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About the Authors v
Preface vii
Preface vii
Acknowledgments xi
To the Students xiii
A List of Real-World Examples in This Textbook xv
1 Introduction to AIS 1
Overview of Business Processes (Study Objective 1), 1
Overview of an Accounting Information System (Study Objective 2), 4
Business Process Linkage Throughout the Supply Chain (Study Objective 3), 5
IT Enablement of Business Processes (Study Objective 4), 7
Basic Computer and IT Concepts (Study Objective 5), 10
Basic Computer Data Structures, 10
File Access and Processing Modes, 11
Data Warehouse and Data Mining, 12
Structured, Unstructured, and Big Data, 13
Networks and the Internet, 14
Examples of IT Enablement (Study Objective 6), 15
E-Business, 15
Electronic Data Interchange, 15
Point of Sale System, 16
Automated Matching, 16
Evaluated Receipt Settlement, 16
E-Payables and Electronic Invoice Presentment and Payment, 16
Enterprise Resource Planning Systems, 17
The Internal Control Structure of Organizations (Study Objective 7), 17
Enterprise Risk Management, 18
A Code of Ethics, 20
Coso Accounting Internal Control Structure, 20
IT Controls, 20
Corporate Governance, 20
IT Governance, 21
The Importance of Accounting Information Systems to Accountants (Study Objective 8), 22
Users of the AIS, 22
Design or Implementation Team, 22
Auditors of the AIS, 22
The Relation of Ethics to Accounting Information Systems (Study Objective 9), 22
Summary of Study Objectives, 24
Key Terms, 25
End of Chapter Material, 26
Solutions to Concept Check, 29
2 Foundational Concepts of the AIS 31
Interrelationships of Business Processes and the AIS (Study Objective 1), 32
Types of Accounting Information Systems (Study Objective 2), 34
Manual Systems, 35
Legacy Systems, 36
Modern, Integrated Systems, 38
Client-Server Computing (Study Objective 3), 38
Cloud Computing (Study Objective 4), 39
Accounting Software Market Segments (Study Objective 5), 43
Input Methods Used in Business Processes (Study Objective 6), 46
Source Documents and Keying, 46
Bar Codes, 47
Point of Sale Systems, 47
Electronic Data Interchange, 48
E-Business and E-Commerce, 48
Processing Accounting Data (Study Objective 7), 48
Batch Processing, 48
Online and Real-Time Processing, 50
Outputs From the AIS Related to Business Processes (Study Objective 8), 50
Documenting Processes and Systems (Study Objective 9), 51
Process Maps, 51
System Flowcharts, 52
Document Flowcharts, 53
Data Flow Diagrams, 55
Entity Relationship Diagrams, 55
Ethical Considerations at the Foundation of Accounting Information Systems(Study Objective 10), 59
Summary of Study Objectives, 60
Key Terms, 61
End of Chapter Material, 62
Solutions to Concept Check, 66
3 Fraud, Ethics, and Internal Control 67
Introduction to the Need for a Code of Ethics and Internal Controls (Study Objective 1), 67
Accounting-Related Fraud (Study Objective 2), 70
Categories of Accounting-Related Fraud, 72
The Nature of Management Fraud (Study Objective 3), 72
The Nature of Employee Fraud (Study Objective 4), 74
The Nature of Customer Fraud (Study Objective 5), 75
The Nature of Vendor Fraud (Study Objective 6), 76
The Nature of Computer Fraud (Study Objective 7), 76
Internal Sources of Computer Fraud, 76
External Sources of Computer Fraud, 77
Policies to Assist in the Avoidance of Fraud and Errors (Study Objective 8), 79
Maintenance of a Code of Ethics (Study Objective 9), 79
Maintenance of Accounting Internal Controls (Study Objective 10), 80
The Details of the COSO Report, 82
Reasonable Assurance of Internal Controls, 90
Maintenance of Information Technology Controls (Study Objective 11), 91
The Sarbanes–Oxley Act of 2002 (Study Objective 12), 93
Section 404—Management Assessment of Internal Controls, 93
Section 406—Code of ethics for senior financial officers, 94
Summary of Study Objectives, 94
Key Terms, 96
End of Chapter Material, 96
Solutions to Concept Check, 102
4 Internal Controls and Risks in IT Systems 103
An Overview of Internal Controls for IT Systems (Study Objective 1), 103
General Controls for IT Systems (Study Objective 2), 105
Authentication of Users and Limiting Unauthorized Users, 106
Hacking and Other Network Break-Ins, 109
Organizational Structure, 112
Physical Environment and Security, 113
Business Continuity, 114
General Controls from an AICPA Trust Services Principles Perspective (Study Objective 3), 115
Risks in not Limiting Unauthorized Users, 116
Risks from Hacking or Other Network Break-Ins, 119
Risks from Environmental Factors, 119
Physical Access Risks, 120
Business Continuity Risks, 120
Hardware and Software Exposures in IT Systems (Study Objective 4), 120
The Operating System, 122
The Database, 123
The Database Management System, 124
LANs and WANs, 125
Wireless Networks, 125
The Internet and World Wide Web, 126
Telecommuting Workers and Mobile Workers, 127
Electronic Data Interchange, 127
Cloud Computing, 128
Application Software and Application Controls (Study Objective 5), 130
Input Controls, 131
Processing Controls, 137
Output Controls, 137
Ethical Issues in IT Systems (Study Objective 6), 138
Summary of Study Objectives, 139
Key Terms, 140
End of Chapter Material, 141
Solutions to Concept Check, 145
5 IT Governance 148
Introduction to IT Governance (Study Objective 1), 148
An Overview of the SDLC (Study Objective 2), 152
The Phases of the SDLC, 155
Elements of the Systems Planning Phase of the SDLC (Study Objective 3), 155
The Match of IT Systems to Strategic Objectives, 156
Feasibility Study, 156
Planning and Oversight of the Proposed Changes, 158
Elements of the Systems Analysis Phase of the SDLC (Study Objective 4), 158
Preliminary Investigation, 158
System Survey: The Study of the Current System, 158
Determination of User Requirements, 160
Analysis of the System Survey, 161
Systems Analysis Report, 161
Elements of the Systems Design Phase of the SDLC (Study Objective 5), 162
The Purchase of Software, 163
In-House Design, 164
Conceptual Design, 164
Evaluation and Selection, 165
Cloud Computing as a Conceptual Design, 167
Detailed Design, 167
Elements of the Systems Implementation Phase of the SDLC (Study Objective 6), 169
Software Programming, 170
Training Employees, 170
Software Testing, 171
Documenting the System, 171
Data Conversion, 171
System Conversion, 171
User Acceptance, 172
Post-Implementation Review, 172
Elements of the Operation and Maintenance Phase of the SDLC (Study Objective 7), 172
The Critical Importance of IT Governance in an Organization (Study Objective 8), 173
SDLC as Part of Strategic Management, 173
SDLC as an Internal Control, 173
Ethical Considerations Related to IT Governance (Study 175 Objective 9), Ethical Considerations for Management, 175
Ethical Considerations for Employees, 175
Ethical Considerations for Consultants, 176
Summary of Study Objectives, 177
Key Terms, 178
End of Chapter Material, 179
Solutions to Concept Check, 182
6 Enterprise Resource Planning (ERP) Systems 183
Overview of ERP Systems (Study Objective 1), 183
History of ERP Systems (Study Objective 2), 186
Current ERP System Characteristics (Study Objective 3), 188
ERP Modules (Study Objective 4), 190
Financials, 190
Human Resources, 191
Procurement and Logistics, 191
Product Development and Manufacturing, 191
Sales and Services, 191
Analytics, 191
Supply Chain Management (SCM), 191
Customer Relationship Management (CRM), 192
Market Segments of ERP Systems (Study Objective 5), 192
Tier One Software, 192
Tier Two Software, 193
Cloud-Based ERP, 194
Implementation of ERP Systems (Study Objective 6), 195
Hiring a Consulting Firm, 195
The Best-Fit ERP System, 195
Which Modules to Implement, 196
Best of Breed Versus ERP Modules, 196
Business Process Reengineering, 196
Customization of the ERP System, 197
The Costs of Hardware and Software, 197
Testing of the ERP System, 198
Data Conversion, 198
Training of Employees, 198
The Methods of Conversion to the ERP System, 198
Benefits and Risks of ERP Systems (Study Objective 7), 201
Benefits of ERP Systems, 201
Risks of ERP Systems, 202
ERP Systems and the Sarbanes–Oxley Act (Study Objective 8), 204
Summary of Study Objectives, 206
Key Terms, 207
End of Chapter Material, 208
Solutions to Concept Check, 211
7 Auditing Information Technology-Based Processes 212
Introduction to Auditing IT Processes (Study Objective 1), 212
Types of Audits and Auditors (Study Objective 2), 213
Information Risk and IT-Enhanced Internal Control (Study Objective 3), 215
Authoritative Literature Used in Auditing (Study Objective 4), 216
Management Assertions and Audit Objectives (Study Objective 5), 218
Phases of an IT Audit (Study Objective 6), 219
Audit Planning, 220
Use of Computers in Audits (Study Objective 7), 223
Tests of Controls (Study Objective 8), 224
General Controls, 224
Application Controls, 227
Tests of Transactions and Tests of Balances (Study Objective 9), 231
Audit Completion/Reporting (Study Objective 10), 233
Other Audit Considerations (Study Objective 11), 235
Different IT Environments, 235
Changes in a Client’s IT Environment, 237
Sampling Versus Population Testing, 238
Ethical Issues Related to Auditing (Study Objective 12), 239
Summary of Study Objectives, 242
Key Terms, 243
End of Chapter Material, 244
Solutions To Concept Check, 248
8 Revenue and Cash Collection Processes and Controls 250
Introduction to Revenue Processes (Study Objective 1), 250
Sales Processes (Study Objective 2), 255
Risks and Controls in Sales Processes (Study Objective 2, Continued), 262
Authorization of Transactions, 262
Segregation of Duties, 262
Adequate Records and Documents, 263
Security of Assets and Documents, 263
Independent Checks and Reconciliation, 264
Cost–Benefit Considerations, 264
Sales Return Processes (Study Objective 3), 266
Risks and Controls in the Sales Return Processes (Study Objective 3, Continued), 266
Authorization of Transactions, 266
Segregation of Duties, 269
Adequate Records and Documents, 269
Security of Assets and Documents, 270
Independent Checks and Reconciliation, 270
Cost–Benefit Considerations, 270
Cash Collection Processes (Study Objective 4), 271
Risks and Controls in the Cash Collection Processes (Study Objective 4, Continued), 272
Authorization of Transactions, 272
Segregation of Duties, 272
Adequate Records and Documents, 276
Security of Assets and Documents, 276
Independent Checks and Reconciliation, 277
Cost–Benefit Considerations, 277
IT-Enabled Systems of Revenue and Cash Collection Processes (Study Objective 5), 279
E-Business Systems and the Related Risks and Controls (Study Objective 6), 281
Security and Confidentiality Risks, 283
Processing Integrity Risks, 283
Availability Risks, 284
Electronic Data Interchange (EDI) Systems and the Risks and Controls (Study Objective 7), 284
Point Of Sale (POS) Systems and the Related Risks and Controls (Study Objective 8), 288
Ethical Issues Related to Revenue Processes (Study Objective 9), 289
Corporate Governance in Revenue Processes (Study Objective 10), 292
Summary of Study Objectives, 292
Key Terms, 294
End of Chapter Material, 294
Solutions to Concept Check, 306
9 Expenditures Processes and Controls—Purchases 309
Introduction to Expenditures Processes (Study Objective 1), 309
Purchasing Processes (Study Objective 2), 312
Risks and Controls in the Purchasing Process (Study Objective 2, continued), 322
Authorization of Transactions, 322
Segregation of Duties, 322
Adequate Records and Documents, 323
Security of Assets and Documents, 324
Independent Checks and Reconciliation, 324
Cost–Benefit Considerations, 324
Purchase Return Process (Study Objective 3), 326
Risks and Controls in the Purchase Return Processes (Study Objective 3, continued), 330
Authorization of Transactions, 330
Segregation of Duties, 330
Adequate Records and Documents, 330
Security of Assets and Documents, 331
Independent Checks and Reconciliation, 331
Cost–Benefit Considerations, 331
Cash Disbursement Processes (Study Objective 4), 332
Risks and Controls in the Cash Disbursement Processes (Study Objective 4, continued), 338
Authorization of Transactions, 338
Segregation of Duties, 339
Adequate Records and Documents, 339
Security of Assets and Documents, 339
Independent Checks and Reconciliation, 339
Cost–Benefit Considerations, 340
IT Systems of Expenditures and Cash Disbursement Processes (Study Objective 5), 341
Computer-Based Matching (Study Objective 6), 343
Risks and Controls in Computer-Based Matching (Study Objective 6, continued), 344
Security and Confidentiality Risks, 344
Processing Integrity Risks, 345
Availability Risks, 345
Evaluated Receipt Settlement (Study Objective 7), 345
Risks and Controls in Evaluated Receipt Settlement (Study Objective 7, continued), 346
Security and Confidentiality, 347
Processing Integrity, 347
Availability, 347
E-Business and Electronic Data Interchange (EDI) (Study Objective 8), 347
Risks and Controls in E-Business and EDI (Study Objective 8, continued), 348
Security and Confidentiality, 348
Processing Integrity, 349
Availability, 350
E-Payables (Study Objective 9), 350
Procurement Cards (Study Objective 10), 351
Ethical Issues Related to Expenditures Processes (Study Objective 11), 351
Corporate Governance in Expenditure Processes (Study Objective 12), 353
Summary of Study Objectives, 354
Key Terms, 356
End of Chapter Material, 357
Solutions to Concept Check, 366
10 Expenditures Processes and Controls—Payroll and Fixed Assets 368
Introduction to Payroll and Fixed Asset Processes (Study Objective 1), 368
Payroll Processes (Study Objective 2), 372
Risks and Controls in the Payroll Processes (Study Objective 3), 380
Authorization of Transactions, 380
Segregation of Duties, 381
Adequate Records and Documents, 381
Security of Assets and Documents, 381
Independent Checks and Reconciliation, 382
Cost–Benefit Considerations, 382
IT Systems of Payroll Processes (Study Objective 4), 382
Fixed Assets Processes (Study Objective 5), 385
Fixed Asset Acquisitions, 385
Fixed Assets Continuance, 389
Fixed Assets Disposals, 390
Risks and Controls in Fixed Assets Processes (Study Objective 6), 393
Authorization of Transactions, 393
Segregation of Duties, 394
Adequate Records and Documents, 394
Security of Assets and Documents, 394
Independent Checks and Reconciliation, 394
Cost–Benefit Considerations, 395
IT Systems of Fixed Assets Processes (Study Objective 7), 396
Ethical Issues Related to Payroll and Fixed Assets Processes (Study Objective 8), 398
Corporate Governance in Payroll and Fixed Assets Processes (Study Objective 9), 400
Summary of Study Objectives, 402
Key Terms, 403
End of Chapter Material, 403
Solutions to Concept Check, 409
11 Conversion Processes and Controls 411
Basic Features of Conversion Processes (Study Objective 1), 411
Components of the Logistics Function (Study Objective 2), 414
Planning, 414
Resource Management, 416
Operations, 418
Cost Accounting Reports Generated by Conversion Processes (Study Objective 3), 422
Risks and Controls in Conversion Processes (Study Objective 4), 423
Authorization of Transactions, 423
Segregation of Duties, 423
Adequate Records and Documents, 424
Security of Assets and Documents, 424
Independent Checks and Reconciliation, 424
Cost–Benefit Considerations, 425
IT Systems of Conversion Processes (Study Objective 5), 426
Ethical Issues Related to Conversion Processes (Study Objective 6), 430
Corporate Governance in Conversion Processes (Study Objective 7), 431
Summary of Study Objectives, 431
Key Terms, 432
End of Chapter Material, 433
Solutions to Concept Check, 439
12 Administrative Processes and Controls 441
Introduction to Administrative Processes (Study Objective 1), 441
Source of Capital Processes (Study Objective 2), 444
Investment Processes (Study Objective 3), 445
Risks and Controls in Capital and Investment Processes (Study Objective 4), 447
General Ledger Processes (Study Objective 5), 448
Risks and Controls in General Ledger Processes (Study Objective 6), 451
Authorization of Transactions, 451
Segregation of Duties, 453
Adequate Records and Documents, 456
Security of the General Ledger and Documents, 456
Independent Checks and Reconciliation, 456
Reporting as an Output of the General Ledger Processes (Study Objective 7), 457
External Reporting, 457
Internal Reporting, 458
Ethical Issues Related to Administrative Processes and Reporting (Study Objective 8), 459
Unethical Management Behavior in Capital Sources and Investing, 460
Internal Reporting of Ethical Issues, 461
Corporate Governance in Administrative Processes and Reporting (Study Objective 9), 461
Summary of Study Objectives, 462
Key Terms, 464
End of Chapter Material, 464
Solutions to Concept Check, 467
13 Data and Databases 468
The Need for Data Collection and Storage (Study Objective 1), 468
Storing and Accessing Data (Study Objective 2), 470
Data Storage Terminology, 471
Data Storage Media, 471
Data Processing Techniques (Study Objective 3), 472
Databases (Study Objective 4), 473
The History Of Databases, 475
The Need for Normalized Data (Study Objective 5), 477
Trade-Offs in Database Storage, 479
Use of a Data Warehouse to Analyze Data (Study Objective 6), 480
Build the Data Warehouse, 481
Identify the Data, 481
Standardize the Data, 481
Cleanse, or Scrub, the Data, 482
Upload the Data, 483
Data Analysis Tools (Study Objective 7), 483
Data Mining, 483
OLAP, 484
Distributed Data Processing (Study Objective 8), 485
DDP and DDB, 486
Cloud-Based Databases (Study Objective 9), 487
Big Data and Data Analytics (Study Objective 10), 489
IT Controls for Data and Databases (Study Objective 11), 490
Ethical Issues Related to Data Collection and Storage (Study Objective 12), 491
Ethical Responsibilities of the Company, 491
Ethical Responsibilities of Employees, 493
Ethical Responsibilities of Customers, 494
Summary of Study Objectives, 495
Key Terms, 496
End of Chapter Material, 497
Solutions to Concept Check, 501
14 E-Commerce and E-Business 502
Introduction to E-Commerce and E-Business (Study Objective 1), 502
The History of the Internet (Study Objective 2), 504
The Physical Structure and Standards of The Internet (Study Objective 3), 506
The Network, 506
The Common Standards of the Internet, 508
E-Commerce and its Benefits (Study Objective 4), 510
Benefits and Disadvantages of E-Commerce for the Customer, 511
Benefits and Disadvantages of E-Commerce for the Business, 512
The Combination of E-Commerce and Traditional Commerce, 513
Privacy Expectations in E-Commerce (Study Objective 5), 514
E-Business and IT Enablement (Study Objective 6), 515
B2B: A Part of E-Business, 518
E-Business Enablement Examples (Study Objective 7), 519
Intranets and Extranets to Enable E-Business (Study Objective 8), 521
Internal Controls for the Internet, Intranets, and Extranets (Study Objective 9), 523
XML and XBRL as Tools to Enable E-Business (Study Objective 10), 524
XML IN INTERNET EDI, 524
XBRL for Financial Statement Reporting, 526
Ethical Issues Related to E-Business and E-Commerce (Study Objective 11), 527
Summary of Study Objectives, 529
Key Terms, 530
End of Chapter Material, 531
Solutions to Concept Check, 534
Index 537