Chapter # 1

Accounting Information System.

An accounting information system (AIS) focuses on financial data, recording transactions,
and producing financial statements. It supports accounting and finance functions.

Management Information System

A management information system (MIS) collects and processes both financial and non-
financial data, providing information to support decision-making across various departments and
management levels.

INTERNAL AND EXTERNAL FLOW OF INFORMATION

Internal flow of information refers to the exchange and circulation of information within an
organization, typically among employees, departments, and management levels.
External flow of information involves the exchange of information between an organization
and external parties, such as customers, suppliers, regulatory bodies, and the general public.

Difference between transaction, financial transaction and non-financial transaction

Transaction: A transaction is a process of exchanging goods, services, or information between
parties for mutual benefit.
Financial Transaction: A financial transaction is the transfer or exchange of money or financial
assets between individuals, businesses, or institutions.
Non-Financial Transaction: A non-financial transaction involves the exchange of goods, services, or
information without monetary transactions or financial assets.

Chapter # 3
ETHICAL ISSUES IN BUSINESS
Ethical issues in business are situations that involve moral concerns, such as fairness,
honesty, discrimination, environmental impact, and consumer protection.

Business Ethics
Business ethics is about doing the right thing in business, treating people fairly, being
honest and trustworthy, and considering the impact of actions on others and society.

Computer Ethics in Business:

1. Responsible Technology Use: Utilizing computer technology in a responsible and ethical
manner within business operations.
2. Data Privacy and Security: Safeguarding sensitive data and protecting the privacy rights of
customers, employees, and stakeholders.
3. Intellectual Property: Respecting and upholding copyright laws and intellectual property
rights in digital content and software.
 4. Cybersecurity: Implementing measures to prevent unauthorized access, data breaches, and
cyber-attacks.
5. Fair and Ethical Use of Information: Ensuring ethical practices when collecting, storing, and
using digital information.
6. Digital Accessibility: Making digital resources and technology accessible to individuals with
disabilities.

FRAUD
Fraud is an intentional act of deception or deceit, often involving false information or
misrepresentation, for the purpose of obtaining personal or financial gain at the expense of others.
According to common law, the conditions for establishing fraud typically include the following
elements:

 Misrepresentation or False Statement

 Knowledge of Falsity
 Intent to Deceive
 Reliance
 Damages

DIFFERENCE BETWEEN EMPLOYEE AND MANAGEMENT FRAUD?

Employee Fraud: Employee fraud refers to fraudulent activities committed by individual
employees within an organization. It involves deceptive actions, such as theft, embezzlement, or
manipulation of company resources for personal gain.
Management Fraud: Management fraud, on the other hand, involves fraudulent activities
perpetrated by higher-level executives or managers within an organization. It typically includes
schemes such as financial statement manipulation, insider trading, or misrepresentation of
company performance for personal or organizational benefit.
THE FRAUD TRIANGLE
The fraud triangle is a concept that explains the factors contributing to fraud. It consists of three
elements:
1. Opportunity: The presence of circumstances or conditions that allow someone to commit
fraud without getting caught.
2. Rationalization: The individual's ability to justify or rationalize their fraudulent behavior,
often by convincing themselves that it is justified or necessary.
3. Pressure or Incentive: Financial, personal, or situational pressures that drive individuals to
engage in fraudulent activities, such as financial difficulties or the desire for personal gain.
THE PERPETRATOR OF FRAUDS
The ACFE study examined a number of factors that profile the perpetrator of the frauds, including
position within the organization, collusion with others, gender, age and education.
Losses from fraud by positions Losses from fraud by collusion
Positions Percentage of fraud Perpetrators Percentage
Owner/Executive 23% Two or more 36%
Manager 37% One 64%
Employees 40%
Losses from fraud by Gender Losses from fraud by educational level
Gender Percentage of fraud Educational level Loss ($)
Male 59% High School 100 000
Female 41% College 210 000
Postgraduate 550 000
Losses from fraud by age
Age Range Loss ($)
<26 25 000
26 – 30 50 000
31 – 35 113 000
36 – 40 145 000
41 – 50 250 000
51 – 60 500 000
>60 435 000
FRAUD SCHEMES
Fraud schemes involve deceptive methods or techniques used to gain personal or financial
benefits through dishonest or illegal means. Three broad categories of fraud schemes.
Losses from fraud by scheme types
Scheme type Percentage of loss
Fraudulent statement 10%
Corruption 27%
Asset misappropriation 89%
Fraudulent statement: A fraudulent statement is a false or misleading statement made with the
intention to deceive others for personal gain or advantage.
Corruption: Corruption is the abuse of entrusted power or position for personal gain or advantage,
typically involving bribery, fraud, or dishonest practices.
Assets Misappropriation: Asset misappropriation refers to the unauthorized or improper use,
theft, or manipulation of an organization's assets by an individual for personal gain.
Subcategories of assets misappropriation with fraud percentage according to ACFE.
 Skimming (17%)  Payroll (9%)
 Cash Larceny (10%)  Expense reimbursement (13%)
 Billing (24%)  Theft of cash (15%)
 Check Tampering (15%)  Non-cash misappropriation (16%)
INTERNAL CONTROL CONCEPT AND TECHNIQUES
Internal control refers to the measures and practices implemented within an organization to
ensure the reliability of financial reporting, safeguard assets, and promote operational efficiency.
Here are some headings that can help you understand internal control concepts and techniques
better:

 Environment control
 Risk assessment
 Control activities
 Information and communication
 Monitoring

INTERNAL CONTROL AND THEIR STAGES

Internal controls are policies, procedures, and technical safeguards that protect an organization’s
assets by preventing errors and inappropriate actions. Internal controls fall into three broad
categories: detective, preventative, and corrective.
Preventive controls are implemented before any specific adverse event happens, and their
objective is to prevent errors and fraud from happening in the first place. For example, multi-
factor authentication restricts user access to confidential data.
Detective controls are activated to identify errors that have occurred before they cause significant
problems. For example, audit trails can be used to track changes made to financial records.
Corrective controls are implemented after an error has occurred. Their objective is to correct the
error and prevent it from happening again. For example, a company might implement a new policy
or procedure after discovering an error.

HOW TO CONTROL INTERNAL CONTROL ACTIVITIES.

Internal control activities refer to the specific actions and procedures implemented within an
organization to ensure the effectiveness of internal controls. These activities are designed to
safeguard assets, prevent fraud, ensure accuracy in financial reporting, and promote operational
efficiency. Here are some common internal control activities.
1. Segregation of Duties: Separation of duties between different employees
2. Authorization and Approval: Approval of transaction and activities
3. Reconciliation and Review: Comparing records to ensure accuracy.
4. Documentation and Recordkeeping: Recording transaction and activities.
5. Monitoring and Supervision
6. Physical Controls
7. IT Controls
8. Training and Education
9. Internal Audit
10. Management Review and Oversight
Chapter # 4
SALES ORDER PROCEDURE
The sales order procedure in the revenue cycle management is a sequence of actions that a
business follows to fulfill a customer purchase. It includes the tasks involved in:
1. Receiving and processing a customer order
2. Filling the order and shipping the products to the customer
3. Billing the customer at the proper time
4. Accounting for the transaction

SALES RETURN PROCEDURE

The sales return procedure is an important part of the revenue cycle. It is used to handle sales
returns from customers. The procedure involves several steps that are designed to ensure that the
return is handled properly and that the customer is satisfied with the outcome. Here are some of
the steps involved in the sales return procedure:
1. List the return and record the return type.
2. Determine how the customer initially paid and how the company returns funds.
3. Record whether the customer paid in cash or on store credit.
4. Record where this money comes from to balance the books.
5. Reflect a decrease in the cash account for cash refunds.
6. Decrease accounts receivable for a return for an item purchased on credit.
7. Place returned items back in inventory.
CASH RECEIPTS PROCEDURE
Cash receipts procedures are related to the basic concepts of accounting. It involves
receiving cash directly from customers, making cash receipt vouchers, depositing cash at the bank,
keeping records of cash and bank books or cash and bank transfer reports, and making daily cash
stock-taking. They are described in detail in the following section
Open mail and prepare remittance advice: Process of receiving and sorting incoming mail,
extracting payments, and preparing corresponding remittance advice documents.
Record and deposit checks: Documenting check receipts accurately and promptly and depositing
them into the designated bank accounts securely.
Update accounts receivable: Updating accounts receivable involves recording and tracking cash
receipts received from customers to reflect accurate outstanding balances.
Update General Ledger: Record cash receipts accurately in the General Ledger to reflect the
increase in cash balances and corresponding revenue accounts.
Reconcile cash receipts and deposits: Compare recorded cash receipts with actual cash deposits
to ensure accuracy and identify discrepancies.

REVENUE CYCLE CONTROL

Internal control activities that guide us in designing and evaluating transaction processing
controls. They are transaction authorization, segregation of duties, supervision, accounting
records, access control, and independent verification. These control activities as they apply in the
revenue cycle.
Transaction Authorization: Establishing approval processes to authorize and validate transactions
within the revenue cycle process.
Segregation of Duties: Segregating duties ensures that no single individual or department
processes a transaction in its entirety.
1. Transaction authorization should be separate from transaction processing.
2. Asset custody should be separate from the task of asset record keeping.
3. The organization should be structured so that the perpetration of a fraud requires collusion
between two or more individuals.
Supervision: Supervision can also provide control in systems that are properly segregated.
Accounting Records: Accurate and complete documentation of financial transactions and events
within the revenue cycle process to support transparency, compliance, and financial reporting.
Access Controls: Access controls prevent and detect unauthorized and illegal access to the firm’s
assets. The physical assets at risk in the revenue cycle are inventories and cash.
Independent Verification: The objective of independent verification is to verify the accuracy and
completeness of tasks that other functions in the process perform.