) 7.23 ___________ provides a framework for structuring and organizing the decision-making process. a. An integrated decision model (Correct answer) b. A predictive model c. Data mining d. A mathematical model 7.24 Data cubes allow a. Databases to have more than one table b. More data from various tables be stored in one table c. A multidimensional view of the data (Correct answer) d. a and b 7.25 Shadow data is a. Test data b. Data currently stored in the organization databases c. Data collected from sources other than the organization databases d. b and c (Correct answer) 7.26 ODBC a. Is an operational database component b. Processes user queries c. Is the pipeline between the database and the data analysis application d. Provides the database reports (Correct answer)

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7.27 Inmon recommends that each a. Spreadsheet in an organization be assigned login and password b. Spreadsheet in an organization carry the developer name and identification c. Spreadsheet in an organization be encrypted before being stored d. Spreadsheet in an organization be assigned a unique identifier (Correct answer) 7.28 Which of the following is true? a. Shadow data is quick to implement. (Correct answer) b. Shadow data is used by a large number of users. c. Shadow data is fully documented and supported by the IT department. d. Shadow data is highly secure and protected.

Exercises Short Exercises 7.29 Identify which of the following numbered items are data, information, or intelligence. (Q7.1) a. data b. information c. intelligence

a 1. Sequence of numbers stored in a table c 2. A chart depicting sales of a specific item for specific regions and average income in those regions a 3. A table containing one hundred names b 4. A graph showing sales amounts for a specific year c 5. A pie chart showing sales in different regions c 6. A graph depicting sales in relation to customer age b 7. A graph showing the average price of a product in the market place

7.30 Match the following intelligent system components with the appropriate example. (Q7.3, 7.4) a. data storage b. data extraction and transfer c. data analysis d. data visualization

b 1. ODBC d 2. digital dashboard c 3. spreadsheet financial functions a 4. relational database b 5. query a 6. star data warehouse structure b 7. ETL c 8. predictive modeling c 9. OLAP cube c 10. data mining

7.31 Number the following steps for an ETL in the order in which the steps would be executed. (Q7.5) a. Load data warehouse dimensional table - 4 b. Extract operational relational database table - 2 c. Choose operational database table - 1 d. Use data warehouse dimensional table - 5 e. Transform operational database table into data warehouse dimensional table - 3

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It’s Your Call 7.32 Both accounting and IT report to the CFO of Lawrence Enterprises. The IT professionals have been lobbying him for a data warehouse to use for business intelligence. While the CFO can see the value of using business intelligence to improve decisions, he is not sure that it is warranted by the cost of the data warehouse. The accounting professionals are saying that it will put them over budget if they have to purchase a data warehouse. Why can’t IT just use the operational database that was purchased last year?

The CFO has called you in to act as a liaison between accounting and IT. He wants some straight answers from you: Does he need to invest in a data warehouse or not? Can the company just use the operational database for business intelligence? Draft a short email to the CFO with your response. (Q7.3, 7.4, 7.5)

Your email should include: • Accounting and IT both should be involved in this project. This would prevent redundant requirements for data warehouse design and implementation.

• Business intelligence can use an operational database but predictive modeling and data mining tools cannot be effectively implemented without access to historical data.

• BI tools provide much faster reports when using a data warehouse.

• In summary, using a data warehouse allows for better decision making.

7.33 Because of your background in accounting and IT, the vice president of sales and marketing asked you to create a digital dashboard for his sales managers. For his review, he would like you to send him a short email summarizing your ideas for the digital dashboard. Draft a short email to the vice president outlining your thoughts. Include the following: 1. What information and intelligence would you put on the digital dashboard for the sales managers?

In most cases a digital dashboard for monitoring sales is called a Sales Performance Dashboard.

The following is a list of information and intelligence that could appear on a digital dashboard • Sales trend, revenue, average sales • Sales by dimensions such as sales by geography, customer, product, sales channel, adjustable date range • Sales analysis tool for analyzing sales data.

2.

What would be the source of your data for the digital dashboard?

On this digital dashboard, the operational database is used to show the live data about sales. For the data analysis, it could use both the data warehouse and the operational database.

3. What decisions could the digital dashboard help the sales managers make?

Some of the decisions could be removing one or more products from sales, increasing the advertisement effort in specific regions, and increasing sales promotions in some geographic areas.

7.34 Because of your stellar performance in your accounting information systems course, you have been called to the office of the university’s controller. The controller tells you that the university’s annual audit begins next month. The controller has heard from other universities that they experienced audit issues with numerous spreadsheets that did not have proper controls. The controller has asked you to complete an internship with his office. Your assignment would be to devise a plan to improve spreadsheet controls.

What would you say in your executive summary to the controller? (Q7.4) In the solution section of your executive summary, include what is explained in the Shadow Data Global Spreadsheet Analysis section of this chapter. Explain the advantages of assigning a SSID to each 6 © 2014 Pearson Education. All rights reserved.

spreadsheet, implementing a global identification system for shadow data stored in spreadsheets, and storing all spreadsheets on a dedicated university server.

Tech in Practice Tech Exercises 7.35 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts This technology exercise is a continuation of the Chapter 7 illustration, STAR for Autism Shadow Data.

Although the foundation board voted to continue the golf benefit, the walkathon, and the silent auction, but to discontinue the carnival, one of the board members requested additional analysis be conducted regarding the carnival. The board member was concerned that the board was making a hasty decision and felt that the carnival had been a successful fundraiser in past years.

One of the staff members collected the following additional data and has asked your assistance in analyzing it. In particular, the staff member asked if you could organize the information in a data list for 2008 and 2009 for the carnival as has been done for 2010. In addition, the board members had asked for a dashboard to summarize the analysis using PivotTables and PivotCharts.

1.

2.

3.

Download the spreadsheet data file for this exercise for STAR for Autism.

Using the downloaded spreadsheet data file, create a digital dashboard that compares prior years to the current year results, including a PivotTable and PivotChart.

What relationships and insights do you see? What intelligence can you glean from your analysis?

By looking at data from 2008 till 2010 we have a better understanding of the STAR for Autism.

The analysis of the three years data shows a loss from the carnival in year 2010, a small gain in 2009 and a $6300 gain in 2008, a steady decline. This will support that discontinuing the carnival is the right decision. Furthermore, the Golf Benefit needs further scrutiny.

See Tech Ex 7.35 SOLUTION file in the Chapter 7 Exercises Solutions folder.

7.36 Tech Tool: Spreadsheet Software, Database Software Software Videos: Spreadsheet ODBC, Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts EspressoCoffee has asked for your assistance with the following tasks.

1. Download the EspressoCoffee file for this exercise.

2. Set up open database connectivity (ODBC) to import data from the Microsoft Access file you downloaded into a spreadsheet.

3. Format the imported data into a data table in Excel.

4. Create a PivotTable to analyze the sales data.

5. Create a pie chart with totals for each country.

6. Create a bar chart by quarter.

7. Using the PivotTable and charts you created, develop a digital dashboard that could be used to monitor and track EspressoCoffee sales.

8. Analyze the information provided by your digital dashboard to create intelligence. What intelligence can you glean from your analysis?

The dashboard shows the relationship between the total sales amount for different quarters in a particular country. We can compare the total sales amount between two quarters or two countries. For example, the information provided by the dashboard shows from the third quarter to the fourth the total sales in Italy jumped from very high to very low and the total sales in Greece jumped from very low to

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very high. These drastic fluctuations require further scrutiny of the market in these countries. Adding a slicer tool (an MS Excel tool) to the dashboard would make sections much easier.

Open MS Excel and use ODBC to import Sales Data table from Tech Ex 7.26 Data File. MS Excel provides a direct ODBC to MS Access. You can find MS Access icon on the data ribbon of the MS Excel.

See Tech Ex 7.36 SOLUTION file in the Chapter 7 Exercises Solutions folder.

7.37 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts You have just been hired as the new accounting intern. Your first assignment is to reformat a spreadsheet that your predecessor created. Complete the following steps.

1. Download the file for this exercise.

2. Reformat the spreadsheet into a data table format.

3. Create a PivotTable to analyze the data.

4. Create a chart that best summarizes intelligence.

5. Develop a digital dashboard that can be used to monitor results in the future.

The data file contains products ID, names, and the unit price for products sold in each sales transaction. The PivotTable and PivotChart organize this data to show revenue from each product and the count of each product sold. When you create a PivotChart, MS Excel automatically creates corresponding PivotTable.

Therefore parts 4 and 5 are shown in one sheet. By adding a data slicer tool (an MS Excel tool), we can see and compare sales amount for selected items in the slicer.

See Tech Ex 7.37 SOLUTION file in the Chapter 7 Exercises Solutions folder.

7.38 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts Now that you have a full-time position, you have decided to start investing. You have invested in three different companies. You are using a spreadsheet to track stock prices for the three different companies for a 12-month period.

1. Download the spreadsheet data file for this exercise.

2. Create a PivotTable to analyze the data.

3. Create a line chart to contrast the stock performance of the three companies.

4. Develop a digital dashboard that can be used to monitor stock performance.

The data file contains weekly stock price for GE, IBM, and Expedia for year 2010.

See Tech Ex 7.38 SOLUTION in the Chapter 7 Exercises Solutions folder.

7.39 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts Have you ever been asked for your ZIP code when you made a purchase at a store? From American Eagle to Williams Sonoma, stores ask customers for ZIP codes when a sale is made. Why? ZIP codes can be used to identify pockets of customers in specific geographic regions that then can be targeted with coupon mailings and advertisements. When the sales transactions are recorded in the accounting system, also recording the customers’ ZIP codes can provide additional intelligence for making future sales.

As the new accounting intern, you just received your first information broadcast email containing the results of a business intelligence query. This BI query retrieved data from the company’s data warehouse about customer ZIP codes and amount of purchase, using information that had been stored in 8 © 2014 Pearson Education. All rights reserved.

both the CUSTOMER table and the ORDER table. The query results were exported to a spreadsheet, and then using information broadcasting it was sent to your email inbox.

Complete the following steps to obtain a sense of how additional insights and business intelligence can be obtained through analysis.

1. Download and open the file for this exercise.

2. Format the data as a spreadsheet data table.

3. Create a PivotTable to analyze ZIP codes and purchases.

4. Create a chart that best depicts the location of customers making purchases. Does your chart provide a means for gauging the dollar amount of the purchases? If not, can you think of a way to create a chart that would reveal this additional type of business intelligence?

5. Develop a digital dashboard that the company can use in the future for BI purposes.

See Tech Ex 7.39 SOLUTION file in the Chapter 7 Exercises Solutions folder.

7.40 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables Explore the data analysis tools provided by Microsoft Excel.

1. Open Microsoft Excel.

2. List all the data analysis tools that you can discover in Excel.

Under the Data ribbon you will see: • What-if Analysis, which consists of scenario building, Goal seeking, and Data table analysis.

• Data analysis, which consists of all statistical data analysis tools such as regression analysis.

• Solver, which allows linear and non-linear programming for the solution optimization 3. Explain how these tools can be used to create business intelligence using shadow data.

Based on what type of analysis is needed, these tools can be used to provide intelligence. For example, by bringing together the sales data and temperatures in different months of the year, we could use correlation analysis and regression to find out if there is a relationship between the sales and the temperature.

7.41 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables Explore the data visualization tools provided by Excel.

1. Open Microsoft Excel.

2. List all the data visualization tools that you can discover in Excel.

Excel provides different types of graphs and charts as well as PivotTable and PivotCharts for data visualization.

3. Explain how these tools can be used for digital dashboards.

Many assignments in the Tech Ex section of this chapter are very good examples of how the MS Excel data visualizations could be used to create a digital dashboard.

7.42 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Analysis Tools The following table shows the increase of the teenage population in the past 10 years in a European country as well as the increase in demand for a specific nonalcoholic drink.

1. Download the exercise data file

9 © 2014 Pearson Education. All rights reserved.

2.

3.

4.

Graph the teenage population for the past 10 years.

Graph the demand for the past 10 years Plot the teenager population (x, independent variable) versus the demand (y, dependent variable).

See Tech Ex 7.42 SOLUTION file in the Chapter 7 Exercises Solutions folder.

Year 1 2 3 4 5 6 7 8 9 10

Demand 487000 560000 601000 689000 788000 854000 902000 957000 991000 1010000

Teenage population 9123000 10189000 11570000 12584000 13965000 15191000 17321000 19247000 21096000 23095000

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7.43 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Analysis Tools A marketing manager says that there is a relationship between the marketing budget and sales volume. He provided the following table of the marketing budget (in thousand $) and the amount of sales (in million $).

He insists that if the marketing budget increases to 23, 25, and 27 thousand dollars, the sales will increase accordingly. Is he correct? To support your answer, you may need to use Microsoft Excel to: 1. Put the data in the spreadsheet.

2. Decide between the marketing budget and the sales amount—which one depends on the other (x and y of the curve).

3. Plot the marketing budget versus sales volume.

Use the Microsoft Trendline data analysis tool to: 4. Determine the curve that best fits the plotted data and the curve equation.

5. Find out the R2 value. The closer to 1, the stronger the relationship.

Analyze the result.

See Tech Ex 7.43 SOLUTION file in the Chapter 7 Exercises Solutions folder.

Marketing Budget (in thousand $)

Sales Amount (in million $)

10

260

12

410

13

515

14

580

15

680

17

707

20

750

23

640

25

510

Although the polynomial of degree 6 provides a better R2 and a better fit, a polynomial of degree 2 (quadratic equation) will do the work.

This graph shows increasing the marketing budget will increase sales but after certain amount it actually will cause a drop in sales.

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7.44 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet ODBC You are asked to build a spreadsheet graph to monitor different products’ sales amounts. Management is interested in seeing changes in the sales display data when the sales of different products are changed.

1. Download the MS Access data file for this exercise and open it.

2. Set up ODBC to import data from the Microsoft Access file you downloaded into a spreadsheet.

3. Graph sales of different products.

4. Go back to the exercise data file (MS Access data file) and change the sales volume of a product.

5. Verify changes in your graph.

6. Prepare a summary for this process.

The Spreadsheet ODBC video should help you to set up a data transfer link between MS Access and MS Excel.

After bringing the sales table to MS Excel go back to the MS Access and change the value of one Acer 2400 to something like a 1000000. Go back to the Excel file and select the data tab and click refresh. You should be able to see the change of the sales amount for that particular Acer computer.

The solution MS Excel file couldn’t be provided since the ODBC path between MS Access data file and the MS Excel file won’t be the same on users computers.

12 © 2014 Pearson Education. All rights reserved.

7.45 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet ODBC Add a pivot table and pivot chart to the preceding exercise solution. Verify changes in the data file in the pivot chart. Prepare a summary of this process.

MS Excel 2010 and above: Add a slicer tool to be able to focus only on the selected products.

The following graphs show how the total sales of Acer 2400 changed after changing the sales amount for the Sales ID P3902 changed from $3212 to $1000000.

The solution MS Excel file couldn’t be provided since the ODBC path between MS Access data file and the MS Excel file won’t be the same on users’ computers.

13 © 2014 Pearson Education. All rights reserved.

Go Online 7.46 You are the accounting representative for a project team assigned to evaluate business intelligence solutions. The team leader has asked you to research BI vendors and the BI solutions that each provides.

Go online and search for business intelligence solution providers. Prepare a short summary of the list of BI vendors and their products that you can present at the next team meeting.

Students can find many BI vendors online. Here are few of them: • http://msdn.microsoft.com/en-us/library/ms173767.aspx • http://www.SAP.com • http://www.sas.com/technologies/bi/

7.47 The CFO has just asked you to get her up to speed on data warehousing. The IT staff will be in her office this afternoon asking for funding. She wants to be able to have an intelligent conversation but they are using terms such as snowflakes and stars. What do stars and snowflakes have to do with a data warehouse? Go online and research dimensional database structures, and create a short summary for the CFO to prepare her for the afternoon meeting.

One good site to use for preparing your report is http://it.toolbox.com/wiki/index.php/Dimensional_database 7.48 You are CFO of Vienna SA. Recently your company has faced decreasing sales as a result of competitors using business intelligence. The CEO wants to implement a data warehouse for BI purposes.

Since IT reports to you, you need to learn about data warehousing fast. Go online and search for companies providing data warehouse solutions, such as Teradata and Sybase. Prepare your notes for your upcoming meeting with IT to discuss data warehousing options.

There are many companies who provide data warehousing solutions. A few are: • http://www.xtivia.com • http://vip.informatica.com/ • http://www-03.ibm.com/systems/smarter/facts/ 7.49 You are completing a summer internship with Laura Inc. The company makes extensive use of shadow data for data analysis. The controller has asked you to research a spreadsheet add-in called Analysis Toolpak. Go online and search for information about this product. Write a short email to the controller about what you learn.

There are many sites providing all necessary information about what this add-in software can do and how it can be installed on MS Excel. The Analysis Toolpak tools allow the user to conduct basic statistical analysis, regression, ANOVAs test, and many other types of data analysis. This add-in also allows decisions support analysis, such as what-if and goal-seeking.

7.50 You are completing a summer internship with Laura Inc. The company makes extensive use of shadow data for data analysis. The controller has asked you to research a spreadsheet-based application called Crystal Ball used for predictive modeling. Go online and search for information about this product.

Write a short email to the controller about what you learned about Crystal Ball.

Crystal Ball is an Oracle product. Students can find detailed information about this data analysis software on http://www.oracle.com/us/products/applications/crystalball/.

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Students also can find information on this product on SAP sites.

Technology Projects Technology Project 7 Tech Tool: Spreadsheet Software, Database Software Software Videos: Spreadsheet ODBC, Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts Visit iAccount.me to: 1. Download Technology Project 7 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at iAccount.me.

Nick, the owner of iSportDesign, would like to start using business intelligence to improve decision making. He has asked you to complete the following assignments for this initiative. Your deliverables for the project include: Deliverable 1. Shadow data: Data list for sales data for iSportDesign created using an ODBC and a relational database Deliverable 2. Shadow data: Data list with data validation and analysis added Deliverable 3. Shadow data: PivotTable and PivotChart Deliverable 4. Shadow data: Digital dashboard Deliverable 5: BI technologies: Digital dashboard created from a data warehouse table for iSportDesign sales Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 6 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay See Project Chapter 7 SOLUTION file in the Chapter 7 Exercises Solutions.

15 © 2014 Pearson Education. All rights reserved.

Active Review 8.1

Refer to the chapter opener, Meet the Triple Bottom Line. In your opinion, should companies be required to report their performance using a triple bottom line?

The triple bottom line measures the economic, social, and environmental results of corporate decisions. This is an attractive theory but it has proven challenging to measure in practice. The triple bottom line approach results are short-term. These results that might appear favorable for all three bottom lines might in fact be detrimental in the long run. Companies need a framework that offers the short and long-term effects of decisions.

8.2

In today’s global market economy one could argue that implementing sustainability could cost corporations enormous amounts of money, draining resources. So why is the corporate trend toward including sustainability in business activities?

Implementing the sustainability may have an initial cost but in a long-term would prevent enormous losses. Chapter 8 provides many examples of negative impacts of short-term-benefit oriented decisions.

8.3

Discuss the importance of the criteria of transparency and effectiveness for a sustainability framework.

The success of the sustainability framework is often based upon its effectiveness and transparency. It is imperative that everyone has a common understanding of the sustainability performance framework. An effective framework is simple and straightforward. Furthermore, the measurements used to account for sustainability performance must be clearly articulated so that all can see what is being used to measure the sustainability performance.

8.4

Some company sustainability reports indicate that it is not adequate to focus on only corporate social responsibility (people). Discuss your opinion how social and environmental considerations are interrelated. Do you think the three categories (economic, social, and environmental) are necessary and adequate to address sustainability? Why or why not?

One of the keys to sustainability accounting is that sustainability accounting impact on people inside and outside of the organization. See the Three Keys to Sustainability Accounting section in this chapter.

8.5

Discuss why the future of financials might be nonfinancials.

Many of the factors impacting sustainability cannot be quantified in financial terms. Simply because a factor cannot be quantified does not mean it should be eliminated from consideration. Ignoring nonfinancial factors in the decision making process could lead to huge financial losses. Therefore, more and more organizations are looking for models and frameworks to be able to include nonfinancial factors in their decision making process.

8.6

Discuss how sustainability affects decision making.

Sustainability affects decision making by requiring a new decision making perspective. Sustainability focuses on creating long-term value. Sustainability recognizes the interdependencies of economic, social, and environmental factors in creating value. It offers a new approach to decision making in the business environment, resulting in a dramatic shift in data requirements, data analysis, and decision models.

8.7

Discuss the role of accounting systems and business intelligence in assisting organizations to improve sustainability.

1 © 2014 Pearson Education. All rights reserved.

To store and retrieve data related to sustainability, additional tags or identifiers might be attached to the data, such as XBRL tags. XBRL is used for accounting and financial reporting but it has the potential to simplify accounting for sustainability. XBRL uses electronic tags for data, both quantitative and qualitative. This is especially useful for sustainability accounting that involves significant amounts of qualitative data. Furthermore, several providers of enterprise systems have already responded with business intelligence tools for sustainability. Business intelligence tools, such as Oracle Business Intelligence, provide graphical sustainability dashboards to monitor sustainability patterns, trends, progress, and anomalies.

8.8

Discuss the role of XBRL in accounting for sustainability. In your opinion, how can XBRL facilitate the organization’s sustainability measurements?

Already, there are XBRL taxonomies for sustainability reporting. XBRL adds electronic tags to accounting and financial data. These electronic tags contain data about the data (metadata).

Furthermore, XBRL offers the ability to tag qualitative data in the sustainability report. This feature permits users to search for specific economic, social, and environmental performance indicators, such as carbon footprint, and then compare these among different organizations.

8.9

Discuss why the amount a company spends on social and environmental issues may not be the best indicator or measure of its sustainability intelligence.

It depends how the amount was spent. Was it spent proactively or reactively? For example, consider a company that donates money for wind farms creation. But the company doesn’t take any action to reduce its carbon emissions. While the donations for the wind farms are commendable, the end result is only carbon neutral. Sustainability intelligence is a proactive sustainability. Proactive application considers the long-run sustainability and long-run consequences of the action. Reactivity is taking the easiest short-run course of action to react to the current situation, rather than consideration of long-run consequences of the action.

8.10 Discuss the future of the integrated reporting. In your discussion include your answers to the questions put forward at the end of the Who’s a Leader in Integrated Reports? section.

To reflect the relationship between financial and nonfinancial performance, organizations began to use the integrated reporting framework. This framework provides not only the essential context by identifying an organization’s mission, major activities, markets, and products and/or services but also an organization’s attitude to risk. That is why adopting and implementing the integrated reporting framework is gaining momentum. For a deeper discussion on this issue visit: “Integrated reporting gains steam with IIRC, IASB agreement” by Ken Tysiac, published on Feb. 8, 2013 in the Journal of Accountancy. You can find this article at the following site: http://www.journalofaccountancy.com/News/20137336.htm

2 © 2014 Pearson Education. All rights reserved.

Key Terms Check 8.11 Match the following terms and definitions. a. Triple bottom line b. sustainability c. sustainability accounting d. green IT e. e-cycling f. sustainability Integrated Decision analysis (IDa) model g. global reporting initiative (GRI) h. integrated reporting

c 1. Involves collecting, storing, organizing, and reporting economic, social, and environmental information for making decisions and evaluating performance g 2. Most widely used framework for sustainability performance reporting b 3. The ability to sustain an action in the future on an ongoing basis h 4. A report consists of financial and nonfinancial information about a company’s economic, social, and environmental performance f 5. A framework for considering both qualitative and quantitative economic, social, and environmental factors a 6. Measures an organization’s performance in terms of economic, social, and environmental results e 7. Recycling of electronic equipment such as computers and monitors d 8. Environmentally friendly information technology equipment

Practice Test 8.12 Sustainability accounting means: a. The ability to sustain future environmental risks b. Including the air, water, and land pollution into the accounting c. The ability to sustain an action in the future on an ongoing basis (Correct answer) d. The ability to quantify, in dollar amount, the air, water, and land pollution 8.13 _________ measures the economics, social, and environmental results of corporate decisions. a. Sustainability accounting b. Corporate energy consumption c. Corporate carbon accounting d. Triple bottom line (Correct answer) 8.14 The three key to sustainability accounting are: a. People, processes, and technology (Correct answer) b. People, data, and processes c. Sales, purchasing, and employee d. Social, environmental, and economics 8.15 The sustainability IDa is the same as integrated decision model IDM, except: a. It has four more steps b. It includes the economics, environmental, and social dimensions into decision process. (Correct answer) c. It is designed for quick decision making d. It is used for unsustainable decisions making

3 © 2014 Pearson Education. All rights reserved.

8.16 Sustainability shifts the business focus to: a. A holistic view of the business as an integral part of a larger system (Correct answer) b. Viewing the business as an insignificant part of a larger system c. The environmental impacts d. Bottom line profit 8.17 One way to storing qualitative data is to a. Track it in the spreadsheets b. Ignoring it, qualitative data is not relevant to the sustainability decision making c. Guess its financial value d. Quantify it using numerical ranking (Correct answer) 8.18 Which method of creating value is best defined as strive for zero waste as opposed to reduced waste? a. Redesign the product b. Life cycle assessment model c. Cradle-to-cradle model (Correct answer) d. Redesign the processes and product 8.19 The_____________ family is a framework of guiding principles for establishing an environment management system. a. EMAS European Union b. Sigma guideline c. International Federation of accountants (IFAC) d. ISO 14000 environmental management (Correct answer) 8.20 Which two criteria are used to evaluate frameworks for reporting and sustainability performance? a. Effectiveness and efficiency b. Transparency and effectiveness (Correct answer) c. Consistency and Timeliness d. Relevancy and accuracy 8.21 Which of the following is NOT one of the guiding principles for the proposed integrated reporting framework? a. Connectivity of information b. Effectiveness, reliability, and relevancy (Correct answer) c. Strategic focus d. Future orientation

4 © 2014 Pearson Education. All rights reserved.

Exercises Short Exercises 8.22 Select a family member, friend, acquaintance, or complete stranger and explain the concept of sustainability to him or her. Explain the interrelationships of sustainability and accounting. Evaluate your effectiveness at explaining sustainability successfully. (Q8.1, 8.2, 8.3, 8.4) Your explanation approach depends on your audience’s education and experience; however, it should include the type of information you need for decision making and the difference between short-term and log-term decisions.

8.23 How is qualitative sustainability data stored in a database? List at least three ways to store qualitative data in a database with examples for each. (Q8.3) • Labeling: using predefined labels for safety levels • Ranking: using Likert scale of 1 to 5 to identify the safety level • Estimate dollar amount: estimating safety aspect of an action in insurance dollar amount.

8.24 Choose three qualitative measures for sustainability and try to quantify them. Is it always possible to quantify qualitative measures? Why or why not? Give an example to support your answer. (Q8.3) It is not always possible to quantify qualitative data. We may enumerate them but we cannot perform mathematical calculations on them and draw conclusions from the results. For example, to enumerate good and bad we can say 1 represents good is 1 and 0 represents bad. However, the average of a good and bad (1+0)/2 is ½, which doesn’t say how good or bad it is.

•

Employee well-being o Amount health insurance paid per employee

•

Job Safety o Number of employee job-related injuries in a year

•

Toxic waste reduction o Percentage of total money spent on organic fertilizer for enterprise natural environment.

8.25 Give two reasons that support the importance of the integrated reporting to the future of sustainability reporting. You may use the Novo Nordisk integrated report that is included in this chapter extension.

(Q8.5, 8.6) 1. Integrated reporting doesn’t only show the relationships between an organization’s strategy, governance and financial, social, and environmental performance and the economic context within which the organization operates, but is also an integrator of sustainability into the organization’s primary business.

2.

Integrated reporting is offering a better alternative to existing frameworks. Organizations will see integrated reporting as an opportunity to communicate about and implement a sustainable strategy.

It creates value for shareholders over the long term while contributing to a sustainable society.

5 © 2014 Pearson Education. All rights reserved.

It’s Your Call 8.26 It is the first day of your new job as an accounting intern. In the elevator on the way to your cubicle, a gentleman in the elevator (that you later learn is the controller of the company) says to you, “I just don’t get it.” Shaking his head, he repeats, “I just don’t get it.” Then he adds, “Just how is sustainability relevant to accounting? Don’t we have enough problems to keep track of instead of creating more problems to account for?”

Unsure how to answer, you remain silent. So he continues, “You are our new intern, aren’t you?

Well, why don’t you send me an email by this afternoon explaining how sustainability is relevant to accounting. Tell me why I should care about this latest trend, sustainability, and how it could affect our accounting system.”

Prepare an email to the controller of the company to respond to his request. (Q8.1, 8.2, 8.3, 8.4) In your email, explain that sustainability focuses on your organization’s ability to sustain an action in the future on an ongoing basis. It provides answers for questions such as: • Are your organization’s decisions and resulting actions sustainable in the long run?

• Is your organization’s performance sustainable in the long run?

You will state that sustainability would transform your organization from a business focused on bottom line profit to one with a holistic view of the business as an integral part of a larger system. You conclude with how the impacts of sustainability on accounting and how nonfinancial and financial sustainability data are used in sustainability reports.

8.27 As CFO, you have been asked to evaluate the sustainability of two different enterprise software systems for your company.

1. A system that uses an SAP baseline system. Your company would not customize the system but would need to modify some of its business processes in order to adapt to the baseline system.

2. A system that customizes the SAP baseline system to fit your current business processes. You would not need to modify your business processes.

Evaluate the sustainability of each system. Which system would you recommend your company adopt: the baseline system or the customized system? Why? (Q8.2, 8.3) You can use IDa to evaluate and analyze these two options. Consider the quantitative and qualitative advantages and disadvantages of both approaches.

The second option could have only greater monetary impact since it requires SAP customization. Business processes remain as they are.

The first option has a lesser monetary impact but could have social and environmental impact since there are changes in the organization’s processes, policies, and rules. You have to analyze what long-term social and/or environmental impacts these changes could bring. For example, changing a business process may lead to layoffs because some activities would be automated.

There isn’t a specific answer to this question because we are not aware of the detailed nature of this organization. However, the approach to the problem’s solution is clear.

8.28 Your supervisor has asked you to join him in a meeting about a possible change in the organization reporting method. He says your organization is considering replacing several reports with an integrated report. He wants you to prepare a presentation for him about the integrated reporting.

Prepare a summary and guideline for this presentation. In your work, state what an integrated reporting model is, what types of reports are combined together in this report, and what are the benefits and challenges. (Q8.5, 8.6)

6 © 2014 Pearson Education. All rights reserved.

Integrated reporting categories: financial, social, and environmental performance.

Your presentation should include the following: 1. Explanation of why integrated reporting is so important to the future of a sustainable business 2. Comparison of a regular sustainability report with the integrated reporting 3. Opportunities and the challenges of integrated reporting

Tech in Practice Tech Exercises 8.29 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts EspressoCoffee has asked for your assistance to build a sustainability dashboard.

1. Download the spreadsheet file for this exercise.

2. Use the data table to build a sustainability dashboard.

3. Print the dashboard.

EspressoCoffee is analyzing the use of organic coffee beans. The data file includes economic, environment, and social qualitative data for this analysis.

See Tech Ex 8.29 Data File and Tech Ex 8.17 SOLUTION files in the Chapter 8 Exercises Solutions folder.

8.30 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts This exercise is a continuation of the sustainability decision model used in the chapter. The computer manufacturer would like to add rankings to the qualitative factors that would affect the decision whether to redesign computers or continue with the status quo.

1. Download the spreadsheet file for this exercise.

2. Update the spreadsheet data table by adding the following rankings for the qualitative factors in the Amount column. The company will use a Likert scale of 1 to 5, with 5 as the most desirable ranking and 1 the least.

Rating 4 5 4 1 1 2

Item Reduce toxic waste Employee well-being Improved public relations Toxic environmental waste Toxic exposure (employee and community) Expected increased healthcare costs

3. Create the following PivotTables and PivotCharts to use in the sustainability dashboard. Add these PivotTables and PivotCharts to the Sustainability Dashboard sheet. a. Option A Redesign, Quantitative, Sum Amount. This PivotTable and PivotChart will provide the sum for economic, social, and environmental dimensions for option A. b. Option A Redesign, Qualitative, Average Amount. This PivotTable and PivotChart will provide the average for the Likert scale rating for economic, social, and environmental dimensions for option A. c. Option B Status Quo, Quantitative, Sum Amount. This PivotTable and PivotChart will provide the sum for economic, social, and environmental dimensions for option B. 7 © 2014 Pearson Education. All rights reserved.

d.

Option B Status Quo, Qualitative, Average Amount. This PivotTable and PivotChart will provide the average for the Likert scale rating for economic, social, and environmental dimensions for option B.

See Tech Ex 8.30 Data File and Tech Ex 8.18 SOLUTION files in the Chapter 8 Exercises Solutions folder.

8.31 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Spreadsheet PivotTables and PivotCharts 1. Select two cars that you would consider purchasing, one of which is a hybrid or electric powered.

2. Using the sustainability IDa model and spreadsheet software, analyze the sustainability of each option, including safety and environmental considerations.

3. Is there an external database you can use to assist you in making a more informed decision?

4. Make your decision regarding which car to purchase. Did your analysis change your thinking regarding which car you would purchase?

There are many websites providing useful data about hybrid and traditional car advantages and disadvantages. The sample solution is based on average data regarding electric and gas consumption and car market price. This example shows that there are additional hidden costs associated with a hybrid car.

These costs are qualitative from the consumer side but are quantitative from the manufacturer side. One example would be the cost associated with battery waste cleanup.

See Tech Ex 8.31 SOLUTION files in the Chapter 8 Exercises Solutions folder.

8.32 Tech Tool: Spreadsheet Software The Nature Way Company is one of the leading companies in snack food market. Nature Way is considering a sustainability strategy to produce and sell snacks to benefit consumers and environment.

Nature Way sustainability strategy would impact its potato chips product with the following policies: • Use organic potatoes: Using organic fertilizer reduces the carbon footprint • Use fuel-efficient farming equipment: This policy helps to reduce the carbon emission and fossil fuel consumption.

• Use less salt in potato chips.

• Invest in advising and helping the Nature Way potatoes suppliers around the world with efficient water consumption.

• Invest in well-being of Nature Way potatoes supplier around the world.

• Using healthy vegetable oil for making potato chips.

• Invest in consumer health benefit through advertisement for physical activities, health awareness programs, and health club coupons.

• Use smaller bags to allow consumer to control better potato chip consumption Develop a spreadsheet to document environmental, social, and economical impacts of the Nature Way sustainability strategy policies.

See Tech Ex 8.32 SOLUTION files in the Chapter 8 Exercises Solutions folder.

8 © 2014 Pearson Education. All rights reserved.

The following table shows environmental, social, and economical nature of the Nature Way policies.

1st Dimension Environmental Social Economic

Policy

2nd Dimension QT or QL

Organic Potatoes

X

QT

Fuel efficient Equipment

X

QT

Less Salt

X

Water efficiency

X

QT

Investment in Supplier Awareness for Water efficiency Supplier Well Being

QT X

X

Invest in Supplier Well being

QT QL

X

QT

Supplier Well Being

X

QL

Using healthy Vegetable Oil

X

QT

Invest in Consumer Well Being

X

QT

Consumers Well Being

X

QL

Smaller Bag

X

QT

8.33 Tech Tool: Spreadsheet Software Software Video: Spreadsheet Data table, Spreadsheet PivotTables, and PivotCharts This exercise is a continuation of the preceding exercise.

Identify quantitative and qualitative factors of the Nature Way sustainability strategy policies and come up with an estimate dollar value (credit or debit). Use your best guess for the dollar values.

Create a chart showing the profit or loss from these policies. Assume the Nature Way previous year potato chips sales was $25,000,000 and analyst estimate because of these sustainability policies there will be an increase of 10% in sales amount.

See Tech Ex 8.33 SOLUTION files in the Chapter 8 Exercises Solutions folder.

9 © 2014 Pearson Education. All rights reserved.

The following tables and graph show Nature Way policies quantified. (Numbers are pure guess.)

Policy

Environmental

Social

Economic

QT or QL

Cost/Benefit to Nature Way

Organic Potatoes

X

QT

($250,000.00)

Fuel efficient Equipment

X

QT

$1,000,000.00

QT

$150,000.00

QT

($500,000.00)

QT

($230,000.00)

Less Salt Water efficiency

X X

Investment in Supplier Awareness for Water efficiency Supplier Well Being

X

X

Comments

QL

Invest in Supplier Well being Supplier Well Being

X X

QL

Using Healthy Vegetable Oil

X

QT

($1,200,000.00)

QT

($100,000.00)

X

QT

Invest in Consumer Well Being Consumer Well Being

X

QL

Smaller Bag

X

QT

($730,000.00)

($120,000.00) ($1,980,000.00)

Increase in Sales

$3,000,000.00

Net

$1,020,000.00

Policy

Cost/Benefit to NW

Consumer Well Being Fuel efficient Equipment

$1,000,000.00

Increase in Sales

$3,000,000.00

Invest in Consumer Well Being

($100,000.00)

Invest in Supplier Well being

($730,000.00)

Investment in Supplier Awareness for Water efficiency

($230,000.00)

Less Salt

$150,000.00

Organic Potatoes

($250,000.00)

Smaller Bag

($120,000.00)

Supplier Well Being Using healthy Vegetable Oil

($1,200,000.00)

Water efficiency

($500,000.00)

Grand Total

$1,020,000.00

10 © 2014 Pearson Education. All rights reserved.

Go Online 8.34 The CFO is receiving more and more pressure from the board of directors and consumers to issue a sustainability report. She has asked you to research examples of sustainability reports that are well done.

Go online and search for sustainability reports of two different companies that you think are good examples to show the CFO. Compare and contrast the two reports. What aspects of the report would you recommend that your company use for sustainability reporting?

Good examples are: • Baxter sustainability report at: http://sustainability.baxter.com/sustainability_reporting/gri_index.html • UPS sustainability report at: http://www.sustainability.ups.com/community/Static%20Files/sustainability/UPS_V27_0718_300 dpi_rgb.pdf Both these companies use GRI approach. You can find their GRI indices at the end of their sustainability reports.

8.35 The CFO has asked you why different companies often use different criteria to measure sustainability performance. Go online and search for the sustainability reports of two corporations that use different criteria to measure sustainability performance. Why do you think the two corporations have selected different criteria?

You can use the site mentioned in the preceding question. UPS criteria are mostly about emission form fuel consumptions by their different transportation fleet. The Baxter criteria are mostly about social and environment biochemistry impacts.

8.36 Your organization would like to nurture vendor relationships with suppliers in developing geographic regions to improve sustainability. Go online and search for examples of organizations that are using this sustainability approach. Summarize your results to present to the president of the company.

A very good site regarding a vendor relationship with a supplier is: http://www.akzonobel.com/sustainability/managing_sustainability/the_value_chain/sourcing/ 11 © 2014 Pearson Education. All rights reserved.

Students may find many other online sources on this topic.

8.37 You are starting a consulting service and believe that carbon accounting is one of the fastest-growing areas of accounting. Go online and research carbon accounting and carbon accounting software packages.

Prepare a short summary of your findings that you can give to prospective clients.

Wikipedia could be used for both the definition of carbon accounting and software packages for carbon accounting.

8.38 You are just hired in a consulting firm based in New York City. You job is to consult companies located in Midwest on various reports including financial and sustainability reporting. Your firm wants you to consult your clients on integrated reporting benefits. Go online and search benefits of integrated reporting stated by Dr. Robert Eccles, one of the leaders in the integrated reporting field. Prepare a short report in the Q/A format of findings that you can put in a PowerPoint presentation.

The following links include valuable information on integrated reporting, including its benefits and challenges, as well as why organizations should consider integrated reporting framework.

1. http://www.triplepundit.com/2012/03/5-reasons-integrated-reporting-be-game-changer/ 2. http://www.pwc.com/gx/en/corporate-reporting/integrated-reporting/why-integrated-reporting-isimportant.jhtml

Technology Projects Technology Project 8 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet Data Tables, Database PivotTables and PivotCharts iSportDesign would like to consider sustainability when making decisions and evaluating its performance.

Nick, the owner, has asked you to build a sustainability dashboard for him.

Your deliverables for the project include the following: Deliverable 1. A sustainability data table for iSportDesign Deliverable 2. A sustainability dashboard Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 8 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay.

See Project Chapter 8 SOLUTION file in the Chapter 8 Exercises Solutions.

12 © 2014 Pearson Education. All rights reserved.

Get complete Order files download link below htps://www.mediafire.com/file/heeq6bxs7etai2m/SM +Accoun�ng+Informa�on+Systems+The+Crossroads+of +Accoun�ng+and+IT+2e+Donna+Kay+Ali+Ovlia.zip/file

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

Active Review 9.1 Refer to the chapter opener, Meet Charlie Hoffman. XBRL is being used around the globe for digital business and financial reporting purposes. In your opinion, why is XBRL becoming globally accepted for financial reporting?

XBRL makes the flow of financial and business reporting data more transparent and efficient.

The traditional financial reports are presented in formats like Adobe PDF, MS Word, MS Excel files.

These formats are proprietary and difficult to consistently extract financial data hidden in financial statements.

But XBRL financial reports are Internet-based and they can be viewed on common browsers on any computer system. XBRL will also reduces data entry errors and encourages more analysis of accounting reports 9.2 XBRL standardizes financial reports. Discuss why standardization of business and financial reports is important in today’s global economy.

Standardization of financial reporting reduces complexity, provides greater transparency, increases comparability, and improves efficiency.

9.3 Discuss the impact of XBRL on business intelligence applications.

XBRL allows financial analyst and investors to perform data analysis without rekeying data. Also, since XBRL has a standard format, business intelligence data mining tools could scan financial data more efficiently and provide more accurate results.

9.4 Why are there different taxonomies? Why can’t one taxonomy be used for all reporting?

There are many organizations requiring different types of financial reports, for example, US Mutual Fund Risk/Return, US Record of Credit Ratings, and US GAAP. Each organization has developed a series of taxonomies for types of reports that are required.

9.5 Can companies reduce costs by using XBRL for reporting? How? Using XBRL could reduce cost by reducing data rekeying, reducing errors, increasing timeliness, and improving data quality.

9.6 Discuss how organizations can benefit from XBRL. The use of XBRL for financial reporting permits the SEC to review a greater number of filings, faster and in greater detail. The financial analysts and investors who use the financial reports can conduct financial analysis faster and with greater accuracy. Banking regulators in the United States and Europe have also found XBRL to be useful in standardizing and streamlining their work. The U.S. Federal Deposit Insurance Corporation (FDIC) is using XBRL to process filings by some banks.

9.7 Discuss how XBRL addresses transparency, quality, and timeliness issues.

1 © 2014 Pearson Education. All rights reserved.

• Transparency is achieved because financial data users are able to quickly find and understand financial information about companies’ performance.

• Quality is achieved because XBRL data is keyed only once and IT provides varying levels of validation.

• Timeliness is increased because data flow from the business system to the financial system is fully automated. Employees doesn’t need to manually feed data into the financial system.

9.8 Explain how XBRL reduces rekeying data.

XBRL Integrated tagging technique tags data during the information processing stage. This automates data transfer from various business processes to the financial reporting system. By tagging data during processing, the data becomes interchangeable between systems, programs, and platforms. See silo architecture in chapter 6.

9.9 What is metadata? Explain how XBRL uses metadata.

Meta data means data (information) about the data. XBRL tagging like other web development programming languages provides information about the pieces of data stored in financial reports. For example, a number can represent year, money amount, or age. By adding proper tags to it, the meaning of data is stored with data.

9.10 Why is knowledge of XBRL important to accounting professionals? Explain.

American Accounting Association encourages accounting programs to introduce XBRL in their curriculum for the extensive use of XBRL in financial reporting and analysis. In recent years XBRL became the accounting language. XBRL files include accounting standards and terminologies. XBRL became the means of communicating financial data.

Key Terms Check a. eXtensible Business Reporting Language (XBRL) b. metadata c. XBRL integrated tagging d. XBRL bolt-on tagging e. taxonomy f. elements g. schema h. XBRL linkbases i. instance document

g 1. Defines elements related to a particular taxonomy f 2. Used to identify data and metadata i 3. A document that contains specific amounts for a taxonomy at one instance e 4. Similar to a dictionary that defines XBRL tags for specific data items a 5. Digital financial reporting that electronically tags financial information d 6. Adds data tags after reports are created c 7. Adds data tags during information processing b 8. Data about data h 9. Defines relationships between data

9.11 Match the above following terms and definitions.

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9.12 Match the following terms and definitions. e 1. Defines the company a 2. Numeric or nonnumeric facts d 3. Defines the time period f 4. Unique identifier, such as account number b 5. Explains the context in which the data appears c 6. Defines the unit of measure, such as U.S. dollars

a. data element b. context element c. unit element d. period element e. entity element f. identifier element 9.13 Match the following terms and definitions.

d 1. Defines the labels used in the document b 2. Defines basic validation rules, such as assets equal liabilities plus equity e 3. Defines the relationships between the elements and the external standards a 4. Defines different kinds of relationships between elements c 5. Defines how elements are presented

a. definition links b. calculation links c. presentation links d. label links e. reference links

Practice Test

9.14 Which of the following is false? a. XBRL is used for digital financial reporting around the glob b. XBRL is an extension of XML c. XBRL is a programming language that is used for writing accounting software (Correct answer) d. XBRL provides the metadata capability.

9.15 What was XBRL developed to standardize and streamline? a. Accounting software b. Operational database c. Decision making d. Financial and business reporting (Correct answer) 9.16 What is metadata? a. Data about data (Correct answer) b. Secondary data c. Data extracted from database d. Virtual data 9.17 ___________tagging adds XBRL data tags after reports are created. a. Built-in b. Integrated c. Quick-tag d. Bolt-on (Correct answer) 9.18 ___________tagging adds XBRL data tags as information is processed. a. Integrated (Correct answer) b. Information c. Process d. Bolt-on 9.19 XBRL tags are similar to 3 © 2014 Pearson Education. All rights reserved.

a. b. c. d.

A driver’s license A barcode (Correct answer) A house address All the above

9.20 Which of the following is NOT an XBRL essential? a. Taxonomy b. Integrated tagging (Correct answer) c. Schema d. Instance document 9.21 Which of the following provides the most capability for sharing data between applications? a. Spreadsheet b. HTML c. Text file d. XBRL (Correct answer) 9.22 Which of the XBRL essentials is like a dictionary? a. Taxonomy (Correct answer) b. Instance document c. Element d. Schema 9.23 Which of the following is needed to create an XBRL instance document? a. Data and XBRL tags b. XBRL Schema and data elements c. XBRL taxonomy and data (Correct answer) d. XBRL programming language and data

Exercises Short Exercises 9.24 Compare and contrast adding XBRL tags at the end of the financial reporting process (bolt-on tagging) versus during information processing (integrated tagging). Use the following organizer for your answer. (Q9.5)

Compare (Same) Both create XBRL reports Both use the same taxonomy and tagging Both provide transparency

and

Contrast (Different) Different approach Tags are inserted at the different time.

The integrated tagging provide better quality and timeliness The integrated tagging in the long run reduces costs but cost more to implement

9.25 List the five different types of linkbases and describe the function of each. (Q9.6) 4 © 2014 Pearson Education. All rights reserved.

See linkbase section in this chapter, page 562.

9.26 Review the XBRL programming code shown in Figure 9.1. Answer the following questions: (Q9.6) 1. What taxonomy is being used? IFRS-gp: AssetsHeldSales 2. What currency is used? Euros 3. How many decimal places will be displayed in the report? None

9.27 Can a relational database be used to store XBRL metadata? Explain your answer. What other options are organizations using to store XBRL metadata in a database? (Q9.5) A conventional relational database can store data but not metadata. An XBRL database can store both the data and the metadata. The data stored in an XBRL database is stored with its metadata, such as data about the time period, account, currency, and so on. If an XBRL database is used, then XBRL tags can be added before the data is stored in the database.

It’s Your Call 9.28 You have been called in as an XBRL consultant. The president of the company has asked for your opinion regarding the costs and benefits of XBRL. What would you say? What benefits of XBRL do you see as the most important? What costs should an organization consider? (Q9.4) You could state many benefits of XBRL including transparency, quality, and timeliness. You should also explain the advantages and disadvantages of the bolt-on and the integrated tagging techniques.

The cost associated with XBRL reporting could include the cost of the implementation of XBRL reporting system.

9.29 At lunch one day, the topic of XBRL is mentioned. One of your colleagues says, “It has something to do with schemas, linkbases, and taxonomies—that is all I know.” Then he turns to you and asks, “What do you know about XBRL?” What would you say? How would you explain the relationship of schemas, linkbases, and taxonomies? (Q9.6) Here is what you could say: There are many different XBRL taxonomies. A taxonomy identifies the type of report and the organization that issued the taxonomy. An example of an organization could be the U.S. GAAP and an example of a report type could be inventories. Each taxonomy contains one or more schemas. A schema identifies which elements are associated with the taxonomy. XBRL taxonomy also contains one or more linkbases. XBRL linkbases define relationships between data used in an XBRL report. For example, the definition links define different kinds of relationships between elements. For example, ZIP code is the postal code used in the United States.

9.30 You are serving as a liaison between accounting and IT. Your company is required to use XBRL for external financial reporting. IT would like to use XBRL integrated tagging and has asked for funding for an XBRL database. The accounting department doesn’t see why IT needs funding for another new database.

What are the benefits of XBRL integrated tagging for internal use? Why would IT need a new XBRL database? What would you say at your meeting with accounting and IT? (Q9.5, 9.6) You could prepare a presentation on the benefits of XBRL and the benefits of integrated tagging over bolton tagging to your organization in general and accounting department in particular.

The integrated tagging benefits to organization include: • The reporting cost is reduced.

• Speed of generating XBRL reports is increased • More accurate intelligent internal reports are created.

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9.31 Mark, chief financial officer (CFO) of iElectronics, and Brittany, chief information officer (CIO), would like to take advantage of XBRL technology for their company financial and accounting functions. They are both agreed that the company has several financial reporting problems. They prepared the following list of problems: • The Security and Exchange Commission (SEC) reports have been late for the last two years.

• Their international subsidiaries, in Canada and Mexico have been late sending their monthly closing information to the company’s headquarter in Saint Louis Missouri.

• Their internal reports regarding key performance indicators (KPI) are also late and sometime inaccurate.

• Company’s reported financial data are not detailed enough for the company’s analysts.

IT department programmers have been able to use XML to help the financial department but the result is not satisfactory.

You have learned about XBRL in your accounting information course and recently attended in a XBRL workshop. Mark and Brittany are very excited to learn about the XBRL possibilities for helping iElectronics. In the last Friday meeting, Brittany asked “So, what is XBRL and how could it help us?” After a brief explanation, you added that XBRL uses XML data tags plus some additional tags to describe financial statements. You assured them that the XBRL could solve company’s reporting problems.

“How is that possible?" asked Mark. You responded that you would be more than happy to prepare a presentation for next meeting, providing more information about XBRL and explain how it could provide assistance to the iElectronics reporting and financial data exchange. "Ok, this sounds great,” responded Mark. Brittany asked you to include in your presentation the following topics. a. What is XBRL? b. How does it relate to XML? c. What are integrated and Bolt-on tagging? d. How does XBRL could solve the listed problems? e. What are the advantages to iElectronics for adapting XBRL? Prepare a summary that includes answers to the Brittany’s questions. (Q9.1, 9.2, 9.3, 9.4, 9.5) You can use this chapter information to prepare your presentation. Regarding the last question (i.e. What are the advantages to iElectronics for adopting XBRL?), you can focus your presentation on: • Environmental factors – for example, industry characteristics (such as level competition) and trading partners (such as pressure from vendors) • Organization structure factors – for example, organization resources.

• Technological factors – for example, the level of technology used in the organization.

Tech in Practice Tech Exercises 9.32 Tech Tool: Spreadsheet Software Valencia Orange Inc. has asked for your assistance in adding XBRL tags to its financial statements.

1. Download the data file for this exercise.

2. Use the information in Figure 9.12 to write the XBRL tags for the following selected items on Valencia Orange’s statement of financial position at August 31, 2011. a. Short-term borrowings $31.5 million

6 © 2014 Pearson Education. All rights reserved.

<us-gaap:ShortTermBorrowings contextRef="ctx21" unitRef="USD" decimals="6">31500000</us-gaap:ShortTermBorrowings> b.

Accounts payable $252.5 million <us-gaap:AccountsPayable contextRef="ctx21" unitRef="USD" decimals="6">252500000</us-gaap:AccountsPayable>

c.

Accrued liabilities $612 million <us-gaap:AccruedLiabilities contextRef="ctx21" unitRef="USD" decimals="6">612000000</us-gaap:AccruedLiabilities>

d.

Customer deposits current $1,458.5 million <us-gaap:CustomerDepositsCurrent contextRef="ctx21" unitRef="USD" decimals="6">1458500000</us-gaap:CustomerDepositsCurrent>

See Tech Ex 9.32 Data File in the Chapter 9 Exercises Solutions.

9.33 Tech Tool: Spreadsheet Software Valencia Orange Inc. has asked for your assistance in adding some XBRL tags to its financial statements.

1. Download the data file for this exercise.

2. Use the information in Figure 9.12 to write the XBRL tags for the following selected items on Valencia Orange’s statement of financial position at August 31, 2011. a. Long-term debt noncurrent $4,172.5 million <us-gaap:LongTermDebtNoncurrent contextRef="ctx21" unitRef="USD" decimals="6">4172500000</us-gaap:LongTermDebtNoncurrent> b.

Other liabilities noncurrent $391.5 million

c.

<us-gaap:OtherLiabilitiesNoncurrent contextRef="ctx21" unitRef="USD" decimals="6">391500000</us-gaap:OtherLiabilitiesNoncurrent> Commitments and contingencies $0 <us-gaap:CommitmentsAndContingencies contextRef="ctx21" unitRef="USD" decimals="-6">0</us-gaap:CommitmentsAndContingencies>

d.

Common stock $3 million <us-gaap:CommonStockValue contextRef="ctx21" unitRef="USD" decimals="6">3000000</us-gaap:CommonStockValue>

See Tech Ex 9.33 Data File in Chapter 9 Exercises Solutions.

9.34 Tech Tool: Spreadsheet Software Valencia Orange Inc. has asked for your assistance with XBRL tags for its financial statements.

1. Download the data file for this exercise.

2. Use the information in Figure 9.12 to answer the following questions about XBRL tags for the selected items on Valencia Orange’s statement of financial position at August 31, 2011. a. What account and amount should appear on the financial statement for the XBRL tag labeled 2a in the spreadsheet data file for this exercise?

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Current Asset $1,028,000,000 b.

What account and amount should appear on the financial statement for the XBRL tag labeled 2b in the spreadsheet data file for this exercise?

Current Long-Term Debt $444,000,000

c.

What account and amount should appear on the financial statement for the XBRL tag labeled 2c in the spreadsheet data file for this exercise?

Current Liabilities $2,916,000,000

d.

What account and amount should appear on the financial statement for the XBRL tag labeled 2d in the spreadsheet data file for this exercise?

Treasury Stock Value $1,148,000,000

See Tech Ex 9.34 Data File and Tech Ex 9.34 SOLUTION (PDF format) in Chapter 9 Exercises Solutions.

Go Online 9.35 As an accounting intern, you have been asked by your supervisor to research software that can be used for XBRL bolt-on tagging. Go online and search for software that can be used for this purpose. Write a brief email to your supervisor with a summary of your findings.

Most available XBRL software provides bolt-on tagging. They just transform financial data on a spreadsheet into an XBRL tagging. For integrated tagging, financial data is transformed at the moment of capture and stored with its definition in an XBRL database.

9.36 You have been assigned to the XBRL project team for your company. Your assignment is to research available taxonomies. Go online and research the different taxonomies available. Write a brief email to your project team summarizing your findings.

You could find taxonomies on the GAAP, IFRS, and GRI home pages.

There are also many sites available on XBRL taxonomy.

9.37 XBRL stands for eXtensible Business Reporting Language. Your boss wants to know why. Go online and search for an explanation as to why it is called extensible. Write a brief email to your boss with your explanation.

XBRL programming language syntax is based on XML. In your email, you can start with XML capabilities as a web-based interactive programming language and then define additional capabilities offered by XBRL.

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Technology Projects Technology Project 9 Tech Tool: Internet Software Video: Internet Research iSportDesign is considering implementing XBRL for business reports. Nick, the owner, has asked for your assistance. He wants you to research the two options for XBRL: bolt-on tagging and integrated tagging.

Go online and research the XBRL software products available for each option. Prepare an executive summary for Nick with your recommendation and rationale.

Your deliverable for the project is as follows: Deliverable 1. An executive summary regarding, which XBRL option and software is the best fit for iSportDesign.

Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 9 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the video with software instructions to complete this project at www.pearsonhighered.com/kay.

See Project Chapter 9 file in the Chapter 9 Exercises Solutions.

9 © 2014 Pearson Education. All rights reserved.

Active Review 10.1

Refer to the chapter opener, Meet a Ponzi Scheme. In your opinion, how much responsibility should Madoff’s accountant bear for the billions lost?

Accountants are money managers in most businesses. They are responsible for preparing accurate financial reports. The SOX section 302 is about corporate responsibility for financial reports. This section indicates that the officers (including accountants) are also required to disclose any fraud, whether material or immaterial, that involved management or employees who play a significant role in internal controls. David Friehling, Madoff’s long-time accountant, pleaded guilty to three counts of obstructing the administration of the federal tax laws – charges added within the last five days to the government’s original complaint.

(Source: Tax Resolution University, http://www.taxresolution.com/blog/tax-help-for-ponzi-scheme-victims-as-madoffsaccountant-pleads-guilty/)

10.2

Discuss earning management issues and its relationship with fraud.

Earnings management focuses on managing when revenues and expenses are recorded in order to favorably reflect a company’s financial performance in a legal manner. However, there is a fine line between the earning management and fraud. Fraud is earnings management involves some illegal activities.

10.3

Discuss how the Sarbanes-Oxley Act of 2002 affected organizations’ internal control.

SOX changed the corporate legal environments, consequently were obliged to change behavior. The SOX section 404 is about management assessment of internal control

10.4

Compare the internal control element of the Sarbanes-Oxley Act of 2002 with COSO’s Internal Control—Integrated Framework.

The COSO Internal Control-Integrated is a framework to satisfy the SOX ACT of 2002. The SOX Section 404 Management assessment of internal Controls includes outlines the requirements for internal control while the COSO Internal Control-Integrated framework is a guideline for how the internal control should be implemented.

This framework has been widely accepted by organizations implementing and evaluating internal control over financial reporting in compliance with the US Sarbanes-Oxley Act of 2002.

10.5

Discuss how the three levels of IT controls relate to three levels within an organization.

The three levels of IT control are entity, application, and IT general levels of control.

1.

Entity-level IT controls includes the IT governance at the top management and executives level 2.

Application-level IT controls includes control embedded within business process applications 3.

IT general controls include IT services in general and help to ensure continued proper IT operation and availability.

10.6

Discuss how an organization’s network firewall fits into the three levels of IT controls.

IT general controls include the computer operation and access security controls.

A firewall role is to protect the corporate software and databases from an unauthorized access.

Without a proper firewall protection, the operation of the corporate programs is disrupted and its database confidentiality and security is lost.

10.7

Discuss how the Sarbanes-Oxley Act of 2002 affected internal control for publicly traded companies.

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The SOX legislation created the Public Company Accounting Oversight Board (PCAOB) to oversee and regulate public companies and their auditors. This was a turning point for the accounting profession, which prior to then had been self-regulated.

The 404 section of SOX requires each annual report of a publicly traded company to contain an internal control report stating management’s responsibility to establish and maintain an adequate system of internal control for financial reporting as well as an assessment of the effectiveness of the internal control structure and procedures.

10.8

What positions within an organization are considered executive management? Discuss their roles in entity-level IT controls.

All executive-level positions are considered executive management. These top management positions are the board of directors, chief executive officer, and chief financial officer.

10.9

What are the five internal control components specified by COSO’s Internal Control—Integrated Framework? How do COSO’s internal control components relate to IT controls?

The five COSO’s specified internal control components are: 1. Control environment 2. Risk assessment 3. Control activities 4. Information and communication 5. Monitoring The COSO’s five internal components are used to achieve the three objectives of effective operations, reliable financial reporting, and legal and regulatory compliance. The application level in IT control classified as follows: 1. Operational controls, such as controls to manage timing of cash disbursements to assure all discounts are taken and finance charges and late fees avoided.

2. Financial controls, such as controls so to ensure that external financial reports are prepared on timely basis in compliance with applicable laws, regulations, or contractual agreements 3. Compliance controls, such as controls to maintain confidentiality of information in accordance with all applicable laws and regulations

We can conclude that the five COSO’s specified internal control components could be used to achieve the Application level IT control objectives.

10.10 Discuss control issues with outsourcing IT services to a cloud computing services provider. How can organizations verify service organizations’ controls?

Cloud computing service providers are considered service organization. Service organizations are external organizations that perform services to the company being audited. When a company is being audited and the company’s controls evaluated, the company’s auditor also needs to consider the controls that the service company does (or doesn’t) have. At the same time the service organization that provides you with cloud computing services may outsource some of its services as well, such as database services or security services it purchases from other service organizations.

Therefore, if company’s cloud service provider (or its outsourced service providers) does not have adequate controls, this deficiency might result in your company control deficiency. Due to the increase in outsourcing and cloud computing services, concern about service organization controls, addressed in SOC 1, SOC 2, and SOC 3, has also increased.

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Key Terms Check a. motive b. opportunity c. means d. misappropriation of assets e. fraudulent financial reporting f. corruption g. prevent h. detect i. correct 10.11 Match the above terms and definitions.

b 1. Access to the asset or financial statements in order to carry out the fraud h 2. Controls designed to discover fraud when it occurs and alert management e 3. Includes misstating financial statements to meet earnings targets f 4. Includes illegal acts such as bribery, kickbacks, money laundering, and rigging bids c 5. Knowledge or skills that permit the perpetrator to commit the crime i 6. Investigate and take corrective action to remedy harm caused a 7. Reason for committing the fraud, such as financial difficulties d 8. Involves theft of assets for personal gain g 9. Controls designed to prevent or reduce the likelihood of a fraud risk occurring

10.12 Match the following terms and definitions. a. entity-level IT controls b. application controls c. IT general controls d. operational controls e. financial controls f. compliance controls g. manual controls h. automated controls i. input controls j. processing controls k. output controls l. hybrid controls

g 1. Controls performed without the assistance of technology h 2. Controls performed automatically by computers a 3. Processes, organizational structure, and leadership for IT to support an organization’s business strategy and objectives, such as internal audits l 4. A combination of manual and automated controls b 5. Controls embedded within business process applications, such as accounting software controls c 6. Controls that apply to IT services in general and ensure continued IT operation and availability, such as change and access controls e 7. Controls to ensure that external financial reports are prepared on a timely basis in compliance with laws, regulations, or contractual agreements d 8. Controls to ensure that operations are completed appropriately, such as the timing of cash disbursements to ensure that late fees are avoided f 9. Controls to maintain confidentiality of information in accordance with all applicable laws and regulations j 10. Controls to ensure that amounts have been processed appropriately i 11. Controls over data entered into the system k 12. Controls to ensure that reports are distributed only to appropriate users

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10.13 Match the following terms and definitions.

a. audit of internal control b. audit of financial statements c. IT audit d. integrated audit e. material weakness f. significant deficiency g. COSO

e 1. Deficiency that results in a reasonable possibility that a material misstatement of financial statements will not be prevented or detected on a timely basis f 2. A deficiency in internal control over financial reporting that is less severe than a material weakness a 3. Tests of controls to obtain evidence that internal control over financial reporting has operated effectively d 4. Integrates an audit of internal control with an audit of financial statements c 5. Audit of IT controls b 6. Tests of controls to assess risk and substantive procedures to collect evidence regarding the accuracy, completeness, and validity of data produced by the accounting system g 7. Committee of Sponsoring Organizations of the Treadway Commission

10.14 Match the following terms and definitions. a. segregation of duties b. independent reconciliation of assets and accounting records c. physical controls d. information technology (IT) controls e. ongoing monitoring f. separate evaluations g. Service Organization Control

e 1. An example would be controls over purchasing activities d 2. Controls to ensure appropriate information processing, authorization, and data integrity d 3. Reports your auditor may need from the service organization to complete your audit a 4. Divides authorization, recording, and asset custody among different individuals f 5. An example would be assessing internal controls with an internal audit b 6. Control activities such as bank reconciliations and inventory counts c 7. Controls to provide for physical security of assets

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Practice Test 10.15

Which of the following is not considered fraud? a. Error in financial statements (Correct answer) b. Bribery c. Stealing merchandise d. Misstating financial statements

10.16

The three components of the fraud triangle are: a. People, technology, database b. Opportunity, database, accounting processes c. Opportunity, motive, means (Correct answer) d. Motive, employees, means

10.17

Which of the following is NOT a key component of the effective fraud risk management? a. Prevent b. Evaluate (Correct answer) c. Detect d. Correct

10.18

Which of the following is considered as a top behavioral red flag of a fraudster? a. Buying a new house b. Vacationing in Tuscany for a month c. Having a large dollar amount of life insurance d. Having all family members and relatives as customers (Correct answer)

10.19

Which SOX section requires corporate management to certify reports filed with the SEC, such as the annual 10-K and quarterly 10-Q? a. Section 302. Corporate Responsibility for Financial Reports b. Section 404. Management Assessment of Internal Controls c. Section 806. Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud d. Section 906. Corporate Responsibility for Financial Reports (Correct answer)

10.20

Which of the following audits requires the auditors to conduct tests of controls and substantive procedures? a. Audit of financial statement (Correct answer) b. Audit of internal control c. Integral audit d. All of the above 5 © Pearson Education. All rights reserved.

10.21

10.22

Internal control in the information and communication systems relevant to financial reporting category does NOT include: a. Monitoring and control (Correct answer) b. Valuation c. Classification d. Record transactions for the appropriate period Which organization did the Sarbanes-Oxley Act of 2002 create? a. American Accounting Association (AAA) b. Public Company Accounting Oversight Board (PCAOB) (Correct answer) a. Institute of Management Accountants (IMA) b. Committee of Sponsoring Organizations of the Treadway Commission (COSO)

10.23

In the COSO Internal Control—Integrated Framework, control activities do not include: a. segregation of duties. b. information technology. c. project management. (Correct answer) d. physical controls.

10.24

According to Accounting Insight No. 19, the three zones in the house of IT controls are: a. Top Management, Business Process Applications, and IT Services (Correct answer) b. SOX, COSO, and COBIT c. Top Management, IT Management, Operations d. IT Control, Internal Control, External Controls

Exercises Short Exercises 10.25 Match each of the following control items to the type of control. (Q10.4) a. Entity-level IT controls b. Application controls c. IT general controls

c a c b a c b c b

1. Computer operation controls 2. Internal audit 3. Program development controls 4. Data validation for data entry 5. Risk assessment 6. Access security controls 7. Record count 8. Program change controls 9. Auto-numbered invoices

10.26 Match each of the following control activities to the type of control activity. (Q10.3) a. Segregation of duties b. Reconcile assets to accounts c. Physical controls

b 1. Take a physical inventory count and compare it to the inventory balance in the accounting system. a 2. The cashier does not have access to the accounting records. c 3. Security cameras a6 4. The sales clerks in a retail store do not have access the accounting © Pearson Education. All to rights reserved. system. b 5. Bank reconciliations c 6. Key cards to access offices

10.27 Match each of the following application control objectives to the appropriate transaction cycle.

(Q10.4)

a. Purchasing cycle b. Sales cycle c. Payroll cycle d. Banking/Cash e. Financial cycle

a 1. All goods shipped are accurately billed in the proper period. d 2. Record cash receipts on accounts receivable completely and accurately. c 3. Enter and process time worked accurately. b 4. Ensure that items ordered are received on a timely basis. d 5. Disburse cash only for authorized purchases. e 6. System controls are in place for appropriate approval of write-offs. c 7. Record tax payments completely and accurately a 8. Prevent unauthorized use of purchase orders. b 9. Process only valid customer orders. e 10. Reconcile accounting records with physical assets.

10.28 The following exercise relates to application control objectives for the purchasing cycle. (Q10.4) 1. List at least three application control objectives for the purchasing cycle. a. Record authorized purchase orders completely and accurately b. Ensure completeness and accuracy of accounts payable c. Record cash disbursements completely and accurately 2. Give an example of how the associated IT controls would be implemented for these control objectives. a. Supports implementation of authorization, accuracy, and completeness. Use of data entry validation tools on purchase order form to select a valid vendor and items. b. Supports implementation of accuracy and completeness. Use of segregation of duties.

The person who is responsible to verify purchase orders’ payments is not the same person who is responsible to verify account payables. c. Supports implementation of disclosure, accuracy, and completeness. Use of segregation of duties. The person who is responsible for preparing vendors checks is not the same person who is responsible to record the payments.

3. How would this improve internal control?

The COSO Internal Control Integrated framework provides reasonable assurance in achieving control objectives: a. Effectiveness and efficiency of operations b. Reliability of financial reporting c. Compliance with laws and regulations These application controls: 7 © Pearson Education. All rights reserved.

a. b. c.

Improve effectiveness and efficiency of the purchasing operation Improve reliability of financial reporting Provide compliance with laws and regulations.

10.29 The following exercise relates to application control objectives for the sales cycle. (Q10.4) 1. List at least three application controls used in the sales cycle. a. Process only valid customer orders b. Ship customer orders in a timely manner c. Record cash receipts on accounts receivable completely and accurately 2. Give an example of how the associated IT controls would be implemented for these control objectives. a. Supports implementation of authorization. Use of data entry validation tools on the customer order from. b. Supports implementation of accuracy and completeness. Sales order system automatically record the correct customer order’s information. Automated scheduling provides effective and efficient shipping process. c. Supports implementation of accuracy, disclosure, and completeness. Use of segregation of duties so that the person responsible for custody of cash received and bank deposits is not the same person who is responsible for recording customer cash received in the accounting records. Any possible deposits withheld would then be detected unless the accounting records were falsified.

3. How would this improve internal control?

These application controls: 1. Improve effectiveness and efficiency of the sales operation 2. Improve reliability of financial reporting 3. Provide compliance with laws and regulations.

10.30 The following exercise relates to application control objectives for the payroll cycle. (Q10.4) 1. List at least two application controls used in the payroll cycle. a. Enter and process time worked accurately b. Disburse payroll payments to appropriate employees 2. Give an example of how the associated IT controls would be implemented for these control objectives. a. Supports implementation of accuracy. Recording the employee worked time automatically.

Employee ID card is scanned at the entrance when employee enters to and exit from building. b. Supports implementation of accuracy and authorization. Use of segregation of duties. The person who is responsible for authorizing employees’ checks is not the same person who is responsible to prepare the payments 3. How would this improve internal control?

These application controls: a. Improve effectiveness and efficiency of the payroll operation b. Improve reliability of financial reporting c. Provide compliance with laws and regulations.

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10.31 The following exercise relates to application control objectives for the financial cycle. (Q10.4) 1. List at least two application controls used in the financial cycle. a. System controls are in place for appropriate approval of write-offs. b. Reconcile accounting records with physical assets to ensure internal consistency, such as bank reconciliations and physical inventory counts.

2. Give an example of how the associated IT controls would be implemented for these control objectives. a. Supports implementation of accuracy and authorization. Individual independent of sales and cash receipts should be authorized to write off accounts. b. An employee who has no other responsibilities related to cash should prepare the reconciliation.

3. How would this improve internal control?

These application controls: a. Improve reliability of financial reporting b. Provide compliance with laws and regulations 10.32 Imagine that a CPA firm, performing an audit of your company’s financial statements sends Midwestern Bank a request for confirmation of your company’s cash balance. However, Midwestern Bank uses a cloud service organization to provide confirmation responses to the CPA firm.

As part of the same audit, the CPA firm requests a confirmation from Aroma Coffee of the amount Aroma Coffee owes your company. Aroma Coffee uses the same cloud service organization used by Midwestern Bank to confirm the amount that Aroma Coffee owes your company . (Q10.4, 10.5) Explain how the cloud service organization can provide assurance to your company, Midwestern Bank, and other customers regarding: a. the effectiveness of controls it implements on its customer’s financial reporting. b. the privacy, confidentiality, security, availability, and processing integrity of the cloud system that generates the confirmations.

(Source: http://www.aicpa.org)

This service company, because of the broad variety of users of its cloud-based confirmation service and those customers’ varying needs should provide all three types of SOC reports. The cloud service company by choosing all three types of SOC reports will provide required assurance. In addition to the assurance about controls relevant to users’ financial reporting provided by a SOC 1 report, the SOC 2 and SOC 3 reports provide assurance that is important to the cloud service users regarding the security, availability or processing integrity of a service organization’s system and the confidentiality or privacy of the information processed by that system.

SOC reports give service providers companies, such as the one in this example, a competitive advantage.

Given the increasing interest in security, confidentiality and privacy, SOC reports are becoming more a must in the competitive market place. In addition, SOC reports are extremely relevant because accounting firms rely on financial confirmations provided by service providers when performing audits.

10.33 EspressoCoffee uses EDA Bank to invest. When the EspressoCoffee financial statements are audited, the auditor needs information about the EspressoCoffee internal control over financial reporting, including controls at the EDA Bank that affect the EspressoCoffee’s financial statements. (Q10.5) SOC 1 report includes controls at a Service Organization that is EDA Bank. SOC 1 report focuses solely on 9 © Pearson Education. All rights reserved.

controls at EDA Bank that are relevant to the audit of EspressoCoffee’s financial statements. a. What type of information does the SOC 1 Type 1 report include?

The EDA auditor provides an opinion regarding fairness of the EDA’s description of controls, but does not test the controls or express an opinion regarding the effectiveness of the controls. b. What type of information does the SOC 1 Type 2 report include?

The EDA Bank SOC 1 Type 2 report includes Type 1 information plus the EDA auditor tests controls and expresses an opinion regarding the effectiveness of the controls.

10.34 Think of an authentic enterprise of your choice. What internal control procedures does the enterprise use? Does the enterprise use any IT controls? (Q10.2, 10.3, 10.4) The answer to this question is based on the students’ choice.

10.35 CCS Inc. is a software as a service (SaaS) or cloud service organization that offers various computing services for your company. What types of information does the SOC 2 report include? (Q10.5) One of the CCS Inc. objectives is to assure its customers that its service maintains the confidentiality of its customers’ information in a secure manner and that the information will be available when it is needed. The SOC report provides CCS Inc. customers with a description of the CCS Inc.’s system and the controls that help CCS Inc. achieve the security, availability, confidentiality, processing integrity, and privacy.

• Security – The CCS Inc. system is protected, physical and logical, from unauthorized access.

• Availability – The CCS Inc. system is available for its customers.

• Processing integrity – The CCS Inc. system processing is complete, timely, accurate, and authorized.

• Confidentiality – CCS Inc. customers’ confidential information is protected as committed or agreed.

• Privacy – CCS Inc. customers’ personal information is collected, used, retained, disclosed and disposed of in agreement with criteria set forth in GAPP and with the commitments in the customer’s privacy notice.

(Source: “Service Organization Controls, Managing Risks by Obtaining a Service Auditor’s Report”, Audrey Katcher, Janis Parthun, and Curtis Stewart. American Institute of Certified Public Accountants, Inc. http://www.AICPA.org)

It’s Your Call 10.36 You notice your coworker, another accountant, emailing confidential accounting documents to an outside supplier who is bidding on a contract. What action should you take? Explain your reasons. (Q10.1) Your coworker, who happened to be an accountant, probably does this for a bribe. His action puts that supplier at an advantage. His action falls under the category of corruption. You have to report this incident, and under the SOX section 806 you should receive protection if your employer is a publicly held company 10.37 According to company policy, employees are not permitted to remove computers or external hard drives from the office because of the sensitivity of the data. It is now Friday afternoon at 5 PM. Because your high-priority project that is due Monday is not finished, you decide to take the external hard drive home so that you can meet the deadline.

On the way home Friday evening, you stop at a gas station for a snack and refuel. When you return to your car, the hard drive that was on the front passenger seat is gone. What would you do? (Q10.2, 10.3, 10.4)

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You have already committed a mistake by moving the company sensitive data out of the organization’s secured environment. You will commit a bigger error by not reporting the loss. In addition, it could be possible that your company policy regarding this issue is not effectively implemented. An effective policy could be that all corporate computers and laptop save data only on the corporate servers.

10.38 You are the internal auditor for a company conducting internal audit tests. You discover that the company is misusing federal grant funds. Instead of the funds being used for the designated purpose, they are being used to fund vacation trips for management. What would you do? (Q10.1, 10.2, 10.3) Based on PCAOB Auditing Standard No. 5 integrated audit and internal audit material weakness, you have the responsibility to report this fraud committed by your company’s management. The 806 section of SOX is known as Whistleblower Protection for Employees of Publicly Traded Companies. It provides for protection against retaliation against employees, such as company accountants or internal auditors 10.39 You are an external auditor conducting an internal audit for a client company. You discover that the company is misusing federal grant funds. Instead of the funds being used for the designated purpose, they are being used to fund vacation trips for management. What would you do? (Q10.1, 10.2, 10.3) The answer is the same as the preceding question because you are still conducting an internal audit.

However, the statement about the 806 section of SOX Whistleblower Protection does not apply, because the external auditor, who is not an employee of the client, reports the improper use of federal grant funds.

10.40 As an auditor, you are assigned to investigate a possible fraudulent situation characterized by the way the sales cycle application is conducted. During the course of investigation of the sales cycle processes, you determined the following when analyzing the generate invoice process map: • Items unit prices are extracted from the item table.

• The number of items was multiplied by unit prices to calculate subtotals.

• A salesperson verifies possible discount and approves the discount amount.

• Tax was added.

• The shipment amount was extracted from the shipment table and added to the sales amount.

• The salesperson verifies invoice form on the computer screen. The salesperson has full access to the invoice form and can change any value on it.

• The invoice was printed after being verified by the salesperson, and account receivable tables were updated.

Prepare a report of your analysis of the generate invoice process, and include manual and automated controls situations as a possible indicator of fraud. (Q10.1, 10.2, 10.3, 10.4) Your reports should identify the automated and manual controls and explain their vulnerabilities. The summary of these controls and their vulnerabilities are: • Items unit prices are extracted from the item table. Automated • The number of items was multiplied by unit prices to calculate subtotals. Automated • A salesperson verifies possible discount and approves the discount amount. Automated and Manual – Vulnerable control since the salesperson can approves an illegal discount • Tax was added. Automated • The shipment amount was extracted from the shipment table and added to the sales amount.

Automated • The salesperson verifies invoice form on the computer screen. The salesperson has full access to the invoice form and can change any value on it. Automated and Manual - Vulnerable control since the salesperson can many values on the invoice • The invoice was printed after being verified by the salesperson, and account receivable tables were updated. Automated 11 © Pearson Education. All rights reserved.

10.41 As an auditor, you are assigned to investigate the bonus system put in place by a retail store company. During the course of investigation of the bonus system process, you identified the following: • $1,000-dollar checks were issued and sent to privileged customers.

• The date on the checks was marked one month after the date being sent, so the check amounts were deposited a month after they were received by customers.

• Bonus policy requires customers to spend the $1,000 amount in one of the company’s store within three days after receiving the checks.

• Customers should pay with cash or credit card for the purchased merchandise.

Prepare a report of your analysis of the bonus system process, and include manual and automated controls situations as a possible indicator of fraud. (Q10.1, 10.2, 10.3, 10.4) Although this operation seems to be legal, it does not comply with COSO operation and financial control objectives. Cash disbursement timing is not the same as timing given to customers who wish to purchase items from company’s stores. Therefore, bonus payment transactions could be excluded from the company financial reports for that month.

10.42 In a store such as an electronics store, a cashier and a customer may conspire to steal items in the following manner: • Customer brings many items to the cashier • Cashier scans only a few items • Customer pays for scanned items and leaves store with all items • Later, cashier and customer sell stolen items for personal gain As an auditor, you are assigned to investigate this situation. In your report to your supervisor, include what type of application controls are violated. How is this fraudulent act detected, and how can it be prevented?

(Q10.1, 10.2, 10.3, 10.4)

Application Controls violation: The sales application control objective is violated.

• Error in process customer order • Error is items delivery • Error process account receivable • Error in process funds (record customer order).

Detection: • Verify customer’s receipt with the items in customer chart. (This is done in stores like Wal-Mart and Sam’s Club.)

Prevention: Monitoring Cameras could prevent cashier to commit this type of fraud.

10.43 In your company, the payroll process is as follows: • Employees return their time cards to the supervisor.

• At the end of the moth, supervisors send the time cards to the payroll department.

• The payroll department calculates employees’ pay, prints paychecks, and sends checks to the supervisors.

• Supervisors distribute payroll checks to employees.

• According to the company regulations, supervisors must return unclaimed checks to the payroll department.

Your boss has asked you to evaluate the payroll process and find the possible fraudulent acts loopholes.

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In your report to your boss, include what type of application controls are violated. How this possible fraudulent act detected, and how can it be prevented? (Q 10.4) The loopholes you may consider in your report are: • Supervisor may ignore inaccurate time on a time card • Supervisor may change the employee time-worked on certain time cards • Supervisor may ignore discrepancies on certain time cards • Supervisor may not return certain unclaimed checks.

Detection: • Verifying time cards • Verifying deposited checks against employee bank accounts Prevention: • Segregation of duties.

• Each payroll action conducted by more than one supervisor.

10.44 Your boss has asked you to prepare a report on control issues with outsourcing your company’s financial reporting to a cloud service organization. Your company also needs to move its operational data to the same cloud service organization, he added. After a few calls to the IT department, you realize that the cloud service organization provides Software-as-a-Service (SaaS) and Infrastructure-as-a-Service. What are you going to include in your report? Prepare a summary and outline your findings. (Q10.5) In your report, include the reporting framework used by the service organization. Specifically, the reporting framework must be the one that is recommended to service organizations. These reports are categorized in SOC 1, SOC 2, and SOC 3.

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Tech in Practice Tech Exercises 10.45 Tech Tool: Spreadsheet Software EspressoCoffee has asked for your assistance in assessing spreadsheet controls.

1. Select a specific spreadsheet software, such as Microsoft Excel, iWork Numbers, or Google Docs.

2. List the application controls embedded in the software.

3. Discuss any deficiencies in controls that you see.

The figure below shows the various data entry and access control features of MS Excel.

As for deficiency, a user may override the data entry control.

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10.46 Tech Tool: Accounting Software EspressoCoffee has asked for your assistance in assessing controls in accounting software it is considering for adoption.

1. Select a specific accounting software, such as QuickBooks, Peachtree, or SAP Business One. 2. Identify the application controls embedded in the software.

3. Discuss any deficiencies in controls that you see.

To be able to answer this question, students must have used at least one accounting software package.

However, all accounting systems should have: 1. Access control, such as password.

2. Priority access. For example, an employee may have limited access the system.

3. Data entry validation. For example, a field only accepts whole numbers between 10 and 20.

4. Automatic data entry. For example, auto-number fields 5. Dropdown list data entry fields.

10.47 Tech Tool: Database Software EspressoCoffee’s accounting professionals have asked for your assistance in assessing controls in the database software they use.

1. Using Microsoft Access database software, identify the application controls embedded in the software.

2. Discuss any deficiencies in controls that you see.

Microsoft Access forms and reports offer many data entry and visualization controls. The developer, while building forms and reports, adds these tools to forms or reports as required. MS Access allows the database developer to require a password for the users of the database. Record and file locking is another accuracy control provided by MS Access.

Database integrity is also considered a data entry control. For example, a user cannot insert a record to the Sales Order Line table if there isn’t a record in the Sales Order table with the sales order number equal to the sales order number in the sales order line record. See chapter 2 and 14 for referential integrity.

One of the deficiencies in the MS Access application control tools is that there is no control for the size of the text data. For example, if the customer name is larger then the customer name field, then only a part of the name is stored. This problem can be removed by additional VB coding.

10.48 Tech Tool: Spreadsheet Software Software Video: Spreadsheet Controls EspressoCoffee has asked for your assistance in using formula auditing to improve spreadsheet controls.

1. Download the data file for this exercise.

2. Watch the software video for spreadsheet controls.

3. Use formula auditing with the spreadsheet data file to trace precedents for the cell labeled.

4. Identify any issues or errors. Print the spreadsheet. Clear precedents.

The figure shows that the wrong field (item code instead of unit price) is used to calculate profit margin 5. Use formula auditing with the spreadsheet data file to trace dependents for the cell labeled.

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6. Identify any issues or errors. Print the spreadsheet. Clear dependents.

The dependents cells to the cell item code shows that by mistake the item code is used to calculate the profit.

7. Use formula auditing to trace the error in the spreadsheet in the cell labeled.

8. Print the spreadsheet. How would you document the error? How would you fix this error?

The formula view of spreadsheet also shows the same error that was detected with the previous methods.

The error documentation depends on the company policies and procedures. However, by removing the error and correcting the mistake, there won’t be any record of the mistake. One option could be to keep a copy of the spreadsheet with reviewers’ comments and correct the error in the second copy. To correct the error in the sample spreadsheet, the formula in the 1 st Quarter revenue must have unit price cell instead of item code cell.

See Tech Ex 10.48 Data File in the Chapter 10 Exercises Solutions.

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Go Online 10.49 You are the accounting representative on the IT project team for improving spreadsheet security and controls. You have been asked to investigate third-party add-in software for spreadsheets to improve controls. Go online and research spreadsheet add-ins, such as SpreadsheetProfessionals, used to improve spreadsheet controls. Write an email to your team, summarizing the software and features.

Students can find all they need to write their reports at the following site: http://www.auditexcel.co.za/2010-08-spreadsheet-professionals.html 10.50 You are a staff accountant for a regional CPA firm. The partners of the firm are conducting a series of seminars for current and prospective clients. One of the partners has asked you to do research for the next seminar on the topic of COSO’s internal control framework. Go online and search for information.

Prepare a short presentation that the partner could use at the seminar.

There are many sites on this topic, including: http://www.coso.org/ http://www.sox-online.com/coso_cobit.html 10.51 You are a staff accountant for a regional CPA firm. The partners of the firm are conducting a series of seminars for current and prospective clients. One of the partners has asked you to do research for the next seminar on the topic of COBIT’s framework for IT controls. Go online and search for information.

Prepare a short presentation that the partner could use at the seminar.

There are many sites on this topic, including: http://www.isaca.org/Knowledge-Center/COBIT/Pages/Overview.aspx 10.52 You have been assigned to the project team to evaluate IT controls. The IT professionals specifically asked for you to be on the team because of your accounting and IT background. They have asked you to make a presentation at the next team meeting about the three levels of IT controls: 1. Entity-level controls 2. Application controls 3. IT general controls Go online and search for information about these three types of IT controls. Draft a short email to send to the team leader, summarizing your findings and obtaining his feedback.

The following sites might be helpful.

1. For Entity-level control: http://www.uhyadvisors-us.com/uhy/Services/SarbanesOxley/EntityLevelControls/tabid/236/Default.aspx 2. For Application Control: http://www.isaca.org/Journal/Past-Issues/2002/Volume-5/Pages/Auditing-General-and-ApplicationControls.aspx 3. For IT General Control: ITGC http://www.pwc.com/cy/en/challenges/it-controls.jhtml 10.53 You have been assigned to gather information and prepare a presentation on service organization control reports. Your presentation must include information about SOC 1, SOC 2, and SOC 3 reports. Go 18 © Pearson Education. All rights reserved.

online and search for information about these three types of reports.

The http://www.AICPA.org site can be a good site for the service organization’s reporting framework.

Technology Projects Tech Tool: Spreadsheet Software iSportDesign would like to improve security and controls for its business processes.

Your deliverables for the project include the following: Deliverable 1. Prepare a report on issues that should be considered by iSportDesign regarding using a service organization for all or part of its application, database, and reporting services.

Deliverable 2. Prepare a report regarding spreadsheet control.

Visit www.pearsonhighered.com/kay to download Technology Project 10 instructions.

The answer to the project questions can be found in the answers to the Technology in Practice and “It’s your Call” sections.

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Active Review 11.1 Refer to the chapter opener, Meet Heartland. In your opinion, how was it possible for Heartland to have been audited and certified by Payment Card Industry Data Security Standards and still have been hacked?

No matter how strong is an enterprise system security intruders and hacker may still find weak and vulnerable points to access the system. IT is a fast changing technology. This could be a disadvantage because change technology changes an enterprise vulnerabilities and weak points. A year-old secure system may not be secure today. Keeping an organization’s system secure should be an ongoing project.

11.2 Discuss what motivates hackers use to break into computer systems.

Maybe once the hackers’ motive was to impress their peers and show they are smart enough to break into unbreakable systems, but now this motive has been replaced by profit-driven motives. Today, the target of hackers is corporate systems because that is where the financial and sensitive data is saved.

11.3 Discuss the security of laptop computers versus desktop computers.

Regarding security, the major difference between a laptop and desktop is the mobility. People can carry their laptop everywhere with them, coffee shops, hotel rooms, airplanes, and so on. They are easier stolen and lost. Also, being outside of the organization, they could use an unsecure network for telecommunication. All these make laptops more vulnerable to cyberattacks.

11.4 Why do organizations leave the DMZ less secure than the rest of the intranet?

Organizations need to allow the outside world access certain areas of their networks. The organization’s website is one of these areas. Because if it is located in the fully protected section of the enterprise networks, then nobody can visit the enterprise’s website. That is why DMZ is less secure.

11.5 What section of the enterprise-wide network is located in the DMZ? Why? The DMZ usually contains organization’s web and mail servers. These two areas should be accessible by other computers outside of the enterprise-wide networks.

11.6 This text uses the (ISC)2 10-domain framework for cybersecurity. Discuss which of those domains are related to the IT controls in the previous chapter, Fraud and Internal Control.

The International Information Systems Security Certification Consortium (ISC) 2 10-domain Common Body of Knowledge (CBK) is for IT security and controls. All 10-domains are related to IT Controls. The Legal, Regulations, Compliance, and Investigation domain covers Fraud and Internal Control through cybercrime, cyberlaw, and cyber forensics laws and regulations.

11.7 In this text you learned about many types of malware (malicious software). In your opinion, which one is the most damaging to an organization’s information assets and computer systems? Why? All computer viruses are damaging but damage of those, which steal data, is worst. If your organization has an efficient backup system most or all data can be recovered. But stolen data is extremely damaging to your company, your customers, employees, and vendors. Bots are an example of this type of malware.

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11.8 Discuss why longer passwords are more secure than shorter ones. Why are passwords with a combination of characters and digits more secure than those with just alphabetic characters? Can you think of any cons to longer, alphanumeric passwords that need to be changed frequently?

Imagine the size of your password is only two and you have used only digits to build it. How hard do you think it is for someone to guess your password? A person can guess your password by trying different combinations of only 2 digits, which is not really hard. There are computer programs that can try different combinations of some number of alphabetical characters. The longer the password gets, the longer time it take for a computer program to find the right password. Also, shorter passwords are easier to remember for someone who is watching another person entering his/her password.

Typing a long alphanumeric password, especially on mobile devices, requires many switches between the alphabetical and the numerical keypads. This may cause typing mistakes and is easier to detect by somebody watching your work. The higher frequency of change between character to digit and vice versa, the greater the risk of error or of being detected.

11.9 Discuss the Gramm-Leach-Bliley Act and its impact on cybersecurity.

This legislation requires financial institutions to provide customers with privacy notices and prohibits the institutions from sharing customer information with nonaffiliated third parties. The institution must have adequate cybersecurity to prevent unauthorized sharing of customer data. With this act, organizations no longer can sell or share their customer information. Also, organizations are responsible for safeguarding their customer data.

11.10 Discuss how changes in information technology affect cybersecurity. Give an example to illustrate.

Changes in software and hardware would change systems vulnerabilities and weak points. Just imagine that, your new compute at work has wireless network access feature and can be accessed through a wireless network. This change would make your computer vulnerable to the threats from wireless network.

Consequently you need to counter that threat by installing a new network firewall on you computer.

Key Terms Check 11.11 Match the following terms and definitions. a. cybercrime b. cyberlaw c. cyber forensics d. pretexting e. password sniffing f. salami attacks g. social engineering h. phishing i. dumpster diving

f 1. Usually targeting the accounting department, these attacks are electronic theft of very small amounts numerous times, such as rounding of fractions of a cent from interest calculations h 2. A form of social engineering, the attacker fishes for sensitive, private data, such as using an authenticlooking fraudulent Web site g 3. Attacks involving manipulating and tricking individuals into divulging confidential information, such as imposter emails d 4. Social engineering attacks that involve creating a scenario and using deception for information gathering purposes i 5. Rummaging through garbage for discarded documents or digital media e 6. Attempts to obtain passwords by reading messages sent on a network c 7. Involves collecting, examining, and preventing evidence of cybercrime a 8. Crimes connected to information assets and IT b 9. Laws2 and regulations to prevent, investigate, and prosecute © 2014 Pearson Education.

Allcybercrimes rights reserved.

11.12 Match the following terms and definitions. a. viruses d 1. Malicious software that executes when a specified event b. Trojan horse occurs, such as logging into a bank account c. worms f 2. Malware sent by email that can be a virus, Trojan horse, d. logic bombs worms, logic bombs, or bots e. bots b 3. Malware disguised as a legitimate program f. spam e 4. Tiny pieces of programming code that install themselves on an infected computer called a zombie and transmit data back to the hackers’ computers without awareness of the zombie computer user a 5. Relatively small programs that infect other application software by attaching to it and disturbing application functioning c 6. Similar to viruses except they do not need a host application to function or reproduce

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11.13 Select the single best answer.

Identifying users by analyzing their personal attributes, such as face recognition, is called a. honeypot. b. firewall. c. DMZ. d. biometrics. (Correct answer) 11.14 Select the single best answer.

Software generally located on routing devices (bridges, routers, and gateways) to monitor network traffic and prevent unauthorized access is a. honeypot. b. firewall. (Correct answer) c. DMZ. d. biometrics.

11.15 Select the single best answer.

An area between the enterprise’s first firewall to the outside world and the next firewall is called a. honeypot. b. firewall. c. DMZ. (Correct answer) d. biometrics.

11.17 Match the following terms and definitions. a. IT architecture b. computer architecture c. network architecture d. system software e. application software f. patch g. real-time h. batch

f 1. A small sequence of programming code inserted into a program to fix an error or add a new feature c 2. Network hardware and software h 3. Application software execution that runs a group of transactions at a later time g 4. Application software execution that processes transactions at the current time b 5. Computer hardware components and computer software e 6. Computer programs for a specific application, such as accounting a 7. A blueprint for computers, networks, and databases d 8. Computer programs used for managing computer hardware

11.16 Select the single best answer. A computer located in the DMZ with attractive but irrelevant data to distract and catch hackers would be a. honeypot. (Correct answer) b. firewall. c. DMZ. d. biometrics.

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11.18 Match the following terms and definitions. c 1.A network that covers a large geographic region, such as several states k 2. A device connecting an enterprise intranet to the Internet a. local area network (LAN) g 3. Special purpose computers that monitor network traffic b. metropolitan area network (MAN) and transfer messages from one network to another c. wide area network (WAN) network d. workstation computers n 4. A software program that provides routing services to e. server computers messages transmitted over the Internet f. peripherals q 5. A network that allows computers to request data and g. routing devices other services from other specific computers on the h. bridges network i. LAN cluster i 6. A group of the same type of LANs connected to each j. routers other by bridges k. gateways b 7. A network covering a city l. network wiring (transmission media) m 8. A software program commonly used to connect m. Ethernet protocol computers on a LAN n. Internet protocol (IP) e 9. A computer that serves other computers with data and o. transport control protocol (TCP) applications, such as an accounting database p. electronic data interchange (EDI) r 10. A software program that allows the enterprise network q. client/server network to connect to the network of vendors through r. value-added network proprietary lines f 11. Utility devices connected to a network for shared use, such as a printer d 12. A personal computer or laptop connected to a network l 13. Physical media connecting computers o 14. A software program that provides transportation services to messages sent over the Internet a 15. Computer connected in a relatively small area, such as your college campus p 16. A network that allows an organization to share data with suppliers j 17. An electronic device that connects networks of different types h 18. A device that connects two LANs of the same type

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11.19 Match the following terms and definitions. a. stovepipe b. enterprise security architecture c. telecommunication d. intranet e. extranet f. network access point (NAP) g. remote access h. point-to-point protocol (PPP) i. virtual private network (VPN) j. point-to-point tunneling protocol (PPTP) k. Internet service provider (ISP) l. application service provider (ASP) m. hypertext transfer protocol (HTTP) n. uniform resource locator (URL) o. e-commerce p. proxy firewall

l 1.A provider of online applications, such as accounting applications, for a fee b 2. A proactive approach to enterprise security that involves developing an overall plan h 3. A network software program that connects one computer to another computer m 4. A programming language that allowed the creation of the World Wide Web d 5. An enterprise-wide network j 6. A software program permitting an employee to use the enterprise network through a secure channel f 7. A point on the network that offers access to the network, such as an accountant’s computer k 8. A provider of access to the Internet for a fee o 9. Online sales transactions i 10. A network that provides a secure channel to access the enterprise network c 11. Electrical transmission of data through analog or digital networks e 12. A wide network used by external customers and suppliers g 13. Accessing a computer from a remote location a 14. Tossing in security patches, hoping to cover vulnerabilities p 15. Located on a proxy server and used to intercept and inspect all incoming messages prior to delivering them to the intended recipient n 16. A Web site address

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11.20 Match the following terms and definitions. a. dynamic password b. token device (TD) c. single sign-on (SSO) d. Intrusion Prevention System (IPS) e. input controls f. output controls g. grandfather-father-son method h. reciprocal agreement i. internal sites j. hot sites k. warm sites l. cold sites m. substitution key n. transposition key o. product key p. symmetric cryptography (1-key method) q. asymmetric cryptography (2-key method) r. digital envelope(3-keymethod) s. public key t. private key

j 1. A commercial disaster recovery service that provides a fully operational site within a few hours b 2. A hardware device that contains a password generator protocol k 3. A commercial disaster recovery service that provides a partially configured site that is operational within a few days l 4. A commercial disaster recovery service that provides a site with air conditioning, wiring, and plumbing but no IT equipment g 5. A backup technique that keeps multiple backups h 6. Backup services shared between two organizations f 7. Controls that ensure reports and messages reach intended recipients t 8. In asymmetric cryptography, the key used to decode the message i 9. Backup services distributed among an organization’s multiple locations d 10. Systems used to prevent access control attacks c 11. A software that permits the user to use one user name and password to log in to various systems m 12. A cryptography key that substitutes one letter for another letter n 13. A cryptography key that scrambles the data o 14. A cryptography key that uses a combination of substitution and transposition keys e 15. Controls that ensure that data is valid and entered correctly q 16. Cryptography that uses one key to encode and a second key to decode a 17. A password used once and then changed r 18. Cryptography that uses both symmetric and asymmetric cryptography p 19. Cryptography that uses the same key to encode and decode s 20. In asymmetric cryptography, the key used to encode the message

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Practice Test 11.21

Which of the following is NOT part of the 10 domains of cybersecurity? a. Network security (Correct answer) b. Business continuity and disaster recovery c. Operational security d. Information security and risk management

11.22

Which of the following is NOT part of the fundamental principles of information security? a. Confidentiality b. Timeliness (Correct answer) c. Integrity d. Availability

11.23

Cybercrimes are crimes connected to what? (Select the best answer.) a. Information assets and IT (Correct answer) b. Electronic data transfer (EDI) c. The Internet and intranet d. Electronic payments

11.24

Which of the following is considered a social engineering cyberattack? a. Salami attack b. Dumpster diving c. Password sniffing d. Phishing (Correct answer)

11.25

Which of the following legislations is related to agency contractors, companies, and consultants hired by federal agencies? a. Sarbanes-Oxley b. Gramm-Leach-Bliley Act c. Federal Information Security Management ACT (FISMA) (Correct answer) d. Payment Card Industry Data Security Standards (PCI-DSS)

11.26

In the industry/private sector, unauthorized disclosure of data with this classification would have a serious adverse impact on the organization. a. Sensitive b. Private c. Top Secret d. Confidential (Correct answer)

11.27

__________ is considered computer hardware. a. Network protocol b. RAM (Correct answer) c. Operating system d. Application software

11.28

What types of networks are connected by a network bridge? a. Same type of intranets 8 © 2014 Pearson Education. All rights reserved.

b. c. d.

Same type of local area networks (Correct answer) Same type of networks Same type of metropolitan area networks

11.29

What is the purpose of installing firewalls on bridges, routers, and gateways? a. Ensuring unauthorized access to the network b. Preventing unauthorized access to the network (Correct answer) c. Detecting unauthorized access to the network d. Preventing data from moving too quickly over the network

11.30

Which of the encryption techniques is used by digital signature? a. Symmetric b. Substitution c. Asymmetric d. a and c (Correct answer)

Exercises Short Exercises 11.31 Compare and contrast LANs, MANs, and WANs. Use the following organizer for your answer.

(Q11.4)

Compare (Same)

and

Contrast (Different)

All are networks

They cover different size areas

All are governed by access protocols

They differ on the type of network access protocol They differ on the type of use

Computers are connected by wires or wireless

There are many more differences but they are beyond the scope of this book.

11.32 Compare and contrast Internet, intranet, and extranet. Use the following organizer for your answer.

(Q11.4)

Compare (Same)

and

Contrast (Different)

Are designed for a specific category of users

They differ on the type of users.

They provides various services to their users They all have access and security control

They provide different type of services to their users They have different levels of access and security control. For example the intranet has the highest access and security control.

11.33 Compare and contrast routers, bridges, and gateways. Use the following organizer for your answer.

(Q11.4)

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Compare (Same)

and

They connect networks They transfer messages from one network to the other networks They provide additional services to the networks that are connected

Contrast (Different) They connect different types of networks They use different message transferring methods The provide different level of services

11.34 Which of the rings of protection for IT architecture contain accounting software applications? What security measures are used in that ring to protect accounting software applications? (Q11.4) Ring 3: Software applications ring includes Web browser, word processing, spreadsheet, and accounting software. Login passwords to open applications are an example of Ring 3 protection.

11.35 If an organization’s first firewall to the outside world fails, what are the risks to the organization?

What are the possible consequences? (Q11.5) The web and mail servers are usually located between the first and second firewall. Therefore, if the first firewall fails the organization website and mail services could be disrupted.

11.36 What is a network access point? List at least two examples and what can be done to secure those access points. (Q11.5) A device that provides an access to a network is called a network access point. Computers, routers, bridges, or gateways are examples of network access points. A simple way to protect a network from an unauthorized access is installing login and password for computer users. Firewalls or software programs that control traffic between two networks can be installed on bridges or routers to prevent unauthorized access.

11.37 Explain why an organization puts its Web server in the DMZ instead of in the more-secure areas of the network. (Q11.5) If the Web site server is placed behind a high-security firewall, then the general public cannot access the organization Web site. Organizations place their Web servers behind a low-level security firewall, which is the first firewall to the outside world.

11.38 Explain how a honeypot can be used as part of an organization’s cybersecurity. (Q11.5) A honeypot is a computer located in the DMZ with attractive, but irrelevant data. The honeypot is used to lure hackers, distracting them from bypassing the second firewall and hacking into the enterprise database.

Organizations could use a honeypot to catch hackers by tracing them back to their source while the hackers are busy hacking the honeypot.

11.39 Explain the differences between Intrusion Prevention Systems (IPS) and Intrusion Detection Systems (IDS). (Q11.6) The IPS system intention is to prevent and stop threats before they occur. IDS is for the assessment of various components of the enterprise system. It evaluates occurrence of a possible attack. An Intrusion Detection System is inadequate because the attack has already occurred. An Intrusion Prevention System 10 © 2014 Pearson Education. All rights reserved.

attempts to prevent the attack from occurring.

11.40 Using the encryption key shown in Figure 11.14, encrypt the following plaintext message: Cybersecurity Rules. (Q11.11) The encrypted message is: xbyvihvxfirgb ifovh 11.41 Explain the differences between symmetric and asymmetric cryptography. Which is more secure?

(Q11.11)

• Symmetric cryptography or 1-key method: This method uses one key to encode and the same key to decode. Thus, both the sender and the intended recipient must have the same key.

• Asymmetric cryptography or 2-key method: This method uses two keys with one key used to encode and a second related, but different, key to decode the message. The key used to encrypt the message is called a public key. The key used to decode is called a private key.

The 2-key method is more secure since it is not necessary to provide the encryption key to the recipient of the message. Public key is used to encode messages but only the private key is used to decode them.

In the 1-key method, the decoding key, which is the same as encoding key must be given to the decoder of the message.

11.42 Computer viruses could damage data and applications on an infected computer. Detective techniques can minimize the damage by detecting the virus program and type and removing it from the infected computers. The preventive techniques can confine the damage to infected computers. (Q 11.9) • What is a computer virus?

A virus is small computer program that infects computer software by becoming part of the software code and disrupting infected software functionality. Hackers take advantage of this weakness in the computer’s operating system or other software that can act as an access point to an attack. In the worst case, even the most harmless virus sends a signal to others that this computer has been infiltrated. This opens the door wide open to much worse attacks.

• Explain why a computer cannot be 100% secure from viruses.

Computer applications and operating systems need to interact with other applications. That is a vulnerability of software. Since computer software interacts with many different and new types of applications, therefore, there is always a way that a virus can interact with software. Antivirus applications can detect a virus presence and its type in an infected computer. If the antivirus can remove that type of virus then that computer can be cleaned.

• A virus could damage data or applications. In your opinion, which virus damage is more severe?

Why? An application can be reinstalled but if there is no backup of data then data is gone forever.

• How can a computer that is not connected to the network be infected?

A virus can enter into a computer from network or an infected removable storage device such as a flash card.

11.43 John, an accountant, noticed the QuickBooks application was running very slowly on his computer.

He was suspicious since, except for QuickBooks, no other application was running at that time. His computer is a PC running Windows 7 and is connected to the company’s intranet and the Internet. He opened the Windows task manger and realized that a suspicious process was running. He also checked network activities on the task manager and saw unexplained data transmission. To the best of your knowledge, what is wrong with his computer? Do you think John must report his computer problem to the IT department and his coworkers? Why? (Q 11.9) There is a good possibility that John computer is infected. He is lucky to be able to see the malicious 11 © 2014 Pearson Education. All rights reserved.

application in the task manager because most of the times viruses become a part of a valid application.

Since there are suspicious network data transmission activities on John’s computer it is possible the malicious software is a Bot!

It’s Your Call 11.44 As the new accounting intern, the controller asked you to explain the importance of firewalls in securing the accounting system. Prepare a short presentation for the accounting staff on this topic. Discuss why some organizations are now using up to four firewall levels to protect the enterprise database. (Q11.5) You explanation could include: • Firewalls control traffic passing through routing devices such as bridges, and gateways. Firewalls can prevent unauthorized access to a network.

• Firewalls also play an important role in e-commerce, in which sales transactions are conducted online. To allow customers’ requests to pass the second firewall located behind the Web server yet protect the enterprise database, e-commerce servers are placed behind the second firewall. A third firewall is added behind the e-commerce server to protect the enterprise’s database and applications. To further protect the enterprise database, some companies use two e-commerce servers. The first e-commerce server accepts customer requests and queries and any customer requests requiring database access are forwarded to the second e-commerce server, which uses the DBMS to retrieve or update data in the database. The fourth firewall is added between the two e-commerce servers 11.45 You just landed a job as an accounting intern for the Veterans Administration. Clearly there is a cost associated with securing information assets as well as a cost associated with lack of security. In the case of the stolen Veterans Administration laptop, the court case was settled for $20 million; however, there were also other costs involved in defending against the suit, the cost of investigating the stolen laptop, and measures taken to try to address the potential identify theft of the military personnel. Prepare a cost/benefit analysis to the best of your ability by researching various costs to obtain estimates for securing the stolen laptop versus the cost of its theft. Write an email summarizing your findings and recommendations to the Veterans Administration. (Q11.12) Your email should include: • Data Cost – The real value of laptop computers is in the data stored on laptop hard drives. According to the Ponemon Institute's 2009 study, "The Cost of a Lost Laptop," the average cost of losing a laptop is $49,246. Data represents 80% of this cost. (source: http://www.mylaptopgps.com/costs.php)

• •

The cost benefit analysis summary Recommendation – Cost/benefit analysis clearly shows the cost of securing laptops 1.2 percent of the cost of just one stolen laptop. Therefore, Veterans Administration could greatly benefit from securing its laptops Stolen laptop cost Class action lawsuit

Securing Cost

($20,000,000)

Laptop cost

($500)

Cost of protecting 1000 laptops

($150,000)

Founder fee

($50,000)

laptop security maintenance (1000 laptop)

12 © 2014 Pearson Education. All rights reserved.

($100,000)

Average Cost of time spent to set things right (in hours* 100)

($17,500)

Legal expenses

($200,000)

Cost of notification letters to people exposed Total Cost

($150,000) ($20,418,000)

($250,000)

11.46 Refer to It’s Your Call 11.45. Prepare a plan for the Veterans Administration to better secure its laptops in the future. (Q11.10) Educate your employee to: • Stay in touch with their laptop at all times • Use backpack to carry their laptop instead of notebook carrying cases • Lock your laptop using the laptop locking port and locking cable. Use the VGA connector if your laptop does not have a locking port • Use the motion sensor on your laptop that triggers a load alarm. (For example, the Targus’s $50 Defcon 1 Ultra Notebook Computer Security Alarm.)

• Cover your laptop when you are carrying your laptop in a car.

• Record your laptop serial number and mark your laptop with a non-removable ID mark (Source: http://www.pcworld.com/businesscenter/article/128134-5/be_a_pc_crime_fighter_keep_your_hardware_safe.html)

11.47 You are on the team charged with business continuity and disaster recovery. Your role in the team is to focus on disaster recovery for the accounting system and financial data. At the first meeting, you learn that the remote backup site is located in Boca Raton, Florida. Prepare your notes for the next meeting to address the advisability of that location for a remote backup. (Q11.10) The followings are the list of characteristics of an ideal remote backup site.

1.

2.

3.

4.

It must be in a naturally secure area. For example the remote backup site shouldn’t be near an earthquake fault line, tornado, hurricane zone, or flood zone.

It must be physically secure. Access to the backup buildings should have security guards and cameras.

Doors and other accesses must have locks with digital keys.

It shouldn’t be close to the original site. For example, the back up site should not be in the next building or even same city.

It must be quickly reachable. Organization IT employees need to periodically visit the backup site and ensure its functionality.

In conclusion you should point out that Florida is not a naturally secure zone.

(Source: http://www.cybercityinc.com/blog/?p=721)

11.48 One of your responsibilities as a staff accountant is to prepare and transmit your company’s XBRL financial statements to the Securities and Exchange Commission (SEC). What cybersecurity measures would you implement to ensure data integrity and security? Provide your supporting rationale. (Q11.5, 11.6, 11.11)

Your rationale could include: Encryption is a useful tool for protecting data in transit. However, as encryption tools have improved, crackers (high-level hackers) are using even more sophisticated techniques to bypass data encryption.

Therefore, a more complicated encryption algorithm with a larger key provides better data transmission 13 © 2014 Pearson Education. All rights reserved.

security.

11.49 Your company is planning to move certain systems, such as accounting, into the cloud. You are a member of a team responsible for evaluation of the advantages and disadvantages of the cloud accounting systems. Your team leader has asked you to prepare a presentation on the cloud accounting system security.

Prepare a paper summarizing your presentation. In your summary, include cloud access, data transmission, data storage security, and financial reporting issues. (Q 11.6 11.7, 11.9) You can use the Intel Inc. report on major trends that impact cloud security as a guideline for your presentation. These trends are: • Threats to cloud computing services are no longer the focus of isolated hackers. Increasingly, the organized crime, with advance and sophisticated technology, are targeting the cloud services.

• Increase in using of mobile devices and technologies by organizations’ employees to access organization cloud applications and data. (Data transmission issue.)

• Cloud technologies present new security challenges. For example organization cloud data is no longer stored in a physically isolated and protected location. (Data storage issue.)

• Organizations are facing with an increasing legal and regulatory reporting demands and high penalties for noncompliance or breaches. For example, reporting is required by Sarbanes-Oxley (SOX) and the Payment Card Industry Data Security (PCI DSS). Any delay and interruption in cloud computing services could put the service user in risk of high penalties. (Reporting issue.)

For more information visit: http://www.intel.com/content/www/us/en/cloud-computing/cloud-security-checklist-planning-guide.html

11.50 You are on the team charged with data transmission and storage security. Your team leader has asked you to prepare a PowerPoint presentation on data transmission encryption techniques. He specifically is interested to know about various types of Advanced Encryption Standard (AES) methods.

Prepare a paper summarizing your presentation. In your paper include AES 64 and AES 128 encryption techniques. (Q 11.11) The AES is a symmetric-key algorithm data encryption algorithm, meaning the same key is used for both encryption and decryption of electronic data. It replaced data encryption standard (DES) as the electronic data standard. The US National Institute of Standard and Technology (NIST) established AES as the standard encryption algorithm in 2001. By May 26, 2002, AES became the standard electronic data encryption algorithm. By 2012, the AES was used worldwide. The National Security Agency (NSA) approved this encryption algorithm and it is used for top-secret data encryption. The number that appears after the word AES identifies the key size in bit. The larger is the bit size the more robust is the algorithm.

The key sizes are 128, 192, and 256, so they are AES128, AES192, and AES256.

11.51 Since your supervisor knows that you took an accounting information system course in college, she has asked you to make a presentation to the accounting department on various types of computer malware and the ways in which malware affect computer systems.

Prepare a summary of your presentation. Extend your summary beyond the information that is provided in this chapter. (Q 11.11) This chapter has already provided information about many types of computer malware.

Some additional ones are: •

Ransomware, 14 © 2014 Pearson Education. All rights reserved.

• • • • • •

Rootkits Keyloggers Dialer Adware BHOs Rogue security software

You can search for the meaning of these malicious malwares on the Internet.

Tech in Practice 11.52 Tech Tool: Spreadsheet Software or Visio Software Software Video: Cybersecurity Design EspressoCoffee is concerned about securing accounting data transmitted over its network. The company asked for your assistance in designing cybersecurity for its network.

1. Download the data file for this exercise.

2. Using the intranet diagram for EspressoCoffee’s network, add firewalls to the network access points to control network traffic.

See Tech Ex 11 file (worksheet 11.52) and Tech Ex 11 Data File file in the Chapter 11 Exercises Solutions folder.

11.53 Tech Tool: Spreadsheet Software or Visio Software Software Video: Cybersecurity Design EspressoCoffee asked for your assistance in designing cybersecurity for its e-commerce architecture.

1. Download the data file for this exercise.

2. Using the enterprise intranet diagram for EspressoCoffee’s network, add firewalls to the network access points to control network traffic.

3. Label the DMZ in the intranet diagram.

4. EspressoCoffee would like to use a honeypot to distract and trace intruders. Insert the honeypot in the intranet diagram.

See Tech Ex11SOLUTION file (worksheet 11.53) and Tech Ex 1 Data File file in the Chapter 11 Exercises Solutions folder.

11.54 Tech Tool: Spreadsheet Software or Visio Software Software Video: Cybersecurity Design EspressoCoffee asked for your assistance in designing cybersecurity for its accounting LAN cluster.

EspressoCoffee started with one LAN for accounting, and as accounting demands for IT grew, two more LANS were added to create a LAN cluster.

1. Download the data file for this exercise.

2. Using the appropriate network symbols, build a LAN cluster for accounting similar to the LAN cluster shown in Figure 11.6. The LAN cluster should contain the following: a. Three LANs. b. One LAN with the accounting application server and one workstation.

15 © 2014 Pearson Education. All rights reserved.

c.

3.

4.

5.

One LAN with a mainframe used for the enterprise database and one workstation. The enterprise database is located in the accounting LAN cluster because accounting has the highest level of security. d. One LAN with three desktop PCs with the accounting interface software, one shared printer, and two laptops.

Add firewalls to the network access point(s) to control network traffic.

Because the accounting department requires tight security for its LANs, IT would like to monitor traffic between the LANs. Add firewalls to the routing devices connecting the LANs. What other security and controls measures could be used for the accounting LAN cluster?

Additional security measures on the accounting clusters could be spam, virus, and other malware protection software. An additional control measure could be the implementation of login and password software on all computers.

See Tech Ex 11SOLUTION file (worksheet 11.54) and Tech Ex 11 Data File file in the Chapter 11 Exercises Solutions folder.

11.55 Tech Tool: Spreadsheet Software or Visio Software Software Video: Cybersecurity Design EspressoCoffee has asked for your assistance in designing cybersecurity for its enterprise network.

1. Download the data file for this exercise.

2. Using the appropriate network symbols, build EspressoCoffee’s enterprise network using the following information: a. EspressoCoffee has five LAN clusters, one each for accounting, human resources, production, ecommerce, and management. b. The LAN clusters are connected to the intranet using routers with firewalls. c. The intranet is connected to the DMZ using a firewall router. d. Within the DMZ, there is a Web server and honeypot. e. The enterprise network is connected to the Internet using a gateway with a firewall.

See Tech Ex 11 SOLUTION file (worksheet 11.55) and Tech Ex 11 Data File in the Chapter 11 Exercises Solutions folder.

Go Online 11.56 You have been appointed the lead for the task force researching the use of biometrics to improve security at your company. Go online and research biometrics. Prepare a summary of your findings for the team. Include answers to the following questions that your teammates have asked: • What is biometrics?

Biometrics consists of procedures to distinctively identifying individuals based on one or more basic physical or behavioral attributes.

• What are examples of how biometrics can be used to prevent unauthorized access?

Biometrics could be used as a form of identity access management and access control. For example, fingerprints could be used as a form of password to access a workstation or server.

• What are the latest advances in biometrics?

The growing challenges in identity management and access control lead to advances in biometric technology. These advances are in areas of sensors and pattern-matching algorithms. Some examples include iris pattern recognition, voice recognition, large population face recognition, and palm vein recognition.

• What are the advantages and disadvantages it offers?

The advantage that biometrics provides is that the information is unique for each individual, and this 16 © 2014 Pearson Education. All rights reserved.

information does not change at any time. For example, human fingerprints don’t change at any age.

The disadvantage of using biometrics is in the way information is captured by technology.

There are many sites that provide valuable information for you to answer these questions, but the following sites would be a good start. http://searchsecurity.techtarget.com/definition/biometrics http://biometrics.pbworks.com/w/page/14811349/Advantages-and-disadvantages-of-technologies 11.57 You are a consultant to Shufang Company, responsible for providing recommendations about how encryption can improve security for confidential accounting data. Go online and search for information about encryption. What are the latest developments in encryption technology? How do you see encryption being used in accounting?

Prepare an email to the CFO with your recommendations regarding encryption for the accounting system.

Provide a brief explanation of the rationale and support for your recommendations.

Innovations in encryption algorithms are beyond the scope of this text. However, innovations in the use of encryption in information technology include: • Data transmission encryption • Data storage encryption • Email encryption • Mobile device voice and multimedia encryption • Software application encryption Your recommendation must address that the accounting systems (including the accounting database) are the vital asset to any organization. Therefore; 1. Accounting data should be encrypted at the data entry point while being transferred to and from storage device and while it is stored.

2. Accounting systems software must be encrypted to ensure its proper function.

There are many sites that provide valuable information for you to answer these questions, but the following sites would be a good start.

• http://searchsecurity.techtarget.com/definition/encryption • http://www.sciencedaily.com/news/computers_math/encryption/ • http://www.sophos.com/en-us/products/encryption.aspx • http://www.theregister.co.uk/2011/04/28/sony_playstation_network_credit_cards/ 11.58 Your organization has a remote backup in another state. The backup facility is classified as a warm site. Go online and research hot and warm sites. Discuss the readiness of the current backup site. Prepare a plan with specific action steps that would need to be taken to upgrade to a hot site.

Typically a warm site has computers but they are not ready to go. This means that computers need to be configured and some data might need to be upgraded. Also, other manual interventions might be needed before the systems and network are operational. It takes a few days for a warm site to be operational The plan for moving from a warm site to a hot site must include: • The rationale for a much shorter recovery time objectives • The cost associated with the move • The benefits received from the move • The right spot for the hot site • The key personnel required to keep the site up and running • The required IT for the hot site.

• The required communications channels with the hot site.

17 © 2014 Pearson Education. All rights reserved.

• •

The schedule for this transition The required number of people and their expertise level for this move.

The following links could provide valuable information regarding warm site readiness: • http://www.hill2dot0.com/wiki/index.php?title=Warm_backup_site • http://www.spamlaws.com/types-of-backup-sites.html • http://www.cprhi.com/tips/blogs/tips/business-backup-101 11.59 You are a member of the accounting information system development team. Your team leader has asked you to prepare a presentation on encryption techniques used for safeguarding accounting data in the cloud accounting system provided by service organizations. Go online and research encryption techniques that are used in the cloud computing.

There are several sites that provide useful information. The following is a small sample.

• •

http://www.cloudswitch.com/page/is-encryption-the-solution-to-cloud-computing-security-andprivacy http://www.vormetric.com/products/encryption/cloud-encryption

Technology Projects Technology Project 11 Tech Tool: Spreadsheet Software or Visio Software Software Videos: Cybersecurity Design iSportDesign asked for your assistance in designing cybersecurity for the enterprise network with a focus on securing accounting data.

Your deliverables for the project include the following: Deliverable 1. A diagram of iSportDesign’s accounting LAN cluster with firewalls Deliverable 2. A diagram of iSportDesign’s enterprise network with firewalls Deliverable 3. A diagram of iSportDesign’s e-commerce architecture with DMZ and honeypot Deliverable 4. An executive summary with a recommendation for backup and disaster recovery based on your Internet research for cold, warm, and hot sites Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 11 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay.

See Project Chapter 11 SOLUTION file and Project Chapter 11 Data File (one MS Excel and one MS Word file) in the Chapter 11 Exercises Solutions folder.

18 © 2014 Pearson Education. All rights reserved.

Active Review 12.1 Refer to the chapter opener, Meet the CFO. In your opinion, how could enterprise risk management affect a company’s financial performance during an economic downturn? Why is the CFO well suited to advise about enterprise risk management?

Managing risk intelligently is about managing not only adverse risks, but also capitalizing on risk that presents the enterprise with opportunities to create value, such as evaluating risk associated with a new business acquisition or merging with another business. Although the new acquisition may have risk associated with it, the venture also presents the possibility of generating additional income. The venture is a rewarded risk. In an economic downturn the business environment is much riskier, thus it presents more opportunities for businesses. With an intelligent risk management, enterprises could increase their business opportunities.

The enterprise risk management allows the enterprise to take advantage of risks that are associated with opportunities. By incorporating ERM as a parameter in the decision-making processes, management would take advantage of opportunities that were not considered without ERM. 12.2 Discuss how enterprise risk management, internal control, and IT controls are related.

As the figure 12.1 shows, the enterprise risk management encompasses internal control, and IT control encompasses the IT control.

Enterprise risk management can be defined as integrating risk with concept of internal control, SOX, and enterprise strategic planning. This makes the internal control a subset of enterprise risk management. IT control can be defined as a set of specific tasks carried out by the enterprise designed to ensure that business IT objectives are met, thus IT control is a subset of internal control.

12.3 Discuss how opportunity and risk are related.

Some risks have only loss associated with them. But some others are associated not only with loss but also with opportunities. Consider investing in stocks. There is a risk that you may lose money on this investment, but also there is an opportunity to gain.

12.4 Discuss the difference between possibility and probability as related to risk.

In the context of ERM risk assessment, the terms possibility and probability can have different definitions.

Possibility may refer to assessing likelihood using qualitative measures, such as high, medium, or low.

Probability may refer to assessing likelihood using a quantitative measure, such as percentages.

12.5 Discuss how governance, including the tone at the top of the organization and policies and procedures, affects an organization’s risk management.

You learned in chapter 10 about the three zones in house of IT controls. These three zones are: 1. Entity-level controls for top management 2. Application controls for business processes 3. IT general controls for IT services The entity-level IT controls provide IT governance that sets the tone from the top of the enterprise.

Application controls are controls embedded in business processes where a majority of security breaches occur. IT general controls within IT processes support application controls and provide a reliable operating

1 © 2014 Pearson Education. All rights reserved.

environment. Decisions made at the top level of the organization would affect the application control and IT general control and consequently the risk management associated with business processes.

12.6 Discuss what caused the development of the ISO 31000 risk management standard.

A guideline to implementation of the risk management on an organization-wide basis suggests a framework that is compatible with both COSC ERM and ISO 31000. However, the guideline places more emphasis on ISO 31000 because: • ISO 31000 is an international standard and many organizations have international operations.

• ISO also produced Guide 73 “Risk management – Vocabulary – Guidelines for use in standards.”

12.7 Discuss the differences between risk management and risk intelligence.

Risk management is a coordinated implementation of the enterprise resources to minimize, monitor, and control the possibility and probability of occurrence and impact of risk. Risk intelligence goes beyond just risk management. Risk intelligence includes managing not only adverse risks, but also capitalizing on risk that presents the enterprise with opportunities to create value.

12.8 Discuss how incorporating sustainability practices supports an organization’s enterprise risk management efforts.

Increasingly enterprises are faced with more regulation and growing challenges to obtain scarce resources.

Sustainability practices offer a solution to reduce risk. Focusing on sustainable operations reduces the risk of dependence on dwindling natural resources that may become cost prohibitive in the future. Furthermore, with the growing concerns about the natural environment, sustainable practices may offer an enterprise advantages with regard to reduced risk in an increasingly regulated environment with greater demand for transparency. Sustainability related innovation could play an important role in transforming risks into opportunities.

12.9 Discuss why the simple spreadsheet can represent a significant risk to organizations.

Spreadsheets introduce significant risks into the financial reporting process for some organizations because: 1. They might have thousands of spreadsheets in shadow data 2. Organizations have limited or no controls over spreadsheets Because of widespread spreadsheet use with limited controls, enterprises may integrate controls into spreadsheet management to reduce risk.

12.10 Discuss the benefits of a global spreadsheet identification system.

The global identification system is suggested in the top 10 tips for improving spreadsheet risk management.

The global identification system provides an effective spreadsheet control by tracking spreadsheet inventory, monitoring spreadsheets change, and implementing spreadsheet security and integrity.

2 © 2014 Pearson Education. All rights reserved.

Key Terms Check 12.11 Select the single best answer.

The level of variation an enterprise is willing to accept in attaining objectives is a. risk appetite. b. risk tolerance. (Correct answer) c. risk assessment. d. None of the above

12.14 Select the single best answer. Adding impact and likelihood columns to a spreadsheet to evaluate risk associated with its use is an example of a. risk appetite. b. risk tolerance. c. risk assessment. (Correct answer) d. None of the above

12.12 Select the single best answer.

The amount of risk an enterprise is willing to accept pursuing value is a. risk appetite. (Correct answer) b. risk tolerance. c. risk assessment. d. None of the above

12.15 Select the single best answer. A policy of reconciling a bank statement to within $5 of balancing is an example of a. risk appetite. (Correct answer) b. risk tolerance. c. risk assessment. d. None of the above

12.13 Select the single best answer. When an enterprise evaluates the extent to which events would impact its ability to achieve objectives, it is conducting a. risk appetite. b. risk tolerance. c. risk assessment. (Correct answer) d. None of the above 12.16 Match the following terms and definitions. a. risk b. event identification c. likelihood d. impact e. possibility f. probability g. user log h. change log

e 1. The likelihood of an event occurring using qualitative measures, such as high, medium, or low a 2. The possibility that an event will occur and negatively impact the entity’s ability to achieve its stated objectives f 3. The likelihood of an event occurring using quantitative measures, such as percentages h 4. A document that records changes c 5. The possibility or probability that a potential event will occur g 6. A document that records user access b 7. The process of determining events that effect an enterprise’s ability to attain its objectives d 8. The effect that an event will have on the enterprise’s ability to achieve its objectives if the event occurs

Practice Test 12.17 The relationship between risk management and control is identified in three rings. These rings are: a. Processes, database, and employees b. IT control, internal control, and enterprise risk management (Correct answer)

3 © 2014 Pearson Education. All rights reserved.

c. d.

IT control, internal processes, and enterprise resource planning Enterprise information system, enterprise resource planning, and accounting system

12.18 In the context of ERM, the C-Suite refers to: a. CEO, CFO, CIO b. People who are involved with IT control c. People in an organization, whose titles begin with C (Correct answer) d. People who are involved with computers and networks 12.19 ERM framework is typically depicted using a cube. The three dimensions of this cube are: a. ERM components, ERM objectives, ERM units (Correct answer) b. ERM monitoring, ERM strategic, and ERM business units c. ERM risk assessments, ERM operations, and ERM entity level d. ERM control activities, ERM reporting, and ERM division 12.20 Which of the following is NOT part of ERM components? a. Reporting (Correct answer) b. Risk response c. Internal environment d. Control activities 12.21 In the context of ERM, event identification involves identifying a. potential threats to the organization. b. potential events that might affect the IT control. c. potential events that might affect the entity. (Correct answer) d. potential events that might affect the application control.

12.22 In the context of ERM risk is defined as: a. Possibility that an event will occur and impact the entity’s ability to achieve its stated objectives b. Possibility that an event will occur and negatively impact the entity’s ability to achieve its stated objectives (Correct answer) c. Possibility that an event will occur and impact the entity’s ability to conduct its daily activities. d. Possibility that an event will occur and negatively impact the entity’s ability to conduct its daily activities 12.23 Focusing on sustainable operations reduces the risk of: a. Economic downturns b. Dependence on dwindling natural resources (Correct answer) c. Inflation d. Dependence on vendors 12.24 How can a risk management philosophy provide consistency in risk attitudes throughout an organization? a. By setting employee expectations b. By anticipating all possible risks c. By providing event-specific examples d. By being well developed and articulated (Correct answer) 4 © 2014 Pearson Education. All rights reserved.

12.25 Which of the following is not one of the 10 tips for improving spreadsheet risk management? a. Store all spreadsheets on a network server b. Implement spreadsheet changes controls using daily log (Correct answer) c. Use data violation controls in spreadsheets d. Remember the 80/20 rule accounting design 12.26 In the context of the ISO 31000 risk management standard, the response to significant risk consists of: a. Tolerate risk, treat risk, transfer risk, and terminate risk (Correct answer) b. Avoid risk, reduce risk, share risk, and accept risk c. Monitor risk, isolate risk, transfer risk, and terminate risk d. Quantify risk, evaluate risk, resolve risk, and report risk

Exercises Short Exercises 12.27 Compare and contrast COSO’s Enterprise Risk Management—Integrated Framework and COSO’s Internal Control—Integrated Framework. (Q12.1) Compare (Same) Both frameworks provide reasonable assurance in achieving internal control objectives Both frameworks introduce operations, reporting, and compliance objectives.

Both frameworks include the following components: • Risk assessment • Control activities • Environment and communication • Monitoring

and

Contrast (Different) COSO’s ERM goes beyond COSO’s IC by integrating risk management into the framework COSO’s ERM has the additional strategic objective and reporting objective includes both internal and external reports COSO’s ERM control environment changed to internal environment and components related to risk are expanded to include objective setting, event identification, and risk response

12.28 List and explain the four enterprise risk management objectives specified in the ERM framework.

(Q12.2)

The ERM framework specifies four categories of an enterprise’s objectives: • Strategic objectives relate to goals that support the entity’s mission.

• Operational objectives relate to the effective and efficient use of the entity’s resources.

• Reporting objectives relate to the reliability of the enterprise’s reporting, both internal an external.

• Compliance objectives relate to the entity’s compliance with all applicable laws and regulations.

12.29 List and explain the eight enterprise risk management components specified in the ERM framework.

(Q12.3)

The COSO enterprise risk management framework components are: • Internal Environment - the internal environment of an enterprise involves the risk management philosophy of the enterprise, including the tone set by top management. Risk resilience, risk appetite, risk tolerance, integrity, and ethical values also affect the internal environment.

• Objective Setting - ERM ensures that the enterprise has a process for setting objectives that are consistent with the entity’s mission and risk appetite.

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•

• • • • •

Event Identification - events, both internal and external, that affect an enterprise’s ability to attain its objectives, are identified. In addition to distinguishing between internal and external events, events can be further classified as risks and opportunities. Identified opportunities can subsequently influence the ERM objective setting component.

Risk Assessment - risks are assessed by analyzing the risk with consideration for the probability of occurrence and impact. The risk analysis provides a basis for determining how the risk should be managed.

Risk Response - the enterprise’s response to the risk is selected. The enterprise may choose to avoid, accept, reduce, or share the risk. The actions to respond to the risk are specified, consistent with the entity’s risk tolerance and appetite.

Control Activities - control activities are comprised of policies and procedures established and implemented to ensure risk responses are effective.

Information and Communication - relevant information is captured and communicated effectively throughout the organization to appropriate individuals in a timely manner. Timely communication of relevant information is essential in implementing risk responses.

Monitoring - an enterprise’s risk management is monitored with evaluation and feedback that permits modifications as needed.

12.30 Discuss the different types of external events that correspond to the event identification component of the ERM framework. Provide examples. (Q12.3) External factors are incidents or occurrences that originate outside the entity. Examples include the following: • Economic events include liquidity and competition factors. Examples might be higher interest rates or limited financing.

• Natural environment can include waste, energy, natural disasters, or sustainability. Examples are natural disasters such as fires or hurricanes.

• Political events include new legislation, regulations, or public policy.

• Social events would include changes in consumer behavior, privacy, or demographics.

• Technological events include interruptions, electronic commerce, and emerging technology, such as cloud computing.

• Cultural events include customer cultural behavior such as online sales in the international market 12.31 Discuss the different types of internal events that correspond to the event identification component of the ERM framework. Provide examples. (Q12.3) Events can be also identified as internal events that result from management choices. Examples of internal events include the following: • Infrastructures include events related to availability and capability of assets, access to capital, and complexity. One example would be adding a new branch in Europe.

• People relates to events that involve people such as fraud enacted by employees, health and safety of employees, and employee competence. One example would be changing the employee health care provided.

• Process refers to events related to capacity, design, execution, and suppliers. An example would be changing firewalls without adequate documentation and testing or adopting a spreadsheet identification system • Technology events might include data integrity, data and system availability, development, and maintenance. An example might be a new backup and recovery system or adopting an additional IT platform different than the current platform.

12.32 Explain the two aspects of risk assessment. What are pertinent questions in assessing each? (Q12.3) 6 © 2014 Pearson Education. All rights reserved.

The two aspects of the risk assessment are risk impact and risk likelihood.

In assessing the risk impact, pertinent questions are: • What is the asset’s value?

• How much is the asset worth to the competition?

• What is the estimated potential loss per threat?

In assessing the risk likelihood, pertinent questions are: • What is the possibility or probability of the event occurring?

• What is the estimated frequency of the threat (event) occurring?

12.33 Risk assessment techniques can be classified as either quantitative or qualitative. Discuss how each type of technique can be used to assess risk. (Q12.3) Quantitative techniques may be used to assess the probability of occurrence. A quantitative technique allows benchmarking. Benchmarking can provide common metrics with which to compare an entity’s performance with others.

Qualitative techniques may be used when it is impossible for the entity to quantify the risk.

Qualitative techniques may include conducting focus groups or individual interviews to obtain different views on the impact and likelihood of potential events.

12.34 Refer to Figure 12.1. Identify the different risks that each of the three levels of IT control addresses.

(Q12.1)

Figure 12.1 shows the three levels of IT control activities correspond to the three levels with enterprise.

These levels are: • Entity-level IT control, such as IT governance. Examples of risks related to this level are decisions for a new workflow for a specific business process (internal event) and using cloud computing.

• Application control over business processes. Example of risk associated with this is that the customer is allowed to make an online purchase without being recorded as a customer.

• IT general control. An example of this level risk could be lack of a firewall log.

12.35 Explain the two monitoring approaches suggested in the ERM framework: ongoing monitoring and separate evaluation. Provide examples of each. (Q12.3) In the context of the ERM, monitoring refers to the process of monitoring an entity’s enterprise risk management. The monitoring activities are conducted to assess the quality of a system’s performance over time and are achieved through ongoing monitoring activities or separate evaluations. Ongoing monitoring activities occur in the course of operations. Separate evaluations can be performed on an entity-wide basis or for a specific high-priority risk.

An example of ongoing monitoring would be the daily review of the honeypot access log file. An example of separate evaluation would be an internal audit.

12.36 Compare ERM components of the COSO’s Enterprise Risk Management Cube and risk management activities described in the ISO 31000. (Q12.4) COSO’s ERM Cube Components Internal Environment Objective Setting Event Identification Risk Assessment Risk Response Control Activities Information and Communication Monitoring

and

ISO 31000 Reaction planning Recognize risk and Rank risks Respond to significant risk Resource control Report and monitor risk performance

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12.37 Give an example for each of the 7Rs and 4Ts of the ISO 31000 risk management standard. (Q12.4) Example: Your organization undertakes a totally new project. You have no prior experience for such a project.

• Risk recognize risk factors such as: a. Recognize risk - You may overlook activities you need to perform. b. You may underestimate the time and resources you need to use for the project activates.

Having no prior experience doesn’t guarantee you’ll have these problems, but it does increase the chance that you underestimate the time and resources you need.

• Ranking the risk factors is like ranking high, medium, or low for each activity, which may be overlooked, or each recourse that might be underestimated.

• Respond to significant risks o Tolerate risk: For example, provide no option for the possibility of lack of enough funds for your project o Treat risk: Prioritize your project activities. In the absence of enough funds, eliminate those activities with lowest priority. o Transfer risk: In the absence of enough funds for your project, get funds from other projects. o Terminate risk: In the absence of enough funds, terminate the project • Resource Control o Control the project funds, staff, and schedule to reduce the risk probability for these resources.

• Reaction Planning o Have additional possible sources of funds • Report and monitor o Does not apply to only one project. It applies to the organization risk management strategy • Review the risk management framework o Does not apply to only one project. It applies to the organization risk management strategy 12.38 Explain the impact of the organization culture on the organization risk management. What are the two areas of business that are most affected by the organization culture and consequently impact the organization’s approach to risk management? (Q12.3, 12.4) See page 390 – Internal Environment 12.39 Identify control objectives, risks, and control activities for the account payable process. (Q12.3, 12.4)

The following is a list of a few of the A/P activities as a part of an account payable subsystem control objective for Accounts Payable.

Risk Large outstanding payable balances may build up and not be reviewed on a regular basis in the GR/IR general ledger account. An example is the account where tolerance differences are posted.

Risk Level (H) High

Control Objective No late payments to Vendors

Control Activity 1. If there is a quantity variance where the quantity invoiced is different than the quantity of goods received, and if there is no further goods receipt recorded by the A/P system, the GR/IR account will not be cleared automatically.

2. A batch job is run to match GR and IR entries within the account on a daily basis.

Cash disbursement details may be inaccurate and incomplete.

H

Prevent financial loss

Inaccurate or incomplete vendor invoices may be paid.

H

Prevent financial loss

3. Finance AP staff reviews the GR/IR clearing account monthly for long outstanding, open items, and makes the appropriate corrections.

1. Disbursement data is based on information provided during invoice entry.

2. Prior to the payment run, A/P subsystem creates an exception report for invoices where mandatory fields are not populated, and for invoices blocked for payment.

3. The A/P supervisor reviews the Payment Proposal List and the Exception List.

1. Vendors with incomplete info will be manually blocked from payment by A/P staff.

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Check number may not be indicated in the payment document during payment processing.

H

Prevent financial loss

Large or unusual payments may not be blocked for management review.

(L) Low

Authorize large payments

Payments could be made more than once for an invoice.

Prevent Financial loss from duplicate payments.

1. The system captures the check number in the document allocation fields, and automatically prints the number on the check.

2. Check number is pre-printed on manual checks.

1. The Accounts Admin staff approves all payments over $100,000, and all payments to 1-time vendors.

2. Procedures exist to review and approve invoices that are blocked.

1. SAP automatically assigns a clearing document number and clearing date when payment is made for open invoice item.

2. SAP will not select cleared items for payment.

3. Print file disappears after it is printed, so checks can’t be printed again.

Printed checks may be lost or stolen.

(M) Medium

Prevent Financial loss

1. The check printer is stored in a public area, but is supervised during the printing.

2. Checks are mailed out the same day they are printed.

3. Printed checks kept for pick up are kept in a secretary’s desk, and locked in the safe for the night.

(Source: SAP – Accounts Payable Control Matrix)

12.40 Use the following template to assess the level of risk by identifying the level of impact and probability of a call center risk. In this exercise, a risk level is assessed based on a combination of the impact and probability level of an event. The impact and probability level range is low or high. A risk level range is low, medium, or high. For example, if impact and probability are both low, then the risk level is low; if the impact is high and probability is low or vice versa, then the risk level is medium; and if impact and probability are both high, then the risk level is also high. (Q12.3, 12.4) The following answers are based on a specific call center risk assessment. Students’ answers may vary.

Call Center Risks

Impact

Probability

Risk Level

Loss of call center phone (damaged or stolen)

High

Low

Medium

Loss of call center computer (damaged or stolen)*

High

Low

Medium

Caller bad credit

High

High

High

Fraud

Low

Low

Low

Lost transactions

Low

Low

Low

Data entry error

Low

High

Medium

Customer experiences long wait time

High

High

High

Customer can’t get through to the call center

High

High

High

Call center employee bad behavior

Low

Low

Low

Call center employee cannot answer customer questions

High

High

High

Obsolete computers, phones, and internal communications

Low

High

Medium

*Customer Data is not saved on the call center computers

It’s Your Call 12.41 You have been hired as a consultant to an organization that owns a social networking Web site. The president is considering implementing enterprise risk management. He has asked you to summarize for him the benefits and limitations of an enterprise risk management system. Prepare a brief email to the president summarizing the benefits and limitations of enterprise risk management. (Q12.1, 12.2, 12.3) Your email could include: • All enterprise entities are exposed to internal and external risks and it is the inherent desire to capitalize on risks that present the enterprise with opportunities to create value.

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• • • • • •

The enterprise risk management identifies, assesses, and prioritizes risks and the risk likelihood and impact.

Identifying and managing risks provide more business opportunities.

An effective enterprise risk management should provide a better knowledge of the loss and a better evaluation of the value.

Focusing on enterprise risk management could direct more business resources to the enterprise’s entities, which management believes are associated with risk. (Limitation) No matter how effective is the enterprise risk management implementation, it does not eliminate risks (Limitation) Human judgment may under- or overestimate the impact and likelihood of risk. (Limitation)

12.42 You are the new accounting intern. You have been charged with improving risk intelligence related to the organization’s 1,000 spreadsheets. You have been asked to make a presentation to the CFO and controller with your findings. For your presentation, summarize the risks associated with an enterprise using spreadsheets without implementing spreadsheet risk management. Include a summary of your recommendations in your presentation. Do you anticipate any resistance from the accountants? How would you address this? (Q12.5) Your presentation should include: • Some of the enterprise spreadsheets contain sensitive data such as organization’s financial reports • There isn’t any control over these spreadsheets. It is not possible to track almost 1,000 spreadsheets.

• These spreadsheets introduce significant risks into the financial reporting process for your organization • Include the top 10 tips for improved spreadsheet risk and explain how implementing these tips improves your organization’s spreadsheet risk management.

12.43 You recently accepted a new accounting position. The accountant who preceded you prepared numerous spreadsheets but did not follow the top 10 tips for spreadsheet risk management. Explain specifically the issues that you, as a successor, may encounter as a result of this oversight. What risks does this present to the organization? Prepare a short email to your supervisor addressing this issue. (Q12.5) Your email could include: • It is impossible to find out who created these spreadsheets. When was the last time these spreadsheets were updated? Who made the updates? What was updated?

• The impact and likelihood of risks are not assigned to the spreadsheets.

• There isn’t any documentation about the contents of the spreadsheets.

• No data validation.

• No password assigned to the spreadsheet.

12.44 You are a member of a project team responsible for evaluating whether your company should switch from its current silo IT architecture to an integrated enterprise architecture. Recently, the CFO asked you how work was progressing on the team. She wanted to know if the project team was considering enterprise risk management. She’s in charge of the new ERM initiative and suggested that you consider ERM in your evaluation of the IT architecture. She asked you to send her a brief email summarizing the advantages and disadvantages of the two types of IT architecture with respect to ERM. (Q12.2, 12.3) Your email could include: The integrated enterprise system Integrated enterprise systems have resulted in technology being integrated throughout the enterprise, impacting almost all business processes in some way. The integrated enterprise system: • Can provide our management with additional data and information for use in making enterprise risk management assessments and decisions.

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• Would assist management to evaluate risk responses in an entity-wide or portfolio view.

Furthermore, business intelligence capabilities, in an integrated enterprise system, offer management the ability to gain further insights into enterprise risk management.

However, the integrated enterprise system could increase the impact of risk and permit management to under- or overestimate the impact and likelihood of risk.

12.45 You have been hired as a member of a consultant team by an organization that needs to implement enterprise risk management. Your job is to come up with the key questions when it comes to determining the risk appetite. You have already prepared three sample areas: 1. Environment or quality compromises 2. New product lines 3. Gross profit vs. market share State your questions in a brief document. (Q12.2, 12.3) Risk appetite is the amount of risk your organization is willing to accept in pursuit of the stated sample area. Regarding the stated area, key questions are: • What risks will your organization not accept regarding environment or quality compromises?

• What risks will your organization take on new product lines?

• What risks will your organization accept for gross profit vs. market share?

Each of these questions offers the following options: • Accept = monitor • Avoid = eliminate (get out of situation) • Reduce = institute controls • Share = partner with someone 12.46 This morning while checking your emails, you noticed an urgent message from your supervisor. He wants you to prepare a short summary before 2:00 PM about ISO 31000, explaining whether your organization needs to comply with this standard or not. Prepare a brief email to your supervisor summarizing the ISO 31000 Risk Management Standard and specifying which type of organizations would mostly benefit from adopting this standard. (12.4) Your email should emphasize that for an enterprise with international operations using other ISO standards, ISO 31000 for risk management is an obvious choice. ISO 31000 provides principles and guidelines for the design, implementation, maintenance, and improvement of enterprise risk management processes.

In addition, your email could include that the purpose of ISO 31000 is to provide principles and generic guidelines for the design, implementation and maintenance of risk management throughout your organization. The ISO 31000 framework provides a model that can be recognized and understood across the globe and used to employ risk management processes.

12.47 You have just been hired as an accountant in a local bank. You are called to a meeting with the ERM director. He tells you that the bank is considering a new accounting system and mentions the risks associated with switching to a new system as well as the risks associated with the current accounting system. Then he asks you to come up with a short list of risks associated with both systems. Provide the requested list and include opportunities related to each decision. (Q12.3, 12.4)

Current Accounting System Risks Risk of lack of complete system specification Accounting processes and the ways in which current accounting

New Accounting System Risks Cost of the new system may exceed the expected cost The new system may not be delivered on time

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systems operates are often inseparably entangled Important accounting rules may be embedded in the software and may not be documented elsewhere.

May be allow implementing with the new accounting rules and regulation

Not satisfying all accountant requirements Lack of fully integration with other enterprise systems

The following table addresses some of the risk associated with the current and new systems The following table addresses the opportunities associated with implementation of the new system.

New Accounting System Opportunities • Includes complete user and system specifications • All accounting processes are well modulated and incorporated in the new accounting system • All embedded accounting rules in the new system are well documented • Flexibility of the new accounting system allows implementation of new accounting rules and regulations

Tech in Practice Tech Exercises 12.48 Tech Tool: Spreadsheet Software Software Video: Spreadsheet ERM EspressoCoffee has asked for your assistance to organize the many spreadsheets scattered throughout the enterprise.

1. Download the data file for this exercise.

2. Using the data file, create a global spreadsheet identification log that EspressoCoffee can use to track its spreadsheets.

3. Using the data file, create a spreadsheet risk assessment sheet for EspressoCoffee.

4. Print the sheets.

See Tech Ex 12.48 SOLUTION and Tech Ex 12.48 Data File in the Chapter 12 Exercises Solutions folder.

12.49 Tech Tool: Spreadsheet Software Software Video: Spreadsheet ERM To assist EspressoCoffee in its spreadsheet risk management efforts, you have decided to create a template that users can request when they are building new spreadsheets. The template will accomplish two objectives. First, the spreadsheets will be more standardized. Second, when the template is requested, the spreadsheet will be assigned a global spreadsheet identifier (SSID) that is logged.

1. Download the data file for this exercise.

2. Create a Contents sheet for the template. See Figure 12.7 for the format.

3. Create a User Log sheet for the template. See Figure 12.5 for the format. Enter the data shown on row 2 as an example in the User Log sheet.

4. Create a Change Log sheet for the template. See Figure 12.6 for the format. Enter the data shown on row 2 as an example in the Change Log sheet.

5. Enter hyperlinks in the Contents sheet.

6. Print the sheets.

See Tech Ex 12.49 SOLUTION and Tech Ex 12.49 Data File in the Chapter 12 Exercises Solutions folder.

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Go Online 12.50 You have been assigned to the project team responsible for implementing enterprise risk management. Your task is to research best practices of other organizations. Go online and search for ERM best practices. Summarize your findings in an email to your project teammates.

Your email could include the following: According to the United State Office of Financial Management, Risk Management Division, all agencies that have implemented ERM best practices have increased the effectiveness and the quality of their risk management program. These best practices include: • Practice of developing a timely, accurate, and active communications among individuals who are responsible for budget management • Practice of conducting drill down analysis of all business processes to improve their workflow The following sites could be used as a good start.

• http://www.ofm.wa.gov/rmd/erm/erm_best_practices.pdf • http://www.soa.org/professional-development/archive/2008-global-best-erm.aspx Also, “Enterprise Risk Management, Today’s Leading Research and Best Practices for Tomorrow’s Executives,” by John Fraser and Betty J. Simkins, Editors, KOLB SERIES IN FINANCE book is available on Google.

12.51 You are an accounting intern at Joseph Enterprises. Recently, an error in an accountant’s spreadsheet caused a loss of over $100,000 on a company bid. The controller has come under increasing pressure from the CFO to impress upon all the accounting professionals the importance of error-free spreadsheets. The controller has asked you to go online and search for cases of spreadsheet errors that had a significant adverse impact.

Write an email to the controller summarizing your findings that he can use for training purposes.

Apply the top 10 tips for spreadsheet risk management to develop an action plan for Joseph Enterprises to prevent such errors in the future.

The following table (visit http://panko.shidler.hawaii.edu/My%20Publications/Whatknow.htm) is the result of a study on the spreadsheet errors. Students may find many other examples for spreadsheets error and they can write how that error could be prevented using the top 10 tips for spreadsheet management.

Authors

Year

Number of SSs Audited

Average Size (Cells)

Percent of SSs with Errors

1

Davies & Ikin

1987

19

2

Cragg & King

1992

20

3

Butler

1992

273

11%

4

Dent

1994

Unknown

30%

5

Hicks

1995

1

Cell Error Rate

Comment Only serious errors

21% 50 to 10,000 cells

3,856

25%

100%

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1.2%

Only errors large enough to require additional tax payments Errors caused by users hardwiring numbers in formula cells.

Henceforth, all future computations would be wrong.

One omission error would have caused an error of more than a

6

Coopers & Lybrand

1997

23

7

KPMG

1998

22

8

Lukasic

1998

2

9

Butler

2000

10

Clermont, Hanin, & Mittermeier

11

More than 150 rows

2,270 & 7,027

91%

billion dollars.

Off by at least 5%

91%

Only significant errors

100%

2.2%, 2.5%

7

86%

0.4%**

2002

3

100%

1.3%, 6.7%, 0.1%

Interview I*

2003

~36 / yr

100%

12

Interview II*

2003

~36 / yr

100%

13

Lawrence and Lee

2004

30

14

Powell, Lawson, and Baker

2007 a

25

64%

15

Powell, Baker & Lawson

2007 b

50

86%

16

Total since 1995

113

88%

2,182 unique formulas

100%

6.9%***

0.9%

In Model 2, the investment's value was overstated by 16%.

Quite serious.

Only errors large enough to require additional tax payments** Computed on the basis of nonempty cells

Approximately 5% had extremely serious errors Approximately 5% had extremely serious errors 30 most financially significant SSs audited by Mercer Finance & Risk Consulting in previous year.

11 of 25 spreadsheets contained errors with non-zero impacts.

Among the ten spreadsheets with non-zero impacts for which error size was reported, all 10 had an error that exceeded $100,000, 6 had errors exceeding $10 million, and 1 had an error exceeding $100 million.

Percent of formula cells containing errors that give an incorrect result. Including poor practices, 1.8% of all formulas had issues. Including poor practices, 94% of the spreadsheets had issues.

(Source: http://panko.shidler.hawaii.edu/My%20Publications/Whatknow.htm)

You may attach the above table to your email and include in your email the following: 1. Implementation of rule number 2 could remove errors from high-risk spreadsheets 2. Implementation of the rules 4, 6, 9, and 10 would remove spreadsheets’ errors related to using incorrect formulas.

12.52 You are an accountant in a rental car company. Your employer rents luxury cars in both the United States and Europe. You have just been assigned to the company’s risk management project. Your first assignment is to prepare a presentation on the COSO ERM framework and the ISO 31000 standard. Go online and search for both standards. Summarize your findings.

The following links provide a good start: • http://www.theiia.org/chapters/pubdocs/99/IIA_Presentation_4_10_12_Final.pdf

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• •

http://normanmarks.wordpress.com/2012/05/11/final-results-of-coso-vs-iso-risk-managementsurvey/ http://174.120.83.250/~killer1/cci/coso-iso-31000-or-another-erm-framework

Technology Projects Technology Project 12 Tech Tool: Spreadsheet Software Software Videos: Spreadsheet ERM iSportDesign asked for your assistance to organize and document the organization’s spreadsheets consistent with ERM. Your deliverables for the project include the following: Deliverable 1. A global spreadsheet identification log for iSportDesign Deliverable 2. An ERM spreadsheet template Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 12 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the video with software instructions to complete this project at www.pearsonhighered.com/kay.

See the • Project Chapter 12 ERM SS template • Project Chapter 12 Global SS Identification Log • Project Chapter 12 Global SS Identification Log Data File • Project Chapter 12 ERM SS template In the Project Chapter 12 in the Chapter 12 Exercises Solutions

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Active Review 13.1 Refer to the chapter opener, Meet ABC Methodology. In your opinion, why is this approach to developing accounting systems commonly found in practice today?

The baseline plus customization approach is well suited to the unique needs of accounting system design.

Most accounting systems have certain business processes and activities in common, yet need to have certain features customized for the particular enterprise. The system development methodology that most closely resembles actual practice in developing accounting systems is the ABC methodology.

13.2 Discuss how user requirements influence the design and development of a new accounting system.

The outcome of the problem analysis is the user requirements. Then, user requirements are used as a guideline for designing the new system.

13.3 As an accounting professional, why is it important for you to know about SDLC and system development methodologies?

The followings are the major reasons for accounting professional to know about SDLC: • Accountants are often asked to participate in the accounting system development process.

Knowledge of the SDLC and SDM is vital if the accountant is to be an informed participant in the process.

• Often IT professionals ask accounting professionals to approve various aspects of the design before proceeding. Later, if there are problems, accounting professionals must be prepared to take responsibility because they approved the design.

• Accounting professionals should care that they must audit the SDLC as the system is being developed. In order to audit the SDLC, they must understand the phases of system development and the methodology used.

13.4 Discuss the differences between a conventional system development project with custom programming from scratch versus a system development project with an off-the-shelf system that is purchased.

• •

For most organizations it is not cost-effective to write custom programs for their accounting system.

Off-the-shelf accounting system processes are developed based on the best business practices.

Adopting an off-the-shelf accounting system pushes the organization to reengineer its accounting processes to comply with the best business practices. In the custom programming option, organizations tend to write the accounting systems processes programs based on the way those processes are in place.

13.5 Discuss the reasons why EspressoCoffee management decided to use QuickBooks. Do you agree?

Why or why not?

The reasons for choosing QuickBooks are: 1. QuickBooks meets EspressoCoffee’s user requirements 2. EspressoCoffee is a relatively small enterprise and QuickBooks is designed for ease of use by small businesses.

3. QuickBooks is affordable and cost-effective.

4. QuickBooks is ready to use and that fits the EspressoCoffee schedule

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5.

6.

QuickBooks uses onscreen forms that resemble source documents used in EspressoCoffee’s existing manual system.

QuickBooks is proven to be a reliable accounting system.

13.6 Discuss the possible roles of accounting professionals in an accounting system development project.

Since the accounting system development project affects accounting activities and functions and accountants are the users of the accounting system, the project team should include accounting professional representatives. Accounting professionals would provide adequate and proper input and feedback.

13.7 Discuss what might trigger a systems development project.

Typically new business opportunities or issues with a current system triggers a new system development process. Think of a brick and mortar business that sees an opportunity in the online sales channel. To capitalize on this opportunity, the business needs to reengineer its sales processes and modify its accounting system.

13.8 Discuss how development of an accounting system differs from the development of other systems, such as customer relationship management.

The type of data used and stored and the business functions covered by an accounting system make this system different from any other enterprise system. Accounting systems are designed mainly to provide information that the organization management and people outside the organization can use in decision making. Accounting systems store data about business transactions. By analyzing accounting, data management would learn about the enterprise key performance indicators. Accounting functions cover most of the business activities stated in value chain.

13.9 Discuss important benefits of purchasing an off-the-shelf accounting system.

As stated in the question 13.4, most off-the-shelf accounting system processes are developed based on the best business practices. Two of the leading providers of the off-the-shelf accounting systems are SAP and Oracle accounting software. These two ready-to-use accounting systems are built considering best business processes. Adopting an off-the-shelf accounting system would push the organizations to reengineer their accounting processes to comply with the best business practices. In the custom programming option, organizations tend to write the accounting systems processes programs based on the way those processes are in place.

13.10 Discuss some potential drawbacks associated with off-the-shelf accounting solutions.

The following could be considered drawbacks of off-the-shelf accounting solutions.

• There is inadequate design documentation for customization process.

• The accounting system vendor no longer supports the technology.

• Resources with required skill and knowledge are no longer available or expensive to acquire.

• The customization needed code does not cleanly separate user views and process logic, making it extremely difficult to customize the accounting system to accommodate the organization needs As you see all these potential drawbacks are caused by a poor management decision in selecting an off-theshelf accounting system.

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Key Terms Check a. system development life cycle b. system development methodology c. legacy system d. plan e. analyze f. design g. build/buy h. install i. deploy

13.11 Match the terms and their definitions.

f 1. This SDLC phase includes creating new system models b 2. The order and timing of when SDLC phases are completed h 3. The SDLC phase that involves delivering the final product g 4. This SDLC phase includes purchasing software or transforming system models into programming code e 5. An SDLC phase that includes collecting requirements a 6. A series of phases to create a system i 7. The SDLC phase that involves operating, maintaining, and supporting the new system c 8. A prior system that may be run in parallel with a new system d 9. This SDLC phase includes preparing a schedule and a budget

13.12 Match the following terms and definitions. b 1. A problem that relates to data confidentiality, integrity, or availability e 2. This problem pertains to efficacy of the current system d 3. A problem that relates to security of the system a 4. A problem that affects business results f 5. This problem affects the enterprise users or customers c 6. This problem affects an organization’s costs and benefits

a. performance problem b. information problem c. economic problem d. control problem e. efficiency problem f. service problem

13.13 Match the following terms and definitions. a. operational feasibility b. economic feasibility c. technical feasibility d. schedule feasibility e. cultural feasibility f. risk feasibility

b 1. Relates to costs and benefits of the new system e 2. Considers whether the culture or environment of the enterprise is ready to adapt to the new system c 3. Relates to whether the new IT architecture can interact with the existing one a 4. Relates to whether current IT personnel and users can operate the new system d 5. Evaluates whether the new system deliverables can be provided on time f 6. Assesses the probability of the successful implementation and use of the new system

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Practice Test 13.14 The three main functions of the accounting systems are: a. Store data, analyze and use, and safeguard data (Correct answer) b. Store data, report data, and safeguard data c. Capture data, store data, report data d. Perform accounting activities 13.15 Which IT professionals typically create the design for the accounting database? a. Database designers (Correct answer) b. Systems analyst c. Network specialist d. Database developer 13.16 What does the system development life cycle define? a. The life cycle of a computer program from its installation until crash b. A series of phases used to create a system (Correct answer) c. The order and timing of steps needed for the system development d. None of the above 13.17 What does the system development methodology define? a. A series of phases used to create a system b. The order and timing of steps needed for the system development (Correct answer) c. A series of steps to create a software d. None of the above 13.18 What phase of SDLC deals with user requirement and current system models? a. Design b. Plan c. Build d. Analyze (Correct answer) 13.19 In what phase of the SDLC are current system problems, needs, or opportunities identified? a. Design b. Plan (Correct answer) c. Buy/Build d. Analyze 13.20 Which phase in the SDLC typically takes the longest? a. Buy/Build b. Plan c. Design d. Deploy (Correct answer) 13.21 Which methodology more closely reflects the methodology used today by businesses to develop an accounting system? a. Waterfall b. ABC (Correct answer) c. Rapid prototyping 4 © 2014 Pearson Education. All rights reserved.

d.

Spiral

13.22 PIECES framework is used to a. Classify the current system problems (Correct answer) b. Identify current system problems c. Identify new system requirements d. Classify new accounting system technology 13.23 In ABC methodology, what steps are not included in the baseline stage? a. Plan and analyze b. Design and build/buy c. Install and deploy (Correct answer) d. Analyze and design

Exercises Short Exercises 13.24 Match each of the following items to the type of problem. (Q13.4) a. Performance problem d 1. The system is not able to detect duplicate purchase b. Information problem orders. c. Economic problem a 2. The system takes 24 hours to process a query d. Control problem request. e. Efficiency problem b 3. In stock status of inventory cannot be determined f. Service problem when customers want to place orders. c 4. The cost of maintaining the current system exceeds the estimated cost of a new system. f 5. Customers are confused by the new online Web site. e 6. The current system requires eight screens and an average of 20 minutes to enter an order.

13.25 Match each of the following items to the type of feasibility. (Q13.4) a. operational feasibility b. economic feasibility c. technical feasibility d. schedule feasibility e. cultural feasibility f. risk feasibility

b 1. The estimated cost of the new system exceeds the budget. e 2. The accounting department staff do not like the format of the reports generated by the new system. c 3. The new system software program does not match the current system hardware. a 4. IT staff are not familiar with the new system hardware. d 5. The new system cannot be delivered as scheduled. f 6. There is a possibility that the hardware for the new system will no longer be in production after one year.

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13.26 Match each of the following items to the correct phase of the SDLC in which it would occur. (Q13.2, 13.3)

a. plan b. analyze c. design d. build/buy e. install f. deploy

c 1. The project team creates new system models. f 2. Patches are downloaded and installed. d 3. Based on the recommendation of the project team, the company purchases the new accounting system software. a 4. The project team is formed. e 5. IT staff configure the new system. b 6. The project team collects user requirements.

13.27 List the order of the SDLC phases as used in the waterfall methodology. Why is it called waterfall?

(Q13.3)

The waterfall methodology is a sequential execution of the SDLC phases. These phases are; Plan, Analyze, Design, Build/Buy, Install, and Deploy. The SDLC phases execution progress is like a steadily downward flow (like a waterfall).

13.28 List the order of the SDLC phases as used in the ABC methodology. Why are some of the SDLC phases repeated in this methodology? (Q13.3, 13.4) See figure 13.9 for list of the phases. Analysis, Design, and Build are repeated as many times as customizations are needed.

13.29 Using the following organizer, compare and contrast the waterfall methodology and the ABC methodology for developing accounting systems. (Q13.3, 13.4)

Compare (Same)

and

ABC baseline stage development methodology is similar to waterfall.

Both use the SDLC phases.

Contrast (Different) The ABC methodology more closely reflects the methodology used in practice today for most systems development.

Waterfall visit each SDLC phase only once while ABC visit SDLC phases many time.

13.30 Complete the following: 1. Select an authentic enterprise or system development project of your choice.

2. Apply the waterfall methodology, listing the steps and order of the steps you would complete.

3. Apply the ABC methodology, listing the steps and order of the steps you would complete.

4. Compare and contrast the advantages and disadvantages that each methodology offers for the given selected situation. (Q13.3, 13.4) The answer to this question depends on the student’s choice of the enterprise. However, the answer should first focus on the common system requirements (baseline) and then concentrate on that enterprise’s specific needs from the system. For example, let us assume the student choice is the Amazon.com inventory tracking

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system. First, the student should list the common requirements for any inventory tracking system, and then list the specific inventory tracking system needs for Amazon.com.

It’s Your Call 13.31 JB Brothers is a home appliance retailer. JB owns one retail store in Saint Louis and one in Kansas City. The company also owns three warehouses in Saint Louis and one warehouse in Kansas City. JB is losing sales due to order fulfillment problems.

You have been hired as a consultant to investigate and report back to the CFO on the problem. You discover that sales are entered into cash registers manually in the retail stores. All inventory updates are manually entered into the system. You notice that to reduce customer wait time when the stores are busy, the cashiers sometimes set aside the inventory updates to enter later.

Jeff Bume, director of inventory and purchasing management, complains to you that he is coming under increasing pressure from the chief operations officer about problems with stock outs and inability to fill customer orders quickly. An increasing number of customers are canceling orders and then placing the order with a competitor who can deliver faster.

Use the PIECES framework to analyze JB Brothers’ problem. What is the effect of this problem on JB Brothers accounting? Write a brief summary of your analysis to send the CFO. Make assumptions as required and include your assumptions in your response. (Q13.4) Performance Information

Economy

Control Efficiency Service

• Slow inventory system.

• Inventory information is not accurate • Inventory level is not up-to-date because information is recorded by hand.

• Inaccurate purchase orders because of inaccurate inventory. Because sales are not entered into the inventory on real-time basis.

• Lack of control over the inventory, sales, and purchasing process.

• Manual sales system.

• Lack of real-time sales and updating inventory.

• All products are not always available at every location.

Your summary could include: • The need to correct or improve performance – The manual sales system does not function fast enough to keep up with our business needs.

• The need to correct or improve information (and data) – The manual sales system does update inventory on time; therefore, it cannot provide the information our customers want.

• The need to correct or improve economics, cost control, and/or improve profits – The current manual sales system does not allow us to sustain the amount of market share that we have, customers are turned away because of item unavailability, and items incorrectly purchased when out of stock.

• The need to correct or improve control or security – The current manual sales system is not accurately following employee efforts, leading to some employees being frustrated on the job. There is little or no control over sales and purchasing processes as well as inventory management.

• The need to correct or improve efficiency of people and processes – The current manual sales system does affect JB’s inventory management as well as sales efficiency.

• The need to correct or improve service to customers, suppliers, partners, and employees – The current manual system needs to accurately track sales and inventory activities.

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13.32 You are an accounting intern for Pacioli Accountants. You notice that the staff accountants must enter client tax information into three different systems: one to track customer information, another for tax information, and a third for billing information.

After taking your accounting information systems course, you share Accounting Insight No. 9, Enter Data Once, with your supervisor. The supervisor asks you to prepare a short email with your recommendations for the firm to implement this accounting insight. (Q13.2, 13.3, 13.4) You could use the problem analysis PIECES framework approach and the enter data once insight to prepare your email. The following can be used as an example.

Performance – Redundant processes could slow down business workflow.

Information – Inaccurate or inconsistent customer information could be entered in one or more of these three different systems.

Economy – Redundant processes could cause waste of employees’ time and consequently money.

Control – Since customer information is entered into three different systems, there should be three data entry controls; thus, there is a control redundancy.

Efficiency – Efficiency is reduced because it is required to enter customer information in each of these systems.

Service – Customer service is adversely affected due to customer information inconsistency.

As your recommendation, you can state that the track customer information, tax information, and billing information systems should be integrated. Then all these three systems are using the same customer table.

13.33 You are a consultant for Austin Consulting. The organization would like to reduce the time required for system design and development to increase its consultants’ productivity. You have been asked by the president of Austin Consulting to prepare an executive summary with recommendations on how this could be accomplished with respect to accounting system design and development. (Q13.4) • Your executive summary should be only one page and consist of two sections. Each section should be at most two paragraphs. The first section should state the objective(s) or the problem(s) and the second should state how to reach the objective(s) or what is (are) the solution(s).

• In brief, the objective is the reduction of the projects’ analysis and design phase time. One of the ways that this objective could be reached is using ABC methodology. The ABC methodology approach would reduce the time for user requirement discovery and analysis. Also baseline data and process models are already available.

13.34 Your company is planning to develop a new accounting system. The ABC methodology is used for this project. The current system is custom made, and Microsoft Excel is used for data entry and output reports. As an accountant and a member of the project team, you have already been through the planning, analysis, and design phases. a. List all the common user requirements that have been documented for the new system.

• The new system must not disrupt business • Using system most not increase employee time • No additional funds for the acquisition of hardware or software (only as specified in the system specs) • It is important that the new system succeed • The system must be expandable to the entire company business activities • There should be no dramatic change in the way the company conducts its day-to-day business operations 8 © 2014 Pearson Education. All rights reserved.

• • •

b.

c. d.

The new database must use the current Excel files Controls over input, processes operation, output process should correspond the best business practices. That is complying with legal and regulatory requirements.

The new system must satisfy the specific user requirements expected form the new system.

What is the next phase, and how many times do you think that the next phase will be performed?

The next phase is the design phase. It will be executed as many times as needed until the system is fully customized.

What are the current system models? Data Model, Process Model, People Model, and Networks Model What are you suggesting for the new system—build or buy? Explain your answer.

Since the current system is just based on MS Excel without an adequate database and processes, it is more beneficial to replace it with an off-the-shelf accounting system, such as QuickBooks.

Tech in Practice Tech Exercises 13.35 Tech Tool: Spreadsheet Software EspressoCoffee has asked for your assistance developing a schedule for a new accounting system development project.

1. Download the data file for this exercise.

2. The data file contains a list of all activities for the project with estimated completion times. Using this list and the schedule template, prepare a timeline for the project.

3. Print the timeline.

See Tech Ex 13.35 SOLUTION and Tech Ex 13.24 Data File in the Chapter 13 Exercises Solutions.

13.36 Tech Tool: Spreadsheet Software Kolbe & Co. has asked for your assistance developing a schedule for a new accounting system development project.

1. Download the data file for this exercise.

2. The data file contains a list of all activities for the project with estimated completion times. Using this list and the schedule template, prepare a timeline for the project.

3. Print the timeline.

See Tech Ex 13.36 SOLUTION and Tech Ex 13.25 Data File in the Chapter 13 Exercises Solutions.

13.37 Tech Tool: Spreadsheet Software Software Video: Spreadsheet ERM Kolbe & Co. has asked for your assistance in training its project development team in the PIECES framework. To prepare for the training session, you decide to develop a PIECES framework template to share with the team. The template will standardize the PIECES analysis performed by various team members. It also serves as a visual for your presentation.

1. Download the data file for this exercise.

2. Follow the instructions in the data file to build a PIECES framework template.

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3. Print the template.

See Tech Ex 13.37 SOLUTION and Tech Ex 13.26 Data File in the Chapter 13 Exercises Solutions.

13.38 Tech Tool: Spreadsheet Software Management at Lakeview Restaurant has many suppliers. These suppliers supply frozen food packages, fresh meat, chicken, and fish, as well as fresh produce. Lakeview would like to notify its suppliers when the quantity of an inventory item reaches the critical level. The project management team at Lakeview Restaurant has prepared the following list of requirements. a. To be able to extract and view specific supplier information b. Automatic transmission of notification messages with a list of needed items to a specific supplier c. To be able to extract and view a list of all suppliers Management intends to use this information to manage their inventory and suppliers. Lakeview already has a computerized system, but this system does not satisfy the above requirements. The current system BPMN 2.0 diagrams are shown below. The current system database consists of only two tables: INVENTORY and GOODS SOLD. a. In what phase or phases of SDLC is this project right now?

The project is in the analysis phase because the current system and user requirements are being analyzed. b.

Prepare a document to list all changes that should be implemented on the current system’s process and data models.

Changes to the current system database • To extract supplier information, supplier data should be recorded in the vendor table – New Vendor table is required • To extract informational about purchasing and automatically ordering needed items, purchasing information should be recorded. Two new tables, PO and PO Line, are required.

Changes to the current system processes • To extract and view a specific supplier’s information, a new process (Generate a Supplier Report) is required.

• To extract and view all suppliers’ information, a new process (Generate Suppliers Report) is required.

Note: 1. These two processes can be subprocesses of a new process “Generate Supplier Report.”

2. The current “Prepare Management Report” process cannot be modified to include “Generate Supplier Report” because the “Prepare Management Report” is a time-bonded process but the new processes are initiated by a manager request.

• To automatically order needed items, two new processes are needed (verify inventory level and Process PO). These two new process could be included into the current “Ordering Process.”

c.

Redesign the BPMN 2.0 diagrams to satisfy the new requirements.

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13.39 Tech Tool: Spreadsheet Software Despite that fact that the iElectronics company has had a computer for the past 10 years, all data collections still rely on written documents. Only data processing activities are carried out on the computer. For example, the company payroll system has all the processing on the computer, and all payroll records are kept in a database. Time cards are still used to collect the hours worked by employees, but the total hours that each employee works for the week are typed into the database from terminals at the end of a pay period.

The salespeople are paid a base rate plus commission. Each individual’s commission is calculated by collecting all the sales slips for an employee for a week. The commission is calculated as 10 percent of total sales (not including tax) and entered into the system from a terminal. Currently, the only record kept of the sales staff’s performance is a general work sheet containing the weekly commissions paid to each salesperson. Performance becomes important when considering whom to promote.

The company’s inventory system is even more antiquated. A card for each item is kept in an inventory book at the central warehouse. This card carries the name, inventory number, and the number of units on hand in the central warehouse. When inventory control ships items out of the warehouse to stores, the number of units on hand is reduced on the card, manually. If Richard Kelly, the inventory manager, wants to know the actual number of units the company has of a particular item, the item card must be checked for the number of units in the warehouse, and then each store must be called to find the number of units held in shelf inventory. In addition, Richard Kelly has no control over the number of units carried as shelf inventory at the stores. Rachel Burton, vice-president for operations, and the stores managers set the allowable levels of the shelf inventory.

The shelf inventory levels of the items carried by each store are checked weekly against the reorder information carried in the master inventory book. When inventory for an item falls below the reorder point, the item’s inventory card is tagged, and the buyer for that item is notified. If the item is to be reordered, the buyer sends a purchase order to the supplier and a copy to the Finance Department. At the end of each quarter, the buyers receive a list from the Inventory Department of the items below the reorder point and tell the Inventory Department which items to drop from inventory.

When a shipment of items arrives at the central warehouse in Bridgton, the inventory clerks check each order against the enclosed invoice and send copies of the invoice to both the item buyer and the Finance Department. If the item received already has a card that has been tagged, a new card is created with the new inventory count. If the item is new, a card is created for it, and the store managers are notified that the item is in the warehouse.

The system runs fairly smoothly, but several problems have cost the company money. Most of them have occurred because the company never knows exactly what its inventory is for a given item. Items have had high actual inventory counts long after the buyer has said the item should be dropped, thus increasing cash tied up in inventory and causing losses when inventory is sold in the end-of-season sales. Sales have been lost because items were unavailable or were available at one store but not another. Regularly, items in the warehouse are found to be out of stock. This results in lots of small backorders before completing the sale. Finally, items have come into the central warehouse unexpectedly, with no room available to store them. The unexpected inventory required Richard Kelly to either send other items to the stores to make room or rent additional warehouse space on a short-term basis.

1.

2.

3.

Download the data file for this exercise Follow the instructions in the data file to build a PIECES framework template Use the PIECES framework to analyze problems with the iElectronics inventory and sales system.

Make assumption if necessary. In your opinion, which problem must be fixed first? Why?

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PROBLEM ANALYSIS with PIECES Performance 1. Throughput There is not data available at the moment of sales Slow processing of an item inventory 2. Response time Timely inventory management with correct information is not available.

Information 1. No information flow from warehouse to inventory system No infrastructure to move information from site to site 2. Manual information flow from Point of Sale (POS) to inventory system. Slow and inaccurate Manual sales process 3. Lack of consistent information flow from buyers to warehouse and management Manual purchase order process 4. Lack of inventory information to all levels of management.

Economics 1.

2.

Costs increased Resistance to investment for infrastructure Resistance to purchase hardware Profits lost Wrongly number of items reordered Inaccurate knowledge about products sales (unpopular products) Financial loss from surprise shipments Unavailability of a product in a store (shelf inventory inaccurate)

Control 1.

2.

3.

No control of inventory by management; the exact product inventory is unknown No consistent knowledge of new shipments to warehouse Data security is compromised by paper left lying around

Efficiency 1.

2.

3.

No real-time inventory check-in check-out process No real-time Point of Sale No automated record of commissions and no automated commission calculation

Service 1.

2.

3.

4.

The current system produces inaccurate results Inaccurate store stock levels Inaccurate commission results Inaccurate inventory levels The system produces inconsistent results Unexpected inventory shipments Overstocking of expired items Under stocking in stores The current system cannot provide reliable and timely results needed to respond to sudden consumer demands Consumer trend is not identified 13 © 2014 Pearson Education. All rights reserved.

Go Online 13.40 You have been assigned to a project team to develop a new accounting system for Shepperd Inc. You are part of the task force to evaluate small business software available in the market. Go online and research accounting software packages, such as QuickBooks, Peachtree, and SAP Business One. Become an expert on the software. What are the advantages and disadvantages of the selected software?

Write a brief summary of your findings to share with the project team.

The following links are good sources of information. They provide a large list of accounting software for small and any size of enterprise.

• http://accounting-software-review.toptenreviews.com/ • http://findaccountingsoftware.com/guide/industry/accounting/ • http://sbinfocanada.about.com/od/accountin1/tp/accountsoft.htm The following table shows a summary of the online search results. The rating is based on the functions provided, intended user, features, cost, and customer support.

Accounting Software Intuit QuickBooks Sage Peachtree NetSuite Small Business SAP Business One CYMA

Overall rating Between very good and excellent Excellent Very good Good (too expensive for small businesses and include ERP modules) Good

13.41 You have been assigned to a project team to develop a new accounting system for Roxanne Inc. You are part of the task force to evaluate midrange accounting software available in the market. Go online and research accounting software packages, such as QuickBooks Enterprise, MS Dynamics GP, SAP Business All-in-One, and Oracle’s JD Edwards. Become an expert on the software. What are the advantages and disadvantages of the selected software? Write a brief summary of your findings to share with the project team.

The following links are good sources of information. They provide a large list of accounting software for midrange and any size of enterprise.

• http://accounting-software-review.toptenreviews.com/ • http://findaccountingsoftware.com/guide/industry/accounting/ • http://www.redwingsoftware.com/rwssn/ • http://www.avayle.com/index.html • http://www.microsoft.com/midsizebusiness/business-value/accounting-software-management.mspx • http://accountingsoftwarereview.com/Peachtree-Mid-Size-Small-Accounting.html • http://en.wikipedia.org/wiki/Comparison_of_accounting_software • http://www.ctsguides.com/microsoft-dynamics-gp-great-plains.asp The following table shows a summary of the online search results. The rating is based on the functions provided, intended user, features, cost, and customer support.

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Accounting Software SAP Business All-in-One CenterPoint Peachtree MS Dynamics with CRM SAP Business One

Overall rating Very good (comes with ERP and BI modules) Between good and very good Between very good and excellent Between good to very good Very good (comes with ERP modules)

13.42 You have been assigned to a project team to develop a new accounting system for SLM Inc. You are part of the task force to evaluate large-scale enterprise software with an accounting/financial module available in the market. Go online and research for such applications, SAP Business Suite, and Oracle’s EBusiness Applications. Become an expert on the software. What are the advantages and disadvantages of the selected software? Write a brief summary of your findings to share with the project team.

The following links are good source of information. They provide a large list of accounting software for large and any size of enterprise.

• http://accounting-software-review.toptenreviews.com/ • http://findaccountingsoftware.com/guide/industry/accounting/ • http://business-accounting.chailit.com/how-to-choose-accounting-software-for-largecompanies.html • http://www.accountantforums.com/choose-accounting-software-big-business-t109817.html • http://en.wikipedia.org/wiki/Comparison_of_accounting_software • http://software-accounting.findthebest.com/directory/d/Large-Enterprise The following table shows a summary of the online search results. The rating is based on the functions provided, intended user, features, cost, and customer support.

Accounting Software Sage Pastel Evolution Oracle E-Business Suite MS Dynamics AX SAP Business Suite IBM Cognos

Overall rating Very good Between good and very good Good Between very good and excellent Between average and good

13.43 You have been asked to serve as the lead for a project team to develop a new accounting system for your company. At the first team meeting, the IT and accounting professionals had different opinions regarding the phases that should be used in the system development life cycle. You are familiar with the PADBID (plan, analyze, design, build/buy, install, and deploy) approach that is representative of the phases commonly used in the SDLC. You are also aware that different solution providers use variations of these phases. Go online and research the SDLC and compile a summary of the different phases that can be used in the SDLC. Prepare your notes to present to your team at the next meeting. How will you facilitate communication and consensus for your team?

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In your presentation you can include the following: 1. In V-Model methodology the SDLC phases are: Requirement Analysis, High Level Design, Detailed Specification, Coding, Unit Testing, Integration Testing, Operational Testing (Source: http://www.softtutorial.com/software-testing/v-model.html.)

2. In Iterative Life Cycle methodology the SDLC phases are: Initial Idea, Feasibility Study, Requirement Analysis, System Analysis, Specification, Systems Design, Development, Testing, Implementation, Maintenance, Review (Source: http://sharpertutorials.com/system-development-life-cycles-sdlc/.)

3. In the waterfall methodology explained in computerworld.com, the SDLC phases are: Project planning and feasibility study, System analysis and requirement definition, System design, Implementation, Integration and testing, Acceptance, and Maintenance (Source: http://www.computerworld.com/s/article/71151/System_Development_Life_Cycle/.)

Technology Projects Technology Project 13 Tech Tool: Spreadsheet Software iSportDesign is implementing a new accounting system and you have been asked to join the project team.

Your deliverables for this project include the following: Deliverable 1. A project schedule Deliverable 2. A list of user requirements Deliverable 3. A PIECES analysis Visit www.pearsonhighered.com/kayto do the following: 1. Download Technology Project 13 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

See • Project Chapter 13 PIECES Template • Project Chapter 13 PIECES • Project Chapter 13 Schedule Data File • Project Chapter 13 Schedule In the Project Chapter 13 in the Chapter 13 Exercises Solutions.

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Active Review 14.1 Refer to the chapter opener, Meet Oracle. In your opinion, why do companies spend millions of dollars on databases?

Databases are a crucial component of the enterprise system, containing some of the most sensitive and confidential data and intellectual property. They provide information and intelligence to management for making decisions. They hold information about enterprise business entities such as customers, vendors, and products. Databases could provide the enterprise key performance indicators. Therefore, having a database that holds accurate, consistent data and allows data to be quickly and easily accessed and manipulated is a high priority for any organization.

14.2 Discuss the advantages of relational databases for recording accounting transactions.

Today, operational databases almost exclusively use the relational structure. The primary reasons are: • The relational structure, compared with other structures, uses less processing time to store and extract data.

• The relational database requires less storage space than other database structures.

• The structured query language (SQL) for a relational database is relatively easy to code and interpret.

14.3 Discuss considerations for selecting a primary key.

A candidate key is a field that uniquely identifies records in a table. The primary key is the candidate key that is selected as the primary key. The selection of the primary key is a very important decision. It should not reveal confidential information about the data stored in the table. For example, a social security number is not a good choice. The primary key value must stay unique at all times. Thus, a two-digit primary key would be a poor choice. A meaningless primary key is a good choice. For example AutoNumber data type in MS Access automatically generates a number every time a new record is stored.

14.4 Discuss the advantages that the structure query language (SQL) offers.

SQL is a nonprocedural language. This feature makes SQL an easy language to understand and to use.

Another advantage of SQL is that it can be used to retrieve, insert, update, and delete data from relational databases.

14.5 Discuss the differences between procedural and nonprocedural programming languages.

A procedural language requires the programmers to specifically state how a task is accomplished. A nonprocedural language requires programmers to just state what they want to be accomplished.

14.6 Discuss database anomalies and the three categories used to classify anomalies. Which anomaly is caused by data duplication?

Database anomalies are problems within a database table that result in inaccurate, incomplete, or duplicate data. Three categories of anomalies are insertion, deletion, and update. The update anomaly is caused by data duplication. For a single update, several records are updated.

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14.7 Discuss the different types of relationships among entities. Which are problematic? Why? The relationship between two entities can be one-to-one, one-to-many, or many-to-many. The many-tomany relationship is problematic because the relational database engine cannot implement it. Before the many-to-many relationship can be implemented, it must be decomposed or “normalized.”

14.8 Discuss the reasons why a well-designed database is important.

A well-designed database is easy to maintain and provides accurate and complete data.

14.9 Why is it important to identify relationships among entities before building a database?

While building a database, relationships among entities are implemented through foreign keys.

The foreign keys allow joining database tables and retrieving related data from two or more tables.

14.10 Discuss the concept of economic duality as used in REA. How does this relate to double entry accounting?

The value of the enterprise resources can be increased or decreased in two ways, by exchange resources or by converting a resource into another type of resource. An enterprise can increase or decrease the value of its resources. This is called economic duality and identified as a relationship between two business events.

The REA model shows economic duality. It depicts what is given and what is taken in a business exchange as well as resources, events, and agents involved in the transaction.

In double entry accounting every transaction or event changes at least two different ledger accounts. Therefore, each transaction is defined as two transactions, debit and credit. Double entry accounting tracks just where money (resource) comes from and where it goes! This is similar to the concept of economic duality. That is, recording the giving and getting process only between two different accounts.

The major difference between the economic duality and double entry accounting is in the first, the sum of given values should be less than the sum of received values but in the second, the sum of values of what is received by an account is exactly the same as the sum of what values are received by another account.

Key Terms Check 14.11 Match the following terms and definitions. a. fields b. records c. tables d. database e. objects f. events

d 1. Collection of related tables b 2. Collection of related fields c 3. Collection of related records a 4. Pieces of information about events and objects e 5. People and things f 6. Transactions

14.12 Match the following terms and definitions. a. database modeling b. entity relationship diagram (ERD) c. resources, events, and agents (REA) d. data integrity e. database integrity f. normalization 2 g. database view © 2014 Pearson Education. All rights reserved.

g 1. The output of a SELECT statement in a table with the selected records and fields b 2. A database modeling tool that depicts the relationship among entities in the database f 3. A set of steps to remove anomalies from a database a 4. A technique used to develop an anomaly-free database with database integrity d 5. Data is accurate and complete c 6. A database modeling tool that uses economic duality sometimes used to teach accounting databases e 7. The database contains accurate and complete data

14.13 Match the following terms and definitions. a. entity b. entity occurrence c. entity attribute d. entity identifier e. candidate key f. parent entity g. child entity h. dependent entity

g 1. In a one-to-many relationship, the entity on the many side e 2. An attribute that uniquely identifies an entity occurrence a 3. Can refer to an object or event h 4. This entity is also known as a child entity b 5. A specific object or event c 6. A property of an entity f 7. In a one-to-many relationship, the entity on the one side d 8. One of the entity identifiers that uniquely identifies an entity occurrence

14.14 Select the single best answer.

Professionals modeling the database are called a. database realms. b. database designers. (Correct answer) c. database builders. d. database users.

14.16 Select the single best answer.

Professionals who enter, update, delete, or search the database are called a. database realms. b. database designers. c. database builders. d. database users. (Correct answer)

14.15 Select the single best answer.

Professionals constructing the database tables, records, and fields are called a. database realms. b. database designers. c. database builders. (Correct answer) d. database users.

14.17 Select the single best answer.

Timeframes in the development of a database in which different terminology may be used are a. database realms. Correct answer b. database designers. c. database builders. d. database users.

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Practice Test 14.18 a. b. c. d.

In which database structure is SQL used?

Hierarchical Network Relational (Correct answer) Object-oriented

a. b. c. d.

Which of the database integrity rules addresses the data consistency across the database?

Referential integrity (Correct answer) Entity integrity Domain integrity Primary key integrity

a. b. c. d.

Which of the database anomalies is related the primary key value?

Update Insertion (Correct answer) Deletion None of the above

a. b. c. d.

Which of the following does NOT represent an entity?

Customer Supplier Address (Correct answer) Item

a. b. c. d.

Which of the following does NOT represent an entity attribute?

Street name Account number Customer order (Correct answer) Item code

a. b. c. d.

What is described by the business rules?

Entity relationship cardinality (Correct answer) Database anomalies Entity integrity Attribute name

a. b. c. d.

Entity identifiers that uniquely identify the entity are called Composite key Foreign key Primary key (Correct answer) Master key

a. b. c.

What type of relationship cannot be mapped into database tables?

One-to-one Many-to-many (Correct answer) One-to-many

14.19

14.20

14.21

14.22

14.23

14.24

14.25

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d.

None of the above

a. b. c. d.

In building an ERD, in which step is the database application chosen?

Step 2: Determine the business rules for a specific business transaction.

Step 5: Draw entity relationship diagram Step 9: Develop relational database tables Step 10: Build relational database tables (Correct answer)

a. b. c. d.

Database normalizations are performed to: Remove redundant tables from the database Remove redundant relationships from the database Remove the database anomalies (Correct answer) Remove non-normal data from the database

14.26

14.27

Exercises Short Exercises 14.28 A credit card company allows a customer to have many credit cards. A credit card belongs to only one customer. What is the relationship between customer and credit card? What is the cardinality of the relationships? (Q14.2) The relationship is one-to-many.

On the customer side the maximum is 1 and the minimum is 1.

On the credit card side the maximum is 1 and the minimum is 1.

Business rules assumption: you cannot be a customer and not have at least one credit card.

14.29 A company allows sales representatives to serve many customers. A customer can be served by only one sales representative. What is the relationship between customer and sales representative? What is the cardinality of the relationships? (Q14.2) The relationship is one-to-many.

On the customer side the maximum is many and the minimum is 1.

On the sales rep side the maximum is 1 and the minimum is 0.

Business rules assumptions: You can be a customer and not have any sales rep yet.

All sales reps have at least one customer.

14.30 A sales order has many items. An item can be in many sales orders. What is the relationship between sales order and item? What is the cardinality of the relationships? (Q14.2) The relationship is many-to-many.

On the sales order side the maximum is many and the minimum is 0.

On the item side the maximum is many and the minimum is 1.

Business rules facts: A sales order has at least one item.

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An item may not be ordered yet.

14.31 A car in a car rental agency can have many types of repairs. A type of repair may be performed on many different cars. What is the relationship between car and type of repair? What is the cardinality of the relationships? (Q14.2) The relationship is many-to-many.

On the car side the maximum is many and the minimum is 0.

On the repair type side the maximum is many and the minimum is 0.

Business rules facts: A car may have not a repair yet.

A repair may not be done on any car yet.

14.32 Use the following ERD to answer the accompanying questions. (Q14.2) 1. What is the relationship between the two tables in the ERD? 2. What is the cardinality of the relationships?

The relationship is one-to-many.

On the Supplier side the maximum is 1 and the minimum is 1.

On the Purchase Order side the maximum is many and the minimum is 0.

14.33 How do you remove the many-to-many relationship in the following ERD? (Q14.2)

The relationship is many-to-many.

On the Item side the maximum is many and the minimum is 1.

On the Purchase Order side the maximum is many and the minimum is 0.

14.34 Use the following REA diagram to answer the accompanying questions. (Q14.3) 1. Who are the agents?

2. What are the events?

3. What are the resources?

The agents are: • Supplier • Purchasing Employee • Receiving Employee

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The events are: • Purchase Order • Receive Inventory The resources are: • Item

14.35 Using the ERD shown in Figure 14.13, identify the following: (Q14.2) 1. SALES ORDER table minimum – 0 [zero](from the Customer and Item) 2. SALES ORDER table maximum – many (from the Customer and Item) 3. ITEM table minimum – 1 4. ITEM table maximum – many 14.36 Using the SQL statement provided, answer the following questions. (Q14.4) 1. Identify the database tables used by the SQL query.

2. Identify the fields retrieved by the SQL query.

3. Identify the specific record that is retrieved by the query.

4. What is the name of the output of this query?

SELECT Developer First Name, Developer Last Name, Date Created FROM Accountant, Spreadsheet WHERE SSID = “SSID041201”; 1.

The database tables are: Accountant and Spreadsheet

2.

The fields retrieved are: 7 © 2014 Pearson Education. All rights reserved.

The fields retrieved are Developer First Name, Developer Last Name, and Date Created 3.

The records retrieved are: The record with the SSID field content equal to SSID041201 is retrieved.

1.

The query output is: A view.

14.37 Explain why the following relationships cardinalities are incorrect. Provide the correct the relationship cardinalities. (Q14.2) Corrected Relationships

• •

A Sales Order instance belongs to one and only one customer. (We assume this organization allows a person or company to become a customer before placing any order, otherwise the minimum cardinality for Sales Order entity is 1.)

A Sales Order entity instance relates to at least one entity instance in the Sales Order Line.

8 © 2014 Pearson Education. All rights reserved.

• • • •

A Received Cash instance belongs to only one Cash Account instance.

A Sales Order instance includes at least an Item instance.

A Disbursed Cash instance is done by only one Cashier instance.

A Purchase Order Instance belongs to one and only one Vendor instance.

(We assume this organization allows a person or company to become a vendor before being assigned to a purchase order, otherwise the minimum cardinality for Purchase Order entity is 1.)

14.38 The following table holds a list of entities in each column. Write the relationship and max/min cardinality between two entities in each row. Explain your answers. Make assumptions where necessary. (Q14.2) Entity

Entity

Sales Order Cash Received Item Received Employee Customer Supplier

Item Sales Order Disbursed Cash Sales Order Sales Order Disbursed Cash

Relationship Max cardinality Many-to-Many One-to-Many One-to-Many One-to-Many One-to-Many One-to-Many

Relationship Min cardinality Zero-to-One One-to-Zero One-to-Zero One-to-Zero One-to-Zero One-to-Zero

It’s Your Call 14.39 Your friend is designing a database as part of her internship assignment. She calls you with the following question: “Should I use Social Security No., Customer No., or Customer Credit Card No. for the primary key of the CUSTOMER database table?” What is your response? What are your reasons for your answer? (Q14.1) The following is a possible response to your friend: The selection of the primary key is a very important decision. It should not reveal confidential information about the data stored in the table. For example, a social security number is not a good choice. The primary key value must stay unique at all times. For example a two-digit primary key over time could be repeated accidentally and would not be unique anymore. A meaningless primary key, such as an automatically generated number, is the best choice. Customer No. would also be a good choice.

14.40 You are a member of a project team created to develop a database for online sales transactions. The IT professionals on the team asked you to provide them with the accounting data that needs to be captured in the online sales transactions. Write an email to your team members summarizing the attributes and their definitions. (Q14.2) Your email could include the following list of common attributes that are required for online sales transaction. Some of these attributes could be broken into many fields such as customer name or address.

Entity Customer • Customer ID • Customer name • Customer addresses (billing address, shipping address, home address), including street address, city, state, zip, country • Account number • Phone number • Email address 9 © 2014 Pearson Education. All rights reserved.

Entity Credit Card • Credit card number • Credit card type • Expiration date Entity Currency • Currency rate code • Currency rate date • Average rate Entity Item • Item name • Item code • Location • Shelf • Bin Entity Sales Order • Sales order number • Sales order date • Due date • Ship date • Account number • Subtotal • Tax amount • Freight amount • Discount • Total amount

Tech in Practice Tech Exercises 14.41 Tech Tool: Spreadsheet Software or Visio Software Software Video: ERD and REA Drawing Refer to the EspressoCoffee invoice shown in Figure 14.12 and the 10 steps to relational database design and development in Figure 14.24. Then complete the following steps.

1. Identify entities involved.

2. Identify the relationships among entities.

3. Identify entity identifiers.

4. Draw an entity relationship diagram.

5. Remove many-to-many relationships, if necessary.

6. Add entity attributes.

7. Print your ERD. 1.

2.

3.

The business transaction is the EspressoCoffee invoice.

EspressoCoffee creating customer invoice business rules are: a. A customer can have many invoices and a specific invoice belongs to only one customer. b. An invoice may include one or more items and an item may appear in many invoices.

Entities related to invoice are: 10 © 2014 Pearson Education. All rights reserved.

4.

5.

6.

a. b. c.

Customer Item Invoice

a. b.

The relationship between customer and invoice is one-to-many.

The relationship between invoice and item is many-to-many.

Entity identifiers are: a. Customer – customer number b. Invoice – invoice number c. Item – item code See Tech Ex 14.41 SOLUTION (worksheets 1, 2, 3, and 4) in the Chapter 14 Exercises Solutions.

See Tech Ex 14.41 Visio SOLUTION in the Chapter 14 Exercises Solutions.

Some of the attributes could be broken into many fields such as customer name or address. The solution shows only attributes, which are appeared on the invoice form. Additional attributes could be added.

14.42 Tech Tool: Spreadsheet Software or Visio Software Software Video: ERD and REA Drawing Your organization would like to implement better security and control over the numerous spreadsheets that the accountants are using. You have been asked to design ERD for a proposed database to document spreadsheets using the following business rules: a. An accountant creates many spreadsheets. b. A spreadsheet is created by only one accountant c. A project uses many spreadsheets. d. A spreadsheet can be used in many projects.

1. Draw an ERD. 2. Remove many-to-many relationships, if necessary.

3. Print the ERD. See Tech Ex 14.42 SOLUTION (worksheets 1, 2, 3, and 4) in the Chapter 14 Exercises Solutions.

See Tech Ex 14.42 SOLUTION Visio in the Chapter 14 Exercises Solutions.

Some of the attributes could be broken into many fields such as accountant name. The solution shows only major attributes and additional attributes could be added.

14.43 Tech Tool: Spreadsheet Software or Visio Software Software Video: ERD and REA Drawing You have been asked to design an ERD for a database to better track employees and their skills. You identified three entities: department, employee, and employee skills.

1. Making assumptions regarding business rules as appropriate, define the relationship among department, employee, and employee skills.

2. Draw an entity relationship diagram.

3. Identify an identifier for each entity.

4. Remove many-to-many relationships, if necessary.

5. Print your ERD. Assumptions: 1. A department has many employees and an employee belongs to one department only.

2. An employee has many skills and many employees share a skill.

1. Department entity identifier – Department ID 2. Employee entity identifier – Employee ID 11 © 2014 Pearson Education. All rights reserved.

3.

Skill entity – Skill Code

See Tech Ex 14.43 SOLUTION (worksheet 1) in Chapter 14 Exercises Solutions for ERD. See Tech Ex 14.43 SOLUTION (worksheet 2) in Chapter 14 Exercises Solution for ERD without many-tomany relationships.

See Tech Ex 14.43 Visio SOLUTION in Chapter 14 Exercises Solution .

14.44 Tech Tool: Spreadsheet Software or Visio Software Software Video: ERD and REA Drawing Kolbe & Co. has asked for your assistance in designing an ERD for a new database.

1. Download the data file for this exercise.

2. Follow the instructions in the data file to build an ERD for Kolbe & Co. 3. Print the ERD diagram.

See Tech Ex 14.44 SOLUTION, Tech 14.32 Visio SOLUTION, and Tech Ex 14.44 Data File in the Chapter 14 Exercises Solutions.

14.45 Tech Tool: Database Software Software Video: Database Tables, Database Relationships Kolbe & Co. has asked for your assistance in building a MS Access database from an ERD. 1. Download the data file for this exercise.

2. Follow the instructions in the data file to build Access database tables from an ERD for Kolbe & Co. Identify the primary key for each table.

3. Build the table relationships.

4. Print the relationships.

See Tech Ex 14.45 SOLUTION (MS Access) and Tech Ex 14.45 Data File in the Chapter 14 Exercises Solutions.

14.46 Tech Tool: Database Software Software Video: Advanced Database Forms and Queries Kolbe & Co. has asked for your assistance to create a SQL query.

1. Download the data file for this exercise.

2. Build a query to retrieve customers who live in Canada with a balance greater than $1,000.

3. Run the query and print the result.

See Tech Ex 14.46 SOLUTION (MS Access) and Tech Ex 14.46 Data File in the Chapter 14 Exercises Solutions.

14.47 Tech Tool: Spreadsheet Software or Visio Software Software Video: ERD and REA Drawing Jordan & Co. has asked for your assistance in building an REA diagram for a new database.

1. Download the data file for this exercise.

2. Follow the instructions in the data file to build an REA diagram for Jordan & Co. 3. Print the REA diagram.

See Tech Ex 14.47 SOLUTION, Tech Ex 14.35 Visio SOLUTION, and Tech Ex 14.47 Data File in the Chapter 14 Exercises Solutions.

12 © 2014 Pearson Education. All rights reserved.

14.48 Tech Tool: Database Spreadsheet Software or Visio Software Software Video: ERD and REA Drawing Use information provided on the following Project Purchasing Summary Report and construct an ERD. Remove many-to-many relationships if necessary. Make assumptions where necessary.

Project Purchasing Summary Report Project Name: High speed line Report Date: 3/19/2014 Project No: PR1 Project Manager: John Smith Part No. M128 M129 R234 •

Supplier No. S100 S101 S100

Quantity 4 3 4

Entities detected from the Project Summary Report: o Project o Part o Supplier o Project Manager o Purchase Order

Many-to-Many relationships are removed

13 © 2014 Pearson Education. All rights reserved.

Unit Price $120 $150 $230

14.49 Tech Tool: Database Spreadsheet Software or Visio Software Software Video: ERD and REA Drawing Sam’s repair shop has many employees who use an electronic time clock to record their working-time.

Working-time process records the starting and ending time and date. Some of the employees are floor supervisors. One of the supervisors’ responsibilities is to check the employees’ working-times. Employee paychecks are verified and signed by an accountant and handed out to employees. Paycheck disbursement operation is occurs twice a month 1. Identify Resources, Events, and Agents.

2. Draw the REA diagram 3. Print REA diagram The following figure specifies Resources, Event, and Agent.

REA Diagram

14 © 2014 Pearson Education. All rights reserved.

Go Online 14.50 Due to recent budget cuts, your department is looking for ways to reduce costs. The CFO tells you he has heard about open-source databases that are free. He asks you to investigate open-source databases and report back to him about the feasibility of switching to a free open-source database for accounting.

Go online and search for open-source databases. Summarize your findings in an email to the CFO. Include advantages and disadvantages of the open-source database as compared to purchased database engines.

Cost, stability, and security are the reasons to choose an open-source database engine. However, the lack of support is the primary disadvantage of these databases.

The Postgres Plus® and MySQL® are examples of open source databases. The following sites provide valuable information regarding the advantages and disadvantages of open-source databases.

• http://www.techsoup.org/learningcenter/databases/archives/page10137.cfm • http://www.articledashboard.com/Article/Advantages-and-Disadvantages-to-Using-MySQL-vs--MS-SQL/547086

14.50 You have been assigned to the project team developing a new accounting database. In your accounting information systems class, you studied REA. The IT professionals on the project team have never heard of REA. They ask you to send them a summary of what REA is and some examples of companies that have used it for database development.

Go online and search for information about REA diagrams. Did you find any examples of corporate systems using the REA modeling for database development? Write an email to the IT professionals on your team summarizing your findings.

Your email should say that the REA is a semantic model for depicting the accounting database and transactions. REA is used as a popular framework for teaching accounting systems. However, for database development, software engineers and database designers have not adopted this modeling technique.

Students may find some sites such as http://jeffsutherland.org/oopsla98/nakamura.html, which show how to construct a framework that is suitable for REA-based applications. However, these academic articles are pointing out the difficulties in this process.

14.50 You are a member of the project team for developing a new accounting database. At the last project meeting, some team members suggested using database structures other than a relational database. You have been assigned the task of researching other database structures and reporting back to the team at the next meeting.

Go online and search for information about network, hierarchical and object-oriented database structures. Compare the advantages and disadvantages of each with the relational database structure used for most operational databases such as accounting. Who are the solution providers for the other types of database structures? Write a summary of your findings that you can distribute to the team members at the next meeting.

In the hierarchical database structure, a record of an entity type is linked to zero or more records of a different entity type. However, only one record of a different entity type can be linked to this record.

In the network database structure, a record of an entity type is linked to zero or more records of a different entity type, and many records of different entity types can be linked to this record. In both structures, relationships are implemented as links (record addresses) whereas in the relational structure, relationships are implemented in the form of a foreign key.

Student would find the following advantages for a relational database:

15 © 2014 Pearson Education. All rights reserved.

The primary advantages of relational database structure are that they are easy to design, use, and understand. The other advantages are: less CPU time is used to access and retrieve information and less space is used to store data. That is why most operational databases are relational.

Other database structures use more CPU time for database access and retrieval, need more disk space for storage, and are complex to understand.

Technology Projects Technology Project 14 Tech Tool: Spreadsheet Software or Visio Software Software Videos: ERD and REA Drawing iSportDesign needs a new database for its purchasing cycle. You have been asked to assist with the database modeling.

Your deliverables for the project include the following: Deliverable 1. An ERD Deliverable 2. Access database tables Visit www.pearsonhighered.com/kay to do the following: 1. Download Technology Project 14 instructions.

2. Download files provided online for your convenience in completing the project deliverables.

3. Watch the videos with software instructions to complete this project at www.pearsonhighered.com/kay See • Project Chapter 14 ERD SOLUTION • Project Chapter 14 ERD Visio SOLUTION • Project Chapter 14 Access DB SOLUTION in the Project Chapter 14 in the Chapter 14 Exercises Solutions.

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