Chapter 1 - Companies find that their success or failure often depends

upon the uses or misuses of the information that knowledge

ACCOUNTING INFORMATION SYSTEMS AND THE workers manage.
ACCOUNTANT

WHAT’S NEW IN ACCOUNTING INFORMATION

WHAT ARE ACCOUNTING INFORMATION SYSTEMS?
SYSTEMS?
- Cloud Computing—Impact for Accountants
- Accounting information systems (AISs) stand at the
crossroads of two disciplines: accounting and information - Cloud computing is a way of using business applications
systems. Thus, the study of AISs is often viewed as the study over the Internet—such as the way you use the Internet for
of computerized accounting systems. your bank transactions.

- An accounting information system is a collection of data - Cloud computing resources may be categorized as data
and processing procedures that creates needed information for storage, infrastructure and platform, or application software
its users. (i.e., business applications such as purchases, HR, sales, etc.).

IMPORTANT BENEFITS OF USING THE CLOUD

- the ability to only pay for the applications that you use
Accounting Information Systems and Their Role in
Organizations - an organization may not have to purchase or operate
expensive hardware and software—providers own and operate
- Information technology (IT) refers to the hardware, software,
the equipment and software
and related system components that organizations use to create
computerized information systems. - cloud computing providers offer only one (current) version
of an application, so individual firms no longer have to deal
- IT has been a major force in our current society and now
with expensive, time-consuming upgrades for software.
influences our lives in many personal ways—for example,
when we use digital cameras to take pictures, access the
Internet to make a purchase or learn about something, or e-
mail friends and family.

- In this information age, for example, fewer workers actually

make products while more of them produce, analyze,
manipulate, and distribute information about business
activities. These individuals are often called knowledge
workers.

ais reviewer Diana Rose Datoon

ACCOUNTING AND IT Certified Fraud Examiner

- IT is pervasive and impacts every area of accounting. - an individual must first meet the following qualifications:
Instantaneous access is available to the Internet via mobile have a bachelor’s degree, at least 2 years of professional
communication devices such as cell phones, iPads, smart experience in a field either directly or indirectly related to the
phones, and so on, which enable activities to take place detection or deterrence of fraud, be of high moral character,
anytime and anywhere. and agree to abide by the Bylaws and Code of Professional
Ethics of the ACFE. If these are met, then the individual may
- For example, managerial accountants can complete apply for the CFE examination.
important work tasks while traveling in the field, auditors can
communicate with each other from remote job sites (auditing
the same client), staff accountants can text message one
another from alternate locations, and tax experts can download Information Technology Auditors
current information on tax rulings. - concern themselves with analyzing the risks associated with
computerized information systems.

AIS AT WORK—CONSULTING WORK FOR CPAS

- Businesses and government entities have always been

concerned about disaster recovery or continuity planning.

- Continuity planning is an internal control specifically

designed to ensure that operations, including IT functions, can
continue in the event of a natural or man-made disaster.

- A CPA can help a business to draw up a business continuity

plan.

CAREERS IN ACCOUNTING INFORMATION

SYSTEMS

Certified Information Technology Professional (CITP)

- Recognizing the importance to accountants of knowledge

about information systems which accountants can earn if they
have business experience and if they pass an examination.

Systems Consultant

- provide help with issues concerning information systems—

for example, by helping an organization design a new
information system, select computer hardware or software, or
reengineering business processes

ais reviewer Diana Rose Datoon

 Chapter 2

INFORMATION TECHNOLOGY AND AISs DATA COMMUNICATIONS AND NETWORKS

Data Communications

THE IMPORTANCE OF INFORMATION - refers to transmitting data to and from different locations.
TECHNOLOGY TO ACCOUNTANTS Many accounting applications use data communications in
normal business operations.
- One reason for IT’s importance is that information
technology must be compatible with, and support, the other
components of an AIS.
Communication Channels and Protocols
- A second reason why information technology is important is
because accounting professionals often help clients make - A communication channel is the physical path that data
hardware and software purchases. take in data transmissions. Examples include (1) the twisted-
pair wires of telephone lines, (2) coaxial cables, (3) optical
- A third reason why information technology is important to fibers, (4) microwaves, and (5) radio (satellite) waves.
accountants is because auditors must evaluate computerized
systems. - A data communications protocol refers to the settings that
provide this format. Two common protocols are TCP
- A fourth reason why IT is important to accountants is (transmission control protocol), which networks commonly
because they are often asked to evaluate the efficiency (e.g., use for e-mails, and HTTP (hypertext transmission protocol),
costliness and timeliness) and effectiveness (usually strategic which networks commonly use for Web pages.
value) of an existing system.

- A fifth reason why information technology is important to

accountants is because IT profoundly affects the way they
work today and will work in the future. DATA COMMUNICATIONS AND NETWORKS
- A final reason why information technology is important to Local and Wide Area Networks
accountants is because understanding how IT affects
accounting systems is vital to passing most accounting
certification examinations.

INPUT, PROCESSING, AND OUTPUT DEVICES

Wide Area Network

SECONDARY STORAGE DEVICES

- Magnetic (Hard) Disks

- CD-ROMs, DVDs, and Blu-Ray Discs

- Flash Memory

- Image Processing

- Record Management Systems

ais reviewer Diana Rose Datoon
 - Personal productivity software, project management
software, accounting software and communications software
DATA COMMUNICATIONS AND NETWORKS and enterprise resource management software.
Client/Server Computing
Chapter 3
- is an alternative technology to mainframe and/or hierarchical
DATA MODELING
networks. Depending on the type of client/server system, data
processing can be performed by any computer on the network.

What Is a Database?
Wireless Data Communication - A database is a large collection of organized data that
- also called Wi-Fi (for ‘‘wireless fidelity’’), means can be accessed by multiple users and used by many
transmitting voice-grade signals or digital data over wireless different computer applications.
communication channels.
- Data in databases are manipulated by specialized
software packages called database management
systems
RFID

- Radio frequency identification (RFID) enables businesses - Most accounting systems involve complex
to identify pallets and even individual items without combinations of data stored in databases, processing
unpacking them from shipping crates. software, and hardware that interact with one another to
support specific storage and retrieval tasks. Most
accounting databases are relational databases, which
NFC are groups of related, two-dimensional tables.

- Near field communication (NFC) enables mobile devices

such as cell phones, PDAs, and laptop computers to
communicate with similar devices containing NFC chips Significance of Databases
Critical information

Cloud Computing - The information stored in an organization’s databases is

sometimes its most important and valuable asset.
- refers to a range of computing services on the Internet—for
Equifax, for example, is one of the nation’s largest credit
example, access to computer software programs, backup and
bureaus, maintaining credit information about millions
recovery file services, and even Web page development and
hosting. of Americans. Its credit files are its business.

COMPUTER SOFTWARE Volume

Operating Systems - Many firms’ databases are truly enormous. For

example, Sprint keeps records on over 50 million
- is a set of software programs that helps a computer, file
customers and inserts about 70,000 records to its
server, or network run itself and also the application programs
database every second. Amazon.com has a database with
designed for it. Examples of operating systems for
microcomputers include MacOS, Windows 7, and Linux. more than 40 terabytes of data, and YouTube visitors
watch more than 100 million video clips from its
database every day. Designing, using, and maintaining
Application Software databases of such great size requires substantial
resources.
- refers to computer programs that help end users such as
accountants perform the tasks specific to their jobs or relevant
to their personal needs.

ais reviewer Diana Rose Datoon

Distribution Internet uses
- The databases of some organizations are centralized - As you might imagine, databases are critical
(i.e., data is stored in a single location). Many other components of both internal and external corporate Web
databases, however, are distributed (i.e., duplicated in systems. Databases store information related to product
local or regional computers as processing needs dictate). information for online catalog sales, e-mails, product
Distributing data can make it difficult to (1) ensure data registration data, employment opportunities, stock
accuracy, consistency, completeness, and (2) secure prices, and so on. Internet applications often store
information from unauthorized access. customer-entered data such as online product orders,
credit card numbers, subscription information, airline
reservations, and university-student registration data.
Privacy
- Databases often contain sensitive information—for
Storing Data in Databases
example, employee pay rates or customer credit card
numbers. This information must be protected from those (1) the data hierarchy,
unauthorized to access it. The internal control
(2) record structures, and
procedures that protect databases from unwarranted
access are often considered the most critical controls in (3) database keys.
an organization.

Irreplaceable data
The Data Hierarchy
- The information contained in most accounting
databases is unique to the organization that created it and Data Field
is typically priceless. Many organizations would fail - The first level in the data hierarchy is a data field,
shortly after losing the information contained in their which is information that describes a person, event, or
accounting databases. For this reason, the security of thing in the database.
databases is critical to the organization.

Record
Need for accuracy
- A database record (also called a tuple) stores all of the
- The data stored in databases must be complete, information about one entity
comprehensive, and accurate. The consequences of
inaccurate data can be substantial. It is easy to imagine
severe consequences of very small data errors. Consider
File
a physician removing an incorrect limb during surgery
because of one attribute in a database table (e.g., left - a file or table contains a set of related records—for
versus right limb). example, a set of customer records or inventory records.

Database
- several tables create a complete database (i.e., a
collection of tables that contain all of the information
needed for an accounting application).

ais reviewer Diana Rose Datoon

 STEPS IN DEVELOPING A DATABASE USING
THE RESOURCES, EVENTS, AND AGENTS
Additional Database Issues
MODEL
Administration
- Although there are a number of different models that
- A database administrator supervises the design, may be used to design a database, the REA model has
development, and installation of a large database system, been demonstrated to be very effective for designing
and is also the person responsible for maintaining, databases to be used in accounting systems.
securing, and changing the database.
- REA is an acronym for resources (R), events (E), and
agents (A). The basic assumption of this model is that
business events affect firm resources and involve agents
Documentation (i.e., people) who participate in the event
- The data dictionary is a critical component of database
documentation that describes the data fields in each
database record. Step 1—Identify Business and Economic Events
Step 2—Identify Entities

Data Integrity Step 3—Identify Relationships Among Entities

- data integrity controls are designed by database Step 4—Create Entity-Relationship Diagrams
developers and are customized for different applications.
Step 5—Identify Attributes of Entities
Step 6—Convert E-R Diagrams into Database Tables
Processing Accuracy and Completeness
- transaction processing refers to the sequence of steps
that a database system uses to accomplish a specific
processing task. Step 1—Identify Business and Economic Events
Economic events
Concurrency - typically affect an organization’s financial statements.
- In multi-user systems, it is possible for more than one - An example of an economic event is a sale on account.
user to access the same database at the same time.
Business events
Without concurrency controls, it is possible for two or
more users to access the same record from the same - do not affect financial statements but can affect
table at the same time. important aspects of an organization.
- One example of such an event is the discovery that a
construction project will likely cost far more than was
Backup and Security
budgeted. While there is no journal entry for the event,
- A key security feature of any database, therefore, is a this would certainly be important information that
set of backup procedures that enable the organization to managers need to know.
recreate its data if the original copies are lost or
damaged.
- A system should have the ability to assign, maintain,
and require employees to use passwords and guard
against unwarranted intrusions.

ais reviewer Diana Rose Datoon

Step 2—Identify Entities Step 4—Create Entity-Relationship Diagrams

- Databases contain data about objects of interest called - Database designers use a graphical documentation
entities. technique called the entity- relationship (E-R) diagram
to depict entities and their relationships.
- Database entities include business and economic
events plus information about who and what were - The diagram consists of three items: rectangles,
involved in those activities. Agents are the who connecting lines, and cardinality notations. Rectangles
associated with events. represent entities and connecting lines depict
relationships.
- Agents are classified as either internal or external.

- Internal agents work within the firm for which a

Step 5—Identify Attributes of Entities
database is designed (e.g., salespeople), while external
agents are outside of the firm (e.g., customers). - Eventually, the entities that the database designer
identifies become tables in a database. In other words, a
database contains a table for every entity in the E-R
diagram. The tables consist of records, each containing
data fields that describe the entity’s attributes.

Step 3—Identify Relationships Among Entities

- Entities are related to other entities.
- The relationship between a sale and inventory or
between a sale and a customer is called a direct
relationship.
- Inventory and customer also share a relationship, but it
is an indirect relationship.
- Data modelers need to know about entity relationships
in order to create links between database tables. Without
these links, database users cannot access data from more
than one table at a time.
- We describe relationships in terms of cardinalities.
Cardinality describes how entities are related, and we
often abbreviate the description of the cardinality
between two entities as either one-to-one (1:1), one-to-
many (1:N), or many-to-many (N:N).

ais reviewer Diana Rose Datoon

Step 6—Convert E-R Diagrams into Database Tables FIRST NORMAL FORM
- Creating links between tables is simple when the - A database is in first normal form (1 NF) if all of a
relationship between the entities is one-to-one or one-to- single record’s attributes (data fields) are singular. That
many. In one-to-one relationships, the foreign key can be is, each attribute has only one value. Figure 3-14 shows
in either table. If entities occur in sequence, the foreign a set of university parking ticket data with repeating
key will usually be in the second event. In one-to-many groups in its rightmost four columns. (Real parking
relationships, the foreign key will be on the many side of tickets will contain many more data fields than shown
the relationship. here, but we will keep things simple to focus on
normalization tasks.) Databases cannot store more than
- Linking tables with foreign keys becomes problematic
one value in the same data field (i.e., column) of the
when there is a many-to-many relationship between two
same record, so we must do something to overcome this
entities. New relationship tables are necessary when
limitation.
you have many-to-many relationships. The reason for
this is that, without relationship tables, there would be
fields in a database table that could contain many
possible values.

NORMALIZATION
- is a methodology for ensuring that attributes are stored
in the most appropriate tables and that the design of the
database promotes accurate and nonredundant storage of
data.
- The process of normalization can result in the creation
of new tables to include in the database.
- There are multiple levels of normalization.
- We shall examine the first three levels—first normal
form, second normal form, and third normal form—
as these three normal forms address the vast majority of
problems when designing database tables.

ais reviewer Diana Rose Datoon

SECOND NORMAL FORM THIRD NORMAL FORM
- A database is in second normal form if it is in first - A database is in third normal form if it is in second
normal form and all the attributes in each record depend normal form and contains no transitive dependencies.
entirely on the record’s primary key. To satisfy this This means that the same record does not contain any
requirement for our student parking ticket example, let data fields where data field A determines data field B.
us split our student information into two files—a Car The Ticket table in Figure 3-16 suffers from this problem
Registration File and a Ticket File—as shown in Figure because the ticket code data field (e.g., a code of A)
3-16. This approach results in a more efficient design determines the amount of the fine (e.g., $10).
and also eliminates much of the first file’s data
redundancy.

ais reviewer Diana Rose Datoon