Chapter 2 The Accountant's Perspective

Question 1

What are the four levels of activity in the pyramid representing the business organization? Distinguish between horizontal and vertical flows information.

Answer 1

Operational, operations management, middle management, and top management. Horizontal flows support operation-level tasks. The information is highly detailed about the day-to-day operations. Vertical flows distribute summarized information to managers at all levels, and this information flows upward. Instructions, quotas, and budgets also flow downward

Question 2

Distinguish between natural and artificial systems.

Answer 2

2. Natural systems stem from the atom, while artificial systems are put together by humans

Question 3

What are the elements of a system?

Answer 3

Multiple components, relatedness, subsystems, purpose, and interdependency.

Question 4

What is system decomposition and subsystem inter dependency? How are they related?

Answer 4

System decomposition is the process of dividing the system into smaller subsystem parts, while interdependency is the interaction between the subsystems. They are related by the degree and nature of the interaction between the subsystems. If a vital subsystem fails, the entire system will most likely fail

Question 5

5.What is the relationship among data, information,and an information system?

Answer 5

Data are facts that are collected in a “raw” form and made meaningful through processes such as sorting, aggregating, classifying, mathematically manipulating, and summarizing. The meaningful data is considered to be information.

Question 6

Distinguish between AIS and MIS.

Answer 6

6. AISs process financial transactions and certain nonfinancial transactions that directly affect the processing financial transactions. The external financial reporting documents of AIS are subject to legal and professional standards. Consequently, management and accountants have greater legal responsibility for AIS applications than for MIS applications. The MIS processes nonfinancial transactions that are outside the scope of the AIS. MIS applications expand the information set provided to such areas as production, sales, marketing, and inventory management. MIS often draws from and builds on data from the AIS

Question 7

What are the three cycles of transaction process ing systems?

Answer 7

Revenue cycle, expenditure cycle, and conversion cycle.

Question 8

What is discretionary reporting?

Answer 8

Reports used by management, which the company is not obligated by law, regulation, or contract to provide. These are often used for internal problem-solving issues rather than by external constituents.

Question 9

What are the characteristics of good or useful information?

Answer 9

Relevance, accuracy, completeness, summarization, and timeliness.

Question 10

What rules govern data collection?

Answer 10

Relevance and efficiency.

Question 11

What are the levels of data hierarchy?

Answer 11

Data attribute (field), record, file, and database.

Question 12

What are the three fundamental tasks of database management?

Answer 12

Storage, retrieval, and deletion.

Question 13

What is feedback and how is it useful in an information system?

Answer 13

Feedback is output that is sent back to the system as a source of data. Feedback is useful because it can be used to initiate or adjust the system processes.

Question 14

What are the fundamental objectives of all information systems?

Answer 14

a. to support the stewardship function of management,
b. to support the decision-making processes of managers, and
c. to support the day-to-day operations of the firm

Question 15

What does stewardship mean and what is its role in an information system?

Answer 15

Stewardship is the responsibility of management to properly utilize the resources of the firm entrusted to them. Information systems provide management with reports to better manage the resources and also provide responsibility reports by which management may be evaluated.

Question 16

Distinguish between responsibility, authority, and accountability. Which flow upward and which flow downward?

Answer 16

Budgets and standards are set by upper-management levels. The responsibility for meeting these goals is passed to the managers at the closest operational level. In order for these managers to have the power to make a difference as to whether these goals and/or standards are met, they must be entrusted with the appropriate level of authority to make decisions. Responsibility of goals and standards, along with corresponding authoritative powers, flow downward. The results of the operations must flow upward to upper-level management. These upward flows represent reports, which hold managers accountable for their decisions and management actions.

Question 17

Distinguish between turnkey, backbone, and vendor-supported systems.

Answer 17

Turnkey systems are ready to implement systems that may be purchased. Backbone systems are partially developed systems with an underlying basic structure that is built on to suit the client’s unique needs. Vendor-supported systems are custom systems provided, maintained, and supported by a commercial vendor.

Question 18

List each of the functional areas and their sub-functions

Answer 18

a. Materials Management
1. purchasing
2. receiving
3. stores
b. Production
1. production planning
2. quality control
3. maintenance
c. Marketing
1. advertising
2. market research
3. sales order processing
d. Distribution 1. warehousing 2. shipping
e. Personnel 1. recruiting 2. training 3. benefits 4. counseling
f. Finance 1. portfolio management
2. treasury 3. credit
4. cash disbursement 5. cash receipt g. Accounting 1. inventory control 2. cost accounting 3. payroll
4. accounts payable 5. accounts receivable
6. billing
7. fixed-asset accounting
8. general ledger h. Computer Service 1. data processing 2. systems development and maintenance
3. database administration

Question 19

What are the roles of internal and external auditors?

Answer 19

nternal auditors are responsible for in-house appraisal of the financial reporting system. Internal auditors are concerned with deterring and detecting fraud and for conducting EDP audits. External auditors are independent CPAs engaged by the firm to attest to the completeness and accuracy of the financial statements. External auditors work together with the internal auditors.

Question 20

What is the role of a database administrator?

Answer 20

The database administrator is responsible for the security and integrity of data stored in a central database.

Question 21

Name the three most common ways to segment an organization.

Answer 21

Geographic location, product lines, and function.

Question 22

What is the role of the accounting function in an organization

Answer 22

The role of the accounting function is to manage the financial information resources of the firm. First, the accountants must capture and record business events of a firm and their financial impact. Secondly, the accounting function distributes transaction information to decision makers and operations personnel to help them coordinate their many tasks. The accountants must also assign accountability for each of these tasks.

Question 23

Distinguish between the centralized and distributed approaches to organizing the IT function.

Answer 23

In a centralized data processing approach, the computer services function is centrally located. The databases are housed in one place where all of the data processing occurs by one or more main computers. All systems development and maintenance work for the entire organization is performed by systems professionals. End users wishing to have new systems or features must submit a formal request to this group and are usually prioritized and placed in a queue.

In a distributed data-processing approach, the CPUs are spread out and control over data and processing is at the information processing unit (IPU) level. Thus, end users have more influence over the systems development projects, which are typically handled by systems professionals at the IPU level

Question 24

What is the role of the data control group?

Answer 24

he data control group is a liaison between the end user and data-processing personnel. It receives the user input and distributes the output to the users. Data control members scan the input for accuracy and completeness before passing the input to the data-entry personnel

Question 25

What is distributed data processing?

Answer 25

Data processing is organized around several information processing units, which are distributed throughout the organization and placed under the control of end users. The central computer services are eliminated or minimized.

Question 26

What are the advantages and disadvantages of distributed data processing?

Answer 26

he advantages of DDP are: a. cost reductions b. improved cost control responsibility c. improved user satisfaction d. ability to back up computer facilities The disadvantages of DDP are: a. potential mismanagement of organization-wide resources b. hardware and software incompatibility c. redundant tasks d. consolidating incompatible activities e. acquiring qualified professionals f. lack of standards

Question 27

What types of tasks become redundant in a distributed data processing system?

Answer 27

Identical applications or applications that are very similar may be created by multiple user areas, which are unaware of what other areas are doing. Further, data redundancy may occur if the same data are being collected and stored by different user areas. The duplicated data may result in data consistency problems if not properly managed

Question 28

What is a flat-file system?

Answer 28

A flat-file system is one in which individual data files are not related to other files. End users in this environment own their data files rather than share them with other users. Data processing is thus performed by standalone applications rather than integrated systems.

Question 29

What are the three general problems associated with data redundancy?

Answer 29

a. increased data storage since the same data is stored in multiple files b. increased data updating since changes must be made to multiple files c. possibility of noncurrent data caused by failure to update.

Question 30

Define the key elements of the REA model

Answer 30

he key elements of the REA model are summarized below. Resources. Economic resources are the assets of the organization. They are defined as objects that are both scarce and under the control of the enterprise. This definition departs from the traditional model since it does not include accounts receivable. An account receivable is an artifact record used simply to store and transmit data. Since it is not an essential element of the system, it need not be included the database. Instead accounts receivable are derived as the difference between sales to customers and the cash received in payment of sales. Events. Economic events are phenomena that affect changes in resources. They can result from activities such as production, exchange, consumption, and distribution. Economic events are the critical information elements of the accounting system and should be captured in a highly detailed form to provide a rich database. Agents. Economic agents are individuals and departments that participate in an economic event. They are parties both inside and outside the organization with discretionary power to use or dispose of economic resources. Examples of agents include sales clerks, production workers, shipping clerks, customers, and vendors.

Question 31

What is an ERP system?

Answer 31

Enterprise Resource Planning (ERP) is an information system model that enables an organization to automate and integrate its key business processes. ERP breaks down traditional functional barriers by facilitating data sharing, information flows, and the introduction of common business practices among all organizational users

Question 32

What three roles are played by accountants with respect to the information system?

Answer 32

Users, system designers, and system auditors.

Question 33

Define the term attest function

Answer 33

The attest function is performed by an independent certified public accountant who expresses an opinion about the fairness of a client-firm’s financial statements.

Question 34

Define the term assurance.

Answer 34

ssurance pertains to professional services, including the attest function, that are designed to improve the quality of information, both financial and non-financial, used by decision makers. The domain of assurance services is intentionally unbounded so that it does not inhibit the growth of future services that are currently unforeseen. For example, assurance services may be contracted to provide information about the quality or marketability of a product. Assurance services are intended to help people make better decisions by improving information. This information may come as a by-product of the attest function, or it may ensue from an independently motivated review

Question 35

What is IT auditing

Answer 35

T auditing is part of a broader financial audit in which the auditor attests to the integrity of elements of the organization’s information system that have become complicated by computer technology

Question 36

Distinguish between conceptual and physical systems.

Answer 36

The conceptual system must first be determined. It specifies the nature of the information required, how and when it is to be collected, and who is the user. For each conceptual system, many different physical configurations may be possible. The physical system is the medium and method used to collect the data, process it, and disseminate the resulting information.