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?
- Accounting information systems (AISs) stand at the
crossroads of two disciplines: accounting and information
systems. Thus, the study of AISs is often viewed as the study
of computerized accounting systems.
SYSTEMS?
- Cloud Computing—Impact for Accountants
- Cloud computing is a way of using business applications
over the Internet—such as the way you use the Internet for
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.
Instantaneous access is available to the Internet via mobile
communication devices such as cell phones, iPads, smart
phones, and so on, which enable activities to take place
anytime and anywhere.
- For example, managerial accountants can complete
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
current information on tax rulings.
- an individual must first meet the following qualifications:
have a bachelor’s degree, at least 2 years of professional
experience in a field either directly or indirectly related to the
detection or deterrence of fraud, be of high moral character,
and agree to abide by the Bylaws and Code of Professional
Ethics of the ACFE. If these are met, then the individual may
apply for the CFE examination.
Information Technology Auditors
- 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
TECHNOLOGY TO ACCOUNTANTS
- One reason for IT’s importance is that information
technology must be compatible with, and support, the other
components of an AIS.
- A second reason why information technology is important is
because accounting professionals often help clients make
hardware and software purchases.
- A third reason why information technology is important to
accountants is because auditors must evaluate computerized
systems.
- A fourth reason why IT is important to accountants is
because they are often asked to evaluate the efficiency (e.g.,
costliness and timeliness) and effectiveness (usually strategic
value) of an existing system.
- refers to transmitting data to and from different locations.
Many accounting applications use data communications in
normal business operations.
Communication Channels and Protocols
- A communication channel is the physical path that data
take in data transmissions. Examples include (1) the twisted-
pair wires of telephone lines, (2) coaxial cables, (3) optical
fibers, (4) microwaves, and (5) radio (satellite) waves.
- A data communications protocol refers to the settings that
provide this format. Two common protocols are TCP
(transmission control protocol), which networks commonly
use for e-mails, and HTTP (hypertext transmission protocol),
which networks commonly use for Web pages.

- 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

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DATA COMMUNICATIONS AND NETWORKS
Client/Server Computing
- is an alternative technology to mainframe and/or hierarchical
networks. Depending on the type of client/server system, data
processing can be performed by any computer on the network.
Wireless Data Communication
- also called Wi-Fi (for ‘‘wireless fidelity’’), means
transmitting voice-grade signals or digital data over wireless
communication channels.
RFID
- Radio frequency identification (RFID) enables businesses
to identify pallets and even individual items without
unpacking them from shipping crates.
NFC
- Near field communication (NFC) enables mobile devices
such as cell phones, PDAs, and laptop computers to
communicate with similar devices containing NFC chips
Cloud Computing
- refers to a range of computing services on the Internet—for
example, access to computer software programs, backup and
recovery file services, and even Web page development and
hosting.
COMPUTER SOFTWARE
Operating Systems
- is a set of software programs that helps a computer, file
server, or network run itself and also the application programs
designed for it. Examples of operating systems for
microcomputers include MacOS, Windows 7, and Linux.
Application Software
- refers to computer programs that help end users such as
accountants perform the tasks specific to their jobs or relevant
to their personal needs.
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- Personal productivity software, project management
software, accounting software and communications software
and enterprise resource management software.
Chapter 3
DATA MODELING
What Is a Database?
- A database is a large collection of organized data that
can be accessed by multiple users and used by many
different computer applications.
- Data in databases are manipulated by specialized
software packages called database management
systems
- Most accounting systems involve complex
combinations of data stored in databases, processing
software, and hardware that interact with one another to
support specific storage and retrieval tasks. Most
accounting databases are relational databases, which
are groups of related, two-dimensional tables.
Significance of Databases
Critical information
- The information stored in an organization’s databases is
sometimes its most important and valuable asset.
Equifax, for example, is one of the nation’s largest credit
bureaus, maintaining credit information about millions
of Americans. Its credit files are its business.
Volume
- Many firms’ databases are truly enormous. For
example, Sprint keeps records on over 50 million
customers and inserts about 70,000 records to its
database every second. Amazon.com has a database with
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
databases of such great size requires substantial
resources.
Diana Rose Datoon
Distribution
- The databases of some organizations are centralized
(i.e., data is stored in a single location). Many other
databases, however, are distributed (i.e., duplicated in
local or regional computers as processing needs dictate).
Distributing data can make it difficult to (1) ensure data
accuracy, consistency, completeness, and (2) secure
information from unauthorized access.
Privacy
- Databases often contain sensitive information—for
example, employee pay rates or customer credit card
numbers. This information must be protected from those
unauthorized to access it. The internal control
procedures that protect databases from unwarranted
access are often considered the most critical controls in
an organization.
Irreplaceable data
- The information contained in most accounting
databases is unique to the organization that created it and
is typically priceless. Many organizations would fail
shortly after losing the information contained in their
accounting databases. For this reason, the security of
databases is critical to the organization.
Need for accuracy
- The data stored in databases must be complete,
comprehensive, and accurate. The consequences of
inaccurate data can be substantial. It is easy to imagine
severe consequences of very small data errors. Consider
a physician removing an incorrect limb during surgery
because of one attribute in a database table (e.g., left
versus right limb).
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Internet uses
- As you might imagine, databases are critical
components of both internal and external corporate Web
systems. Databases store information related to product
information for online catalog sales, e-mails, product
registration data, employment opportunities, stock
prices, and so on. Internet applications often store
customer-entered data such as online product orders,
credit card numbers, subscription information, airline
reservations, and university-student registration data.
Storing Data in Databases
(1) the data hierarchy,
(2) record structures, and
(3) database keys.
The Data Hierarchy
Data Field
- The first level in the data hierarchy is a data field,
which is information that describes a person, event, or
thing in the database.
Record
- A database record (also called a tuple) stores all of the
information about one entity
File
- a file or table contains a set of related records—for
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).
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Additional Database Issues
Administration
- A database administrator supervises the design,
development, and installation of a large database system,
and is also the person responsible for maintaining,
securing, and changing the database.
Documentation
- The data dictionary is a critical component of database
documentation that describes the data fields in each
database record.
Data Integrity
- data integrity controls are designed by database
developers and are customized for different applications.
Processing Accuracy and Completeness
- transaction processing refers to the sequence of steps
that a database system uses to accomplish a specific
processing task.
Concurrency
- In multi-user systems, it is possible for more than one
user to access the same database at the same time.
Without concurrency controls, it is possible for two or
more users to access the same record from the same
table at the same time.
Backup and Security
- A key security feature of any database, therefore, is a
set of backup procedures that enable the organization to
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.
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STEPS IN DEVELOPING A DATABASE USING
THE RESOURCES, EVENTS, AND AGENTS
MODEL
- Although there are a number of different models that
may be used to design a database, the REA model has
been demonstrated to be very effective for designing
databases to be used in accounting systems.
- 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
(i.e., people) who participate in the event
Step 1—Identify Business and Economic Events
Step 2—Identify Entities
Step 3—Identify Relationships Among Entities
Step 4—Create Entity-Relationship Diagrams
Step 5—Identify Attributes of Entities
Step 6—Convert E-R Diagrams into Database Tables
Step 1—Identify Business and Economic Events
Economic events
- typically affect an organization’s financial statements.
- An example of an economic event is a sale on account.
Business events
- do not affect financial statements but can affect
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
budgeted. While there is no journal entry for the event,
this would certainly be important information that
managers need to know.
Diana Rose Datoon
Step 2—Identify Entities Step 4—Create Entity-Relationship Diagrams

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

- Internal agents work within the firm for which a

database is designed (e.g., salespeople), while external
agents are outside of the firm (e.g., customers).
Step 5—Identify Attributes of Entities
- 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
- Creating links between tables is simple when the
relationship between the entities is one-to-one or one-to-
many. In one-to-one relationships, the foreign key can be
in either table. If entities occur in sequence, the foreign
key will usually be in the second event. In one-to-many
relationships, the foreign key will be on the many side of
the relationship.
- Linking tables with foreign keys becomes problematic
when there is a many-to-many relationship between two
entities. New relationship tables are necessary when
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.
FIRST NORMAL FORM
- A database is in first normal form (1 NF) if all of a
single record’s attributes (data fields) are singular. That
is, each attribute has only one value. Figure 3-14 shows
a set of university parking ticket data with repeating
groups in its rightmost four columns. (Real parking
tickets will contain many more data fields than shown
here, but we will keep things simple to focus on
normalization tasks.) Databases cannot store more than
one value in the same data field (i.e., column) of the
same record, so we must do something to overcome this
limitation.

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