Accounting Essay 2 pages must answer all questions (TCO A) With the explosion of technological advances in the last 15 years, AIS skills are importan -

Accounting Essay 2 pages must answer all questions
(TCO A) With the explosion of technological advances in the last 15 years, AIS skills are important for career success in accounting. Provide three reasons or benefits of AIS skills to any accounting-related career
(TCO C) Several years ago a ring of foreign-based hackers broke into South Pacific Banks system and stole $ 15 million from its customers accounts. Discuss how systems can become vulnerable to computer crimes and then evaluate controls that strengthen those weaknesses. (a) Provide at least three weaknesses of AIS that hackers can exploit for gain and then (b) suggest at least one control for each weakness.
(TCO D) Describe typical credit approval procedures.
(TCO E) The owner of a small family-owned business prepares his own payroll but rapid expansion is making demands for his time in other areas. He hires you to design payroll procedures with the proper internal controls that a small payroll department can handle. Design (using words) how payroll data should flow within the company, and in your design, make sure you address the control objectives.
(TCO F) Identify what tools are used to assess organizational performance and explain they are used.
(TCO G) Discuss redundancy as it applies to database design, and explain how redundancy can be reduced.
(TCO H) Provide an argument in support of a companys decision to outsource its information system.

ACCT571 Final Exam Study Guide

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7. Exam Questions

There are eight randomly selected essay questions each worth 2530 points, for a total of 230 points.
The Final Exam covers all course TCOs and Weeks AH.
The Final Exam consists of two pages, which can be completed in any order. You may go back and forth between the pages.
The Final Exam questions are pooled. This means that not everyone will have the same questions. Even if you do have some of the same questions, they may not be in the same order. These questions are distributed among the TCOs. The entire exam is worth 230 points.
On the essay questions, your answers should be succinct, should fully address each part of the question, and should demonstrate your knowledge and understanding in a concise but complete manner. Most essay questions require answers that are a couple of paragraphs (not a couple of sentences) that directly speak to each part of the question.Some students opt to work on the essay questions first, due to their higher point value and the length of time needed to adequately address each question, but this is entirely your choice.
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8. Some of the key study areas are shown below. Although these are key areas, remember that the exam is comprehensive for all of the assigned course content and this study guide may not be all-inclusive.

1. The benefit of AIS skills and how AIS provides value to business
1. Designing a coding system
1. COSOs internal control framework
1. Controls in an AIS system
1. The revenue and expenditure cycles and related controls
1. Benefits of XBRL
1. Databases
1. AIS outsourcing decision

9. Areas that were discussed in the Discussion areas will be prime targets.

10. Assignments will also be prime targets for revisiting.

11. Reviewing the TCOs, which are listed below for your convenience, will also be a great preparation for the Final Exam.

Given an automated accounting system, discuss the key components of the system, key components of transaction process, and how the components are identified into separate/distinct business processes.

Given an environment of computer fraud and the resulting effect on an organization, evaluate the different types of control frameworks that can be implemented to reduce the risk of fraud activities that might impact an organization’s automated accounting system.

Given an environment of computer crimes and the resulting effect on an organization, determine the control processes and procedures required to safeguard assets and secure accounting information systems whether mandated by law or not.

Given an organization’s accounting information system, evaluate the key components of the revenueand expenditure cycle business processes and recommend processing and control procedures that provide reasonable assurance of information processing integrity and resource security.

Given an automated accounting system, evaluate the key components of business processes, such as payroll, production, etc., that comprise an organizations core accounting information system and recommend processing and control procedures that provide reasonable assurance of information processing integrity and resource security.

Given an organization’s need to rely on a stable accounting information system, evaluate financial reporting information requirements of an accounting information system and recommend processing and control procedures that provide reasonable assurance of information processing integrity and resource security.

Given an automated accounting system, demonstrate how data can be organized, stored, and analyzed.

Given the demand for advanced technology and an organization’s need to maintain and upgrade its accounting information systems, determine the proper steps for implementing/upgrading an organization’s accounting information systems. Accounting Information Systems
Fourteenth Edition
Chapter 18
Implementing an REA Model in a Relational Database
Copyright 2018 Pearson Education, Inc. All Rights Reserved

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Learning Objectives
Integrate separate REA diagrams for individual business cycles into a single, comprehensive, organization-wide REA diagram.
Build a set of tables to implement an REA model of an AIS in a relational database.
Use the REA data model to write queries to retrieve information from an AIS relational database built according to the REA data model.

Combining REA Diagrams
Individual REA diagrams can be combined to form an integrated REA diagram by:
Merging redundant resource entities (e.g., inventory is acquired in expenditure cycle and reduced in the sales cycle)
Merging redundant event entities (e.g., disburse cash event appears in the expenditure cycle and the payroll cycle)

Integrated REA Diagram Rules
Every event must be linked to at least one resource.
Every event must be linked to two agents who participate in that event.
Every event that involves the disposition of a resource must be linked to an event that involves the acquisition of a resource (give-get exchange).
Every resource must be linked to at least one event that increments that resource and to at least one event that decrements that resource.
If event A can be linked to more than one other event, but cannot be linked simultaneously to all of those other events, then the REA diagram should show that event A is linked to a minimum of 0 of each of the other events.
If an event can be linked to any one of a set of agents, then the ERA diagram should show that event is linked to a minimum of 0 of each of those agents.

Using an REA Diagram to Build a Relational Database
Create tables for each distinct entity and M:N relationship
Assign attributes to each table
Identify primary keys
Concatenated keys for M:N relationship table
Use foreign keys to implement 1:1 and 1:N relationships

Using REA Diagrams to Retrieve Information
Journals
Information contained in event tables
Ledgers
Information contained in resource tables (increment and decrements of events)
Financial statements
Information contained in resources and events using a set of queries
Management reports
Financial and nonfinancial information

Key Term
Concatenated keys

8 Accounting Information Systems
Fourteenth Edition
Chapter 11
Auditing Computer-Based Information Systems
Copyright 2018 Pearson Education, Inc. All Rights Reserved

Learning Objectives
Describe the nature, scope, and objectives of audit work, and identify the major steps in the audit process.
Identify the six objectives of an information system audit, and describe how the risk-based audit approach can be used to accomplish these objectives.
Describe computer audit software, and explain how it is used in the audit of an AIS.
Describe the nature and scope of an operational audit.

Auditing
The process of obtaining and evaluating evidence regarding assertions about economic actions and events in order to determine how well they correspond with established criteria.

Major Steps in the Auditing Process
Audit planning
Why, how, when, and who
Establish scope and objectives of the audit; identify risk
Collection of audit evidence
Evaluation of evidence
Communication of results

Risk-Based Audit Approach
Determine the threats (fraud and errors) facing the company
Identify control procedures (prevent, detect, correct the threats)
Evaluate control procedures
Review to see if control exists and is in place
Test controls to see if they work as intended
Determine effect of control weaknesses
Compensating controls

Information Systems Audit
Using the risk-based framework for an information systems audit allows the auditor to review and evaluate internal controls that protect the system to meet each of the following objectives:
Protect overall system security (includes computer equipment, programs, and data)
Program development and acquisition occur under management authorization
Program modifications occur under management authorization
Accurate and complete processing of transactions, records, files, and reports
Prevent, detect, or correct inaccurate or unauthorized source data
Accurate, complete, and confidential data files

1. Overall Information System Security
Threats
Controls
Theft of hardware
Damage of hardware (accidental and intentional)
Loss, theft, unauthorized access to
Programs
Data
Other system resources
Unauthorized modification or use of programs and data files
Loss, theft, or unauthorized disclosure of confidential data
Interruption of crucial business activities
Information security/protection plan
Limit physical access to computer equipment
Limit logical access to system using authentication and authorization controls
Data storage and transmission controls
Virus protection and firewalls
File backup and recovery procedures
Fault tolerant systems design
Disaster recovery plan
Preventive maintenance
Firewalls
Casualty and Business Interruption Insurance

2. Program Development and Acquisition
Threat
Controls
Inadvertent programming errors
Unauthorized program code
Review software license agreements
Management authorization for:
Program development
Software acquisition
Management and user approval of programming specifications
Testing and user acceptance of new programs
Systems documentation

3. Program Modification
Threat
Controls
Inadvertent programming errors
Unauthorized program code
List program components to be modified
Management authorization and approval for modifications
User approval for program change specifications
Test changes to program
System documentation of changes
Changes by personnel independent of users and programmers
Logical access controls

4. Computer Processing
Threats
Controls
Failure to detect incorrect, incomplete, or unauthorized input data
Failure to correct errors identified from data editing procedures
Introduction of errors into files or databases during updating
Improper distribution of output
Inaccuracies in reporting
Data editing routines
Proper use of internal and external file labels
Reconciliation of batch totals
Error correction procedures
Understandable documentation
Competent supervision
Effective handling of data input and output by data control personnel
File change listings and summaries for user department review
Maintenance of proper environmental conditions in computer facility

5. Source Data
Threat
Controls
Inaccurate source data
Unauthorized source data
User authorization of source data input
Batch control totals
Log receipt, movement, and disposition of source data input
Turnaround documents
Check digit and key verification
Data editing routines
User department review of file change listings and summaries
Effective procedures for correcting and resubmitting erroneous data

6. Data Files
Threats
Controls
Destruction of stored data from
Errors
Hardware and software malfunctions
Sabotage
Unauthorized modification or disclosure of stored data
Secure storage of data and restrict physical access
Logical access controls
Write-protection and proper file labels
Concurrent update controls
Data encryption
Virus protection
Backup of data files (offsite)
System recovery procedures

Audit Techniques Used to Test Programs
Integrated Test Facility (ITF)
Uses fictitious inputs
Snapshot Technique
Master files before and after update are stored for specially marked transactions
System Control Audit Review File (SCARF)
Continuous monitoring and storing of transactions that meet pre-specifications
Audit Hooks
Notify auditors of questionable transactions
Continuous and Intermittent Simulation (CIS)
Similar to SCARF for DBMS

Software Tools Used to Test Program Logic
Automated flowcharting program
Interprets source code and generates flowchart
Automated decision table program
Interprets source code and generates a decision table
Scanning routines
Searches program for specified items
Mapping programs
Identifies unexecuted code
Program tracing
Prints program steps with regular output to observe sequence of program execution events

Computer Audit Software
Computer assisted audit software that can perform audit tasks on a copy of a companys data. Can be used to:
Query data files and retrieve records based upon specified criteria
Create, update, compare, download, and merge files
Summarize, sort, and filter data
Access data in different formats and convert to common format
Select records using statistical sampling techniques
Perform analytical tests
Perform calculations and statistical tests

Operational Audits
Purpose is to evaluate effectiveness, efficiency, and goal achievement. Although the basic audit steps are the same, the specific activities of evidence collection are focused toward operations such as:
Review operating policies and documentation
Confirm procedures with management and operating personnel
Observe operating functions and activities
Examine financial and operating plans and reports
Test accuracy of operating information
Test operational controls

Key Terms (1 of 2)
Auditing
Internal auditing
Financial audit
Information systems (internal control) audit
Operational audit
Compliance audit
Investigative audit
Inherent risk
Control risk
Detection risk
Confirmation
Reperformance
Vouching
Analytical review
Materiality
Reasonable assurance
Systems review
Test of controls
Compensating controls
Source code comparison program
Reprocessing
Parallel simulation
Test data generator
Concurrent audit techniques
Embedded audit modules
Integrated test facility (ITF)
Snapshot technique
System control audit review file (SCARF)
Audit log

Key Terms (2 of 2)
Audit hooks
Continuous and intermittent simulation (CIS)
Automated flowcharting program
Automated decision table program
Scanning routines
Mapping programs
Program tracing
Input controls matrix
Computer-assisted audit techniques (CAAT)
Generalized audit software (GAS)

Learning Objectives
Describe the major business activities, key decisions, and information needs in the HRM/payroll cycle, the general threats to those activities, and the controls that can mitigate those threats.
Explain the payroll cycle activities, key decisions, and information needs, the threats to those activities, and the controls that can mitigate those threats.
Discuss and evaluate the options for outsourcing HRM/payroll cycle activities.

Human Resource Management Process
Recruit and hire new employees
Training
Job assignment
Compensation (payroll)
Performance evaluation
Discharge of employees (voluntary or involuntary)

General Issues HRM/Payroll
Threats
Controls
Inaccurate or invalid data
Unauthorized disclosure of sensitive information
Loss or destruction of data
Hiring unqualified or larcenous employees
Violations of employment laws
1 a. Data processing integrity controls
b. Restrict access to master data
c. Review changes to master data
2 a. Access controls
b. Encryption
3 a. Backup and Disaster recovery
4 a. Sound hiring procedures
5 a. Documentation of hiring
b. Continuing education on changes to employment laws

Payroll Cycle Activities
Update payroll master data
Validate time and attendance data
Source document: time sheets
Prepare payroll
Payroll register and deduction register
Disburse payroll
Disburse taxes and miscellaneous deductions

1. Update Master Payroll Data
2. Validate Time and Attendance Data
3. Prepare Payroll
Threats
Controls
Unauthorized changes to payroll master data
Inaccurate updating of master data
Inaccurate time and attendance data
Errors in processing payroll
1 a. Access controls and segregation of duties
2 a. Data processing integrity controls
3 a. Supervisory review
b. Source data automation for data capture
4 a. Data processing integrity
controls
b. Supervisory review

4. Disburse Payroll
5. Disburse Payroll Taxes
Threats
Controls
Theft or fraudulent distribution of paychecks
Failure to make required payments
Untimely payments
Inaccurate payments
1 a. Restrict access to blank payroll checks and check signing machine
b. Use separate account (imprest fund)
2 a. Configure system to make automatic payments on time
3 a. Configure system to make automatic payments on time
4 a. Process integrity controls
b. Supervisory review

Reasons to Outsource Payroll
Reduce costs
Cost of processing and minimize errors
Broader range of benefits
Administration of benefits
Free up computer resources

Key Terms
Human resource management (HRM)/payroll cycle
Knowledge management systems
Time card
Time sheet
Payroll register
Deduction register
Earnings statement
Payroll clearing account
Flexible benefits plan
Payroll service bureau
Professional employer organization (PEO)

Learning Objectives (1 of 2)
Discuss the basic business activities and related information processing operations in the expenditure cycle, explain the general threats to those activities, and describe the controls that can mitigate those threats.
Explain the process and key decisions involved in ordering goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats.
Explain the process and key decisions involved in receiving goods and services, identify the threats to those activities, and describe the controls that can mitigate those threats.

Learning Objectives (2 of 2)
Explain the process and key decisions involved in approving supplier invoices, identify the threats to those activities, and describe the controls that can mitigate those threats.
Explain the process and key decisions involved in cash disbursements to suppliers, identify the threats to those activities, and describe the controls that can mitigate those threats.

Basic Expenditure Cycle Activities
Order materials, supplies, and services
Receive materials, supplies, and services
Approve supplier (vendor) invoice
Cash disbursement

Key decisions
What is the optimal level of inventory?
Which suppliers provide the best quality at the best price?
How can IT be used to improve efficiency and accuracy of logistics?
How can we take advantage of vendor discounts?
How can we maximize cash flow?

General Threats and Controls
Threats
Control
Inaccurate or invalid master data
Unauthorized disclosure of sensitive information
Loss or destruction of data
Poor performance
1 a. Data processing integrity controls
1 b. Restriction of access to master data
1 c. Review of all changes to master data
2 a. Access controls
b. Encryption
3 a. Backup and disaster recovery procedures
4 a. Managerial reports

Order Goods (Materials/Supplies) or Services Processing Steps
Identify what, when, and how much to purchase
Source document: purchase requisition
Choose a supplier
Source document: purchase order

Ordering Goods/Services (1 of 2)
Threats
Controls
Stockouts and excess inventory
Purchasing items not needed
Purchasing items at inflated prices
Purchasing goods of poor quality
1 a. Perpetual inventory system
b. Bar-coding, RFID
c. Periodic physical counts
2 a. Perpetual inventory systems
b. Review and approval of purchase requisitions
c. Centralized purchasing
3 a. Price lists
b. Competitive bids
c. Review purchase orders
4 a. Use approved suppliers
b. review and approve purchases from new suppliers
c. Monitor product quality by supplier
d. hold purchasing managers responsible for rework and scrap cost

Ordering Goods/Services (2 of 2)
Threats
Controls
Unreliable suppliers
Purchasing from unauthorized suppliers
Kickbacks
5 a. Monitor supplier performance
b. Require quality certification
6 a. Purchase from approved suppliers
b. Review approval from purchases of new suppliers
c. EDI specific controls
7 a. Supplier audits
b. Prohibit gifts
c. Job rotation & mandatory vacations
d. Required disclosure of financial and personal interests in suppliers

Receiving Process
Goods arrive
Verify goods ordered against the purchase order (what, how much, quality)
Source document: receiving report

Receiving Goods or Services
Threats
Controls
Accepting unordered items
Mistakes in counting
Verifying receipt of services
Inventory theft
1 a. Authorized purchase orders needed before receiving goods
2 a. Bar codes or RFID
b. Receiving employees sign receiving report
c. Do not inform receiving of quantity ordered
3 a. Budget controls and audits
4 a. Restrict physical access to inventory
b. Document all inventory transfers
c. Segregate custody vs. receiving of inventory

Approve Supplier Invoice and Cash Disbursements
Match the supplier invoice to:
Purchase order
Receiving report
supplier invoice + purchase order + receiving report = voucher
Approve supplier invoice for payment
Source document: disbursement voucher
Pay vendor

Approve Supplier Invoice
Threats
Control
Errors in supplier invoice
Mistakes in posting to accounts payable
1 a. Verify invoice accuracy
b. Require detailed receipts for p-cards
c. Restrict access to supplier master data
2 a. Data entry edit controls
b. Reconcile detailed accounts payable records to the general ledger accounts payable account

Cash Disbursements
Threats
Controls
Failure to take discounts
Pay for items not received
Duplicate payments
Theft of cash
Check alteration
Ca

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