Chapter 6: Introduction to Financial Information

Question 1

What is information?

Answer 1

Data consists of numbers, letters, symbols, raw facts, events and transactions which have been recorded but not yet processed into a form which is suitable for use by management.

Information is data which has been processed in such a way that it is meaningful to the person who receives it.

Data + Meaning = Information

Question 2

What purposes does information serve?

Answer 2

• Planning (for the future: eg., buyers sourcing material or production managers planning for future production)
• Controlling: eg., manager director with the actual market share versus budget
• Recording Transactions: Accountant (ledger accounting) or Sales ledger clerk (customer balances)
• Performance Measurement: Board of directors, shareholders
• Decision making: which supplier to use, should we invest? Customer - do we want to commit to business for foreseeable future

Question 3

How do you remember the qualities of good information?

Answer 3

ACCURATE

 Accurate
– typos, roundings, categorised, assumptions.
 Complete
– all information provided for purpose (e.g. to make decision).
 Cost-effective
– benefit > cost of producing information.
 User-targeted
– understandable and useful to recipient.
 Relevant
– relevant for purpose intended.
 Authoritative
– genuine, highest quality for purpose.
 Timely
– produced in advance of when needed.
 Easy to use
– clear, concise, constructive, communicated appropriately.

Question 4

What are some internal sources of data?

Answer 4

Internal data sources
 Accounting records
 HR/payroll records
 Machine logs/computer systems
 Timesheets
 Communication to/from staff.

Question 5

What are some external sources of data?

Answer 5

 Formally gathered:
 – Marketing research
  (e.g. new trends, customer tastes competitor products, etc.)
 Research and development
 Tax and accounting specialists
 (new legislation/standards)
 Legal specialist
 (e.g. changes in Health and Safety at work).

Informally gathered:
– Any information gathered on an ongoing basis
 (newspapers, internet, meetings with external business colleagues,
etc.).

Question 6

How do you remember the effective processing of information?

Answer 6

CATIVA

 Completeness
– all relevant data is processed.
 Accurate
– all processing ensures data remains true to source and error free.
 Timeliness
– processing matches data availability and needs.
 Inalterability
– data cannot be tampered with by unauthorised persons.
 Verifiability
– clear ‘audit trail’ from data source to information.
 Assessability
– information produced can be challenged, ensuring quality of system.

Question 7

What are TPS? What are some examples?

Answer 7

Transaction processing systems (TPS) are systems which perform and record routine transactions.

Finance/accounting systems
 sales and purchase ledgers, budgets, nominal ledger, management accounts.

HR systems
 payroll, personnel files, training records.

Manufacturing/production systems
 purchasing, orders, production schedules, stock control, quality records.

Sales/marketing systems
 marketing research, pricing records, sales management records.

Question 8

What is an MIS?

Answer 8

Management information systems (MIS) are systems to produce information allowing managers to make effective decisions

Question 9

What are some examples of MIS? (5)

Answer 9

Executive information systems (EIS) or Executive support system (ESS)
 A database that pools data from internal and external sources providing easy to use information to senior managers to help make strategic decisions.

Decision support systems (DSS)
 Combines data and analytical models or data analysis tools to support decision making.

Expert system (ES)
 Expert systems allow users to benefit from expert knowledge and information.
The systems will consist of a database holding specialised data and rules about what to do in, or how to interpret, a given set of circumstances.  

Knowledge work systems (KWS)
 Facilitate the creation and integration of new knowledge into an organisation.

Office automation systems (OAS)
 Systems that increase the productivity of data and information workers.

Question 10

How do you assess data security issues?

Answer 10

ACIANA

 Availability
– information can be readily accessed at all times.
 Confidentiality
– information only accessed by those with a right to access.
 Integrity
– data remains unadulterated.
 Authenticity
– data/information comes from bona fide sources.
 Non-repudiation
– users trust the information produced and the system producing it.
 Authorisation
– system changes only made by staff who are accountable for those changes.

Question 11

What are some controls to mitigate cyber security? (5)

Answer 11

Physical access controls
 e.g. door locks, alarm systems, PIN numbers

Security and integrity controls
Examples:
Input controls
 Control totals (e.g. batch of invoices)
 Range checks (e.g. number of hours on timesheet <168 hours)
 Authorisation of source documents/data (e.g. timesheets)
 Password controls over input of data (e.g. restricted access to payroll)
Output controls:
 Control totals (e.g. batch of invoices versus batch total)
 Follow up of error/exception reports (e.g. large overtime payments)

Back-up and archiving
 e.g. disaster recovery plans, regular back-up of data.

Personnel controls
 e.g. careful recruitment, selection and training of staff operating IS.

Segregation of duties controls
 Different people responsible for:
 – Generation of data.
 – Processing of data.
 – Recording data.
 – Physical asset custody (e.g. inventory, cash, etc.).

Question 12

What are the key features of ‘Big Data’?

Answer 12

The key features of Big Data are described as the 4Vs:

Volume: Considers the amount of data fed into the organisation
Variety: Considers the various form of data received
Velocity: Considers the speed that data is fed into the organisation
Veracity: Considers the reliability of the data received

Question 13

What is the importance of ‘Big Data’?

Answer 13

 Potential to achieve competitive advantage
 Huge array of new data sources:
– Social media
– Internet of things
 Exponential growth in computing power and storage capacity
 New avenues of knowledge creation such as crowd sourcing and open source
software.

Question 14

What are the risks of ‘Big Data’?

Answer 14

SODS

The abundance of data produced and the potential to capture and harness this data offers significant opportunities to businesses.

It must also be acknowledged this new world of data presents significant challenges
and risks.

These include:
 Storage – systems must be reviewed and upgraded to cope with the data and processing required.
 Skills – data scientists and analysts are in short supply making it difficult for organisations to recruit and retain the right staff.
 Data dependency – data led decisions leads to significant risk should the data be weak, erroneous or corrupted.
 Overload – too much information and analysis can make businesses lose sight of the key data and also slow down decision making and responsiveness.

Question 15

How do managers use data analytics?

Answer 15

Data analytics:

Value is extracted from big data by data scientists through the process of data analytics.

This can be used by a business to create value in the following ways:

• Decision making
   Real-time analysed information allows managers to make better decisions.
• Customer analysis
   Market segmentation and customisation can occur from having a greater insight
  into customer needs.
• Innovation
   Analysed big data can reveal completely new ideas and lead to innovation.
• Risk management
   Big data can assist with the identification, quantification and management of risks

Question 16

What is artificial intelligence?

Answer 16

 Increasing use of computers to perform tasks thought to require human intelligence such as learning and reasoning, including:
– Medical diagnosis through interpretation of medical images
– Home assistants learn our language and habits to better predict and understand our requirements.

Question 17

What is Machine Learning?

Answer 17

 Rather than following explicit programming instructions, machine learning algorithms detect patterns, learn how to make their own decisions and adapt over time.

Question 18

What is Automation?

Answer 18

The creation of technology and its application to control and monitor activities without human interference. Intelligent systems and artificial intelligence facilitate the process of automation.

Question 19

What is cloud computing?

Answer 19

Cloud computing provides a business with computing resources such as software and storage using a network of remote servers hosted on the internet.

Question 20

What are common features of cloud computing?

Answer 20

Common features of cloud computing systems are as follows:
 Cloud systems can be either private or public:
– Public systems sell services to anyone on the internet
– A private system is a proprietary closed system for a limited set of users.
 They are elastic so users can use as little or as much as they need.
 The service will be fully managed by the provider in the case of public systems.

Question 21

What is cloud accounting?

Answer 21

Cloud accounting is one application of cloud computing. Accountancy software is provided in the cloud by a service provider rather than running the software on a local server.

Question 22

What is distributed ledger technology?

Answer 22

Distributed ledger technology (or blockchain) allows people or organisations that do not know each other to trust a shared record of events. The technology is used by cryptocurrencies such as Bitcoin and in the complex diamond supply chain for added security.

Question 23

What are the key features of distributed ledger technology?

Answer 23

 A distributed ledger has no central storage and is shared by all parties who require access, each having an identical copy of the ledger.
 Additional stages in a transaction are verified by consensus algorithms, with all parties essentially voting to agree the new element as a true record.
 This lack of central administrator is the main advantage of the technology preventing any one party from dominating or corrupting the process.
 Security is provided through cryptographic keys and clear signatures of all transactions.

Question 24

What is a digital asset?

Answer 24

A digital asset is any text or data file that is formatted into a binary source which includes the right to use it; digital files that do not carry this right are not considered digital assets

Question 25

What are the common types of digital asset and how do businesses protect them?

Answer 25

Two common types of digital asset are:
 Media assets (images and multimedia)
 Textual content (documents).
Businesses use methods such as encoding, encryption and watermarks to protect digital assets.