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Running head: ACCOUNTING INFORMATION SYSTEMS 1

ACCOUNTING INFORMATION SYSTEMS 1

Accounting Information Systems: A Database Approach

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Chapter 1 Summary

The chapter starts by giving information about how modern information technology has impacted businesses in the modern era. Though it is an internet age and style of carrying out the businesses are changing but the accounting information would always remain constant, no matter what era we are living in. As in starting the old method of carrying out accounting, the double entry model and traditional accounting was discussed and compared with the modern method of accounting, called a database approach. Then the importance of customer information is also given.

It tells that information customers are important because they help in understanding the outcome of information that is currently given out by the accounting system. Furthermore, the information customers are divided into two sections called internal and external information customers. More information about the traditional accounting was discussed and now the new type of traditional accounting was introduced called “manual accounting process”. It came up with a very simple rule that all the assets made by any company should be equal to shares and money owned by the company’s owner.

This model had a lot of flaws that were discussed in detail like transaction orientation, narrow view, periodic, limited accessibility, limited flexibility. To solve these flaws and problems the tradition accounting system was automated. This gave out more accuracy and speed in accounting transactions. New software packages were developed and COBOL programs were introduced which made the computerized bookkeeping possible. By automating the traditional accounting system speed and accuracy of data reporting was increased, but on the other hand, it had a major drawback which was that it produced periodic reports instead of real-time reports.

In comparison to the database approach, all the disadvantages that computerized bookkeeping had been solved. It was more of a new approach given to the accounting. Database approach was carefully designed approach which was covering the vast needs of all the users. All the data including financial and non-financial data both could be recorded at the disaggregated form. It also solves the problem of periodic reporting and provides the accountant information customers with real-time reporting.

Data would be easily available and accessible and in addition to that multiple data could be analyzed together. The roles or the jobs that an accountant could get are given in detail. For example, they could be an auditor, consultant or as an information professional. In the end, the overview of the book is given which gives us an idea about the remaining chapters in the book.

Chapter 2 Summary

Information systems are made by different elements combined together. As seen before that accounting information systems were computerized, but no matter what information systems are there, they are always made by a combination of some elements so in this chapter details about those elements and factors are given. At the start of this chapter, we see that there is a comparison between data and information. Information is sorting out and gives meaning to the data. To represent data into information form new information systems were introduced. To proceed further the hierarchy of data was given starting from bits, which is the lowest level of data stored in computers.

Then comes byte which is the combination of group bits. Different groups of bytes combine to form field, which further forms record, file, and database. The database is the final collection of data that starts to make some sense. Formats in which field were recorded was discussed in detail. Different types of the format were discussed which includes: Numeric, text, currency, date/time, Boolean, counter and blobs. Explanation of each format is given in detail. Different record keys were discussed and their types were explained. Primary, candidate, composite, non-key attributes and secondary keys are the record keys discussed.

Establishing the coding system is also important to the types of coding system is explained like sequence code, block code, group code, and mnemonic code. Finally, when the content is finalized it is divided into different files types which are master files, transaction files, reference files, history files, and backup files. To get a better understanding of information produced data processing cycle is explained. It includes the input of data, followed by its preparation, processing, and maintenance and finally the information is produced.

The file could be updated by two options present which is known as batch processing and online processing. The comparison is done between both to find the difference and in regard to that each process came up with its own advantage and disadvantages which are listed. As all the details of the elements are given which are included to make information system, at last, the study is done that how these elements fit together. Coming to the end of the chapter different system approaches are studied to know how all these elements combine to make an information system. Different types of system models are shown to get a better idea. The most basic model explained is called general system model which has the input of data, processing, output, boundary, and environment.

Chapter 3 Summary

In the start of this chapter, some reference of past information about basic elements of information system were given and in the continuity of that now we would be studying about the technology of information systems. The technology that would be covered is in terms of hardware and software. At first, the process of hardware was described in details and how that process works. Hardware has three further categories which are called input, processing, storage, and output. To enter the data into any computer system input technology is required and different types of input technologies were described in detail. Most common input devices were listed and that was; keyboard, mouse, trackpad, MICR reader, touch screen device, OCR reader, bar code scanner, audio input, light pen, RFID, handheld and page scanners. CPU (Control Processing Unit) is the technology used for processing.

It comprises of three basic units to work which are a control unit, arithmetic logic unit, and a memory unit. Details of how these units work are given. After that storage technology was discussed in detail that how it stores the data and instructions temporarily and also types of storage were also listed. Cache, RAM, ROM, SDRAM, DDR SDRAM, and ECC are the storage memories and against each of them, their descriptions were given. Permanent storage types were also discussed and types of permanent storages were also listed.

The table was drawn which showed permanent storages which were magnetic tape, magnetic disk, floppy disk, optical disk, CD-R, CD-RW, DVD, Blu-Ray and USB drive. Now software system was discussed and to explain it in detail it was divided further into two subcategories known as system software and application software. System software had three main software called operating system, utility programs, and language translators. All of these software programs were explained in detail how this software converts the information into the language that a machine understands.

Further in the continuity of software programs some machine languages were also discussed. From first to fourth generation languages were discussed in much detail. Now the second software type known as application software was described and what are the uses of this software were also listed. It was differentiated by telling about applications designed for general and special uses. A most important use of application software was in accounting software packages.

The table was also drawn to show examples of system software and application software. Different systems configurations were also discussed. The table was drawn showing features and applications of system configurations starting from supercomputers to notebook computers. In the conclusion of the chapter, details are given about what a user should select software or hardware according to his/her needs.

Chapter 4 Summary

At the start of this chapter, an overview was given that what a chapter is going to cover. We are going to learn about telecommunication concepts and technologies used. Also, there is some description given that why data communications and networking concepts are essential for accountants. At first telecommunication, concepts were discussed in detail. It is described as an electronic transfer of information from one point to another (destination). This entire telecommunication network is comprised of five components that were listed.

These communication components include; nodes and switches, architecture and standards, transmissions methods, terminal and work stations and transmission links. Terminals and workstations were discussed in detail first. It basically shows that it only interacts with an end to end users. Transmission links were the second component that was described. It explained that for transmissions of data two ways are important. First, is transmission is done by physical links and secondly, it is also done by air.

Physical components include fiber optic cables, coax cables and twisted pair wire. On the =another hand transmission through air is done by infrared, microwave and satellite links. After that third component was discussed, this was transmission method and modes. Transmission is done by two methods which were the analog or digital transmission. The comparison was done between both to show the differences between them. Both types of transmissions either uses circuit or packet switching, which was also explained in detail.

The fourth component discussed was nodes and switches and it comprises of hardware which includes routers and gateway, bridges and front end processors, multiplexers. Finally the last and fifth component was explained, called architecture and standards. After the five components of the telecommunication network, different network types were explained in detail. Types of network present are local and wide area network. Local network topologies were listed in a table and their description and processing were written next to them. Topologies that were listed are; ring, star, and bus.

After that wide area network was discussed and how it used a different type of modems to communicate between one computer to another. The table was also drawn to show different technologies used for the communication and their description were also given. Those technologies include modem, DSL, Cable modems and fiber optic lines. Different types of wide area network and DDP were also discussed in some detail. There was a small detail given about the client-server systems so that we could get some idea that how they work. Finally, in the end, there was some discussion about the internet and e-business.

Chapter 5 Summary

The chapter starts with an overview of the things that we are going to study. The chapter would cover the categories that are present in the information system. It shows the hierarchy of the decisions that an organization makes. Three basic levels of systems are studies starting from expert systems, which includes unstructured decision making top mid-level management. Then comes the decision support system, which has semi-structured mid-level management and finally comes a transaction processing system which has structured top-level decision making management.

All of these systems are then covered and explained in detail for the better understanding. An overview of transaction processing system was given at first and then it was compared with the decision support system. This helped give a better explanation of the decision support system and how it works. The decision support system was made by three important components that are data, processing and user interface. Advantages and disadvantages of decision support system were also listed against each other. The expert system, which is also an example of artificial intelligence, was then studied in detail.

An expert system is also called knowledge-based systems because they do contain expert knowledge. Then to explain the distinctive features and advantages of the expert system it is compared with transaction processing and decision support system. The table was drawn which helped us to learn the actual differences between all these three systems. All systems as seen before are made from some components; similarly, an expert system is also made by four basic components which include a interface engine, the knowledge base, domain base, and user interface

Details of how these components combined and work to form an expert system are given. Rule-based knowledge was then discussed giving in details and some other knowledge representation methods were given like semantic networks, object orient methods and frames. The development method of the expert system is also given. Details are given that what measures should be taken in order to develop a perfect expert system.

Then finally the advantages and disadvantages of the expert system were listed in a table against each other. After the detailed discussion about the expert system, the applications were shown that were listed by five firms, where the expert system is used. Finally, at the end of the chapter, the role of the expert system in accounting was discussed in detail. Next, the table was shown to explain where the expert system could be used in accounting. The system was being used in three areas which include audit, taxation and management accounting. However, most of the application of an expert system is done in the auditing area.

Chapter 10 Summary

The chapter starts out with giving out the basic theme that it would be covering. This chapter would be discussing critical issues of information systems and its security. The definition of controls and its overall details were given. Control is known as a procedure made to detect or prevent errors. Information has always the risk of getting faulty as it could be exposed to different types of threats or exposures. Types of exposures were discussed and listed which could be a risk for the information system. With each exposure listed its potential outcome was also list right next to it.

So this would help us to get the idea of the risks that an information system is facing. To prevent the exposure control was introduced and it was further divided into categories which are preventive, detective/corrective categories. These controls were explained in detail and help us understand how they eliminate the risks. Computer-based systems are always facing some types of risks and the risks were listed and explained in detail. The risks that are involved in the automated system are irregularities and data misplacement, natural disasters, hacking. Then the internal controls were explained in detail with reference to SAS NO. 109.

As stated in SAS No. 109 the internal controls contain five components. These five components were control and monitoring, information system and communication, risk assessment, controlled environment. The internal control structure is made up of many different components and each of these components was discussed in detail with the reference of the General System Model. The tables were drawn to summarize and list the principles that each of these components follows. Now the two main and wider categories of control procedure were discussed.

These categories are general control procedure and application control procedure. These categories were further divided into subcategories. General control procedure has six categories which are; proper management of back and recovery, access controls over system files, system development, and program change controls, hardware controls, computer operations control and system function. Application control procedure includes; input, processing and out controls. All these subcategories are discussed in detail. Online systems use input and processing controls.

To implement input controls in the database environment certain set of rules are given which are listed in the table. Certain ways were also discussed in which input controls were added in Microsoft Access. In the end, hierarchical was discussed to the show the connection between the accounting network, control environment and control procedures. The last paragraph gave some introduction about COBIT control framework.

References

Murthy, U. S., & Groomer, S. M. (2003). Accounting Information Systems: A Database Approach.