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Copyright, iv
Preface, xvii
Acknowledgments, xxii
Part I. Conceptual Foundations of Accounting Information Systems, 1
Chapter 1. Accounting Information Systems: An Overview, 2
Introduction, 4
Systems, Data, and Information, 4
What Is an AIS?, 6
Why Study Accounting Information Systems?, 7
Study of the AIS Is Fundamental to Accounting, 7
AIS Skills Are Important to Your Career Success, 8
The AIS Course Complements Other Systems Courses, 8
AIS Topics Are Tested on the New CPA Exam, 9
The Impact of the AIS on Corporate Strategy and Culture, 9
The Role of the AIS in the Value Chain, 10
How an AIS Can Add Value to an Organization, 12
Providing Information for Decision Making, 13
Decision Structure, 14
Decision Scope, 14
The AIS and Corporate Strategy, 15
Strategies and Strategic Positions, 15
Information Technology and Business Strategy, 16
Summary and Case Conclusion, 17
Key Terms, 17
AIS in Action: Chapter Quiz, 18
Discussion Questions, 19
Problems, 20
Case 1-1: Any Company, Inc. An Ongoing Comprehensive Case, 23
Case 1-2: Ackoff’s Management Misinformation Systems, 23
AIS in Action Solutions: Quiz Key, 23
Chapter 2. Overview of Business Processes, 26
Introduction, 28
Information Needs and Business Activities, 29
Information Needs, 29
Interaction with External and Internal Parties, 30
Business Processes, 30
Transaction Processing: The Data Processing Cycle, 34
Data Input, 35
Data Storage, 36
Data Processing, 43
Information Output, 44
Role of the AIS, 48
Summary and Case Conclusion, 48
Key Terms, 49
AIS in Action: Chapter Quiz, 49
Discussion Questions, 50
Problems, 51
Case 2-1: Bar Harbor Blueberry Farm, 55
AIS in Action Solutions: Quiz Key, 57
Chapter 3. Systems Development and Documentation Techniques, 60
Introduction, 62
Data Flow Diagrams, 63
Elements in a Data Flow Diagram, 63
Subdividing the DFD, 66
Flowcharts, 70
Flowchart Symbols, 70
Document Flowcharts, 72
System Flowcharts, 73
Program Flowcharts, 77
Summary and Case Conclusion, 77
Key Terms, 78
AIS in Action: Chapter Quiz, 78
Comprehensive Problem, 80
Discussion Questions, 80
Problems, 80
Case 3-1: Dub 5, 94
AIS in Action Solutions: Quiz Key, 95
Comprehensive Problem Solution, 97
Chapter 4. Relational Databases, 102
Introduction, 104
Files Versus Databases, 104
The Importance and Advantages of Database Systems, 105
The Importance of Good Data, 106
Database Systems, 107
Logical and Physical Views of Data, 107
Schemas, 107
The Data Dictionary, 109
DBMS Languages, 109
Relational Databases, 111
Types of Attributes, 112
Designing a Relational Data Base for S&S, Inc., 112
Basic Requirements of a Relational Database, 114
Two Approaches to Database Design, 117
Creating Relational Database Queries, 117
Database Systems and the Future of Accounting, 123
Summary and Case Conclusion, 125
Key Terms, 126
AIS in Action: Chapter Quiz, 126
Comprehensive Problem, 127
Discussion Questions, 127
Problems, 129
Case 4-1: Research Projects, 133
AIS in Action Solutions: Quiz Key, 134
Comprehensive Problem Solution, 135
Part II. Control and Audit of Accounting Information Systems, 139
Chapter 5. Computer Fraud and Abuse, 140
Introduction, 142
AIS Threats, 142
Introduction to Fraud, 145
Misappropriation of Assets, 145
Fraudulent Financial Reporting, 146
SAS No. 99: The Auditor’s Responsibility to Detect Fraud, 147
Who Perpetrates Fraud and Why It Occurs, 147
The Fraud Triangle, 148
Computer Fraud, 153
The Rise in Computer Fraud, 153
Computer Fraud Classifications, 155
Computer Fraud and Abuse Techniques, 158
Computer Attacks, 160
Social Engineering, 165
Malware, 168
Preventing and Detecting Computer Fraud and Abuse, 173
Summary and Case Conclusion, 175
Key Terms, 176
AIS in Action: Chapter Quiz, 176
Discussion Questions, 178
Problems, 179
Case 5-1: David L. Miller: Portrait of a White-Collar Criminal, 187
Case 5-2: Lexsteel Corporation, 189
Case 5-3: Shadowcrew, 191
AIS in Action Solutions: Quiz Key, 192
Chapter 6. Control and Accounting Information Systems, 196
Introduction, 198
Why AIS Threats Are Increasing, 198
Why Control and Security Are Important, 199
Overview of Control Concepts, 200
The Sarbanes-Oxley and Foreign Corrupt Practices Acts, 201
Levers of Control, 202
Control Frameworks, 203
COBIT Framework, 203
COSO’s Internal Control Framework, 204
COSO’s Enterprise Risk Management Framework, 204
The ERM Framework Versus the Internal Control Framework, 207
The Internal Environment, 207
Management’s Philosophy, Operating Style, and Risk Appetite, 208
The Board of Directors, 208
Commitment to Integrity, Ethical Values, and Competence, 209
Organizational Structure, 209
Methods of Assigning Authority and Responsibility, 210
Human Resources Standards, 210
External Influences, 213
Objective Setting, 214
Event Identification, 214
Risk Assessment and Risk Response, 216
Estimate Likelihood and Impact, 218
Identify Controls, 218
Estimate Costs and Benefits, 218
Determine Cost/Benefit Effectiveness, 219
Implement Control or Avoid, Share, or Accept the Risk, 219
Control Activities, 219
Proper Authorization of Transactions and Activities, 220
Segregation of Duties, 221
Project Development and Acquisition Controls, 224
Change Management Controls, 225
Design and Use of Documents and Records, 225
Safeguard Assets, Records, and Data, 226
Independent Checks on Performance, 227
Information and Communication, 228
Monitoring, 229
Perform ERM Evaluations, 229
Implement Effective Supervision, 229
Use Responsibility Accounting, 229
Monitor System Activities, 229
Track Purchased Software and Mobile Devices, 230
Conduct Periodic Audits, 230
Employ a Computer Security Officer, a Chief Compliance Officer, and Computer Consultants, 231
Engage Forensic Specialists, 231
Install Fraud Detection Software, 231
Implement a Fraud Hotline, 232
Summary and Case Conclusion, 232
Key Terms, 233
AIS in Action: Chapter Quiz, 234
Discussion Questions, 236
Problems, 236
Case 6-1: The Greater Providence Deposit & Trust Embezzlement, 244
AIS in Action Solutions: Quiz Key, 245
Chapter 7. Information Systems Controls for Systems Reliability—Part 1: Information Security, 248
Introduction, 250
The COBIT and Trust Service Frameworks, 251
Three Fundamental Information Security Concepts, 253
1. Security Is a Management Issue, Not a Technology Issue, 253
2. The Time-Based Model of Security, 256
3. Defense-in-Depth, 257
Understanding Targeted Attacks, 257
Preventive Controls, 258
Authentication Controls, 259
Authorization Controls, 259
Training, 261
Controlling Physical Access, 262
Controlling Remote Access, 264
Host and Application Hardening, 269
Encryption, 271
Detective Controls, 277
Log Analysis, 277
Intrusion Detection Systems, 278
Managerial Reports, 279
Security Testing, 279
Corrective Controls, 279
Computer Emergency Response Team, 280
Chief Information Security Officer (CISO), 280
Patch Management, 281
Summary and Case Conclusion, 281
Key Terms, 282
AIS in Action: Chapter Quiz, 283
Discussion Questions, 284
Problems, 284
Case 7-1: Costs of Preventive Security, 288
Case 7-2: Developing an Information Security Checklist, 288
AIS in Action Solutions: Quiz Key, 289
Chapter 8. Information Systems Controls for Systems Reliability—Part 2: Confidentiality, Privacy, Processing Integrity, and Availability, 292
Introduction, 294
Confidentiality, 294
Privacy, 296
Processing Integrity, 299
Input Controls, 300
Processing Controls, 303
Output Controls, 304
Example: Credit Sales Processing, 305
Availability, 309
Minimizing Risk of System Downtime, 309
Disaster Recovery and Business Continuity Planning, 310
Change Management Controls, 315
Summary and Case Conclusion, 315
Key Terms, 316
AIS in Action: Chapter Quiz, 317
Discussion Questions, 318
Problems, 318
Case 8-1: The State Department of Taxation, 324
AIS in Action Solutions: Quiz Key, 325
Chapter 9. Auditing Computer-Based Information Systems, 328
Introduction, 330
The Nature of Auditing, 330
Internal Auditing Standards, 331
Types of Internal Auditing Work, 331
An Overview of the Auditing Process, 331
The Risk-Based Audit Approach, 334
Information Systems Audits, 334
Objective 1: Overall Security, 335
Objective 2: Program Development and Acquisition, 337
Objective 3: Program Modification, 337
Objective 4: Computer Processing, 340
Objective 5: Source Data, 344
Objective 6: Data Files, 346
Computer Software, 346
Operational Audits of an AIS, 349
Summary and Case Conclusion, 350
Key Terms, 351
AIS in Action: Chapter Quiz, 351
Discussion Questions, 352
Problems, 353
Case 9-1: Preston Manufacturing Company, 359
AIS in Action Solutions: Quiz Key, 360
Part III. Accounting Information Systems Applications, 363
Chapter 10. The Revenue Cycle: Sales to Cash Collections, 368
Introduction, 370
Revenue Cycle Business Activities, 372
Sales Order Entry, 373
Shipping, 379
Billing, 382
Cash Collections, 387
Information Processing Procedures, 389
Control Objectives, Threats, and Procedures, 391
Sales Order Entry, 391
Shipping, 393
Billing and Accounts Receivable, 394
Cash Collections, 395
General Control Issues, 396
Revenue Cycle Information Needs, 397
Summary and Case Conclusion, 400
Key Terms, 401
AIS in Action: Chapter Quiz, 402
Discussion Questions, 403
Problems, 403
Case 10-1: Elite Publishing Company, 413
Case 10-2: Frontier Floors, 413
AIS in Action Solutions: Quiz Key, 414
Chapter 11. The Expenditure Cycle: Purchasing to Cash Disbursements, 416
Introduction, 418
Expenditure Cycle Business Activities, 419
Order Goods, 420
Receive and Store Goods, 425
Pay for Goods and Services, 427
Information Processing Procedures, 431
Control Objectives, Threats, and Procedures, 433
Order Goods, 434
Receive and Store Goods, 438
Approve and Pay Vendor Invoices, 439
General Control Issues, 442
Expenditure Cycle Information Needs, 443
Summary and Case Conclusion, 445
Key Terms, 445
AIS in Action: Chapter Quiz, 446
Discussion Questions, 447
Problems, 447
Case 11-1: Blackwell Industries, 456
Case 11-2: Boone Company, 457
AIS in Action Solutions: Quiz Key, 458
Chapter 12. The Production Cycle, 460
Introduction, 462
Production Cycle Activities, 464
Product Design, 464
Planning and Scheduling, 466
Production Operations, 470
Cost Accounting, 471
Information Processing Procedures, 473
Raw Materials Usage Data, 474
Direct Labor Costs, 474
Machinery and Equipment Usage, 475
Manufacturing Overhead Costs, 475
Control Objectives, Threats, and Procedures, 475
Product Design, 477
Planning and Scheduling, 477
Production Operations, 478
Cost Accounting, 479
General Threats, 479
Production Cycle Information Needs, 480
Criticism 1: Inappropriate Allocation of Overhead Costs, 481
Criticism 2: Misleading Reports, 484
Summary and Case Conclusion, 485
Key Terms, 486
AIS in Action: Chapter Quiz, 486
Discussion Questions, 488
Problems, 488
Case 12-1: The Accountant and CIM, 492
AIS in Action Solutions: Quiz Key, 494
Chapter 13. The Human Resources Management and Payroll Cycle, 496
Introduction, 498
Overview, 499
Payroll Cycle Activities, 501
Update Payroll Master File, 501
Update Tax Rates and Deductions, 502
Validate Time and Attendance Data, 502
Prepare Payroll, 505
Disburse Payroll, 508
Calculate Employer-Paid Benefits and Taxes, 508
Disburse Payroll Taxes and Miscellaneous Deductions, 509
Outsourcing Options: Payroll Service Bureaus and Professional Employer Organizations, 509
Control Objectives, Threats, and Procedures, 510
Employment Practices, 510
Payroll Processing, 511
General Control Issues, 514
Key Decisions and Information Needs, 515
Summary and Case Conclusion, 516
Key Terms, 517
AIS in Action: Chapter Quiz, 517
Discussion Questions, 519
Problems, 519
Case 13-1: Research Report: HRM/Payroll Opportunities for CPAs, 525
Case 13-2: Fargo Publishing, 525
AIS in Action Solutions: Quiz Key, 526
Chapter 14. General Ledger and Reporting System, 528
Introduction, 530
General Ledger and Reporting System Activities, 531
Update General Ledger, 532
Post Adjusting Entries, 533
Prepare Financial Statements, 533
Produce Managerial Reports, 534
XBRL: Revolutionizing the Reporting Process, 534
Control Objectives, Threats, and Procedures, 539
Threat 1: Errors in Updating the General Ledger and Generating Reports, 540
Threat 2: Financial Statement Fraud, 542
Threat 3: Loss or Unauthorized Disclosure or Alteration of Financial Data, 542
Threat 4: Poor Performance, 543
Supporting Management’s Information Needs, 544
The Balanced Scorecard, 544
Using Data Warehouses for Business Intelligence, 545
Principles of Graph Design, 548
Summary and Case Conclusion, 551
Key Terms, 551
AIS in Action: Chapter Quiz, 552
Discussion Questions, 553
Problems, 553
Case 14-1: Keeping Current with XBRL Developments, 556
Case 14-2: Evaluating a General Ledger Package, 556
AIS in Action Solutions: Quiz Key, 557
Part IV. The REA Data Model, 559
Chapter 15. Database Design Using the REA Data Model, 560
Introduction, 562
Database Design Process, 562
Entity-Relationship Diagrams, 563
The REA Data Model, 565
Three Basic Types of Entities, 565
Structuring Relationships: The Basic REA Template, 566
Developing an REA Diagram, 568
Step 1: Identify Relevant Events, 568
Step 2: Identify Resources and Agents, 571
Step 3: Determine Cardinalities of Relationships, 572
Summary and Case Conclusion, 579
Key Terms, 579
AIS in Action: Chapter Quiz, 579
Comprehensive Problem, 582
Discussion Questions, 582
Problems, 583
Case 15-1: REA Data Modeling Extension, 586
AIS in Action Solutions: Quiz Key, 587
Comprehensive Problem Solution, 590
Chapter 16. Implementing an REA Model in a Relational Database, 594
Introduction, 596
Integrating REA Diagrams Across Cycles, 596
Rules for Combining REA Diagrams, 598
Merging Redundant Resource Entities, 599
Merging Redundant Event Entities, 600
Validating the Accuracy of Integrated REA Diagrams, 601
Implementing an REA Diagram in a Relational Database, 601
Step 1: Create Tables for Each Distinct Entity and M:N Relationship, 601
Step 2: Assign Attributes to Each Table, 602
Step 3: Use Foreign Keys to Implement 1:1 and 1:N Relationships, 605
Completeness Check, 606
Using REA Diagrams to Retrieve Information from a Database, 607
Creating Journals and Ledgers, 607
Generating Financial Statements, 610
Creating Managerial Reports, 610
Summary and Case Conclusion, 610
Key Terms, 611
AIS in Action: Chapter Quiz, 611
Comprehensive Problem, 612
Discussion Questions, 613
Problems, 613
Case 16-1: Practical Database Design, 615
AIS in Action Solutions: Quiz Key, 615
Comprehensive Problem Solution, 618
Chapter 17. Special Topics in REA Modeling, 620
Introduction, 622
Additional Revenue Cycle Modeling Topics, 622
Additional Events, 622
Attribute Placement, 623
New REA Feature—Employee Roles, 625
Sale of Services, 625
Digital Assets, 626
Rental Transactions, 626
Additional Expenditure Cycle Modeling Topics, 627
Additional Events, 627
Attribute Placement, 627
New REA Feature—M:N Agent-Event Relationships, 628
New REA Feature—Locations, 630
New REA Feature—Relationships Between Resources and Agents, 630
Acquisition of Intangible Services, 630
Rental Transactions, 631
Production Cycle REA Model, 631
Additional Entities—Intellectual Property, 632
Production Cycle Events, 634
New REA Feature—Relationships Between Agents, 635
Combined HR/Payroll Data Model, 635
HR Cycle Entities, 636
Tracking Employees’ Time, 636
Financing Activities Data Model, 637
Summary and Case Conclusion, 638
AIS in Action: Chapter Quiz, 642
Discussion Questions, 644
Problems, 644
Case 17-1: Practical Database Assignment, 649
AIS in Action Solutions: Quiz Key, 649
Appendix: Extending the REA Model to Include Information About Policies, 653
Part V. The Systems Development Process, 655
Chapter 18. Introduction to Systems Development and Systems Analysis, 656
Introduction, 658
Systems Development, 661
The Systems Development Life Cycle, 661
The Players, 663
Planning Systems Development, 664
Planning Techniques, 665
Feasibility Analysis, 667
Calculating Economic Feasibility Costs and Benefits, 668
Capital Budgeting, 669
Behavioral Aspects of Change, 670
Why Behavioral Problems Occur, 671
How People Resist AIS Changes, 671
Preventing Behavioral Problems, 673
Systems Analysis, 674
Initial Investigation, 674
Systems Survey, 675
Information Needs and Systems Requirements, 678
Systems Analysis Report, 681
Summary and Case Conclusion, 681
Key Terms, 683
AIS in Action: Chapter Quiz, 684
Comprehensive Problem, 685
Discussion Questions, 686
Problems, 687
Case 18-1: Audio Visual Corporation, 697
AIS in Action Solutions: Quiz Key, 698
Comprehensive Problem Solution, 700
Chapter 19. AIS Development Strategies, 704
Introduction, 706
Purchasing Software, 706
Purchasing Software and the SDLC, 707
Selecting a Vendor, 708
Acquiring Hardware and Software, 708
Evaluating Proposals and Selecting a System, 709
Development by In-House IS Departments, 711
End-User-Developed Software, 712
Appropriate End-User Development and Use, 713
Benefits of End-User Computing, 714
Risks of End-User Computing, 714
Managing and Controlling End-User Computing, 715
Outsourcing the System, 716
The Growth in Outsourcing Applications, 716
The Benefits of Outsourcing, 717
Risks of Outsourcing, 718
Business Process Reengineering, 719
Challenges Faced by Reengineering Efforts, 721
Prototyping, 721
Steps in Developing a Prototype, 722
When to Use Prototyping, 723
Advantages of Prototyping, 723
Disadvantages of Prototyping, 725
Computer-Aided Software Engineering, 725
Advantages and Disadvantages of CASE Technology, 726
Summary and Case Conclusion, 726
Key Terms, 727
AIS in Action: Chapter Quiz, 728
Chapter Case—Freedom from Telemarketers—The Do Not Call List, 729
Discussion Questions, 730
Problems, 731
Case 19-1: Professional Salon Concepts, 738
AIS in Action Solutions: Quiz Key, 740
Chapter Case Solution, 743
Chapter 20. Systems Design, Implementation, and Operation, 744
Introduction, 746
Conceptual Systems Design, 746
Evaluate Design Alternatives, 746
Prepare Design Specifications, 747
Prepare the Conceptual Systems Design Report, 748
Physical Systems Design, 748
Output Design, 749
File and Database Design, 750
Input Design, 751
Program Design, 752
Procedures Design, 753
Controls Design, 753
Physical Systems Design Report, 755
Systems Implementation, 755
Implementation Planning, 755
Site Preparation, 756
Select and Train Personnel, 757
Complete Documentation, 758
Test the System, 758
Systems Conversion, 759
Conversion Approaches, 759
Data Conversion, 759
Operation and Maintenance, 760
Summary and Case Conclusion, 761
Key Terms, 763
AIS in Action: Chapter Quiz, 763
Chapter Case—Hershey’s Big Bang ERP, 765
Discussion Questions, 765
Problems, 766
Case 20-1: Citizen’s Gas Company, 773
AIS in Action Solutions: Quiz Key, 774
Chapter Case Solution, 776
Glossary, 779
Index, 801

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