Accounting information system Flashcards
Definition of accounting? (1.14)
Accounting is a process of identifying, measuring and communicating economic information to permit informed judgement and decisions by internal and external users of the information.
Accounting is an information-providing activity
The accounting process diagram? (1.18)
Transaction goes into accounting information system. Then arrow to stakeholders and firm management from accounting information system. Auditor intervenes to the accounting information system and middle or arrow in stakeholders.
What is information? (1.20)
Information is a business resource
3 information purposes? (1.22)
Information for delegation and accountability
information for decision making
information for operating the business
System vs. sub-system vs. element/component? (1.26)
- System consists of interdependent elements. Is set up to achieve one or more specific objectives.
- A sub-system can exist without containing the system, but usually has no useful function by itself.
- An element or component cannot be used alone.
Definition of information systems? (1.28) Same as 4 uses of a system
Information system is a set of interdependent components working together to collect, process, store, and provide information.
Define accounting information system (AIS) (1.29)
An accounting information system is an organised collection of software and hardware for inputing, processing, and storing data on business events, aimed at providing information to internal and external stakeholders that complies with specified quality criteria, and creating the right conditions for effective and efficient delegation and accountability, decision-making, and operating the business.
AIS: collects, process and reports information related to the financial (accounting) aspects of business events.
How does AIS add value to the organisation? (1.30)
Improving quality of information, and therefore better decision making.
- internal decisions such as budgeting, product mix, marketing activities, etc.
- external decisions such as investments, financing, etc.
Improves efficiency
- automation helps saving resources
- information more timely
Shares knowledge by communicating procedures
Improves internal control structure
- safeguarding organisations assets
What is the overall goal of internal control (IC)? (1.13)
The overall goal of internal control is to provide a shield that protects assets against undesirable events (risks) that bombard the organisation.
What is internal control and what are 3 its objectives? (1.14)
The process effected by an entity’s board of directors (BoD), management, and other personnel, designed to provide reasonable assurance regarding the achievement of the objectives related to:
- effectiveness and efficiency of operations
- reliability of internal and external reporting
- compliance with applicable laws and regulations
The fraud triangle? (Name and explain each)
- Pressure: is a persons incentive or motivation to commit fraud. (Ex: pressure to perform, meet stakeholder expectations, personnel incentives like the need to pay the bills)
- Rationalisation: refers to an individual’s justification for committing fraud. (Ex: fear of losing the job motivates to commit fraud)
- Opportunity: refers to circumstances that allow fraud to occur. In the fraud triangle it is the only components that a company exercises control over.
Top 4 types of fraud? (2.16)
- Customer fraud
- Cybercrime
- Asset manipulation
- Bribery and corruption
Why was Sarbanes-Oxley Act (2002) created? 6 things. (2.21)
Prevent financial statement fraud
make reporting more transparent
protect investors
strengthen internal control
punish executives pro comit fraud
re-establish public confidence
What 2 main things were mentioned in the Sarbanes-Oxley Act? (2.22)
Arounds 60 laws:
Board of directors and management operations
- Implement and test internal controls
- Hold executives accountable for accuracy of financial statement
- Improvement of audit committees.
Auditors operate
- Specific focus on auditor independence through: auditor rotation, restricting non-audit services
What does COSO stand for and why is it defined as integrated framework? (2.29)
COSO = committee of sponsoring organisations of the Treadway Commission (original 1992, updated 2013)
Integrated because COSO:
- Includes 5 inter-related components
- Which help achieving all internal control objectives
- And cover the entire organisation
What two characteristics does risk have? (2.32)
- Uncertainty: an event may or may not happen.
- Loss: an event has unwanted consequences or losses.
Name 5 interrelated components of COSO framework (2.30)
Control environment
Control activities
Risk assessment
Information & communication
Monitoring activities
What are the 5 components of control environment? (2.33) And which 3 entities are involved?
- Commitment to integrity and ethical values
- BoD independent from management, oversees internal control
- Management establishes structures, reporting lines and authorities and responsibilities
- Commitment to competence
- Accountability and responsibilities
Human resources / Management / Internal Audit
4 components of risk assessment? (2.35)
Identification of objectives to enable risk identification and assessment
Risk identification and analysis as a basis for risk management
Fraud taken into consideration
Identification and assessment of changes with impact in internal control system
3 components of control activities? (2. 37)
Controls to mitigate risk to acceptable level
General control over technology
Policies and procedures to help ensure that management’s risk responses are carried out
3 components of information & communication? (2.38)
Use of relevant, quality information to support internal control
Internal communication to support internal control
Communication with external parties regarding internal control
2 components of monitoring activities? (2.39)
- Selection, development, and performance of ongoing and separate evaluations of (other) internal control components.
- Timely evaluation and communication of internal control deficiencies to parties responsible for taking corrective action.
What can be 4 possible risk responses? (2.42)
Activity elimination
Automation
Centralisation
Risk sharing
4 levels of managing risks? Which are preventive controls are which are detective/corrective controls? (2.43)
Potential risks - Risks that are not avoided - Risks for which no preventive controls are put in place - Residual risks
Detective/corrective is the last one. Otherwise: preventive.
Understand: because of inherent limitations in any system of internal control, error or irregularities may occur and not be detected (2.44)
Understand: one of the causes of Enron’s failure probably was the lack of segregation of duties within the company. Explain such concept: segregation of duties. (2.44)
Value cycle + - where??? Look into the graph (2.45)
As well as network of reconciliations +-???
5 duties to be segregated? (3.6)
- Authorization
- Recording
- Custody
- Checking
- Execution
What are 3 information security goals? (3.27)
- Confidentiality (C)
- Integrity (I)
- Availability (A)
What are 5 primary activities and how they create value? (4.4)
- Inbound logistics: receiving, storing, and distributing inputs internally)
Focus: supplier management - Operations: change inputs into outputs that are sold to customers
Focus: operațional systems - Outbounds logistics: deliver product or service to customer
Focus: distribution systems - Marketing and sales: convince clients to purchase
Focus: communicating with customers - Service: maintaining the value of product or service to customers after purchase
Focus: customer management
What are 4 support activities and how they create value? (4.5)
- Procurement (purchasing): get the resources it needs to operate
Focus: supplier negotiations - Human resource management: how well a company recruits, hires, trains, motivates, rewards, and retains employees.
Focus: people management - Technological development: managing and processing information
Focus: reduce IT costs/ IT systems - Infrastructure: maintain daily operations
Focus: finance, accounting, legal. admin, and general management
From an accounting perspective, we typically talk about ____ (4.6) And why?
(COSTS): costs reflect the value that is attached to a resource, which is in turn needed to create value for the customer
Documentation in a business environment is necessary for what 2 reasons? (4.9)
- Read and prepare: documentation to determine how a system works
- Evaluate: documentation to identify strengths and weaknesses and recommend improvements (think about auditors who need to test the system of their clients or a company’s employees who work on improvement of current system)
