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Compliance Toolkit
for Accountants
& Directors
Accounting Systems Design
Mathew Fawcett Kaye Watson Karen Nicita
2
Contents Book 1: Accounting Systems Design Chapter 1: Introduction: AIS, ERP and Transaction Cycles 3
Chapter 2: Transaction Processing in Manual Systems 6
Chapter 3: Computer-Based Accounting Systems 19
Chapter 4: Documentation Techniques 21
Chapter 5: Internal Control 29
Chapter 6: The Revenue Cycle 32
Chapter 7: The Expenditure Cycle 42
Chapter 8: The Conversion Cycle 51
Chapter 9: The Financial Cycle 57
Chapter 10: Systems Development Life Cycle I 70
Chapter 11: Systems Development Life Cycle II 82
Chapter 12: Database Management Systems 96
Chapter 13: Review Examination 98
ISBN 9781 921 579 318
Published by Better Teams Publications Organisation Series
Better Teams Publications,
15 Lenore St, Russell Lea NSW 2046 Australia. Mobile 0414 955 888
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3
ACCOUNTING SYSTEMS DESIGN
TEACHER SUPPORT MANUAL
CHAPTER 1 Introduction: AIS, ERP & Transaction Cycles
1. Data differs from information because:
(c) Data is the input to the AIS and information is the output.
2. Quality information is characterised by the following except:
(d) Inexpensive.
3. Senior managers are most likely to encounter decisions which:
(c) Are unstructured.
4. Which of the following is not a direct function of the AIS:
(c) To improve external customer satisfaction.
5. Which level of management is responsible for controlling day-to-day
operations?
(c) Operations management.
6. Which of the following statements is incorrect? Strategic Planning Decisions
are characterised by:
(c) Long-term, broad scope and impact.
(d) Global goals and objectives.
7. The objectives of all information systems include all of the following except:
(b) Evaluating transaction data.
8. All of the following are external end users except:
(c) Stockholders.
4
9. Data is facts or figures in raw form produced from the measurement or
observation of objects or events. When data is transformed to become
meaningful to people it is known as information.
10. ( i ) Strategic planning
( ii ) Operational control
( iii ) Safeguard organisational assets
( iv ) Measure goal congruence
( v ) Meet external reporting requirements
11. ( i ) Appropriate to the requirements of decision maker
( ii ) Accurately represents business activities on a consistent basis
( iii ) Available when required
( iv ) Verifiable from other sources in the organisation
( v ) Prevent information overload for decision makers
12. Components of an Information System
13. An accounting information system is a sub-system of the information system.
It performs the functions of transaction processing and production of
information to support decision-making. The information system comprises
all the sub-systems of the organisation and may include the informal
information system and executive support system.
5
14. Data reduction is necessary to prevent information overload for decision-
makers. For example, to provide information for forecasting debt
requirements for the entire organisation detailed list of all debtor and
creditors invoices would cause information overload. A report summarising
balances and forecasts repayment would be most useful.
15. ( i ) The annual report is produced to primarily meet external reporting
requirements. However, it is audited and subjected to detailed internal
scrutiny. It becomes a permanent reference document for activities
during that financial year.
( ii ) Monthly and quarterly balance sheets produced for external
requirements, such as banks, are an important internal control over net
assets of business.
16. No. A well-designed formal information system will reduce the reliance on an
informal information system, however an informal information system will
continue to supplement the formal system in terms of non-financial and
external data.
17. The key objective of a reporting system is to provide information to users that
can be relied upon to make decisions. Quality information from the AIS will
have the following characteristics (6 of):
Appropriate – must be relevant to the business decision
Dependable – must accurately represent business activities on a
consistent basis
Available – must be readily available to the decision maker
Corroborative – should be verifiable by independent sources
Understandable – should be summarised to the appropriate level and
presented in an intelligible format
Relevance – only contain data the end user will find useful
Exception oriented – focused on variations from normal expectations
Timeliness – is as accurate as possible within a reasonable timeframe
Completeness – all important data is presented
6
CHAPTER 2 Transaction Processing in Manual Systems
1. The coding scheme most appropriate for a chart of accounts is:
(a) Sequential code.
2. A common use for sequential coding is:
(a) Creating the chart of accounts.
3. The most important advantage of sequential coding is that:
(a) Missing or unrecorded documents can be identified.
4. When a firm wants its coding system to convey meaning without reference to
any other document, it would choose:
(c) A group code.
5. The most important advantage of an alphabetic code is that:
(c) The capacity to represent items is increased.
6. Which of the following statements is INCORRECT? A Ledger:
(c) Shows activity for each account listed on the chart of accounts.
7. Which general ledger account is unlikely to have a subsidiary ledger?
(c) Domestic Sales Revenues.
8. Which of the following statements is correct? Block codes:
(d) Are sequential codes that have “sectioned out” ranges of numerical
sequences.
9. Which of the following statements is correct? Alphabetic combinations that
have meaning and that reduce the memorising efforts of the users are called:
(d) Mnemonic codes.
10. Which of the following is not part of the accounting function?
(d) Managing the physical information system of the firm.
11. An example of a financial transaction is:
(a) The purchase of computer.
12. Which subsystem is not part of the Accounting Information System?
(b) Expert System.
13. Which of the following is a turn-around document?
(a) Remittance advice.
14. Which document is not a type of source document?
(c) A paycheque.
7
15. The main purpose of the chart of accounts is to establish the basis for all accounting reports. To achieve this, the CoA needs to be able to: Classify revenue, expenses, assets, liabilities and equity
Classify revenues and expenditures to facilitate analysis of
organisational activities such as , product, geographical, and
functional groups.
Provide sufficient flexibility to be able to absorb the current
requirements and expansion and other developments in the
business for the foreseeable future.
16 (a) The basic principles to follow are:
1. Management and responsibility structures
The GL system design will be influenced by the information
requirements of the organisation.
The structure allows accumulation of performance measures and
goals at the lowest to highest levels of the organisational hierarchy.
The structure can also be developed around divisions, cost centres,
profit centres, investment centres and geographical locations or
regions.
2. Reporting objectives
What information is required to plan and coordinate the
operations to achieve desired outcomes, eg. income statement
to analyse profit levels.
The various levels or reporting for internal users:
o Lower level management and supervisors – operational; structured decision
making
o Middle level management - functional and operational; semi-structured decision
making
o Top level management – strategic planning; unstructured decision making
Reports for external users, eg. shareholders & government
agencies
Compliance with relevant government regulations
Future information requirements
Reliability and integrity of information
Types of reports produced, eg. special purpose triggered
exception reports
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3. Operating and output schedules
Scheduled reports, eg. income statement, balance sheet etc.
Special purpose reports requested by management
Triggered exception reports, eg. cost over-run, budget
variances.
Demand reports – produced on request to answer a specific
question or need
4. Levels of security
Used to minimise potential risk of fraud and error
Administrative controls – one person given responsibility for
maintenance of the system
System development and maintenance controls – proper
authorisation from senior management for system modifications
to be checked thoroughly for weaknesses before operation.
Computer operation controls – access to the system restricted to
authorised personnel
o Password – access only granted with entry of a password
o System access – parts of the system blocked for some
users
9
16 (b) Numbering techniques that could be used include:
1. Sequential coding
o In designated sequential order
o Numbers must be left to allow new account numbers to be
added, eg.
2000 Sales – milk chocolates
2010 Sales – milkshakes
2020 Sales – ice cream
2030 Sales – milk bars
2. Block codes
o Allocating blocks of numbers to a group of similar items, eg.
All sales relating to milk bars are between 2000-2999
3. Group codes
o Coding is divided into two or more zones that together and
individually can be varied to represent related date reporting
points, eg.
02-2030 Sales – milk bars NSW
03-2030 Sales – milk bars VIC
04-2030 Sales – milk bars QLD
4. Alphabetical codes
o Using letters of the alphabet and numbers (alphanumeric)
MILKBARSNSW1000
5. Mnemonic codes
o Use of acronyms or abbreviations that have meaning
MBARREVNSW
10
17. ( a ) There are a number of basic principles that students may refer to when
answering this question. 1. Detail 2. Reporting Structures 3. Report types 4. Report attributes 5. Screen output
Detail ▪ The level of detail in reports decreases the higher up the organisation chart the
recipient. The report detail is provided to be compatible with the accountability or responsibility of the level of management.
▪ A supervisor requires the detail costs of a section, whereas the Production Manager would only need to be advised of the total factory costs of each section or total product costs for each category.
▪ The CEO would require a summary of costs for each cost or profit centre. The CEO need only overall costs and trends to be able to analyse the results for anomalies.
Reporting Structures The reports above introduce several different structures for accountability reporting of information. Reporting structures may be based on one or all of the following business segments; 1. Geographic locations: The Summary Report for the CEO would show national
results dissected into state or location results, usually within the country. International results need further processing to reflect currency fluctuations and other adjustments. A further dissection for these reports for each State Manager would show the results for each region within each state
2. Product Dissections: A Summary Report for the CEO would show the totals for
each product group on a national basis. Each State Manager would then receive a report showing the product sales for that state, dissected into the various sales regions. The regional sales managers would have contact with their representatives and that would be the basis for the final report shown. In addition, a Sales Summary by client may also be prepared for Regional Sales Managers.
3. Operating Functions: Reports for operating functions are generally cost centre
expense or project cost reports. Detailed cost reports would be prepared for each function manager and include cost details such as: ( a ) Salaries and wages dissected into base rates, overtime, bonuses or other
relevant items ( b ) Travel ( c ) Superannuation ( d ) Insurance ( e ) Consumable supplies ( f ) Printing and Stationery
The CEO would require summaries of each function showing only total costs and would discuss any details with the function managers.
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Operating functions are industry dependent. A service entity, such as a five star hotel, would have operating functions that would not be needed for a restaurant or a retail store. Generally, operating functions include: ( a ) Materials: There are several functions involved in buying, receiving,
storing and issuing material. Which of these will be separate departments would depend on the size and structure of the organisation. Many would also be industry specific. These material related functions could include; ( i ) Purchasing: Orders the materials and services required for all
production and service functions as well as administration and other management sections. A system of tendering or obtaining quoted prices from potential suppliers will often be used to optimise the possibility of securing the lowest price.
( ii ) Stores: Receives and stores of all material purchases. They
complete receipts for all goods received and send these receipts to accounts payable as one of the documents supporting payment of the goods to the suppliers. In even medium sized manufacturing firms, the stores are readily identifiable because of the floor area and facilities, racks, fences and buildings that are used. In service organisations this function is ancillary to the operations and is generally a modest user of resources.
( iii ) Stock Control: Maintains stock records for all raw material
inventories. They have no responsibility for the physical stock, only the clerical accuracy of all the relevant records. They are not part of the accounting function as a rule.
( iv ) Production: The production of the finished goods for resale
frequently requires some assembly or re- bottling or other activity which is a manufacturing process. The production staff liaises with all of those functions concerned with raw materials to provide optimal production quantities of finished goods for the sales and marketing departments.
( b ) Labour: The organisation's labour policies and practices are managed by
the Personnel function or Human Resources Section. This section determines or liaises with function managers to establish work practices, pay relativities and other employee conditions. It also manages Occupational Health and Safety issues and industrial relations. However, the supervision of labour on the job is the responsibility of the supervising staff in each function or department.
( c ) Overheads: All functions such as service, maintenance, quality control,
dispatch, receiving are accounted for as overheads but are separate operating functions with their own managers. They are all expense categories, though some are include in the Administration Costs, others in Selling and Distribution, General Administration and Accounting under the profit and loss account headings. Other costs are part of the factory overheads and charged to the product, often as a percentage of the labour cost. General overhead costs include Marketing and Selling, Distribution, Accounting while Quality Control, Supervision, Maintenance and Cleaning are part of factory or production overheads.
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Any or all of these reporting structures could be used, solely or as a complement to each other. A service organisation would show function reporting but would have no need for product analyses but would have reports for job costs, average turnaround times and average length of job figures. A manufacturing organisation would require function and product cost reports but not need the geographical dissections. Of course, large companies, such as BHP Billiton and, Coles-Myer, would have all three.
Report Types Reports usually can be identified in four ways: 1. Scheduled reports: These have a specified content and format and are prepared
to a regular timetable. These include monthly cost performance, weekly labour efficiencies and materials usage reports.
2. Special purpose reports: These reports are prepared as a the result of a management need to review a specific issue such as listing quantity and costs of the relevant stock items in a slow moving or obsolete product group.
3. Triggered exception reports: Although having a predetermined format, these are prepared because of an abnormality such as inventory discrepancies or excessive slow paying debtors.
4. Demand reports: Prepared only when requested by management, these reports may be structured or involve selection of alternative information.
Report Attributes The design of an output report requires the observance of some attributes, similar to those discussed above for input forms which can be summarised as; 1. Relevance 2. Summarisation 3. Exceptions orientation 4. Timeliness 5. Accuracy 6. Completeness and 7. Conciseness Relevance Each item of information included in a report should focus on the system objectives and specifications. Any report that contains irrelevant information will be an inefficient and wasteful use of the firm's resources and cause users to treat the report with disdain. Reports that contain superfluous information not only take longer to process and prepare, but will tend to contain errors and inconsistencies. Summarisation The extent of the summary of information reports should increase as the report is required higher up the corporate structure. Details are necessary for managers with the responsibility for controlling operations at "grass roots" levels, but the need for detail decreases as the levels of authority rise.
13
Exceptions Orientation Reports with an exception orientation referred to naturally enough, as exception reports, focus on the differences from normal expectations rather than simply showing absolute measurements. A manager may expect that the cost of a product will be $300. It would provide a faster reaction to a report that shows the actual cost as a loss of $22.50 and a 7.50% unfavourable variance, rather than simply stating the cost was $322.50. Similarly, expenses would only show actual costs and variances rather than the actual/budget/variance detail. In these types of reports managers can scan the report for those areas needing urgent attention first and review their other responsibilities in their order of urgency. Timeliness Information to be useful needs to be received by management in time to take action to correct a situation. Information that is 95% accurate and provided in three days is more useful than information that is 99% accurate and provided three weeks after the end of the month. Accuracy No report that has time pressures applied for completion will be 100% accurate. It will need to be consistently maintaining a high degree of accuracy to be treated as a reliable report for management decision making. Some reports provided to forecast trends and other planning objectives will not be as accurate as some accounting reports showing function expenditures and revenues. Management cannot wait for the perfect report, they need to act as soon as possible. The level of accuracy is a "trade-off' with timeliness in designing reports that will be useful for management. Completeness A report needs to be as complete as possible. Timeliness can prevent some data being included in a report but this should never detract from its usefulness. No item of data that is vital to measuring the results of an activity or function should be omitted from a report. Conciseness Information should be clear, concise and logically organised. Headings should be relevant and should not detract from the presentation of the report content. Information should be grouped in accordance with functional accountability, logical processing sequences or other relevant parameters.
14
Output forms and Screen Layouts The structure of a screen output form follows the same general design rules and considerations as those that are applicable to paper forms. Some issues such as paper quality to provide for a harsh user environment obviously don't apply, although the practicality of having access to a computer at all times will be. However there are some considerations that are unique including; 1. Media; Although not on paper, output can be direct to microfiche, CD or other
storage media. 2. Location; This could be to the Internet or the firm's Intranet as a web page or a
salesperson's lap-top or workstation. 3. External user: Forms for external use may need to be printed on suitable paper
but this can be at the users' option. 4. Security: Restricted access to sensitive information is mandatory in most
situations. Any reporting system will require password access to be able to request reports.
( b ) The main purpose of the chart of accounts is to establish the basis for all accounting reports. These reports consist of two major types; 1. Internal reports; These reports provide management with sufficient information
to enable them to perform their duties. They also provide management with the means to measure their accountability for their decisions.
2. External reports; These reports are required to be prepared by directors to satisfy
their legal responsibilities set out in the corporations law, income tax assessment act and GST acts to name a few. These reports are sent to shareholders, ASIC, ASX (if a listed company) and independently attested as to their compliance with the requirements of any relevant legislation by external auditors.
To achieve these objectives, the chart of accounts needs to be able to; 1. Classify expenditures and income into equity, revenue, expenses, assets and
liabilities. 2. Identify and classify expenditures and revenues into classifications essential for
the production of internal and external accounting reports for management. These reports would need to be able to show the complete organisational activities analysed into products, responsibility, geographical and functions where necessary.
3. Provide sufficient flexibility to be able to absorb the current requirements and
expansion and other developments in the business for the foreseeable future. To be able to meet these objectives, charts of accounts are codified into major groupings, assets, liabilities, expenses, revenue and equity. These major groupings are then broken down into sub-groups, current assets, non-current assets and intangibles. These sub-groupings are then dissected further such as current assets into detail accounts such as cash at bank, petty cash, inventories, and accounts receivables.
15
18. ( a )
The basic principles that you will need to follow when structuring the Chart of accounts/Accounting manual can be summarised as: 1. Management and responsibility structures The General Ledger system design will be influenced by the data requirements of the management of an organisation. The structure allows accumulation of performance measures and performance goals at the lowest level to the highest level of the organisational hierarchy. The structure involves summarising and details of historical data and the providing of reports, comparing data with a budget or target set for managers. Performance evaluation of managers can be linked to the reports generated. Structure can also be developed around divisions, cost centres, profit centres, investment centres and/or geographical locations. 2. Reporting objectives The reporting objectives of the system include: ▪ what information is required to plan and co-ordinate the operations to achieve
outcomes i.e. Income Statements to allow analysis of profit results ▪ The levels of reports required for internal users:
▪ Reports for lower level management and supervisory staff - operational ▪ Reports for middle level management - functional and operational - semi-
structured decision making ▪ Reports for top-level management - strategic planning - unstructured decision
making ▪ Reports for external users for example, shareholders, government agencies and
potential investors ▪ Compliance with relevant government regulations ▪ Deciding what information is mandatory, essential or discretionary ▪ Future information requirements and ability to further improve the general ledger
reporting system i.e. changes to accounting standards ▪ Reliability and integrity of information ▪ Types of reports produced i.e. special purpose, triggered exception reports
and/or reports on demand
16
3. Operating and output schedules Operating and output schedules are produced based on the structure and objectives mentioned above: Output can be either: ▪ Scheduled reports - i.e. Income statements, Balance Sheet, Cash Flows ▪ Special Purpose reports - reports specifically asked for by management ▪ Triggered exception reports - i.e. cost centre over-run, budget vs actual
variances ▪ Demand reports - reports produced on request to answer a specific question or
to help with decision making. For example - an analysis of an expense account across divisions
4. Levels of security Used to minimise the potential risk - potential threat of fraud or sabotage of the general ledger. Security is an important part of protecting the system. Security can address: ▪ management controls - one person is given responsibility of the system. Held
accountable for operation and outcomes. ▪ System development and maintenance controls - proper authorisation from
senior management of the modified system to be checked thoroughly for possible weaknesses before operation
▪ Computer operation controls - access to the system restricted to authorised
personnel only. This can be achieved two ways: ▪ physical access control - passwords. No password no access. ▪ systems access control - passwords. Parts of the system only accessible. For
example in the General Ledger a user may be able to print a report on his or her cost centre but not access other cost centres.
( b ) The chart of the accounts is the heart of the accounting system. Therefore the design of the chart is critical, as it is the basis for all financial reporting, both internal and external. The coding of sections including sales can provide summarised or detailed information for management at all levels. Alternative numbering techniques that could be used include: Sequential coding ▪ in designated sequential order ▪ when setting up numbers must be left in the sequence to allow new account
numbers to be added ▪ for example:
▪ 2000 Sales - milk/dark chocolates ▪ 2010 Sales - milkshakes ▪ 2015 Sales - icecream ▪ 2020 Sales-etc.... ▪ 2999 Sales Milk Bars
17
Block codes ▪ allocating blocks of numbers to a group of similar items ▪ for example - All sales accounts relating to the milk bars are within the numbers
2000 -2999 Group codes ▪ coding is divided into two or more zones that together and individually can be
varied to represent related data reporting points ▪ for example
▪ A company with multiple locations in multiple states may code sales accounts by location and state ▪ 01 2000 NSW ▪ 2010 Sales - Milk bars ▪ 02 2000 Victoria ▪ 03 2000 Queensland ▪ 99 2999 TOTAL SALES
Alphabetical codes ▪ alphabetical codes and in particular alphanumeric coding give added flexibility to
reporting ▪ For example - sales
▪ MILKBARS -NSW1000.01 ▪ MILKBARS-VIC1000.01
Mnemonic ▪ use of acronyms or abbreviations that have meaning to the users ▪ For example
▪ Mlkbarsales for Sales - Milkbars
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( b ) Processing controls for input into the program include: Transaction authorisation Authorisation procedures are controls that ensure that an organisations employees process only valid transactions. Input documents should be designed that require compulsory fields specifying valid general ledger accounts numbers. The internal validation within the software could involve integrity checks and validation Source document controls Use pre-numbered source documents for input. Source documents pre-printed for each location using the Chart of Accounts numbering system. Data coding controls Coding controls are checks on the integrity of the data codes used in processing. A chart of accounts number is a data code. Check digits can be used to detect data coding errors in the chart account number for each posting detail account. Batch controls Purpose is to reconcile the input the general journals/ledger reconciles to the output produced by the system. Batch controls for each location and overall. Validation controls Input validation controls are intended to detect errors in transaction data before the data is processed. Validation controls used for this situation could include field and record interrogation:-
▪ numeric-alphabetical data checks - especially for master file codes ▪ missing data checks - that all input fields have been filled/entered if
compulsory ▪ range checks - assigns an upper and lower limits to acceptable data values ▪ validity checks - is this account valid for this sub-total account. ▪ check-digit control ▪ reasonableness checks
Generalised data input system (GDIS) The general ledger system could also use a generalised data input system (GDIS). This automated system validates data files and if necessary prepares an error file or report so input processing errors can be corrected.
19
CHAPTER 3 Computer–based Accounting Systems
1. Which of the following statements is CORRECT?
A reference file … (a) Contains relatively constant information used in processing
2. Which of the following statements is INCORRECT?
A data warehouse … (b) Is an integrated, non-volatile collection of data.
3. Which of the following statements is CORRECT?
Batch processing systems … (c) Group similar transactions that are accumulated over time and
then process them together.
4. In a database, a complete set of attributes for a single occurrence of an entity
class is called
(c) A record.
5. Subsidiary ledgers are used in manual accounting environments. What file is
comparable to a subsidiary ledger in a computerised environment? (c) Transaction file.
6. In a computerised environment, a list of authorised suppliers would be found
in the
(b) Transaction file.
7. Which of the following is an archive file?
(d) A file of accounts receivable that have been written off.
8. In contrast to a real-time system, in a batch processing system
(a) There is a lag between the time when the economic event occurs
and the financial records are updated.
9. In contrast to a batch processing system, in a real-time system
(d) Processing takes place when the economic event occurs.
10. The type of transaction most suitable for batch processing is
(c) Payroll processing.
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11. Batch Processing Using Direct Access Files - Direct access eliminates the
need for sorting activities and eliminates the automatic file backup,
requiring a separate backup procedure before the run. Updating Files
typically termed “destructive updates” because the prior balance is
replaced.
Batch Processing Using Real-Time Data Collection - Data is captured on-
line at the time of the event in a journal (customer purchase), but
collected in a transaction file for updating at a later time as a batch.
Real-time data collection can be used with either batch/sequential or
batch/direct access procedures. With real-time data collection,
transaction data is collected at its source in real-time using a direct
access storage device.
Real-Time Processing Systems - Do not utilize any batch procedures.
Each transaction is immediately captured, entered (journalised), and
updated (posted to the ledger master files). Benefits include improved
productivity, reduced inventory, increased inventory turnover, decreased
customer billing lags, enhanced customer satisfaction. Source
documents might be an output of this processing rather than an input.
21
CHAPTER 4 Systems Development Process
1. Which of the following would be useful to analyse separation of duties and functions in an accounting system: (c) System flowchart.
2. Which of the following is not a flowcharting rule:
(c) Comments are included anywhere on the flowchart to add information.
3. Which of the following statements is INCORRECT? Data Flow Diagrams:
(b) Use simple symbols to represent the processes, data sources, data flows,and entities in a system.
4. Which of the following statements is INCORRECT?
(d) Systems flowcharts are used to represent the relationship between the key elements — input sources, programs, and output products — of computer systems.
5. Which type of graphical documentation represents systems at different levels
of detail? (a) Data flow diagram.
6. Data flow diagrams:
(a) Depict logical tasks that are being performed, but not who is performing them.
7. Document flowcharts:
(b) Illustrate the relationship between processes, and the documents that flow between them and trigger activities.
8. Which symbol represents a data store?
(d)
9. Which symbol represents a manual operation?
(d)
10. Which symbol represents accounting records?
(a)
11. Which symbol represents a document?
(b)
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12. Which symbol represents a magnetic tape (sequential storage device)?
(d)
13. Which symbol represents a decision?
(a)
14. A decision table sets out logical alternatives for a series of alternate processes
and the consequential result of each combination of events.
15. Which of the following is true in relation to a decision table?
(b) It shows the combination of conditions and the corresponding action taken.
16. Systems flowcharts are used by auditors and systems personnel to show the
broad flow of operations in a system. They are concerned with the
relationships between the processes in the system rather than the detailed
logic of processing functions. They are typically used in the analysis phase of
system development. Each program in the system is represented by a high
level processing symbol.
Program flowcharts are mainly used by system development personnel. They
provide more detail in relation to each of the processing functions than does a
systems flowchart. Further detail on each of the processing functions in the
systems flowchart is provided using program flowcharts.
23
17. Decision tables provide a tabular representation of a decision making
process. “IF THEN” statements are displayed in a two dimensional
matrix. They can be used as an alternative to program flowcharts and
can be more effective for complex decision processes.
Student examples could include any structured decision, for example:
Pay rate to be used based on hours worked by direct labour
Discount provided to debtors based on terms offered
Whether a discount is taken on accounts payable using a cost of
capital
Output report distribution rules
18. ( a ) Logical vs. physical.
DFD are a charting technique used to document the logical design of a
system. Flowcharts typically represent a physical view of data. The
logical view emphasises the movement of data through a system. It
shows where data originates, is subsequently stored and processed,
and its final destination as processed data. The physical view, in
contrast, is concerned with hardware, file organisation, data structure
and software.
( b ) Stage of system development
DFDs are typically used in systems analysis and design stage before
detailed physical aspects are considered. Flowcharts are used for
physical system design after the conceptual design has been approved
and to document existing systems.
( c ) Level of detail
Flowcharts can show more detail clearly as they use more symbols.
DFDs often need to rely on narrative. Flowcharts can also show the
sequence and timing of events.
24
19. DFDs use structured systems analysis that uses the technique of top-
down design and subsequent refinement or “explosion” of processing
modules identified. The highest level DFD is known as a context
diagram.
It provides a summary level view of the scope of the system or a
system development process. Each process identified is subsequently
explained using successive logical or physical DFDs. Logical DFDs do
not include any reference to physical components of the system.
Physical DFDs, in contrast, describe physical aspects of the system,
such as technology used, job functions and titles.
20. Per chapter:
Input/output
Processing
Flow and additional
Storage
21. Per chapter:
Entity
Process
Data store
Data flow
22. Purpose of auditors use of document flow charts:
Internal control evaluation. Auditors are concerned with the
flow of processing and distribution of documents within an
application system, particularly with regard to segregation and
division of duties.
Design of compliance tests to ensure the existence,
effectiveness and continuity of operation of internal controls.
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23. ( a ) System Flowchart
Input Student
Details
Validate Student
DetailsStudent
Database
Input Course
Preference
Validate Course
PreferenceCourse
Database
Process Enrolment
Collect Fees
Confirm Enrolment
Student
On-Line
Course
On-LinePrint Receipt
Print Schedule
26
23. ( b ) Context Diagram
Validate
student
details and
program
Student
Enrolment Officer
Student details
and course
preferences
Course availability
and student lists
Confirm
enrolment
StudentPay fees
Bank
Lecturers
Student
Enrolments
Fees
Timetable
27
24. Document Flowchart
2
3
Sales
Order
1
Order
Approval
Customer
Order
Sales
Order3
Sales
Order2
Goods
Picked
Validate
& Match
2Bill of
Lading
1
2Invoice
Request Form
1
4
5
3
2Sales
Invoice
1
Salesman Credit Warehouse Manager AccountsReceivable
25.
Conditions 1 2 3 4
Customer
- internal
- external
Y
Y
Y
Y
Balance Owing
< 60 days
> 60 days
N
Y
Y
Actions
Refuse Credit N N Y
Order Rejected Y
Order Approved Y Y Y N
28
26
Client
Appointment
/ client
details
Client details &
Booking
Client details &
Booking
Allocates
an advisor
Advisor
interviews
client
Application formApplication form
Checks
references
& credit
worthiness
Approve?Advise client
Approve
fees
Fees deducted
from clients bank
account
Call Centre Customer Service Clerk AdvisorApplication Processing
Clerk
29
CHAPTER 5 Internal Control
1. Which of the following statements is INCORRECT?
(b) External auditing
2. Which of the following statements is INCORRECT?
(d) Avoiding several employees being involved in one
business process
3. Which of the following statements is INCORRECT?
(b) Poor customer relationship management.
4. For an action to be called fraudulent, all of the following conditions are
required, except:
(a) Poor judgement
5. One characteristic of employee fraud is that the fraud:
(c) Involves the direct conversion of cash or other assets to
the employee’s personal benefit.
6. Who is responsible for establishing and maintaining the internal control
systems?
(c) Management
7. Which of the following is a preventive control?
(a) Credit check before approving a sale on account
8. A well-designed purchase order system is an example of a:
(a) Preventive control
9. A physical inventory count is an example of a:
(b) Detective control
10. The bank reconciliation uncovered a transposition error in the books.
This is an example of a:
(b) Detective control
11. Which of the following is not an element of the internal control
environment?
(a) Management philosophy and operating style.
30
12. Which of the following suggests a weakness in the internal control
environment?
(c) Performance evaluations are prepared every three years.
13. Which of the following indicates a strong internal control environment?
(a) The internal audit group reports to the audit committee
of the board of directors.
14. Which of the following is the best reason to separate duties in a
manual system?
(c) To prevent the record keeper from authorising
transactions
15. Segregation of duties in the computer-based information system
includes:
(a) Separating the programmer from the computer operator.
16. Which of the following in not an internal control procedure?
(b) Management’s operating style
17. The decision to extend credit beyond the normal credit limit is an
example of:
(a) Independent verification
18. Which of the following is not an example of independent verification?
(d) Permitting authorised users only to access the
accounting system.
19. When certain customers made cash payments to reduce their accounts
receivable the bookkeeper embezzled the cash and wrote off the
accounts as uncollectible. Which control procedure would most likely
prevent this irregularity?
(a) Segregation of duties
20. The office manager forgot to record in the accounting records the daily
bank deposit. Which control procedure would most likely prevent or
detect this error?
(c) Accounting records
31
21. 3 processing controls for input into the program include:
Transaction authorisation o Authorisation procedures are controls that ensure that an
organisation’s employees process only valid transactions. Input documents should only be designed that require compulsory fields specifying valid general ledger account numbers. The internal validation within the software could involve integrity checks and validation.
Source document controls o Use pre-numbered source documents for input. Source
documents pre-printed for each location using the Chart of Accounts numbering system.
Data coding controls o Coding controls are checks on the integrity of the data codes
used in processing. A chart of accounts number is a data code. Check digits can be used to detect data coding errors in the chart account number for each posting.
Batch controls o Purpose is to reconcile the input the general journals/ledger
reconciles to the output produced by the system. Batch controls for each location and overall.
Validation controls o Input validation controls are intended to detect errors in
transaction data before it is processed. Validation controls used could include field and record interrogation:
Numeric-alphabetical data checks Missing data checks Range checks Validity checks Check-digit control Reasonableness checks
Generalised data input system (GDIS) o This automated system validates data files and if necessary
prepares an error file or report so input processing errors can be
corrected.
32
CHAPTER 6 The Revenue Cycle 1. Which of the following activities is not part of the revenue cycle?
(a) A cash disbursements department prepares and
distributes cheques.
2. The revenue cycle consists of:
(c) Two sub-systems – accounts receivable and inventory
control.
3. The reconciliation that occurs in the shipping department is intended to
ensure that:
(b) The customer is billed for the exact quantity shipped.
4. The adjustment to accounting records to reflect the decrease in
inventory due to a sale occurs in the:
(d) Inventory control department..
5. Copies of the sales order can be used for all of the following except
(a) Purchase order.
6. The purpose of the sales invoice is to:
(c) Bill the customer.
7. The shipping notice:
(d) Informs the billing department of the quantities shipped.
8. The billing department is not responsible for:
(a) Updating the inventory subsidiary records.
9. Which of the following functions should be segregated?
(a) Opening the mail and making the journal entry to record
cash receipts.
10. Which situation indicates a weak internal control structure?
(d) The accounts receivable clerk prepares customer
statements every month.
11. The most effective internal control procedure to prevent or detect the
creation of fictitious credit memoranda for sales returns is to:
(d) Require management approval for all credit memoranda
33
12. The accounts receivable clerk destroys all invoices for sales made to
members of her family and does not record the sale in the accounts
receivable subsidiary ledger. Which procedure will not detect this
fraud?
(c) Prepare monthly customer statements.
13. Which document is included with a shipment sent to a customer?
(c) Packing slip.
14. Which control does not help to ensure that accurate records are kept
of customer accounts and inventory?
(b) Authorise credit.
15. Which department prepares the bill of lading?
(c) Shipping.
16. A remittance advice is:
(d) None of the above.
17. Point of sale systems typically do not accept which kind of
transactions?
(b) Customer accounts receivable.
18. Periodically, the general ledger department receives all of the following
except:
(b) Total of all sales backorders.
19. Adjustments to accounts receivable for payments from customers is
based upon:
(c) The remittance advice that accompanies payment.
20. All of the following are advantages of real-time processing of sales
except:
(c) Incorrect data entry is difficult to detect.
34
21.
Invoice is created and sent to serve as the shipping notice before
customer’s credit is checked
What is shipped is not checked to what has been invoiced
Cashier prepares daily bank deposit and entries in the general
ledger
Receptionist is handling complaints and preparing sales return
forms (no review)
22. Sales Order – is a firm commitment from the customer to accept the
goods and services as specified and pay for them. The Sales
Department prepares this.
Bill of Lading – is prepared by the Shipping Department. It describes
the packages they accept for shipment, the carrier, the route, and
customer information.
Credit Memo – is created by the Sales Department and indicates the
number of goods returned, from which customer, against which sales
order/invoice and the reason for return.
35
23. Sales
Communicating with potential buyers Attend to customer inquiries Provide quotations Record sales order document Transfer copies of sales order to Credit department,
Warehousing (picking slip/stock request)and shipping department (packing slip)
After sales service
Credit Approves new credit for new customers, or checks credit limits
for existing customers
Shipping The Shipping Department compares the packing slip (from the
Sales Order Department) with the picking slip and the goods to be shipped.
They pack the goods and select a carrier.
Prepare a bill of lading (that describes the packages they accept for shipment, the carrier, the route, and customer information).
Keep a copy in the Shipping Department.
Send a copy to the customer.
Shipping personnel prepare a shipping notice to communicate that the goods have been shipped. The packing slip is included with the packaged goods.
A copy of a shipping notice is sent to the Billing Department as notification of the need to bill the customer.
36
24. Transaction Authorisation versus Transaction Processing
An example of this is the manual controls identified in section 6.2
In the mail-room, the clerk endorses the checks “For Deposit
Only” to secure them and reconcile the check amount to the
amount on the remittance advice. Each check is recorded on a cash
prelist, which is copied three times (one for the mail room, one for
the cashier, and one for the accounts receivable department).
In the cash receipts department, the checks are verified against
the cash prelist. The checks are recorded in the cash receipts
journal. A bank deposit is prepared and a general ledger journal
voucher is created for the total of the deposit.
The accounts receivable department reduces the individual
customer accounts in the subsidiary accounts receivable ledger by
the amounts on the remittance advices. A summary journal voucher
is prepared for the general ledger.
The general ledger department reconciles the cash deposit
voucher and the accounts receivable decrease voucher, and posts
these amounts to the general ledger control accounts.
Periodically, the controller reconciles the cash prelist, the deposit
tickets, and the general journal vouchers.
37
25. Asset Custody versus Record Keeping
The area that controls inventory levels and re-orders can not be
responsible for filling and shipping orders and sending through
documents for invoicing.
There needs to be checks to ensure that what is required from the
warehouse (inventory) matches the sales order, that the correct items
are picked and invoiced and that the opportunity for theft is minimised
in the process.
26. Accounts Receivable
Post sales to accounts receivable subsidiary ledger.
Follow-up payment.
Collect payment (remittance advices).
Reduce individual customer accounts in the subsidiary ledger by
payments received.
Inventory
Inventory control decreases the inventory in the inventory
subsidiary ledger when goods are shipped.
Monitors inventory levels in line with customer needs to ensure
there are no stock-outs (better inventory control).
38
27.
2
Daily Bank
Deposit
1
2
Cash Deposit
Advice
Advises company
bankers of
amounts
Advises company
bankers of funds
for return
Transfer funds to
STMM
Prepares funds
returns
Manages cash
control processes
Pay suppliers by
chequeWholesale client
receipts (Fridays)
Pay payroll by
EFT batch
1
#1 by 9:30am –
previous
afternoon takings
#2 by 1pm –
morning takings
#1 by 10am
#2 by 2pm
10am
Each store Treasurer Company bankers
39
28.
Customer
Application for
credit
Document
required log
Application for
credit
Application for
credit
New client?
Create
CCMF &
Store
application
Attach
application
to existing
CCMF
Document control
log
Perform
credit
check
Give credit?
Authorise
credit
application
Authorised
application
Reject
credit
application
Write
letter to
customer
2
LetterCustomer
File with
application
in CCMF
Register
return of
document
1
Yes
Yes
No
No
Customer support clerk Document control clerk Credit investment clerk Credit Manager
29. The purpose of the purchase requisition is to:
(a) Order goods from vendors.
40
30.
Customer
Customer order
Check
credit card
or store
account
Valid?
2
Calculate delivery
charges
Reject order
Tax Invoice
Select
books
Tax Invoice dated
& signed
Tax Invoice dated
& signed
Process payments
Signed cartage
manifest
Courier collects
books and signs
manifest
Cartage manifest
Wrap
books &
encl. Tax
Invoice #1
Customer
Accounts
1
22
Yes
No
Sales Accounts department Packing & Despatch
41
31. Control weaknesses relating to the revenue cycle:
No direct integration between different systems means data
may be incomplete and sales orders could potentially go missing
or be fulfilled incorrectly.
The customer product-matching system is separate from the
warehousing system and could be out of line with the current
inventory available. This could result in unfulfilled orders,
disgruntled customers and loss of sales.
Special programs written to accommodate fractured systems
may be flawed as they are designed as a ‘band-aid’ solution.
When they are designed they may not be able to consider all
future types of transactions and as such when irregular
transactions occur these may not transfer between systems
correctly.
Ways to improve Rest-Eazzzy’s systems:
Rest-Eazzzy needs to support its sales growth by investing in
more robust and integrated systems. Full Enterprise Resource
Planning (ERP) systems can be expensive but the benefits of
having complete data and timely processing will have flow on
effects of more efficient operations, more satisfied customers
and ultimately higher sales.
Rest-Eazzzy should ensure they have qualified IT personnel that
fully understand all of their systems. This helps the business
maintain control over the system and solve problems more
quickly and comprehensively.
Rest-Eazzzy allows e-commerce transactions. Having this fully
integrated with the warehousing and sales departments can
allow for quick order turnaround, just-in-time inventory
management and real-time reporting for better decision making.
42
CHAPTER 7 The Expenditure Cycle
1. Which of the following is not a characteristic of the Fixed Asset System? (a) Acquisitions are routine transactions requiring general
authorisation.
2. The purpose of the purchase requisition is to: (c) Authorise the purchasing department to order goods.
3. The purpose of the purchase order is to: (a) Order goods from vendors.
4. The purchase order: (a) Is the source document to make an entry into the
accounting records.
5. When purchasing inventory, which document usually triggers the opening of the accounts payable file? (b) Purchase order.
6. Authorisation for payment of an accounts payable liability is the responsibility of: (c) Accounts payable.
7. Of the following duties, it is most important to separate: (b) Warehouse from inventory control.
8. In a firm with proper segregation of duties, adequate supervision is most critical in: (b) Receiving.
9. In regards to the accounts payable department, which statement is not true? (b) The purchase order proves that the purchase was
required.
10. The document which will close the open purchase requisition file is the: (c) Receiving report.
11. Goods received are inspected and counted to: (a) Determine that the goods are in good condition. (b) Determine the quantity of goods received. (c) Preclude payment for goods not received or received in poor
condition. (d) All of the above.
12. A supplier invoice: (c) Is sent by vendor to accounts payable.
43
13.
No segregation between warehousing and inventory control.
Purchase orders are not authorised.
Employees receiving goods on the warehouse send the memo to
accounts payable reporting receipt of the inventory.
No quotes received for goods before the purchase order is created.
No checking or supervision of the warehouse workers when goods
are received.
Segregation of Duties: The warehouse has custody of the inventory
asset, which must be separate from the record keeping for the assets
by the Inventory Control department. The treasurer’s department has
custody of the cash asset, which must be separate from record keeping
for the asset by the accounting department (specifically, Accounts
Payable and General Ledger).
14. The main points incorporated in an award do not include: (b) Maximum rate of pay.
15. Timecards and Timesheets are not to be recorded by:
(b) A friend. 16. Kate worked from 7:00am to 7:00pm one day. He had a lunch break
for one hour. Any hours worked after 5:00pm or any hours worked in excess of eight hours in a day are paid at one and a half times the normal rate of pay. Kate’s normal rate of pay is $18.00 per hour. Calculate her gross earnings for the day. (b) $225.
44
17. Leave Entitlements
Sick Leave – a certain number of days allowed per year, paid at the normal
rate of pay.
Annual Leave – accumulated as standard hours are worked. They can be
loaded, based on the award with an additional rate of pay, when taken,
otherwise it is paid at the normal rate of pay. The general entitlement is 4
weeks per year. It can continue to accumulate indefinitely and is paid when
taken or on termination.
Long Service Leave – is similar to annual leave, a minimum period must be
worked to qualify eg. 10 years. The entitlement is 13 weeks at the normal
rate of pay. It is paid out on termination if the following conditions are
satisfied;
1. The service period worked is greater than the minimum service period
(10 years) required to be worked eg. Bill commenced employment
with ABC Pty Ltd in 1 March 1993 and terminates his employment
effective 31 march 2003. He receives his 13 weeks long service leave
pay as part of his termination pay as he has worked 10 years and 1
month.
2. Employment is terminated by way of retrenchment /redundancy and
the period of service worked is less than the minimum, (10 years), but
greater than a lower limit (5 years), for a pro-rata payment. Eg. Kim
commences employment with ABC Pty Ltd on 1 March 1998 and is
made redundant/retrenched effective 31 March 2003. She is paid a
pro-rated amount of long service leave, 6.5 weeks, as part of her
termination payment as she has worked 5 years and 1 month.
Other leave – examples are Parental Leave, Bereavement Leave and Study
Leave.
Allowances & Other Conditions
Can be industry specific – meal, transport and tool allowance.
An award can also specify the number of hours break/rest required
between hours worked. Eg. 10 hour shift, 13 hour break, 10 hour shift.
Terminations
Sets out the minimum notice period required to be given by either party to
terminate employment and the payment amount required.
45
18. An example flowchart is supplied but acceptable alternatives can be considered on their merits so long as flowcharting principles and conventions are followed:
The flowchart is to be read from top to bottom, and left to right
The different functions must be shown in separate columns.
Correct symbols to be used to represent terminals, actions, decisions,
movement of data and operations performed
The flowchart must show each process in sequence
Provide an overview of the customer enquiry system
Show the relationship between input, processing and output
Have adequate annotations in the correct format if notations in
symbols are not adequate.
Process
timesheets
Enter timesheet Approve timesheet
New employee /
change form Maintain
employee files
Maintain rate tables
& deductions
Employee
master files
Calculate
allowances and
deductions
Calculate payroll
Generate payroll
register
Generate payment
banking file
Generate
deductions list
Generate payslip
Generate tax
records
Generate general
journal summary
Check
payroll
register
Disburse payroll
Pay super /
deductions
Prepare tax
returns
Post journals
XX
Employee bank
Payslip
General
ledger
Payroll
records
Super funds
ATO
Employee Manager Payroll clerk Payroll system Accounts department
46
19. An example flowchart is supplied but acceptable alternatives can be considered on their merits so long as flowcharting principles and conventions are followed:
The flowchart is to be read from top to bottom, and left to right
The different functions must be shown in separate columns.
Correct symbols to be used to represent terminals, actions, decisions,
movement of data and operations performed
The flowchart must show each process in sequence
Provide an overview of the customer enquiry system
Show the relationship between input, processing and output
Have adequate annotations in the correct format if notations in
symbols are not adequate.
Stores
Enter process
sales
Stock
replenishment
order
Stock
replenishment
order
In Stock?
Select
supplier
Stock
replenishment
order
Picking slip
Pick
goods
Prepare picking
slip
Edit purchase
order & checkSupplier
Check goods
against order
Prepare cartage
manifest
StoreCheck with
purchase order
Check goods &
Stock received
advice
GL
Inventory
Supplied goods
with Stock
received advice
Yes
No
Triggers if day's
sales > 25% of
stock on hand
Stores Central store Despatch
47
20. ( a ) The second data input form is used to input the weekly payroll and timesheet
data for each employee.
Employee/Contractor number Position number Position name Employee Name Employee Address Street Suburb City Postcode Date of Birth Sex Start Date Termination Date Award Enterprise agreement Contract Employee Status Permanent Part Time Casual Pay rate Minimum hours per week Overtime (Yes/No) Bank Details BSB Account Number Name of account Tax Standard Rebate(Yes/No) Other rebates Medibank status Exempt (Yes/no) Other Deductions Next of Kin (Emergency contact - Name & phone number) Authorised By Checked by
( b ) Employee/Contractor number Employee/Contractor name Section/Function Hours worked Overtime Overtime Approval number Idle time Hours Idle time Code Sick Leave Annual Leave Extended (Long Service) Leave Leave without pay Leave without pay Code
( c ) Management reporting of weekly and monthly payroll costs should have the following features:
Summarised by operational area or function, such as: o State o Department o Cost Centre o Project
Broken down by budgeted line items such as o Salary & wages o Superannuation o Other on-costs (payroll tax, worker’s compensation insurance etc.)
Include non-financial information such as: o Hours worked o Overtime worked o Number of full time equivalent workers
Leave taken
48
21. An example flowchart is supplied but acceptable alternatives can be considered on
their merits so long as flowcharting principles and conventions are followed.
Flowchart conventions to be applied when reviewing student's answers: ▪ The flowchart is to be read from top to bottom, and left to right ▪ The different functions must be shown in separate columns. ▪ Correct symbols to be used to represent terminals, actions, decisions,
movement of data and operations performed ▪ The flowchart must show each process in sequence ▪ Provide an overview of the customer enquiry system ▪ Show the relationship between input, processing and output ▪ Have adequate annotations in the correct format if notations in
symbols are not adequate.
49
50
51
CHAPTER 8 The Conversion Cycle
1. The document that captures the total amount of time that individual workers spend on each production job is called a: (b) Job ticket
2. Which of the following situations represents a serious control
weakness? (d) Personnel is responsible for updating employee records,
including creation of records for new hires. 3. Cost accounting updates work-in-process accounts from:
(c) Job tickets 4. The document that records the total amount of time spent on a
production job is the: (c) Labour distribution summary
5. The purpose of the cost accounting system is to:
(a) Produce information for inventory valuation 6. An example of a continuous process is the production of:
(b) Milk products 7. A move ticket:
(c) Records the work done in each work centre 8. Which of the following is not an assumption of the Economic Order
Quantity model? (d) There are no quantity discounts
9. What is the economic order quantity if the annual demand is 10,000
units, set up cost of placing each order is $3 and the holding cost per unit per year is $2? (a) 174
10. If the daily demand is 40 units and the lead time is 12 days, the
reorder point is (c) 480 units
11. Which situation violates the segregation of functions control
procedure? (c) Cost accounting has custody of and makes entries on
cost records 12. Firms are adopting Activity Based Costing (ABC) because:
(b) It more accurately allocates costs to products
52
13. All of the following are documents in batch process production systems
except: (d) Purchase order
14. Which of the following statements is INCORRECT?
The basic equations involved in the EOQ model are … (a) Average inventory = (the number of orders per year x
the cost per order)/2.
15. Which of the following statements is INCORRECT? To achieve a Word-Class Manufacturing environment, companies must consider doing the following: (a) Physically reorganising the production facilities.
16. Which of the following statements is INCORRECT?
The EOQ model assumes that: (b) Orders to replenish the inventory of an item are filled
immediately. 17. Which of the following statements regarding documents in Batch
Production is INCORRECT? (c) The routing sheet specifies the sequence of operational
activities and the standard time allowed for each task. 18. Which of the following is not a processing method in production?
(b) Continuous processing.
19. Which of the following statements is INCORRECT? (a) A move ticket records the work done in each production
centre and authorises the movement of the batch to the next processing centre.
20. Which of the following statements is CORRECT?
The EOQ is calculated as follows: (a) (total annual ordering costs)/2. (b) (total annual ordering costs) x 2. (c) 2 x (average inventory). (d) None of the above.
21. Which of the following statements is INCORRECT? A CIM consists of
the following subsystems: ( Non ) (a) Computer-aided design (CAD). (b) Electronic data interchange (EDI). (c) Computer-aided software engineering (CASE). (d) Manufacturing resources planning (MRP II).
53
22. Which of the following statements is INCORRECT? The basic equations/concepts in the EOQ model are: (b) Total annual inventory costs = total annual ordering
costs. 23. Which of the following statements is INCORRECT?
(c) The production schedule formalises the plan and authorises production to begin by specifying the products, the quantities, and the timetable for starting and completing production.
24. Which of the following statements is INCORRECT? The EOQ model
assumes that: (a) Both demand and lead times are constant and known
with certainty.
25. Bill of Materials (BOM)
Specifies the types and quantities of materials and subassemblies
required to produce a single finished good. The total raw materials
requirements for a batch are determined by multiplying the BOM times
the number of finished goods desired for the batch.
Routing sheet
Depicts the production process path for a batch of product, specifying
the sequence of operational activities and the standard time allowed
for each task.
26. Transaction authorisation
Production activity is authorised by the production planning and control
department via the formal work order. Material requisitions authorise
the store keeper to release and accept return of materials to and from
the work centre production personnel. Signed move tickets authorise
the activities for each batch and for the movement of products through
various work centres.
Segregation of duties
Production authorisation (production planning and control) is separated
from production activity (work centres). Production activity (work
centres) is separated from the record keeping (cost accounting).
Custody of the assets (materials, inventory) is separated from the
record keeping. General ledger is separated from the subsidiary ledger
record keepers (cost accounting).
54
Supervision
Foremen in the work centres oversee the production employees.
Foremen in the work centres review and approve time keeping
activities (time cards and job tickets).
Access Control
Direct access to the assets of materials, product and information
records are secured through the storeroom, production work centres,
finished goods warehouse, and cost accounting. Physical control
methods include identification badges, security guards, observation
devices, sensors, and alarms.
Indirect access to the assets of cash and inventories can be
manipulated through the documents of this production system.
Therefore, critical documents involve the materials requisition forms
and employee time cards. Pre-numbered documents also assist in the
audit trail.
Accounting Records
The audit trail is completed through the documents of the work orders,
the cost sheets, the move tickets, the job tickets, the materials
requisitions, the WIP subsidiary ledger, and the Finished Goods
subsidiary ledger. Periodic audits of the products in process or
produced are also necessary.
Independent Verification
Cost accounting verifies the materials and labour usages (and records
variances) from the materials requisitions, the job tickets, the work
orders, and the move tickets. General ledger verifies the total
movement of products from QIP to FG inventories by reconciling the
journal vouchers from cost accounting and summaries of the inventory
subsidiary ledger from inventory control.
55
Periodic audits of the physical materials and products in the inventories
can be achieved by a physical count. Differences create adjustments to
the accounts as needed.
Customer Complaints
Should be reviewed for quality of the product or service. If an issue is
identified then an investigation of the conversion process should be
undertaken to uncover possible breaches.
Product Inspections
The rate of defective products identified needs to be monitored to
ensure it falls within the norm.
27.
Customer
Customer order
Order entry
system
Production orderProduction
scheduleCheck orders &
allocate sequence
numbers
Production of
goods
Hold until order
completed
Delivery schedule Despatch to
customer
Customer
AR
File
Inv
File
Inv
File
AR
File
Inv
File
Tax
invoice
Record
delivery
reference
number
Sales Production clerkProduction
superintendantStores Despatch
56
28.
Finished goods
order
Production
scheduleCheck parts
stock levels
Enough
stock?Production
Purchase order Authorities
P.O.
Signed P.O.Signed P.O.
Update system
Summary of
orders reports Supplier
Production control Stock control clerk Stock control manager
No
Yes
57
CHAPTER 9 The Financial Reporting System
1. Which of the following is not a long-term source of finance: (a) Trade Creditors.
2. Which of the following is not a function in the financial cycle: (d) The selling of goods and services.
3. Retained earnings can mean: (a) all profit earned is kept for future use. (b) some part of the profit earned is kept for future use. (c) most of the profit earned is kept for future use. (d) All of the above.
4. A document that acknowledges a debt is called: (b) a debenture certificate.
5. The level of management that makes tactical planning decisions is: (b) Middle management.
6. The decision to enter a new market is an example of: (a) Strategic planning.
7. Which of the following management principles affects the management reporting system? (a) Formalisation of tasks. (b) Authorisation. (c) Span of control. (d) All of the above.
8. Strategic systems planning is important because the plan: (c) Provides a static goal to be attained within a five-year
period.
9. The major difference between the Financial Reporting System (FRS) and the Management Information System (MIS) is the: (a) FRS provides information to internal and external users;
the MIS provides information to internal users.
10. Which of the following is not a characteristic of the Fixed Asset System? (a) Acquisitions are routine transactions requiring general
authorisation.
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11. There are a number of basic principles students may refer to when answering this question:
Detail Reporting structures Report types Report attributes Screen output
Detail
The level of detail in reports decreases the higher up the organisation chart the recipient. The report detail is provided to be compatible with the accountability or responsibility of the level of management.
A supervisor requires the detail costs of a section, whereas the Production Manager would only need to be advised of the total factory costs of each section or total product costs for each cost or profit centre.
The CEO would only require a summary of overall costs and trends to be able to analyse the results for anomalies.
Reporting Structures
Geographic locations: The summary report for the CEO would show national results dissected into state or location results. International results need further processing to reflect currency fluctuations and other adjustments. A further dissection of these reports for each State Manager would show more detailed results for each region within the state.
Product dissections: A summary report for the CEO would show the totals of each product group on a national basis. Each State Manager would then receive a report showing the product sales for that state, dissected into the various sales regions. The regional sales managers would have contact with their representatives and that would be the basis for the final report shown. In addition, a Sales Summary by Client report may also be prepared for Regional Sales Managers.
Operating Functions: Reports for operating functions are generally cost centre expense or project cost reports. Detailed cost reports would be prepared for each function manager and include line-by-line cost details. Examples of operating functions are:
o Purchasing o Stores / stock control o Production o Labour o Overheads
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Report Types Reports can usually be identified in four ways: Scheduled Reports: These have a specified content and format
and are prepared to a regular timetable. These include monthly cost performance, weekly labour efficiencies and materials usage reports.
Special Purpose Reports: These reports are prepared as a result of a management need to review a specific issue such as listing quantity and costs of the relevant stock items in a slow moving or obsolete product group.
Triggered Exception Reports: Although having a predetermined format, these are prepared because of an abnormality such as inventory discrepancies or excessive slow paying debtors.
Demand Reports: Prepared only when requested by management, these reports may be structured or involve selection of alternative information.
Relevance Each item of information included in a report should focus on the system objectives and specifications. Any report that contains irrelevant information will be an inefficient and wasteful use of the firm’s resources and cause users to treat the report with disdain. Exceptions Oriented Reports with an exception orientation, referred to as exception reports, focus on the differences from normal expectations rather than simply showing absolute measurements. In these types of reports managers can scan the report for those areas needing urgent attention first and review their other responsibilities in their order of priority. Timeliness Information to be useful needs to be received by management in time to take action to correct a situation. Information that is 95% accurate and provided in three days is more useful than information that is 99% accurate and provided three weeks after the end of the month. Accuracy Few reports that have time pressures applied for completion will be 100% accurate. It will need to be consistently maintaining a high degree of accuracy to be treated as a reliable report for management decision making. Some reports provided to forecast trends and other planning objectives will not be as accurate as some accounting reports showing function expenditures and revenues. Management cannot wait for the perfect report, they need to act as soon as possible. The level of accuracy is a trade-off with timeliness in designing reports that will be useful for management.
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Completeness A report needs to be as complete as possible. Timeliness can prevent some date being included in a report but this should never detract from its usefulness. No item of data that is vital to measuring the results of an activity or function should be omitted from a report. Conciseness Information should be clear, concise and logically organised. Headings should be relevant and should not detract from the presentation of the report content. Information should be grouped in accordance with functional accountability, logical processing sequences or other relevant parameters.
Output forms and Screen layouts The structure of a screen output form follows the same general design rules and considerations as those that are applicable to paper forms. The security of sensitive information must always be considered when distributing any form of report to ensure only approved employees are able to view.
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12. The reporting system provides information to users that can relied upon in making decisions. To achieve this all accounting reports should apply good principles of design including: ▪ Relevance - only contain data the end user will find useful. Avoid overload
of information. ▪ Summarisation - detail at lower levels at management, summarised at
higher levels of management ▪ Exceptions orientation - focus on the differences from normal expectations
i.e. exception reports. Students could give a practical example of such an exception report
▪ Timeliness - the content is accurate as possible and produced within a
reasonable timeframe ▪ Accuracy - 'trade-off between accuracy and timeliness. This is also covers
systematically checking sources of input data and established reporting requirements are in line with each other
▪ Completeness - all important data is presented ▪ Conciseness - the information in the report should be clear, concise and
logically organised. ▪ Monitoring the reporting requirements of the organisation and modifying
the accounting report as change or user requirements demand As well as the above, when considering practical features of the contents of the reports, the following is also considered: ▪ Media - storage of the screen output or non-computerised output ▪ Location - is the report going to be available on a web page, workstation,
laptop or hard copy only ▪ Is the report for internal or external use ▪ Security - password protection for sensitive information ▪ Standardisation of the input data and documentation ▪ Maintaining appropriate backups
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13. ( a ) The information requirements of an organisation will be influenced by requirements of the management or users of an organisation. An organisation structure provides the environment through which information flows. The reporting system designed and the structure will be influenced by the following factors: ▪ what data or information is required to plan and co-ordinate the
operations to achieve outcomes i.e. performance reports ▪ the organisation must establish the structure that distinguishes each of its
specific functions or features. This structure could be based on: ▪ responsibility accounting ▪ operating functions or cost centres ▪ divisions ▪ geographic locations
▪ The levels of management requiring information (internal users) must be
clearly defined. ▪ Reports for lower level management and supervisory staff - operational
reports - structured decision making ▪ Reports for middle level management - functional and operational -
semi-structured decision making ▪ Reports for top level management - strategic planning - unstructured
decision making ▪ Requirements of users externally for example shareholders, government
agencies and potential investors ▪ Compliance of reports with any relevant government regulations ▪ Deciding what information is mandatory, essential or discretionary ▪ Costs versus benefits of designing and operating a system producing
reports. Costs involve resources needed including initial design costs and daily operating costs.
▪ Future information requirements and ability to adopt to change i.e. social
reporting ▪ Reliability of data integrity For each group of users different accounting information will be required from the reporting system. Reference could be made to general purpose reports versus special purpose reports.
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The user and purpose could include: ▪ Shareholders (current and prospective)
▪ Dividend yield ▪ financial security ▪ value of shares - buy/sell ▪ social and environmental issues
▪ General public
▪ keep informed ▪ Academics
▪ teaching ▪ research
▪ Economists
▪ research ▪ predictions of the economy
▪ Government agencies
▪ accountability ▪ statistics ▪ tax
▪ Lending institutions
▪ credit approval ▪ credit terms
▪ Suppliers of goods and services
▪ credit terms and supply ▪ Trade unions ▪ Pay rises and job related matters
▪ Special interest groups i.e. environmental agencies
▪ social and political agendas
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( b ) Internal control requirements would include the prevention, detection and correction controls. Internal controls would be based on risk assessments and cost benefits. Accountants and auditors frequently participate in system development process because they, more than most other professionals who work with computers are knowledgeable about internal control.. Internal control includes the measures adopted by management to achieve the organisations objectives, in this case adequate internal control is necessary for implementing a successful accounting information system Internal controls implemented in a computer-based accounting system are often referred to as 'information system controls'. The general principles applied to a computerised accounting system include: ▪ Segregation of incompatible duties ▪ Levels of authorisation over data ▪ Physical security of assets ▪ Data input controls to ensure the system captures all relevant data ▪ System has facilities for back up and data protection including contingency
plans if a system failure occurs ▪ Processing controls over data collected ▪ Output controls for all financial reports Internal control can also be viewed from the viewpoint of making sure the information produced (the output) is: ▪ accurate ▪ reliable ▪ and, timely
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14. ( a )
Characteristic Explanation
Effectiveness Information must be relevant to the management processes and it must be available in a timely, accurate, useable, and regular way. It is not effective to collect data about activities, such as retail sales growth if the firm is in a primary industry that is not affected by these results.
Confidentiality A lot of information may be covered by the Privacy Act or may also be commercially sensitive. Commercially sensitive information means the data would provide a benefit and possible competitive advantage to competitors if it became known. Information protected by the Privacy Act requires special controls for access and use.
Integrity The information contained in reports needs to be: (a) complete (b) without any material omissions, (c) be valid by showing transactions and activities that are true, and (d) based on values that reflect user's expectations about it. The level of accuracy needs to be acceptable to the users. Information that contains estimates or pro-rata adjustments needs to be understood by all levels of management that use that data to know the limitations that such estimates and adjustments may cause on subsequent management decisions.
Availability Information must be available to timetables that reflect management's needs for the information. All information has a cost/benefit to it. Information that is made available in reports may only be 95% accurate, but be available three weeks before 97% accurate information and a further two weeks earlier than 99.5% information.
Compliance Information needs to comply with relevant legislation or government regulations, such as the Income Tax Assessment Acts which provide for Fringe Benefits Tax, Goods and Services Tax requirements and Capital Gains provisions. Environment Protection and Corporation Legislation, provides for minimum disclosures of results as well as specifying items or categories. Consideration of applicable accounting standards is also necessary.
Reliability The information provided needs to be adequate and appropriate for the required purposes for which it is being collected and collated. The degree of reliability is also a result of the extent of the integrity and availability of the data it is based on.
Efficiency The resources mix used by the management information system should be the optimal. Information timeliness has to be balanced against the cost of obtaining the information and the degree of accuracy.
Timeliness Data must be entered as soon as the transaction occurs. It must not be delayed for any length of time that is not within acceptable limits.
Accuracy Accuracy of information is mandatory but use of estimates is acceptable if obtaining actual results is going to take a long time. The acceptable period for delaying input depends on the nature of the report. Internal reports would use more estimates than annual accounts that need to be audited and distributed publicly.
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( b )
Activity Internal Control
Staffing layers Access Control Only individual staff members who need access should be able to access a particular part of the accounting system. Authority to use a particular function should be restricted to allow only staff involved in the function. Accounts payable staff should be restricted by being able to access only the accounts payable functions
Operations of an accounting function
Segregation of incompatible duties. Recording cash amounts received should be segregated from the allocation of cash against the accounts receivable subsidiary ledger. Similarly accounts payable, payroll and cash payments must be restricted also.
Level of accountability of the management
Responsibility Accounting Each manager is responsible for the operations and costs of the function they are responsible for. Each level of management has the extent of their authority determined by the senior management and the directors.
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15. ( a ) 1. Each manager has designated responsibilities. Each manager will have areas
of accountability and responsibility that only be satisfied by receiving reports setting out the measurement of their decisions and actions in the period. This was intended in the current system but has not been implemented.
2. The lack of current achievements to those planned would indicate that the
reviews of actual performance to the system objectives has not occurred. 3. The format of the reports is only acceptable to the accounting managers, and
operating managers without exception are dissatisfied with the format. Format could also include content items or the way detail is provided.
4. The operating managers have to rely on the superiors to show them the
reports. They should receive a report that satisfies their own needs for accountability and responsibility.
5. Operating managers are also dissatisfied with the detail provided by the
reports. This indicates that aggregates for high level managers are shown but not the detail required by them.
6. Timing of the reports is inadequate for senior managers and increased
frequency of reports is required. Report frequency could also mean that managers want the option of "demand" reports if the circumstances require them. The current timing appears too inflexible and rigid. ( b )
1. The types of reports indicated are probably aggregate reports for senior management. They would comprise both objective and subjective information. To satisfy the needs of middle management adequately more detail and more objective data needs to be provided.
2. Reports usually can be identified in four ways:
▪ Scheduled reports: These have a specified content and format and are prepared to a regular timetable. These include monthly cost performance, weekly labour efficiencies and materials usage reports.
▪ Special purpose reports: These reports are prepared as a the result of a management need to review a specific issue such as listing quantity and costs of the relevant stock items in a slow moving or obsolete product group.
▪ Triggered exception reports: Although having a predetermined format, these are prepared because of an abnormality such as inventory discrepancies or excessive slow paying debtors.
▪ Demand reports: Prepared only when requested by management, these reports may be structured or involve selection of alternative information.
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3. Report Attributes may also be referred to in the design procedures for a report. These attributes, can be summarised as; ▪ Relevance ▪ Summarisation ▪ Exceptions orientation ▪ Timeliness ▪ Accuracy ▪ Completeness and ▪ Conciseness
4. The circulation of the reports will need to be revised to include all levels of
management and provide reporting that is useful for the operating management. ( c )
1. With revisions to the report content detail, format and distribution, data collected will need to be reviewed for the changes to meet the needs of the middle management.
2. The notes provided below from a text, includes the points the students may make in their answers.
3. System functions that transfer data from other sub-systems or other input and validation procedures will be affected. Procedures for gathering, collating and summarising data will be changed also. Notes: What Data is Required? It is a practical impossibility for an information system to collect every piece of data possible. Businesses are not scientific laboratories seeking knowledge for the sake of knowledge. Businesses seek information to plan and coordinate their operations. In seeking this information, they need to identify with a reasonable degree of precision, what is needed to achieve this, and what is not. In choosing which data to record, certain identifying characteristics are established by management. These characteristics will be determined by: 1. Specific features of relevance to operations or a management function 2. The level of management requiring the information and 3. The use the information will put to. The relationship each of these has with the others is shown in the Figure below. Generally, as the information passes through the various levels of management, it becomes less historical, and objective, and becomes increasingly analytical, subjective and predictive. This change in emphasis and character of the data is necessary because of the different types of decisions made by each level of management.
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16. The general public or the marketplace needs to know about and have access to a retailers products or services. The marketing information systems will need to provide information on the following marketing objectives: ▪ Product (or service) - which type of products/services am I selling and
what is my target customer? ▪ Price - how will I price my product or service? ▪ Placement (or distribution) - how will my customers get access to my
product or service? where will they find it? Which retailers will sell my product/service?
▪ Promotion - how am I going to reach my target customer? what forms
of advertising will be relevant to my customers? ( b ) On an operational level the marketing information system needs to be able to provide statistics on units sold, returned, stock available, orders received and entered. This information would need to be by product, by sales person and by location. The system would also need to have access to the accounting information system for dollar values of sales, returns etc. This sub-system would also have to access information from the other sub-systems for other operational information as well - for example - human resources information system for salesman's compensation/bonuses etc also the manufacturing information system to get information on production of products etc. ( c ) Internal control is the methods, policies and procedures to safeguard assets, provide accurate and reliable information, promote and improve efficiency and to ensure the organisation achieves its objectives. No matter what the system, internal controls perform 3 important functions: ▪ Preventive controls - deter problems before they arise. Hiring good
marketing executives would be an example of this control. Controlling physical access to the company's products/samples and assets would be another.
▪ Detective controls - are needed to discover problems as they arise.
Checking of pricing and calculations, adequate credit control would be examples here.
▪ Corrective controls - actions taken to fix the problems caused by the
errors detected. The salesman may need to follow up with a customer if their credit limit is exceeded. Special customer pricing and promotions would need to be approved.
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CHAPTER 10 SDLC I
1. Project feasibility includes all of the following except: (d) Schedule feasibility.
2. The degree of compatibility between the firm’s existing procedures and personnel skills and the requirements of the new system is called: (d) Legal feasibility.
3. The ability of a system to protect individual privacy and confidentiality is an example of: (c) Legal feasibility.
4. Typically a systems analysis: (c) Identifies user needs and specifies system requirements.
5. Systems analysis involves all of the following except: (c) Redesigning bottleneck activities.
6. The accountant’s role in systems analysis includes all of the following except: (b) Prepare data gathering questionnaires.
7. Aspects of project feasibility include all of the following except: (c) Logistic feasibility.
8. Protection from inadvertent disclosures of confidential information is part of the detailed:
(b) Schedule feasibility study.
9. Which of the following is an option in terms of evaluating a project proposal? (a) Modify the existing software. (b) Develop a manual work around. (c) Purchase an off the shelf package. (d) All of the above.
10. Which of the following is NOT an example of Application software? (c) Windows Operating System.
11. A cost-benefit analysis is a part of the detailed: (d) Economic feasibility study.
12. Examples of recurring costs include: (c) Personnel costs.
13. An example of a tangible benefit is: (c) Reduced inventories.
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14. An example of an intangible benefit is: (c) More efficient operations.
15. A tangible benefit:
(a) Can be measured and expressed in financial terms. (b) Might increase revenues. (c) Might decrease costs. (d) All of the above.
16. Intangible benefits:
(c) Are sometimes estimated using customer satisfaction surveys.
17. Which of the following statements is INCORRECT? Cost-benefit analysis: (a) Can be used for comparing competing systems designs.
18. Which of the following statements is INCORRECT? Cost-benefit analysis
using capital budgeting techniques: (c) If the Internal rate of return (IRR) is higher than the
desired rate, the Net present value (NPV) is > 0. 19. Which of the following answers is INCORRECT? When performing cost-
benefit analysis using capital budgeting techniques: (b) If the Net present value (NPV) is negative, the Internal
rate of return (IRR) is negative too. 20. Which of the following answers is INCORRECT? The Entity Relationship
Diagram: (b) Is mainly used for modelling structures.
21. An AIS-implementation project is associated with an initial investment of $1,000,000 and will generate net benefits of $ 360,000 in the first 3 years. What is the NPV of this investment assuming a cost of capital of 8%? (Ignore taxes etc.) (b) – $ 72,245.
22. An AIS-implementation project is associated with an initial investment
of $1,000,000 and will generate net benefits of $ 360,000 in the next 3 years. What is the Internal Rate of Return of this investment? (The cost of capital is 8% Ignore taxes etc.) (c) Between 0 and 6%.
23. Accountants play many roles relating to the accounting information
system, including all of the following except: (d) System converters
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24. The ERM is a tool for modelling data structures, e.g. the organisational structure of a company, and the relationship between the elements.
Given that the ERM is a tool that could be used to design Accounting Information System databases, it is important that Accountants understand the model so that they are able to validate the system design.
25. The seven stages of the systems development lifecycle are as follows:
Systems Planning Systems Analysis Conceptual Design
System Selection Detailed Design System Implementation Maintenance
26. Systems Analysis
Systems analysis is the second stage of the SDLC. The objective is to fully understand the situation before proceeding to the evaluation of solution alternatives. There are two steps, the survey and the analysis.
The Survey Step: System analysts survey the current system to identify the strengths and weaknesses.
The Analysis Step: The output from this step should be a Statement of Requirements that identifies the relevant business processes to be included in the systems development.
System Selection The purpose of this stage is to select the one system from the alternatives. It is an optimisation process usually involving a great deal of uncertainty. Structuring this decision process reduces both the uncertainty and the risk of making a poor decision. The most important analysis to be performed it a detailed feasibility study.
Feasibility studies should be conducted in several stages of the SDLC. Most importantly, they provide a basis for the ultimate system selection. The study is to identify and analyse a system development proposal and its solution in order to determine its viability, costs and benefits. The extent of the study will vary depending on the size and nature of the project.
Based on the feasibility study, a decision will be made as to whether to move on to the next stage of the SDLC. If this decision is made, the feasibility study should be continually updated at each future stage in the life cycle. If the feasibility study is accurate the possibility that the development will be cancelled due to unexpected events is reduced.
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27. Use spreadsheet (a) Cash flows associated with project
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Initial cost (1,300,000)
Salvage value 100,000
Cost savings 500,000 1,000,000 2,000,000 2,500,000 2,000,000
Other expenses (cash) (400,000) (750,000) (1,400,000) (1,750,000) (1,400,000)
Taxation i) (68,000) (196,000) (136,000)
Sub-total (1,300,000) 100,000 250,000 532,000 554,000 564,000
Working capital ii) (80,000) 80,000
Cashflow (1,380,000) 100,000 250,000 532,000 554,000 644,000
Notes:
( i ) depreciation is a non-cash flow, however, depreciation deductions
effect tax cashflow.
( ii ) working capital, for example, raw materials, finished goods and debtors
is usually repaid in full at the end of the project
( b ) Accounting average rate of return on original investment
Total Year 1 Year 2 Year 3 Year 4 Year 5
Net income(loss) before tax 1,000,000 (160,000) (10,000) 340,000 490,000 340,000
Ave annual profit before tax 200,000
Capital employed 1,380,000
ARR 14.49%
( c ) Payback period Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash flows exc wk cap (1,300,000) 100,000 250,000 532,000 554,000 564,000
Cumulative (1,300,000) (1,200,000) (950,000) (418,000) 136,000 700,000
Payback period for the original outlay is 3.75 years or 3 years 9 months.
( d ) Internal rate of return
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Relevant costs (1,380,000) 100,000 250,000 532,000 554,000 644,000
IRR 12.11%
( e ) Net present value
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Relevant costs (1,380,000) 100,000 250,000 532,000 554,000 644,000
Cost of capital 10.00%
NPV $ 95,483
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28. ( a ) Hardware and software restraints
Restraints that apply to both hardware and software:
Cost/budget – for initial purchase and ongoing costs
Availability
Vendor support
Reliability
User friendliness
Compatibility with existing systems
Adaptability / capacity for growth
Hardware selection restraints:
Input of the data into the system
o Paper, scanners, removable storage
o Keyboards, mouse, touch screen
o POS equipment
Secondary storage of data
o CD, hard disk, optical disk
Communication of data
o Internet connections, terminals, network connections
Output of the data
o Paper media, printers, disks, online media, websites
Software selection restraints:
Suitability of the software to meet the needs of the users and
user acceptance
Software support from the suppliers
Upgrade support from the suppliers
Cost of the initial outlay and ongoing license renewals
Training and other ongoing costs of purchase and installation
Compatibility with existing hardware and systems
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( b ) Legal requirements
Protection of privacy – payroll details, customer details, credit
card numbers etc.
Legal software licenses
Content of AIS meeting internal control requirements
Internal audit
External audit
Accounting and reporting standards are adhered to
Ability to alter AIS depending on changes n corporations law, tax
law or ASX requirements.
Risk assessment requirements
( c ) Security requirements
Minimise the potential risk of fraud or sabotage of the accounting system. Includes the physical hardware and software and also the data stored within the AIS.
Preventive controls
Detective controls
Corrective controls
Access to the system restricted to authorised personnel only
Barcodes on all hardware equipment for tracking purposes
Video surveillance for high risk areas
Physical and system access controls
Management controls
System development and maintenance controls.
Data security for computer networks
o Encryption
o Firewalls
o Network control log
o Automatic disconnect
o Automatic call back
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( d ) Quality Standards
Quality standards are particularly important in the design stage of the
system. Some organisations after completing the detailed design can
perform a “walk-through” simulation to ensure the design is free from
conceptual errors that could become programmed into the final
system. Most system errors result from poor designs rather than
programming mistakes. The findings are formalised into a report. This
report will advise the course of action to make sure the quality of the
system is as required.
An AIS must maintain the desired qualities of information, such as:
o Must be relevant and pertinent to the business decision process
– does the AIS help decision makers?
o Must be dependable – does it represent business activities of
the organisation on a consistent basis?
o Must be available when required – is the information capable of
being produced when required?
o Must be corroborative – is the information verifiable by other
independent sources?
o Must be useable – can the different levels of management use
the information to answer the structured or non-structured
decisions required?
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29. ( a ) The feasibility has four major purposes: 1. Identify the problem 2. Formulate a number of practical solutions 3. Evaluate and choose one as the possible solution 4. Implement the chosen solution
1. Identify the problem
a. Determine the actual situation
b. Visualise desired situations
c. Isolate the cause of the variation between the actual and desired situations.
2. Formulating possible solutions a. There are always alternatives, but some may be eliminated on
cost grounds.
b. Sometimes solutions may not be obvious and consulting external system experts may be necessary
3. Choosing a solution a. Choosing the desired solution is not always a matter of choosing
the first solution considered. In fact, rarely is the best solution the obvious choice.
b. Before selection, the costs and benefits need to be carefully evaluated.
c. Although the chosen solution would solve the problem, it is also
possible the proposed system or system changes will not remove it entirely and may simply make it controllable.
4. Implementing and evaluating the solution a. The feasibility study of course can only try to discuss the
implementation in general terms. It does not set how the implementation will be done but will describe what may need to be done and how long it may take.
b. If the problem has not been solved, either alternate solutions need to be evaluated or the problem needs to be redefined to ensure the previous identified effects were not causes. This would then require a new feasibility study to be prepared.
( b ) Structure of the Feasibility Study:
o Introduction – identifies the system and sets out the system objectives
o Current System Status – outlines the existing problems
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o Proposal outline: o Alternative solutions to the problem o Chooses one of the suggested alternatives as the
favoured solution o Lists and specifies new hardware required o Lists and specifies software requirements – purchase or
develop in-house o Costs – estimated expenditure for proposed solution o Training and ancillary costs of hiring new staff, training
current staff and changeover expenses to the new system.
o Flowcharts, forms and stationery needed, documenting the new system.
o Management summary – a brief overview of the new system, with schedules of costs and probable implementation dates.
30. Management and responsibility structures:
The GL system design will be influenced by the data requirements of the management of an organisation. The organisational structure provides the environment through which information flows. The structure allows accumulation of performance measures and performance goals at the lowest level to the highest level of the organisational hierarchy. The structure involves summarising and details of historical data and the providing of reports, comparing data with a budget or target set for managers. Performance evaluation of managers can be linked to the reports generated. Structure can also be developed around divisions, cost centres, profit centres, investment centres and/or geographical locations. Reporting objectives
What information is required to plan and coordinate the operations to achieve outcomes
The types of reports required for internal users at various levels Reports for external users eg. shareholders and authorities Compliance with relevant government regulations Deciding what information is mandatory, essential or discretionary
Future information requirements and ability to further improve the general ledger reporting system, eg. changes to accounting standards
Reliability and integrity of information
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Operating and output schedules Produced based on the structure and objectives identified above. Output can be either:
Scheduled reports Special purpose reports Triggered exception reports
Demand reports
Levels of security Used to minimise the potential risk of fraud or sabotage:
Management controls – one person giving responsibility for the system, and held accountable for outcomes
System development and maintenance controls – proper authorisation from management for system modifications.
Computer operation controls – access to the system restricted to authorised personnel only: o Physical access controls o Systems access controls
Other internal control requirements Segregation of duties
Levels of authorisation over data Data input controls to ensure the system captures all relevant data System has facilities for backup and data protection Processing controls over data collected Output controls for all reports
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31. Data Flow Diagrams DFD’s are used to show the logical components of a system. They do not show the physical system which is who or what is performing the tasks, but the logical tasks of what is to be done. Symbols used: Process – task or function to process data
Terminator – input source or output destination of data Data store – store of data such as a master file, transaction file or reference file Direction of the data flow
A simple payroll example illustrates how the DFD is used. The timekeeping staff provide payroll data which is applied to payroll data for each employee to produce periodical pay cheques. The payroll data is both used to produce the cheques as well as being updated by the pay process.
Entity Relationship Diagrams
The symbols used in ERD’s although similarly shaped to symbols in other types of flowcharts, have specific and quite different meanings. Entities The ERD is a modelling tool. They are also called REA data models. The Entity Relationship is a concept tool to design accounting information system databases rather than a means of charting the physical system.
Employees Timekeeping Process
Payroll
data
Payroll data
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The REA model: 1. Identifies the entities to be included in the database, and 2. Prescribes how to structure relationships among those entities.
An entity is any class of objects about which data is collected. Entities can include inventories, assets, employees, customers and suppliers.
Key objects or resources Resources are physical objects that have an economic value to the organisation, such as cash, inventory, buildings etc.
Events These include all the various business functions and activities that management wants to collect information about. Events may stimulate changes as a consequence of setting in motion a change of events that can effect any or all of the accounting sub-systems.
Agents Agents are the people and organisations that take part in the events and about who the information is needed for planning, control and evaluation. This will include employees, clients and customers.
Cardinality This indicates the number of occurrences of one entity that can be linked to a single occurrence of the other entity in the relationship. There is a minimum cardinality which an entity can have and this can be 0 or 1. Zero (0) cardinality means the entities on one side have no relationship to the entities on the other side. Cardinality can also be ‘M’ for many examples.
Symbols used:
a) a resource such as an asset, cash, inventory etc. b) an event such as paying cash, receiving inventory c) an agent such as a salesperson, client or supplier
Represents the relationship between the resource, event and agent. Relationship involves an action, activity or procedure.
For a simple purchasing sequence, there are many clients placing many orders with the firm. If the cardinality was 1:M, it would mean there was only one client, but the one client placed many orders. A cardinality of M:1 would mean many suppliers place only one order. Entity Relationship Entity
Order Client Places M M
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CHAPTER 11
SDLC II
1. The role of the accountant/internal auditor in the conceptual design phase of the Systems Development Life Cycle includes all of the following EXCEPT: (a) Designing the physical system.
2. In the detailed design phase of the Systems Development Life Cycle,
designing the system process requires all of the following EXCEPT: (c) That system controls are tested.
3. Which of the following statements regarding the Project Evaluation and
Review Technique (PERT) is INCORRECT? (b) PERT portrays activities as nodes.
4. Which of the following statements is INCORRECT? In the ‘Detailed
Systems Design’ stage of the SDLC: (a) Databases are converted.
5. Which of the following statements is NOT a procedure that can be used for system testing? (c) PERT
6. Which of the following is TRUE about the Cold Turkey approach to cut-
over? (a) Requires a complete back-up of the system prior to cut-
over 7. Which of the following statements regarding the Project Evaluation and
Review Technique (PERT) is INCORRECT? (c) The Critical Path is the longest route through the
network.
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8. Role of Accountants – System Evaluation & Selection
Accountants can help calculate accurate economic feasibility analyses
by ensuring:
Only avoidable/escapable costs have been included.
Reasonable interest rates for all present value calculations.
All one-time and recurring costs are separated and included.
Realistic useful lives are utilised.
Intangible benefits have been assigned reasonable financial
values.
Role of Accountants – System Implementation Stage
Accountants can assist in the system implementation stage by
providing:
Technical expertise in business processes, GAAP, AASB
standards, ASX regulations, tax rates and legislation.
Document standards, for ease of use of system and for audit
trail purposes.
Verification of control adequacy, whether they be programmed
or manual controls.
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9. Documentation used by systems designer during maintenance includes
Data Flow Diagrams, Entity Relationship Diagrams, structure diagrams,
systems flowcharts, program flowcharts and program code lists.
10. (a) Path 1 contains events 1 2 3 5 6 7 and requires 2+4+4+3+2
= 15 weeks to complete.
Path 2 contains events 1 2 3 6 7 and requires 2+4+6+2
= 14 weeks to complete.
Path 3 contains events 1 2 5 6 7 and requires 2+5+3+2
= 12 weeks to complete.
Path 4 contains events 1 2 4 5 6 7 and required 2+4+5+3+2
= 16 weeks to complete.
(b) Path 4 is the critical path as it takes the longest to complete and
therefore provides the minimum time required to complete the
project.
(c) Slack time is the amount that a task can exceed its duration
estimate without delaying a project as a whole. Slack provides
opportunity during a project for diversion of resources from
some activities to another where time is critical. There is slack
on paths 1, 2 and 3 between events 2 and 6.
(d) An activity is an operation or task that requires expenditure of
time and resources for its completion. Predecessor activities are
those activities which must be completed before a given activity
can begin.
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11. (a) User testing is usually done just before the actual processing
begins but after the system has been placed in the real-life environment. User testing can also be referred to as ‘user acceptance testing’. User testing, although critical at the end of the SDLC, should also be part of the overall process.
The Systems Analyst and users work together throughout the development of the general ledger. It is critical that the user of the system and management are confident the general ledger will meet their requirements.
A user of the general ledger is someone who will be using the system –
someone who collates, processes, summarises and maintains files, and prepares reports from the system. User testing ensures the system useability and functionality are in line with user requirements.
System activities included in user testing:
Users prepare data to create real-life situations using test data that covers a variety of general ledger scenarios. Some of the data will be invalid and this will test the program controls.
Users prepare a set of expected ideal results eg. a correct Income Statement and Balance Sheet (outputs), thereby checking to see the general ledger system works as anticipated.
System speed is checked against technical expectations. A slow system is not good for input or output reasons.
Stress or capacity testing – test capacity of systems to process transactions correctly without creating undue backlogs, especially at peak times like end of month/year.
A separate test environment could be created for this kind of testing and is generally left in place when the live system comes into operation. The test area allows users to test how a particular transaction is processed before entering data into the live system. Test area can also be used for staff training.
A parallel run may be undertaken which involves running both the existing general ledger and the new simultaneously. The outputs from each system are then compared and reconciled. This method of testing can be costly in terms of time as the data has to be entered twice.
Testing could also involve a “walk-through” and involves all members of the team including users. This type of testing must not be done without full user input.
Integrated process testing – see how the GL relates to other subsidiary ledgers, eg. debtors and creditors. The testing can often be said to be based on three stages, individual program modules, the linkages between modules and a control module.
Authorisation testing – making sure users only with authority to do so can access the areas of the general ledger they are entitled to.
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Once the users and design team are satisfied with the new system, the manager in the affected user department signs an agreement accepting the system.
(b) The user testing phase of the SDLC is also referred to as the “operational environment testing” phase. For the first time in the SDLC the actual users take the leading role for testing the system. The Systems Analyst’s role is to clarify procedures and take notes on the irregularities of the general ledger system as found by the users. It is not the role of the Systems Analyst to compile the data for testing. The users of the system should compile the test data. Users should try to create a real-life situation as far as possible using carefully prepared data. User testing should in fact take place throughout the design and implementation of the system, not just at the end. However, user testing at the end is the most critical. Relying on the development team to test a system is not good management. In fact, user satisfaction is often considered the way management can say the system design has been a success.
Reasons could include:
Ultimately, the users are the people who accept the system and they should feel comfortable with it before they use it for live data.
The Systems Analyst may have a vested interest in having the system pass the test
The users are aware of the output of the ordinary transactions that may be required to be processed and need to confirm that the system can handle these transactions.
Testing throughout the process of development can prevent expensive corrections and changes later on
If user testing is left until the end it may be difficult to identify the exact cause of an error or problem in the GL operation
Programmers often write a system based on knowledge obtained and if not available how they see the problem. This can often be quite difficult from the user’s perspective. GL in particular is the area of an accountant and his or her expert knowledge is critical.
How a program works in a controlled environment and how it will work when the volume of data has increased can be very difficult.
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(c) The objective of the general ledger system is to meet the needs of the organisation implementing it, providing information that is both meaningful and relevant to its users for decision making. Therefore the general ledger system should not only satisfy current needs of the organisation but also anticipated future needs. If it is found after extensive testing the general ledger is not ready to go live then management may have to consider the following:
Is the system not deemed to be ready based on perceptions or fact? User resistance to implementing a new system must be understood and user acceptance levels gauged.
Was the accounting manual / chart of accounts comprehensive and easy to read?
Was the feasibility study adequate? Did the members of the steering committee perform their
allocated tasks correctly? Are the objectives of the system not achievable? Are the expectations of the users too high?
What is the cost of hardware and software to make the system ready?
What training is required for users? Has lack of training or incorrect training led to the failure of the test run?
Where management has considered the above then they can determine a course of action. This could be to: Organise further testing after a review by the steering
committee of the findings. The steering committee to include all members involved in the process including the users (especially key users, eg. the accountant), management, systems analysts and programmers.
To proceed with implementation ware that the test data results were not ready but accepting the risk is worthwhile.
Continue to run the old system and re-appoint testing at a future date after the system design has been checked including systems analysis, conceptual design and physical design.
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12. (a) After a new system has operated for a brief period of time it should
be evaluated. This is called a post implementation review (PIR). The
purpose is to:
Determine whether the system has met all the planned
objectives of operation including coming in on time and on
budget.
To provide an analysis and review of the events of the project
Assess the adequacy of system standards and controls
Correct all errors detected by the system
Bring to the attention of management any major differences
between actual and expected performance
Assist the planning for future systems
(b) The PIR considers the following:
System design adequacy or competency – does the new system
meet the user needs, eg. timely, complete, accurate etc.
Accuracy of time, cost and benefit estimates – a review of actual
performance compared to budget in order to learn where the
mistakes were made and how to avoid them next time.
Task accomplishment – making sure the system meets its
primary objectives.
Operational, technical and economic effectiveness – is the new
system more efficient in its use of resources? Is it more
effective? Can it handle more? Are the benefits greater than the
costs?
(c) The questions asked during the PIR become the criteria on which to
base our evaluation or assessment. This could be subjective eg. not
satisfies, very satisfied etc. OR quantitative eg. ranking or giving each
criteria a score.
In addition to the above questions the review would also want to
assess:
How satisfied are the users with the system?
Is the system reliable?
Is the system easy to use?
Is it faster?
Does the system perform the task required?
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13. The purpose of a reporting system is to provide information to users
that can be relied upon in making decisions. To achieve this all
accounting reports should apply good principles of design including:
Relevance – only contain data the end user will find useful.
Avoid overload of information
Summarisation – detail at lower levels of management,
summarised at higher levels of management.
Exception oriented – focus on the differences from normal
expectations
Timeliness – the content is as accurate as possible and
produced within a reasonable timeframe
Accuracy – trade-off between accuracy and timeliness
Completeness – all important information is presented
Conciseness – the information in the report should be clear,
concise and logically organised.
Monitoring and reporting requirements of the organisation and
modifying the accounting report as change or user requirements
demand.
As well as the above, when considering practical features of the
contents reports, the following is also considered:
Media – storage of the screen output of non-computerised
output
Location – is the report going to be available on a web page,
workstation, laptop or hard copy only?
Is the report for internal or external use?
Security – password protection for sensitive information
Standardisation of the input data and documentation
Maintaining appropriate backups
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14. The implementation process of the SDLC involves all members of the
team implementing the new system to meet the objectives of the organisation. This can involve all or a number of the following components:
Implementation planning The first stage of implementation. The use of project management
software (Gannt/Pert etc.) may be utilised. During this procedure the expected completion date and the person or group of people responsible for each task will be detailed. The implementation plan details the specified guidelines and timelines according to which segment of the implementation is being carried out. This plan helps the project management monitor the timely progress of the project and take any corrective action if needed.
Contingency planning Contingency planning forms part of the implementation plan but is
regarded as an identified alternative that can be used if the need arises. Contingency plans are established to deal with potential delays or problems.
Site preparation Site preparation is getting the site ready for implementation. This could
be as simple as having a desk ready for a new personal computer or setting up a room complete with air conditioning and specialised wiring for a larger system. Depending on the size of the system will dictate when site preparation commences.
Procurement and installation of hardware Procurement can involve the purchase of new hardware and software
or upgrades to both. Hardware including wiring should be installed before any software. Off-the-shelf software is purchased and license agreements made. If in-house or customised software the development of the software will be coded.
Selecting and training staff Depending on the size of the system, training is generally categorised
into user training and operations training. The type of training and amount will depend on the system complexity and needs of users.
Documentation of the system and operational procedures Documentation plays an important part in the operation of the system.
Documentation actually occurs throughout the SDLC including the implementation stage. Documentation of the plan guides the members of the implementation team in the actions to take while documentation of a procedure acts as a reference point in addition to being a training resource for new staff.
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System conversion The conversion to a new system plays an important part in the
implementation process. This procedure covers: 1. The timing of the conversion (from old to new), eg. accounting
systems best converted at year end. 2. Data conversion and integrity – converting existing input data
and checking that the new system data is reliable. 3. The method of conversion – total implementation vs phased
implementation. Also covers parallel running, direct changeover or pilot running.
Implementation review A new system is bound to have problems in implementation. These problems could relate to the hardware, software or user operations. The problems must be investigated and solutions found. Testing of the system over time could be used in the review procedure. In meeting the above management organisation procedures to implement a new information system, management may utilise program management tools, such as:
1. The Gantt Chart 2. The PERT chart
The Gantt Chart Gantt chart is a form of graph developed by Henry L. Gantt in the early 1900’s. On a Gantt chart, the horizontal axis represents elapsed time and the vertical contains a list of activities. A horizontal line connects the beginning and ending times for each activity. The chart schedules the activities so that each begins after the end of all preceding ones. Gantt charts are popular in managing system development projects as they clearly show time taken for individual activities and total time. The steps in implementation as described above can be visually seen as to requirements and progress. The PERT chart The PERT chart (Project Evaluation and Review Technique) shows the relationship of activities to each other. This relationship can either be a precedent or consequent of another task or be sequential following the completion of a precedent task. Each task then shows time of completion and equally importantly the ‘critical path’. The critical path tasks must be completed on time otherwise the total time for the project will increase.
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15. Physical Design Stage
This phase of the SDLC establishes the detailed procedures and specifications of the system, which include: 1. Setting detailed specifications of the system objectives. They will
describe how the required documentation is to be compiled and which manager will be responsible for it.
2. Developing the broad concepts. Ideas need to become procedures and structures. The system will be analysed and dissected into the required stages of information processing. This will require estimates of data volumes, master file, transaction file sizes and formats and disk space for processing and storage of master files. Initial input data and file formats will be established.
3. Identifying individual computer programs. For each data
processing requirements, a program is devised to satisfy the processing requirements and functions each will perform. These tasks will then be coded. Each program would be tested as it is completed by programming staff. When all programs are completed, the system designers would then carry out initial system tests to ensure the programs are compatible together.
4. Establishing data collection and user needs for input forms and
reports. Output reports will be designed and discussed with the users. Final formats for hard copy input and output will then be finalised and approved.
5. Identifying responsibilities. Different sections will be collecting,
collating and coding data. These procedures would identify which functions would be performed by which staff position, when it is to be performed, and the steps required to carry out each task.
6. Identifying the necessary internal control points in the system.
The required controls would be established and documented. The alternative approaches would be between using computer checks, or manual procedures to ensure the required control is effective.
7. Advising the completion of these steps. When this submission is made to the overseeing manager or group, this stage of the development cycle is completed.
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16 ( a )
User testing is usually done just before the actual processing begins but after the system has been placed in the real-life environment. User testing can also be referred to as 'user acceptance testing'. User testing although critical at end of the SDLC should also be part of the overall process. The Systems Analyst and users work together throughout the development of the general ledger. It is critical that the user of the system and management are confident that the general ledger will meet their requirements. A user of the general ledger is someone who will be using system. The person who collates, processes, summarises and maintains files and prepares reports from the system. User testing answers the question is the general ledger useability and functionality in line with user requirements. Students may mention aids to User testing available i.e. RAPT (rapid application performance testing). This method aids as mentioned the testing of a system as it is being developed. The testing of the system should result in user confirmation that will allow the System Development team know that the General Ledger has met system and user requirements. Collecting data on user satisfaction would include a formal written report, informal feedback from a user questionnaire and perhaps even personal interviews with key users. How much testing is required? Well that is hard to say but enough to give confidence in the system and within the constraints of time and cost. User testing is often seen as the 'de-bugging' finding and eliminating the logic errors. The bottom line is that user satisfaction by testing indicates that the system provides information that is correct and timely enough to satisfy the users needs. System activities included in the User Testing phase include: ▪ Users prepare data to create a real-life situation. Using test data that covers a
variety of general ledger scenarios. Some of the data will be invalid and this will test the program controls
▪ Users prepare a set of expected ideal results i.e. for General ledger a correct Income Statement and Balance Sheet (output). Thereby ensuring that the general ledger system works as anticipated.
▪ System speed is checked against technical expectations. A slow system is not good for input or output reasons
▪ Stress or Capacity testing - test capacity of system to process transactions correctly without creating undue backlogs, especially at peak times like end of month/year
▪ A separate test area could be created for this type of testing and is generally left in place when the live system comes into operation. The test area allows users to test how a particular transaction is processed before entering the data onto the live system. Test area can also be used for staff training
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▪ A parallel run may be undertaken which involves running both the existing general ledger and the new simultaneously. The outputs from each system are then compared and reconciled. This method of testing can be costly in terms of time as the data has to be entered twice
▪ Testing could also involve a 'Walk-through' and involves all members of the team
including users. This type of testing must not be done without full user input. ▪ Integrated Process testing - see how the General Ledger relates to other
subsidiary ledgers i.e. Accounts Receivable and Payable. The testing can often be said to be based on three stages, individual program modules, the linkages between modules and a control module
▪ Authorisation testing - making sure users only with authority to do so can access the areas of the general ledger they are entitled too.
Once the users and design team are satisfied with the new system, the manager (or the accountant in this case) in the affected user department (accounting department) signs an agreement accepting the system. User testing phase of the SDLC is not the last thing, a post-implementation review some few months later can verify the accuracy of the findings. ( b ) The user testing phase of the SDLC is also referred to as the 'Operational environment testing' phase. For the first time in the SDLC the actual users take the leading role for testing the system. The Systems Analyst's role is to clarify procedures and take notes on the irregularities of the general ledger system as found by the users. It is not the role of the Systems Analyst to compile the data for testing. The users of the system should compile the test data. Users should try to create a real-life situation as far as possible using carefully prepared data. User testing should in fact take place throughout the design and implementation of the system not just at the end. However user testing at the end is the most critical. Relying on the development team to test a system is not good management. In fact user satisfaction is often considered the way management can say the system design has been a success. Reasons could include: ▪ Ultimately, the users are the people who accept the system and they should feel
comfortable with it before they use it for live data.
▪ The Systems Analyst may have a vested interest in having the system pass the test
▪ The users are aware of the output of the ordinary transactions that may be required to be processed and need to confirm that the system can handle these transactions
▪ Testing throughout the process of development can prevent expensive corrections and changes later on i.e. at final testing stage
▪ If user testing is left until the end it may be difficult to identify the exact location of an error or a problem in the general ledger operation
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▪ Programmers often write a system based on knowledge obtained and if not available how they see the problem. This can often be quite different to the user perspective. General ledger in particular is the area of an accountant and his or her expert knowledge is critical
▪ How a program works in a controlled environment and how it will work when the
volume of data has increased can be very different ( c ) The objective of the general ledger system is to meet the needs of the organisation implementing it. Providing information that is both meaningful and relevant to its users for decision making. Therefore the general ledger system should not only satisfy current needs of the organisation but also anticipated future needs. If it is found after extensive testing the general ledger is not ready to go live then management may have consider the following considerations. Firstly, management have to consider if the system not being ready is based on perceptions or fact. User resistance to implementing a new system must be understood and user acceptance levels gauged. Considerations management should make before determining a course of action include: ▪ Was the Accounting Manual/Chart of accounts comprehensive and easy to read? ▪ Was the feasibility study adequate? Students could address areas of the
feasibility study that may have not been addressed ▪ Did the members of the steering committee perform their allocated tasks
correctly? Are the objectives of the system not achievable? Are the expectations of the users too high?
▪ What is the cost of hardware and software to make the system ready? ▪ What training is required for users? Has lack of training or incorrect training led
to the failure of the test run. When management has considered the above then they can determine a course of action. This could be to organise further testing after a review by the Steering Committee of the findings. The Steering Committee to include all members involved in the process, including the users (especially key users i.e. accountant), management, systems analyst and programmers. To proceed with implementation aware that the test data results were not ready but accepting the risk is worthwhile. Continue to run the old system and reappoint testing at a future date after the system design has been checked including systems analysis, conceptual design and physical design.
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CHAPTER 12 DBMS
1. Which of the following statements is INCORRECT? Disadvantages of flat fileoriented processing include: (b) Requires network connections.
2. Which of the following answers is INCORRECT? Disadvantages of flat file-oriented processing include: (a) Requires network connections.
3. Which of the following answers is CORRECT? The three steps in designing a database are (in this order): (c) Specify the conceptual model, then the logical design,
then the physical design.
4. Normalisation in the Relational Database Model. Which of the following answers is INCORRECT? (b) Transforming tables into the first normal form means
removing transitive dependencies.
5. Which of the following statements is CORRECT? A database model that represents all data as stored in two-dimensional tables is the: (d) Relational Model.
6. Advantages of a database system include all of the following except: (d) Confidence that all data is current
7. Either of the following three;
Update anomalies
Result from redundancy in the un-normalized table. An example is a
supplier who provides more than one type of inventory. If the
supplier’s address is in each row of the inventory file, and if the
supplier’s address changes, then you would have to change the
address as many times as it occurs in your database.
Insertion anomalies
Result from not having a separate table for an entity.
Deletion anomalies
Result from unintentional database deletions. For example, if an
inventory item is deleted, and if that inventory item was the only item
purchased from that supplier, then deleting the inventory item
automatically deletes the supplier from your database. A user may go
along without knowing that critical information has been deleted.
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8. ( a ) A relational data base model represents everything in the database as being stored in the form of tables. Inventory, sales/orders and the general ledger are logically related systems or tables. These can be physically connected or linked. You can do this by putting the primary key of one table into the related table as a foreign key. (the primary key is the attribute that uniquely identifies a specific row in a table). A foreign key is an attribute appearing in one table that is a primary key in another table. Foreign keys are used to link tables. This is how these systems would be linked. For example the primary key - the customer number, in accounts receivable general ledger (customer table) is put into the sales system (sales invoice table) as a foreign key. Then the primary key- the invoice number, in the sales/order system (sales invoice/order table) is put into the inventory system (inventory item # table) as a foreign key. The inventory system (item table) then uses a primary key with 2 fields (composite primary key) the invoice number and inventory item number to identify a record in the table but it is the invoice number that links it to the sales system then onto the general ledger system. ( b ) ( i ) ▪ Customer number
▪ Customer name ▪ Customer address ▪ Inventory item number
( ii ) ▪ Invoice number
▪ Date of order ▪ Price of item ▪ Qty of item
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EXAMINATION QUESTIONS
Question 1 (20 marks)
When developing a new system for implementation, the procedures that are followed
are to ensure that the completed system meets the business requirements including
management objectives. These include;
1. DFD diagrams
2. Document Flowcharts
3. Feasibility Studies
4. Gantt Charts
Required:
Define each of these techniques and describe how they are used.
Question 2 (15 marks)
Users of information produced by an accounting system have a number of different
requirements.
Required:
( a ) Identify the FOUR (4) main users of a business’s accounting information
system and the reason the users need the information
( b ) Briefly describe the major objectives of the information.
( c ) Briefly discuss the privacy requirements that need to be implemented for the
information collected from an employee for the payroll function
Question 3 (20 marks)
Compile a decision table that shows the following control points in a credit control
system:
1. Sales are only made to clients with an approved credit rating unless they are
a for another division of the organisation. Internal divisions sales orders are
automatically approved.
2. All client credit reviews include assessing the value of the sales order being
received, and if there is any outstanding balance owing in accounts
receivable. The credit review will be either accepted or refused.
3. Any amount owing more than 60 days in accounts receivable will result in
credit being immediately refused and the order rejected.
4. When credit is refused, the order is immediately rejected.
Required:
Compile a decision table for the above credit system.
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Question 4 (15 marks)
( a ) Describe the main stages of the System Development Life Cycle. (8)
( b ) Describe the types of documentation that would be produced at each stage of
the System Development Life Cycle. (8)
( c ) What is a PERT chart and what are they used for. (4)
Question 5 (10 marks)
Following the implementation of a new system a post implementation review (PIR)
should be carried out to assess the success of the implementation.
( a ) Define the main purposes of a PIR (5)
( b ) Define the assessment criteria that can be used in a PIR (5)
CASE STUDY QUESTIONS
Case Study 1 (20 marks)
Easyjet Airlines flies passengers around New Zealand and the smaller holiday islands
in neighbouring waters. It sells tickets through travel agents and over the internet.
On receipt of the order from the travel agent or customer, it checks the agent’s
authorisation number and credit limits. If both are acceptable, the booking is made
on the appropriate flight for the required time. If the agent is not an authorised
agent, the credit officer at Easyjet Airlines carries out a credit and finance check
before the booking can be made.
When bookings are made through the internet, the customer must provide a credit
card number and the other details before the booking is made. If there is no credit
card, the client can make a holiday reservation for seven days while they post a
cheque to Easyjet. If the cheque is not received in seven days, the reservation is
terminated. The actual tickets are mailed to the travel agent or customer when the
credit card is approved or the cheque is received.
Required:
( a ) Compile a decision table for the above ticket booking system.
( b ) Draw a system flowchart for the ticket booking system for Easyjet Airlines.
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Case Study 2 (20 marks)
Hire-a-Handyman, provides a building and repair services to home owners and businesses in both the inner city and western suburbs. Six branches have opened in major suburbs. In addition, franchises have been awarded to 25 groups of self-employed trades people to operate in suburbs not covered by company owned locations. Franchise fees are expected to account for 20% of their revenue and their central information system and accounting information system has not been able to maintain an acceptable level of performance. The Financial Controller, is discussing some reporting problems with the Chairman, who expresses his concern that he current monthly reporting system only just meets their needs and the provision of additional reports, although planned, has never happened. It is apparent that a review of their total information system has become critical. Following interviews with each of the managers to discuss their requirements for information, you develop the following table.
Position Satisfied
with current
reports
Increase
report formats
Distribution
or FYI
Increase
report content
Increase
detail in costing info &
Increase
report timing
Chairman Yes Distribution
CEO Yes Distribution Yes
Marketing
Manager
Yes Distribution Yes Yes Yes
Accounting
Manager
Yes Distribution Yes Yes Yes
Contracts Manager
FYI Yes Yes
Contracts
Supervisor
FYI Yes Yes
Electrical
Manager
FYI Yes Yes
Plumbing Manager
FYI Yes Yes
Building
Manager
FYI Yes Yes
Financial
Accountant
Yes Distribution Yes
Project Accountant
Yes FYI Yes
Required:
( a ) Prepare a report on the current reporting system, paying particular attention
to the possible deficiencies. In the report comment in detail on the various
responsibilities of each manager. (8)
( b ) Describe changes to the type and circulation of reports that each manager
should require. (6)
( c ) Describe the changes to the identification, or collection of data or any other
system functions that you would expect to be affected by your
recommendations. (6)
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EXAMINATION ANSWERS
Question 1 (20 marks)
1. DFD diagrams – graphically represent the movement of data within an
organisation. They show logical representations of entities, processes,
data sources, flows, storage and outputs. Rather than showing how,
where or by who processing is accomplished, they show what
processing needs to be performed.
2. Document Flowcharts – diagrams using a set of standard symbols to
describe the relationship between sequential processes for an aspect of
an information system in a clear, concise and logical manner. They are
prepared as part of the system design process and kept up to date for
system changes. Flowcharts represent the physical relationships
between key entities. They explain how, where and by whom the
processed are accomplished.
3. Feasibility Studies – considers the criteria related to three feasibility
areas before the project can be given the final go ahead. The feasibility
areas are technical, operational and economic. Technical feasibility
focuses on ascertaining whether the proposed system can be
developed with the available technology. Operation feasibility is the
study of the proposed system to ascertain the fit within the existing
operating environment. Economic feasibility looks at the costs versus
the tangible and intangible benefits.
4. Gantt Charts – is a bar chart that is used to show the sequence and
duration of each activity within a project. The two axes, x and y, in a
conventional graph represent time and activity respectively. The bar for
each activity runs from the start date to the completion date of that
activity, It is common to show the budgeted time and actual for the
activity. A Gantt chart allows a project manager to monitor the
progress of each activity and see what is still to come.
102
Question 2 (15 marks)
( a )
Organisational management and personnel – running the business and
making unstructured, semi-structured and structured decisions
Customers – for purchasing decisions
Suppliers – for supply decisions based on credit rating
Stakeholders – investment decisions, regulatory monitoring.
( b )
Appropriate
Dependable
Available
Corroborative
Understandable
( c ) A new Privacy Law came into operation on 21 December 2001 Australia
wide, setting out principles on how an organisation treats personal
information. The principles relate to the collection, access, storage, use
and disclosure of personal information kept on employees, contractors
and other workers, including current, former and prospective
employees. Question 3 (20 marks)
1 2 3 4
Conditions
Customer - internal - external
Y
Y
Y
Y
Balance Owing < 60 days > 60 days
N Y
Y
Actions
Refuse Credit N N Y
Order Rejected Y
Order Approved Y Y Y N
103
Question 4 (15 marks)
( a )
Systems Planning
Systems Analysis
Conceptual Design
System Selection
Detailed Design
System Implementation
Maintenance
( b )
Systems Planning – project proposal, feasibility studies, project
schedule
Systems Analysis – DFD’s
Conceptual Design – ERM
System Selection – Feasibility studies,
Detailed Design –Flowcharts
System Implementation – Gantt, Chart, PERT, CPM, user and system
documentation
Maintenance - PIR, ongoing updates of system and user
documentation
( c ) PERT charts – are a project management tool used to estimate,
schedule and manage a network of interdependent project activities.
They key elements of a PERT chart are :
1. event
2. activity
3. dummy activity
4. earliest event time
5. latest event time
6. critical path
7. slack time
104
Question 5 (10 marks)
( a ) - to identify the short comings of the design
correct major defects
take lessons learnt to future projects and implementations
( b ) The PIR includes:
Evaluation of internal controls: reviewed to confirm their
effectiveness and whether all planned internal controls have
been properly implemented.
Evaluation of the adequacy of documentation for the new
system: both system and user documentation.
User satisfaction: to determine whether the system has met its
objectives and were user suggestions implemented.
