JAMES A. HALL - Accounting Information System Chapter 8
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Transcript of JAMES A. HALL - Accounting Information System Chapter 8
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Accounting Information Systems, 6th edition
James A. Hall
COPYRIGHT © 2009 South-Western, a division of Cengage Learning. Cengage Learning and South-Western are trademarks used herein under license
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Objectives for Chapter 8Features, advantages, and disadvantages
of various coding schemesOperational features of the GLS, FRS, and
MRSPrinciple operational controls governing
the GLS and FRSFactors that influence the design of the
MRSElements of a responsibility accounting
system
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Uses of Coding in AISConcisely represent large amounts of
complex information that would otherwise be unmanageable
Provide a means of accountability over the completeness of the transactions processed
Identify unique transactions and accounts within a file
Support the audit function by providing an effective audit trail
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Sequential CodesRepresent items in sequential orderUsed to prenumber source documentsTrack each transaction processed Identify any out-of-sequence documentsDisadvantages:
arbitrary informationhard to make changes and insertions
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Block CodesRepresent whole classes by assigning
each class a specific range within the coding scheme
Used for chart of accounts The basis of the general ledger
Allows for the easy insertion of new codes within a block Don’t have to reorganize the coding structure
Disadvantage:arbitrary information
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Group CodesRepresent complex items or events involving
two or more pieces of data using fields with specific meaning
For example, a coding scheme for tracking sales might be 04-09-476214-99, meaning:
Store Number Dept. Number Item Number Salesperson
04 09 476214 99
• Disadvantages:– arbitrary information– overused
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Alphabetic CodesUsed for many of the same purposes as
numeric codes Can be assigned sequentially or used in
block and group coding techniquesMay be used to represent large numbers
of itemsCan represents up to 26 variations per field
Disadvantage:arbitrary information
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Mnemonic CodesAlphabetic characters used as
abbreviations, acronyms, and other types of combinations
Do not require users to memorize the meaning since the code itself is informative – and not arbitrary NY = New York
Disadvantages:limited usability and availability
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IS Functions of GLSGeneral ledger systems should:
collect transaction data promptly and accuratelyclassify/code data and accountsvalidate collected transactions/ maintain
accounting controls (e.g., equal debits and credits)process transaction data
post transactions to proper accounts update general ledger accounts and transaction files record adjustments to accounts
store transaction datagenerate timely financial reports
Input
Process
Output
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GeneralLedgerSystem(GLS)
FinancialReportingSystem
ManagementReportingSystem
InventoryControl
Payroll
CashDisbursements
AccountsPayable
CostAccounting
CashReceipts
Sales
Billings
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GLS DatabaseGeneral ledger master file
principal FRS file based on chart of accountsGeneral ledger history file
used for comparative financial supportJournal voucher file
all journal vouchers of the current periodJournal voucher history file
journal vouchers of past periods for audit trailResponsibility center file
financial data by responsibility centers for MRSBudget master file
budget data by responsibility centers for MRS
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Source documents
Journal entries in the
journalPost entries to
the ledger
Trial balance
Financial statementsAdjusting and
closing
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Financial Reporting Process Flowchart
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GLS ReportsGeneral ledger analysis:
listing of transactionsallocation of expenses to cost centerscomparison of account balances from prior periods trial balances
Financial statements:balance sheet income statementstatement of cash flows
Managerial reports:analysis of salesanalysis of cashanalysis of receivables
Chart of accounts: coded listing of accounts
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Potential Risks in the GL/FRSImproperly prepared journal entriesUnposted journal entriesDebits not equal to creditsSubsidiary not equal to G/L control accountsInappropriate access to the G/L Poor audit trailLost or damaged dataAccount balances that are wrong because of
unauthorized or incorrect journal vouchers
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GL/FRS Control IssuesTransaction authorization - journal
vouchers must be authorized by a manager at the source dept
Segregation of duties – G/L clerks should not:have recordkeeping responsibility for
special journals or subsidiary ledgersprepare journal vouchershave custody of physical assets
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Access controls:Unauthorized access to G/L can result in
errors, fraud, and misrepresentations in financial statements.
Sarbanes-Oxley requires controls that limit database access to only authorized individuals.
Accounting records - trace source documents from inception to financial statements and vice versa
GL/FRS Control Issues
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Independent verification G/L dept. reconciles journal vouchers and
summaries. Two important operational reports used:
journal voucher listing – details of each journal voucher posted to the G/L
general ledger change report – the effects of journal voucher postings on G/L accounts
GL/FRS Control Issues
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GL/FRS Using Database Technology
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Advantages:immediate update and reconciliationtimely, if not real-time, information
Removes separation of transaction authorization and processingDetailed journal voucher listing and account
activity reports are a compensating controlCentralized access to accounting records
Passwords and authorization tables as controls
GL/FRS Using Database Technology
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Management Reporting Systems Produce financial and nonfinancial information needed by management to “plan, evaluate, control”
Usually seen as discretionary reporting
Can argue that Sarbanes-Oxley requires MRS MRS provide a formal means for
monitoring the internal controls
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Factors That Influence MRS Design Management principlesManagement function, level, and
decision typeProblem structureTypes of management reportsResponsibility accountingBehavioral considerations
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Management Principles
Formalization of tasks:structures the firm around the tasks performed rather than around individuals’ unique skills
allows specification of the information needed to support the tasks
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Responsibility and authority:responsibility - obligation to achieve desired results
authority - power to make decisions within the limits of that responsibility
delegated by managers to subordinates
define the vertical reporting channels through which information flows
Management Principles
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Span of control:the number of subordinates directly under the manager’s
controldetailed reports for managers with narrow spans of control summarized information for managers with broad spans of
control
Narrow Span of Control Wide Span of Control
Management Principles
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Management by exception:Managers should limit their attention to potential problem areas.
Reports should focus on changes in key factors that are asymptomatic of potential problems.
Management Principles
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Management Function, Level, and Decision Type
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Strategic planning decisions:firm’s goals and objectivesscope of business activitiesorganizational structuremanagement philosophylong-term, with broad scope and impactnon-recurring , with high degree of uncertaintyneed highly summarized informationrequire external & internal information sources
Management Function, Level, and Decision Type
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Tactical planning decisions: subordinate to strategic decisions
short term specific objectivesrecur oftenfairly certain outcomeslimited impact on the firm
Management Function, Level, and Decision Type
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Management control decisions:using resources as productively as possible in all
functional areas evaluating the performance of subordinates
against standardsMeasuring performance is difficult because
sound decisions with long-term benefits may negatively impact the short- term bottom line.
Management Function, Level, and Decision Type
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Operational control decisions:deal with routine tasksnarrower focus, dependent on details highly structuredshort time frame
Three basic elements or steps:set attainable standards evaluate performancetake corrective action
Management Function, Level, and Decision Type
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Classification of Decision Types by Decision Characteristics
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Problem StructureReflects and affects how well decision makers understand and solve problems
Elements of problem structure:dataproceduresobjectives
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Problem Structure
StrategicManagement
TacticalManagement
Operations Management
Operations
Information System Management Level Problem Structure
Unstructured
Structured
PartiallyStructured
Trad
ition
al IS Non
-Tra
ditio
nal I
S
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Management ReportsReport objectives - reports must
have value or information content They should…
reduce the level of uncertainty associated with a problem facing the decision maker
influence the behavior of the decision maker in a positive way
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Report AttributesRelevance – useful to decision makingSummarization – appropriate level of
detailException orientation – identify risksAccuracy – free of material errorsCompleteness – essential informationTimeliness – in time for decisionsConciseness – understandable format
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Attributes of Useful Information According to FASB’s Conceptual Framework
Relevant Information
Predictive Value
Feedback Value
Timely
Neutral
VerifiableReliable
Information
Representational Faithfulness
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Types of Management ReportsProgrammed reports:
scheduled reports – produced at specified intervals, e.g., weekly
on-demand reports – triggered by events, e.g., inventory levels drop to a certain level
Ad hoc reports:designed and created “as needed” situations arise that require new
information
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Responsibility AccountingImplies that every economic event
that affects the organization is the responsibility of and can be traced to an individual manager
Incorporates the fundamental principle that responsibility-area managers are accountable for items that they control
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Setting Financial Goals: Budgeting
Budgeting helps management achieve financial objectives by setting measurable goals for each organizational segment.
Budget information flows downward and becomes increasingly detailed at each lower level.
The performance information flows upward as responsibility reports.
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Responsibility Centers
Cost center – responsible for keeping costs within budgetary limits
Profit center – responsible for both cost control and revenue generation
Investment center – has general authority to make a wide range of decisions affecting costs, revenue, and investments in assets
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Behavioral Considerations: Goal CongruenceMRS and compensation schemes help to
appropriately assign authority and responsibility.
If compensation measures are not carefully designed, managers may engage in actions not optimal for the organization.Short-term v. long-term measures
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Occurs when managers receive more information than they can assimilate
Can cause managers to disregard formal information and rely on informal—probably inferior—cues when making decisions
Behavioral Considerations: Information Overload
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Appropriate performance measuresStimulate behavior consistent with firm objectivesManagers consider all relevant aspects, not just
oneExample of inappropriate measures:
price variance – can affect the quality of the items purchased
quotas – can affect quality control, material usage efficiency, labor relations, plant maintenance
profit measures – can affect plant investment, employee training, inventory reserve levels, customer satisfaction
Behavioral Considerations: Performance Measures