Information Technology

Mark Benedict M. Guia CPA MBAReviewer

CRC-ACE The CPA Professional Review School

Information System

• Processes data and transactions

• Provide users with the information needed

• Effectively and efficiently manage an organization

General Concept

Input1. Transaction Processes2. Collection of Data3. Entering data into the system

ProcessingManual versus Computerized System

OutputProviding users (external and internal) with information

General Types of Information Technology Systems

• Office automation systems (e.g., word processing, spreadsheets, etc.)

• Transaction processing systems (e.g. ordering system, payroll recording, cash receipts, cash disbursements)

• Management reporting systems (MRS)

Accounting Information System

• Transaction Processing System– converts economic events into financial

transactions• General Ledger/Financial Reporting Systems– Reports the status of financial resources and the

changes in those resources, primarily for external users

• Management Reporting System

Types of Management Reporting System

• Management information systems

• Decision support systems

• Expert systems• Executive information

systems

General Model of AIS

• Data Sources – External sources of financial transactions are those involving other legal entities

• Data Collection – ensure that data is valid, correct, and free from material errors. Two rules govern data collection: relevance and efficiency.

• Data Processing – can be as simple as sorting events alphabetically or adding up like events, or as complex as statistical modeling.

• Database management – involves the tasks of storing, retrieving and deleting collected and processed data.

SYSTEM DEVELOPMENT AND LIFE-CYCLE

Systems Development and Life-Cycle

• Planning• Analysis• Design• Development• Testing• Implementation • Maintenance

SDLC – Planning Phase

1. Identify the problem 2. Define the system to be

developed. 3. Determine the project

scope. 4. Develop a project

(action) plan. 5. Evaluate the initial

feasibility of the project.

SDLC – Analysis Phase

• Development Team• Needs assessment• Current System Analysis • Gap analysis

Systems Characteristic Requirement

1. Performance levels 2. Reliability 3. Quality 4. Interfaces 5. Security and privacy 6. Constraints and limitations 7. Functional capabilities8. Data structures and elements

SDLC – Design Phase

1. Databases 2. User interface

(boundary) for input and output

3. Required reports 4. Programs 5. Infrastructure and

controls

SDLC – Development Phase

• Purchase– Turnkey systems: finished, tested, and ready for

standard use.– Backbone systems: basic structure upon which

you can build your system to fit your particular needs.

– Vendor supported systems:• Built or in-house development

SDLC – Testing Phase

SDLC – Implementation Phase

• Parallel implementation • Plunge implementation

• Pilot implementation

• Phased implementation

BASIC CONCEPTS OF COMPUTERS

Types of computers

• Supercomputers• Mainframe computers• Servers• Microcomputers (e.g.,

desktop computers, laptop computers)

• Tablets/Smart Phones/Personal Digital Assistants

Parts of a Computer – Hardware

• Central Processing Unit (CPU)– Arithmetic/Logic Unit– Primary Memory • RAM (random-access

memory) • ROM (read-only memory).

– Control Unit

Parts of a Computer – Hardware

• Storage Devices – Magnetic tape– Magnetic disks– RAID (Redundant array of

independent– Compact Discs– Solid State Drives (SSDs)

also called “flash drives,” or “USB drives”

– Cloud-Based Storage

Parts of a Computer – Hardware• Input Devices

– Key-to-tape and key-to-disk– Visual display terminal/monitors– Mouse, joystick, light pens– Touch-sensitive screen– Turnaround documents– Magnetic tape reader– Magnetic ink character reader (MICR)– Scanner– Automatic teller machine (ATM)– Radio Frequency Identification (RFID)– Point-of-sale (POS) recorders– Voice recognition– Electronic commerce and electronic data interchange

Parts of a Computer – Hardware

• Output Devices– Monitors– Printers– Plotters– Computer output to

microfilm or microfiche (COM)

Parts of a Computer – Software

• General Software– Operating system

(e.g., Windows, Linux, Unix)

– Utility programs– Communications

software

Parts of a Computer – Software

• Application Software– Word processing, graphics, spreadsheets, email,

and database systems– Accounting software• Low-end (e.g. Peach Tree, Quickbooks) • High-end(e.g., general ledger, receivables) • Enterprise Resource Planning (ERP)

Methods of Processing

• Batch Processing• Online real-time (OLRT) or direct access

processing - – Online transaction processing (OLTP) – (bank

automatic teller systems and Internet website sales)

– Online analytical processing (OLAP)

Data Processing Structure

• Centralized – processing occurs at one location.

• Decentralized – Processing and storage on computers at multiple locations. – Computers involved are not interconnected by a network

• Distributed – Processing at various sites but the overall information is in

one database. – Processing may be on either a batch or online real-time

basis.

Data Organization

• Bit• Byte• Field• Record• File• Table• Database• Array• Master file• Detail or transaction file

DATA FILE STRUCTURE

Traditional file processing systemsAdvantages Disadvantages

1. Currently operational for many existing (legacy) systems 2. Often cost effective for simple applications

1] Data files are dependent upon a particular application program. 2] In complex business situation there is much duplication of data between data files. 3] Each application must be developed individually. 4] Program maintenance is expensive. 5] Data may be isolated and difficult to share between functional areas.

Database systemsAdvantages Disadvantages

1] Data independence—Data can be used relatively easily by differing applications. 2] Minimal data redundancy—The manner in which data is structured results in information being recorded in only one place, thus making updating much easier than is the case with traditional file systems. 3] Data sharing—The sharing of data between individuals and applications is relatively easy. 4] Reduced program maintenance. 5] Commercial applications are available for modification to a company’s needs.

1] Need for specialized personnel with database expertise 2] Installation of database costly 3] Conversion of traditional file systems (legacy systems) costly 4] Comprehensive backup and recovery procedures are necessary.

Database Terminologies

• Database• Normalization• Database management system• Data independence• Data Dictionary• Structured query language (SQL)• Data definition language (DDL)• Data manipulation language

(DML)• Data control language (DCL)

Data modeling

• Entity-relationship modeling—entities (e.g. “customer,” “product”) and relations (“buys,” “pays for”).– Primary key– Foreign key

• REA data model – Resources—Identifiable objects that have economic value, – Events—An organization’s business activities, – Agents—People or organizations about which data is

collected.

Database structures

• Hierarchical• Networked• Relational• Object-oriented• Object-relational• Distributed

Database controls

• User department• Access controls

– Restricting privileges– Logical views

• Backup and recovery– Backup of database and logs of transactions (sometimes

referred to as “systems logs”).– Database replication. – Backup facility.

• Database administrator (DBA)• Audit software

Types of Network• As to geographical scope

– Personal area network (PAN) – Local area networks (LAN)– Metropolitan area network (MAN)– Wide area networks (WAN)

• As to Ownership– Private– Public– Cloud computing/cloud services

• As to use of Internet– Internet– Intranet– Extranet

ELECTRONIC DATA INTERCHANGE (EDI)

Point-to-pointAdvantages Disadvantages

a] No reliance on third parties for computer processing. b] Organization controls who has access to the network. c] Organization can enforce proprietary (its own) software standard in dealings with all trading partners. d] Timeliness of delivery may be improved since no third party is involved.

a] Must establish connection with each trading partner b] High initial cost c] Computer scheduling issues d] Need for common protocols between partners e] Need for hardware and software compatibility

Value-added network (VAN)Advantages Disadvantages

a] Reduces communication and data protocol problems since VANs can deal with differing protocols (eliminating need for trading partners to agree on them). b] Partners do not have to establish the numerous point-to-point connections. c] Reduces scheduling problems since receiver can request delivery of transactions when it wishes. d] In some cases, VAN translates application to a standard format the partner does not have to reformat. e] VAN can provide increased security.

a. ] Cost of VAN b] Dependence upon VAN’s systems and controls c] Possible loss of data confidentiality

Public networksAdvantages Disadvantages

a] Avoids cost of proprietary lines b] Avoids cost of VAN c] Directly communicates transactions to trading partners d] Software is being developed which allows communication between differing systems.

a] Possible loss of data confidentiality on the Internet b] Computer or transmission disruption c] Hackers and viruses d] Attempted electronic frauds

Proprietary networks

• Organizations (e.g., health care, banking) have developed their own network for their own transactions.

• These systems are costly to develop and operate (because of proprietary lines), although they are often extremely reliable.

Controls Required

• Authentication• Packets• Encryption

ACCOUNTING INFORMATION SYSTEM

The Role of the Accountant

• Accountants as Users• Accountants as System Designers• Accountants as System Auditors– External Auditing– Internal Auditing

The Transaction Cycles

• The Expenditure Cycle – Purchases/accounts payable system– Cash disbursement system– Payroll system– Fixed asset system

• The Conversion Cycle • The Revenue Cycle– Sales order processing (order, credit, shipping, billing)– Cash Receipts (collecting, depositing, recording)

Accounting Records• Manual Systems– Documents (Source, Product, and Turnaround) – Journals (general and Special)– Ledgers (General and Subsidiary)

• Computerized– Master files: contain account data that are updated from

transaction data: ledgers.– Transaction files: hold records from events that will change

master files: journals.– Reference files: hold the transaction processing standards

or rules: vendors, prices.– Archive files: are historical files of past journals and ledgers.