, Solution manual For Core Concepts of
Accounting Information Systems, 14th Edition
by Mark G. Simkin
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, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
Chapter 1
ACCOUNTING INFORMATION SYSTEMS AND THE ACCOUNTANT
Discussion Questions
1-1. The answer to this question will vary with each university’s location. However, it is
likely most students will reveal that their parents are employed in non-manufacturing jobs.
Instructors may wish to emphasize that the large numbers of service sector employees and
knowledge workers reflect a trend.
1-2. This question encourages students to think about some of the information reporting
limitations imposed by the traditional accounting general ledger architecture. Other business
activities (or business events) that do not require journal entries include (1) obtaining a line of
credit, (2) issuing purchase requisitions or purchase orders, (3) signing contracts, (4) hiring a
new executive, and (5) sending financial information to investors or bank loan personnel.
Instructors may wish to point out that important information about a company’s business
activities may be included in an annual report outside the financial statements. The management
letters and footnotes in annual reports may reveal much about a company’s future prospects.
Managers have access to much more information than what is published in financial reports.
Whether or not they would like to have access to more non-financial information, or if they
would prefer that the accounting information system capture data about business events rather
than accounting transactions, is debatable. It may also be a function of the accounting system in
a particular company. Investors may wish to have more information available to them but the
downside is that too much information can be just as problematic as too little information.
1-3. The financial accounting systems we have known for more than 500 years are
changing dramatically as a result of advances in information technology and financial accounting
software. For example, databases allow accountants to collect and store all the data (accounting
transaction data and non-financial data) about a business activity or event in one system,
allowing those needing such information to retrieve it quickly, efficiently, and specifically in any
format they wish. Financial data can also be more easily linked to nonfinancial data because of
database technology. Thus, it is likely that financial reporting will undergo tremendous change
in the next few years as we learn to use technology, including artificial intelligence, more
effectively in the design of AISs.
ERP systems are another example of the information age's impact on financial accounting. Now,
organizations capture more financial and non-financial data and produce more information than
ever before. This allows companies to integrate their information systems, better forecast
everything from raw materials requirements to finished product production, and to perform more
sophisticated analyses of important business functions. For instance, sales can be examined at
many different levels and organized according to criteria such as geography, customer, product,
or salesperson.
SM 1.1
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
One of the most important changes in AISs is the way these systems will gather financial
information in the future. Although many of these systems will continue to capture data in
traditional batch mode or at POS sites, we expect newer systems to collect more of it on mobile
devices—for example, cell phones, PDAs, and digital cameras. Because more employees and
working at home these days, “digital commuting” may be another trend.
1-4. The objective of a company’s financial statements is to communicate relevant
financial information to such external parties as stockholders, investors, and government
agencies. Issuing financial statements in XBRL formats contributes to this objective by making
such financial data more searchable, comparable, informative, and therefore useful. Also,
because XBRL enables companies to use standard tags to identify specific accounting values, the
language itself imposes a greater degree of standardization in the informational content of the
reports. Finally, XBRL helps government agencies gather financial data that are more
consistent, easier to understand, self-checking, and more quickly communicated. Chapter 2
contains more about XBRL, including the idea that the language also enables its users to verify
accounting relationships as assets = liabilities + stockholder equity.
1-5. The questions asked here about suspicious activity reporting (SAR) require opinions
from students. Regarding the first question, which asks if SAR activity should be a legal matter,
there is little room for disagreement because so much of SAR is mandated by federal legislation
such as the Annunzio-Wylie Anti-Money Laundering Act of 1992, the Bank Secrecy Act of
1996, and the Patriot Act of 2001. Although there are statistics on the number of SAR filings,
less is known about how much of what appears to be suspicious are in fact violations of federal
statutes.
1-6. The example given in the question demonstrates one way in which computerization
has refined cost estimation and thus has impacted managerial accounting. However, IT has
impacted almost every area of managerial accounting (and decision making). Consider, for
example, the emergence of such concepts as just-in-time systems, computer integrated
manufacturing systems, manufacturing resource planning systems, target costing, and activity
based costing – all of these require IT to support managerial decision making. Forecasting and
budgeting are other areas of managerial accounting impacted by advances in technology, as are
the many applications of spreadsheet software, decision support systems, and expert systems.
Universities are also impacted by the many advances in IT. You might have students type
“university use of scorecards” in their favorite browser to discover the many uses this tool offers
to administrators in an academic environment. The search results show a variety of uses at such
universities as The Ohio State University, CSU-Stanislaus, Clemson University, Colorado State
University, San Jose State University, and others. For example, the University of Denver
adapted a version of the Balanced Scorecard to evaluate their Student Life Assessment Plan
(SLAP), which focuses on Learning Outcomes. San Jose State University uses a Scorecard to
evaluate and continuously improve their online programs.
1-7. The AICPA website lists hundreds of potential assurance services for CPAs to offer.
These include Trust Services and Information Integrity, Guidance on Audit Data Analytics,
XBRL Assurance Services, and Systems and Organization Controls for Cybersecurity,
SM 1.2
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
Outsourced Services and Vendor Supply Chains. Several of the assurance services are in the
information technology management/security category. Classroom discussion might address the
particular skills that CPAs would need for each of the proposed assurance service areas.
Skepticism and integrity, for example, are two characteristics typically associated with public
accountants.
It is interesting to learn which of the existing or proposed assurance services recommended by
the AICPA will actually be offered by a given public accounting organization. Many of the
larger firms already offer at least some of these services, and the largest accounting firms today
derive a large portion of their revenues from professional services other than auditing and tax
consulting. But the industry shake-up in 2002 may also prompt some accounting firms to scale
back services and focus more on their auditing business.
1-8. This question asks students to interview auditors from professional service firms and
asks them whether or not the firms offer any assurance services. Hopefully, several firms do
offer such services and instructors can use this as point of departure for additional discussion
about such work.
1-9. Almost every traditional accounting job today requires at least some information
systems skills. In addition, there are many job opportunities that require combined skills in both
accounting and information systems. Consulting is one key area. Consultants with these skill
sets can work at helping companies choose and install accounting software. They can also help
companies with reviews of their business processes. Evaluating information systems security is
another area of consulting where accounting and information systems skills are valuable. Tax
planning, preparation, and consulting are yet other areas.
Prior research suggests that it is easier to train an accountant in information systems than vice
versa. Whether this is true or not, it is certainly clear that accounting students with information
systems skills are valuable employees. Individuals who are technically skilled at computers but
lack knowledge about accounting concepts are handicapped when trying to help a company to
develop and enhance its information systems. Their lack of accounting skills may lead their
employer to install information systems that fail to meet their needs.
1-10. Employers of both accounting and IS personnel often rank “analytical reasoning” and
“writing” skills on the same priority as technical skills, and some rank them even higher. Said
one recruiter at the school of one author: “I can train new employees to use our computer
systems and perform the majority of the technical tasks we will require of them. What I cannot
train them to do is to think analytically or logically. And what I refuse to do is to teach them to
speak and write clearly and effectively—skills they should have learned in high school.”
Another recruiter said it slightly differently: “Give me a technically-competent accounting or IS
student who can perform AIS tasks well, and I will pay them X dollars. Give me a student who
can explain to my clients how our services can solve their business problems and I will pay them
2X dollars.”
There are several other attributes beyond “analytical thinking” and “writing” skills that many
employers also value highly. One of them is “teamwork”—i.e., the ease and willingness of an
SM 1.3
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
employee to work with others instead of working alone. Another is “dedication”—i.e., the
willingness and desire to get a given job done even if this means working more than 40 hours a
week. A third is meticulousness—the attention to detail and the desire to get all the details
correct. Finally, there is “selflessness”—the willingness to sacrifice personal goals, ego, and
time in order to finish important organizational and professional projects.
1-11. This is a growing field of career opportunities for accounting majors that should not
be underestimated! An article in the Wall Street Journal (January 12, 2014; D4), "Skill Sets You
Might Want to Sharpen This Year", included the following: Computer, Communication, Foreign
Language, Data, and Networking. The data section suggests that understanding data has become
an increasingly important part of success, that everyone should understand how "big data" or
data analysis applies to your career field.
A July 2012 White Paper by IT@Intel (Mining Big Data in the Enterprise for Better Business
Intelligence, by Fania and Miller), notes that one of the biggest challenges in big data is
addressing the lack of skilled experts and that the US could face a shortage of 140K to 190K of
people with deep analytical skills, and perhaps 1.5 million managers and analysts who do not
have the knowledge to use big data to make effective decisions. Accounting majors who take IT,
statistics, and business analytics courses should be able to take advantage of these shortages by
applying their skills and abilities in this area.
Predictive Analytics jobs are available literally anywhere in the US from NYC to Columbus, OH
to Seattle, WA – and many international opportunities. The organizations include Walmart,
Bank of America, healthcare firms, universities, insurance companies and the Big-4 public
accounting firms. For more information: http://predictiveanalyticsjobs.org.
Another interesting web site https://www.icrunchdata.com/jobs/. This site identifies the many
different types of jobs that are available, such as client service and sales analyst, quantitative
analyst, risk analyst, etc.
Degrees/courses to prepare for these types of jobs are usually called an MS in Analytics or
Business Analytics. (http://analytics.ncsu.edu/?page_id=4184). At this site, you can click on any
university program to view the structure and content of the degree program. As you can see, this
is a lucrative new field for accounting majors to consider. The duration of the programs is as
few as 9 months, but most are 12 months or more. The curriculum is a careful mix of applied
mathematics, statistics, computer science, and business disciplines.
For salary information, this site is very helpful: http://analytics.ncsu.edu/?page_id=248
Depending on the decision to be made, the employee who can analyze and make business
decisions based on big data is in a position to help the firm realize a competitive advantage. This
is a skill that is a critical shortage and sure to impress even the most discriminating supervisor.
Problems
1-12.
SM 1.4
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
a. ABC activity based costing
c. AICPA American Institute of Certified Public Accountants
d. AIS accounting information systems
e. CFO chief financial officer
f. CISA certified information systems auditor
g. CPA certified public accountant
h. CPM corporate performance measurement
i. ERP enterprise resource planning
j. FASB Financial Accounting Standards Board
k. HIPAA Health Insurance Portability and Accountability Act
l. ISACA Information Systems Audit and Control Association
m. IT information technology
n. KPI key performance indicator
o. SAR suspicious activity reporting
p. SEC Securities and Exchange Commission
q. SOX Sarbanes-Oxley
r. VAR value-added reseller
s. XBRL extensible business reporting language
1-13. The number of articles in professional accounting journals that relate to information
technology has grown significantly during the past several years. Almost every issue of these
journals has a large number of articles on such topics as accounting software, electronic
commerce, information systems security, SOX software, and new computer tools for
accountants. Several now have separate “Technology” columns or sections devoted to IS topics
or developments. Students completing this exercise are likely to conclude that “information
technology” now influences almost every aspect of accounting.
1-14. This problem focuses on the human side of organizations—especially ways that
employees might devise to “beat the system.” This problem is therefore especially useful in
alerting students to the importance of designing and using systems that employees perceive as
“fair,” and classroom discussions should reveal that employees can sabotage even the most
cleverly-designed accounting systems.
a. Organizations often use accounting measures such as return on investment (ROA) for
performance evaluation. Unfortunately, managers can manipulate these measures, at
least in the short run, by either artificially increasing profits (the numerator) or decreasing
assets (the denominator). Some ways to accomplish this are to (1) defer expenses, (2)
maximize sales, (3) postpone maintenance on assets, (4) postpone investments in assets,
or (5) using historical cost-based assets, adjusted by depreciation instead of market costs
(which can result in an infinite return on investment once all the organization's assets
have been fully depreciated). Where net profit is used in the calculation, Shervonne's
comment about including allocated overhead in deriving profit is another argument
against using return on investment.
There are many different performance measures the company might use—some
quantitative and some qualitative. Other accounting measures include (1) segment
SM 1.5
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
margins, (2) units of sales, (3) increases in the number of customers, (4) increases in new
customers, (5) measures of customer satisfaction, (6) decreases in sales returns, (7)
employee complaints, or (8) employee turnover.
b. Accounting numbers can frequently lead to dysfunctional behavior if their limitations are
not understood. For example, if the incentives are large enough or the penalties for
underperformance are harsh enough, managers might be tempted to record “potential
sales” as “actual sales” in a given time period, accelerate the depreciation of assets using
alternate depreciation schedules, “forget” to subtract costs in computing returns, or
sabotage the “returns” of other managers in order to improve their own performance
values. Dysfunctional behavior may also surface if one number is used in isolation. For
instance, return on assets discriminates against entities with larger asset bases. It also has
the shortcomings mentioned above. However, ROA adjusted for overhead allocations
and current asset values might be a good measure when used in conjunction with other
measures.
c. This part of the problem requires Internet research. However, “residual income” might
be a better measure to use in this company -- a managerial accounting measurement used
to assess and compare the relative success of business units. The basic formula for
calculating residual income is to multiply operating assets by the cost of capital, and then
to subtract this value from operating income. This measure counteracts some of the
problems associated with return on investment, although it has shortcomings of its own.
Profitability, as mentioned, is problematic where allocations are used. Allocations are
really never quite "fair." For instance, rent in a department store might be allocated to
departments based on square footage. Certainly, this would lead to complaints by the
department located in back on the sixth floor if they pay more than the department just
inside the front door!
1-15. This problem requires students to find out “what’s new” in the field of AIS now, and
to write a report on their findings. A good starting point for this is to read the “Technology”
sections of popular accounting journals, or reference the websites of some of the professional
accounting associations such as the AICPA or ISACA.
1-16. Instructors might want to mention that this problem asks students to consider the
accounting information needs of a subset of not-for-profit organizations, and to note that the
accounting data required by them often does not differ much from for-profit organizations.
a. Examples of the financial information gathered and maintained by such groups include
data on dues payments, revenues from such club activities as bake sales, rummage sales
and car washes, newsletter expenses, advertising expenses, office equipment expenses,
professional service expenses, and disbursements for items like travel reimbursements.
b. Students may realize that these AISs may be manual accounting information systems.
The instructor may reiterate that a manual system gathers the same data that would be
gathered by a computerized system, stores it for future reference and further processing,
SM 1.6
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
and periodically outputs it in useful formats for club members and perhaps government
agencies.
c. Most recreational clubs have only a single “treasurer” to look after the financial matters
of the organization. This is a good idea to the extent that assigning only one person for
the task of treasurer limits the burden of the job to only one individual and ensures
accountability and responsibility to a single person for the “money portion” of club
activities. But it is also a recipe for fraud, inasmuch as there is no separation of duties.
For example, the same person who spends the money writes the checks for it, most club
members do not concern themselves with the financial details of the club, and deception
can be very simple. Although it is easy to dismiss the financial activities of most such
organizations as immaterial because the amounts of monies involved are small, this is
often not true for condo associations, for example.
d. Several advantages can accrue to computerizing club finances. Among them are (1)
greater accuracy in data recording and data processing, (2) the ability to output financial
information in a variety of legible and professional-looking formats, (3) added flexibility
in the ways the treasurer can process and output financial information, (4) greater ease in
accessing needed data or generating ad-hoc reports, and (5) the potential for more-timely
reports. Where club treasurers can use an existing personal computer for club tasks
and/or the services of the treasurer are free, such computerization can be cost effective.
If a club has to pay for either the computer or the services of a treasurer, the cost-
effectiveness of computerization becomes less clear.
1-17. In this case, students are asked to look at three different sources of information to
help them invest $10,000 in the common stock of a publicly-held company. In general, they will
find the following:
a. Financial Reports from the company’s own website: Most students will indicate that the
information contained in the reports on the website is “complete,” but that it is not
sufficient for making an informed investment decision. Three possible shortcomings are:
(1) the information may be self-promoting and therefore positive and upbeat, even if the
company has been losing money year after year; (2) the information may be mostly
limited to the company itself, and may not discuss the industry in which it competes or
possible negative factors that may affect it; (3) the information may not include
substantiated predictions about the value of the company’s stock in the future.
b. Information found at brokerage or investment firms: For investment purposes, the
information provided by firms such as e-trade tends to be more useful than a company’s
own financial statements. Among the reasons are: (1) the information tends to focus on
investment decisions rather than provide general information, (2) the user can access and
even customize historical charts that show stock prices, income, revenues and so forth,
and (3) these websites often include links to additional news stories and analytical reports
about the company, the industry in which it competes, and the firm’s future prospects, all
written by independent and presumably objective reviewers.
SM 1.7
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
c. Information from investment services: This information typically includes dispassionate
reviews of a company’s operations, its successes and failures, important management
changes, the industry in which it operates, and prospects for the future. This information
typically also includes an overall rating for a particular company such as “hold,”
“accumulate,” or “sell.” Whether or not such ratings are “sufficient” to convince a
student to buy stocks is a personal matter, but certainly the information might be
considered more useful than the simple facts or historical values provided in items a and
b above.
d. A large number of dry facts about a company are rarely as informative as an objective
analysis of it and a recommendation to “buy” or “sell” its stock. After performing this
exercise, students should have a much better feel for the difference between “data” and
“information.”
1-18. This problem requires students to do some research on the Internet about suspicious
activity reporting. Specifically, the question asks students to indicate what types of activities the
various banks, casinos, and so forth, should watch for. To illustrate, dealers in gemstones should
be sensitive to the possibility of money laundering—for example, when clients buy rare
gemstones with cash. There are usually dollar thresholds for such activities—e.g., $50,000 in
yearly transactions in the case of gemstones. Instructors might want to remind students that this
is an important function of AISs—providing financial information other than annual reports to
government agencies.
1-19. This story is a remarkable case of an individual trying to "whistleblow" on a fraud,
over the course of many years, and no one would listen! Mr. Markopolos notified the Boston
SEC in 2000 about his suspicions regarding Bernie Madoff. A full article may be accessed at
this web site: http://www.americanfreepress.net/html/man_who_exposed_madoff_190.html
a. What happened when Mr. Markopolos notified the SEC in 2000? In May of 2000, he
submitted an 8-page report to the Boston Regional Office of the SEC, listing red flags
and mathematical proof of a major fraud, but got no reply.
b. How many more times did Mr. Markopolos notify the SEC of his concerns? He re-
submitted his evidence to the Boston and other SEC offices in 2001, 2005, 2007 and
2008, to no avail. By this time, Markopolos suspected that Madoff had been operating
with protection from the inside.
c. What was the result of Mr. Markopolos' efforts to notify the authorities about his
suspicions regarding Madoff? Surprisingly, no one paid any attention to Markopolos. If
not for the 2008 stock market crash, the crime may still be in progress. The federal
authorities were alerted by Madoff's sons, and Madoff was arrested on December 11,
2008. On March 12, 2009, Madoff pled guilty to 11 federal crimes and admitted that he
had been operating a huge Ponzi scheme—as it turned out, the largest in history.
Case Analyses
SM 1.8
Accounting Information Systems, 14th Edition
by Mark G. Simkin
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
Chapter 1
ACCOUNTING INFORMATION SYSTEMS AND THE ACCOUNTANT
Discussion Questions
1-1. The answer to this question will vary with each university’s location. However, it is
likely most students will reveal that their parents are employed in non-manufacturing jobs.
Instructors may wish to emphasize that the large numbers of service sector employees and
knowledge workers reflect a trend.
1-2. This question encourages students to think about some of the information reporting
limitations imposed by the traditional accounting general ledger architecture. Other business
activities (or business events) that do not require journal entries include (1) obtaining a line of
credit, (2) issuing purchase requisitions or purchase orders, (3) signing contracts, (4) hiring a
new executive, and (5) sending financial information to investors or bank loan personnel.
Instructors may wish to point out that important information about a company’s business
activities may be included in an annual report outside the financial statements. The management
letters and footnotes in annual reports may reveal much about a company’s future prospects.
Managers have access to much more information than what is published in financial reports.
Whether or not they would like to have access to more non-financial information, or if they
would prefer that the accounting information system capture data about business events rather
than accounting transactions, is debatable. It may also be a function of the accounting system in
a particular company. Investors may wish to have more information available to them but the
downside is that too much information can be just as problematic as too little information.
1-3. The financial accounting systems we have known for more than 500 years are
changing dramatically as a result of advances in information technology and financial accounting
software. For example, databases allow accountants to collect and store all the data (accounting
transaction data and non-financial data) about a business activity or event in one system,
allowing those needing such information to retrieve it quickly, efficiently, and specifically in any
format they wish. Financial data can also be more easily linked to nonfinancial data because of
database technology. Thus, it is likely that financial reporting will undergo tremendous change
in the next few years as we learn to use technology, including artificial intelligence, more
effectively in the design of AISs.
ERP systems are another example of the information age's impact on financial accounting. Now,
organizations capture more financial and non-financial data and produce more information than
ever before. This allows companies to integrate their information systems, better forecast
everything from raw materials requirements to finished product production, and to perform more
sophisticated analyses of important business functions. For instance, sales can be examined at
many different levels and organized according to criteria such as geography, customer, product,
or salesperson.
SM 1.1
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
One of the most important changes in AISs is the way these systems will gather financial
information in the future. Although many of these systems will continue to capture data in
traditional batch mode or at POS sites, we expect newer systems to collect more of it on mobile
devices—for example, cell phones, PDAs, and digital cameras. Because more employees and
working at home these days, “digital commuting” may be another trend.
1-4. The objective of a company’s financial statements is to communicate relevant
financial information to such external parties as stockholders, investors, and government
agencies. Issuing financial statements in XBRL formats contributes to this objective by making
such financial data more searchable, comparable, informative, and therefore useful. Also,
because XBRL enables companies to use standard tags to identify specific accounting values, the
language itself imposes a greater degree of standardization in the informational content of the
reports. Finally, XBRL helps government agencies gather financial data that are more
consistent, easier to understand, self-checking, and more quickly communicated. Chapter 2
contains more about XBRL, including the idea that the language also enables its users to verify
accounting relationships as assets = liabilities + stockholder equity.
1-5. The questions asked here about suspicious activity reporting (SAR) require opinions
from students. Regarding the first question, which asks if SAR activity should be a legal matter,
there is little room for disagreement because so much of SAR is mandated by federal legislation
such as the Annunzio-Wylie Anti-Money Laundering Act of 1992, the Bank Secrecy Act of
1996, and the Patriot Act of 2001. Although there are statistics on the number of SAR filings,
less is known about how much of what appears to be suspicious are in fact violations of federal
statutes.
1-6. The example given in the question demonstrates one way in which computerization
has refined cost estimation and thus has impacted managerial accounting. However, IT has
impacted almost every area of managerial accounting (and decision making). Consider, for
example, the emergence of such concepts as just-in-time systems, computer integrated
manufacturing systems, manufacturing resource planning systems, target costing, and activity
based costing – all of these require IT to support managerial decision making. Forecasting and
budgeting are other areas of managerial accounting impacted by advances in technology, as are
the many applications of spreadsheet software, decision support systems, and expert systems.
Universities are also impacted by the many advances in IT. You might have students type
“university use of scorecards” in their favorite browser to discover the many uses this tool offers
to administrators in an academic environment. The search results show a variety of uses at such
universities as The Ohio State University, CSU-Stanislaus, Clemson University, Colorado State
University, San Jose State University, and others. For example, the University of Denver
adapted a version of the Balanced Scorecard to evaluate their Student Life Assessment Plan
(SLAP), which focuses on Learning Outcomes. San Jose State University uses a Scorecard to
evaluate and continuously improve their online programs.
1-7. The AICPA website lists hundreds of potential assurance services for CPAs to offer.
These include Trust Services and Information Integrity, Guidance on Audit Data Analytics,
XBRL Assurance Services, and Systems and Organization Controls for Cybersecurity,
SM 1.2
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
Outsourced Services and Vendor Supply Chains. Several of the assurance services are in the
information technology management/security category. Classroom discussion might address the
particular skills that CPAs would need for each of the proposed assurance service areas.
Skepticism and integrity, for example, are two characteristics typically associated with public
accountants.
It is interesting to learn which of the existing or proposed assurance services recommended by
the AICPA will actually be offered by a given public accounting organization. Many of the
larger firms already offer at least some of these services, and the largest accounting firms today
derive a large portion of their revenues from professional services other than auditing and tax
consulting. But the industry shake-up in 2002 may also prompt some accounting firms to scale
back services and focus more on their auditing business.
1-8. This question asks students to interview auditors from professional service firms and
asks them whether or not the firms offer any assurance services. Hopefully, several firms do
offer such services and instructors can use this as point of departure for additional discussion
about such work.
1-9. Almost every traditional accounting job today requires at least some information
systems skills. In addition, there are many job opportunities that require combined skills in both
accounting and information systems. Consulting is one key area. Consultants with these skill
sets can work at helping companies choose and install accounting software. They can also help
companies with reviews of their business processes. Evaluating information systems security is
another area of consulting where accounting and information systems skills are valuable. Tax
planning, preparation, and consulting are yet other areas.
Prior research suggests that it is easier to train an accountant in information systems than vice
versa. Whether this is true or not, it is certainly clear that accounting students with information
systems skills are valuable employees. Individuals who are technically skilled at computers but
lack knowledge about accounting concepts are handicapped when trying to help a company to
develop and enhance its information systems. Their lack of accounting skills may lead their
employer to install information systems that fail to meet their needs.
1-10. Employers of both accounting and IS personnel often rank “analytical reasoning” and
“writing” skills on the same priority as technical skills, and some rank them even higher. Said
one recruiter at the school of one author: “I can train new employees to use our computer
systems and perform the majority of the technical tasks we will require of them. What I cannot
train them to do is to think analytically or logically. And what I refuse to do is to teach them to
speak and write clearly and effectively—skills they should have learned in high school.”
Another recruiter said it slightly differently: “Give me a technically-competent accounting or IS
student who can perform AIS tasks well, and I will pay them X dollars. Give me a student who
can explain to my clients how our services can solve their business problems and I will pay them
2X dollars.”
There are several other attributes beyond “analytical thinking” and “writing” skills that many
employers also value highly. One of them is “teamwork”—i.e., the ease and willingness of an
SM 1.3
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
employee to work with others instead of working alone. Another is “dedication”—i.e., the
willingness and desire to get a given job done even if this means working more than 40 hours a
week. A third is meticulousness—the attention to detail and the desire to get all the details
correct. Finally, there is “selflessness”—the willingness to sacrifice personal goals, ego, and
time in order to finish important organizational and professional projects.
1-11. This is a growing field of career opportunities for accounting majors that should not
be underestimated! An article in the Wall Street Journal (January 12, 2014; D4), "Skill Sets You
Might Want to Sharpen This Year", included the following: Computer, Communication, Foreign
Language, Data, and Networking. The data section suggests that understanding data has become
an increasingly important part of success, that everyone should understand how "big data" or
data analysis applies to your career field.
A July 2012 White Paper by IT@Intel (Mining Big Data in the Enterprise for Better Business
Intelligence, by Fania and Miller), notes that one of the biggest challenges in big data is
addressing the lack of skilled experts and that the US could face a shortage of 140K to 190K of
people with deep analytical skills, and perhaps 1.5 million managers and analysts who do not
have the knowledge to use big data to make effective decisions. Accounting majors who take IT,
statistics, and business analytics courses should be able to take advantage of these shortages by
applying their skills and abilities in this area.
Predictive Analytics jobs are available literally anywhere in the US from NYC to Columbus, OH
to Seattle, WA – and many international opportunities. The organizations include Walmart,
Bank of America, healthcare firms, universities, insurance companies and the Big-4 public
accounting firms. For more information: http://predictiveanalyticsjobs.org.
Another interesting web site https://www.icrunchdata.com/jobs/. This site identifies the many
different types of jobs that are available, such as client service and sales analyst, quantitative
analyst, risk analyst, etc.
Degrees/courses to prepare for these types of jobs are usually called an MS in Analytics or
Business Analytics. (http://analytics.ncsu.edu/?page_id=4184). At this site, you can click on any
university program to view the structure and content of the degree program. As you can see, this
is a lucrative new field for accounting majors to consider. The duration of the programs is as
few as 9 months, but most are 12 months or more. The curriculum is a careful mix of applied
mathematics, statistics, computer science, and business disciplines.
For salary information, this site is very helpful: http://analytics.ncsu.edu/?page_id=248
Depending on the decision to be made, the employee who can analyze and make business
decisions based on big data is in a position to help the firm realize a competitive advantage. This
is a skill that is a critical shortage and sure to impress even the most discriminating supervisor.
Problems
1-12.
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, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
a. ABC activity based costing
c. AICPA American Institute of Certified Public Accountants
d. AIS accounting information systems
e. CFO chief financial officer
f. CISA certified information systems auditor
g. CPA certified public accountant
h. CPM corporate performance measurement
i. ERP enterprise resource planning
j. FASB Financial Accounting Standards Board
k. HIPAA Health Insurance Portability and Accountability Act
l. ISACA Information Systems Audit and Control Association
m. IT information technology
n. KPI key performance indicator
o. SAR suspicious activity reporting
p. SEC Securities and Exchange Commission
q. SOX Sarbanes-Oxley
r. VAR value-added reseller
s. XBRL extensible business reporting language
1-13. The number of articles in professional accounting journals that relate to information
technology has grown significantly during the past several years. Almost every issue of these
journals has a large number of articles on such topics as accounting software, electronic
commerce, information systems security, SOX software, and new computer tools for
accountants. Several now have separate “Technology” columns or sections devoted to IS topics
or developments. Students completing this exercise are likely to conclude that “information
technology” now influences almost every aspect of accounting.
1-14. This problem focuses on the human side of organizations—especially ways that
employees might devise to “beat the system.” This problem is therefore especially useful in
alerting students to the importance of designing and using systems that employees perceive as
“fair,” and classroom discussions should reveal that employees can sabotage even the most
cleverly-designed accounting systems.
a. Organizations often use accounting measures such as return on investment (ROA) for
performance evaluation. Unfortunately, managers can manipulate these measures, at
least in the short run, by either artificially increasing profits (the numerator) or decreasing
assets (the denominator). Some ways to accomplish this are to (1) defer expenses, (2)
maximize sales, (3) postpone maintenance on assets, (4) postpone investments in assets,
or (5) using historical cost-based assets, adjusted by depreciation instead of market costs
(which can result in an infinite return on investment once all the organization's assets
have been fully depreciated). Where net profit is used in the calculation, Shervonne's
comment about including allocated overhead in deriving profit is another argument
against using return on investment.
There are many different performance measures the company might use—some
quantitative and some qualitative. Other accounting measures include (1) segment
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, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
margins, (2) units of sales, (3) increases in the number of customers, (4) increases in new
customers, (5) measures of customer satisfaction, (6) decreases in sales returns, (7)
employee complaints, or (8) employee turnover.
b. Accounting numbers can frequently lead to dysfunctional behavior if their limitations are
not understood. For example, if the incentives are large enough or the penalties for
underperformance are harsh enough, managers might be tempted to record “potential
sales” as “actual sales” in a given time period, accelerate the depreciation of assets using
alternate depreciation schedules, “forget” to subtract costs in computing returns, or
sabotage the “returns” of other managers in order to improve their own performance
values. Dysfunctional behavior may also surface if one number is used in isolation. For
instance, return on assets discriminates against entities with larger asset bases. It also has
the shortcomings mentioned above. However, ROA adjusted for overhead allocations
and current asset values might be a good measure when used in conjunction with other
measures.
c. This part of the problem requires Internet research. However, “residual income” might
be a better measure to use in this company -- a managerial accounting measurement used
to assess and compare the relative success of business units. The basic formula for
calculating residual income is to multiply operating assets by the cost of capital, and then
to subtract this value from operating income. This measure counteracts some of the
problems associated with return on investment, although it has shortcomings of its own.
Profitability, as mentioned, is problematic where allocations are used. Allocations are
really never quite "fair." For instance, rent in a department store might be allocated to
departments based on square footage. Certainly, this would lead to complaints by the
department located in back on the sixth floor if they pay more than the department just
inside the front door!
1-15. This problem requires students to find out “what’s new” in the field of AIS now, and
to write a report on their findings. A good starting point for this is to read the “Technology”
sections of popular accounting journals, or reference the websites of some of the professional
accounting associations such as the AICPA or ISACA.
1-16. Instructors might want to mention that this problem asks students to consider the
accounting information needs of a subset of not-for-profit organizations, and to note that the
accounting data required by them often does not differ much from for-profit organizations.
a. Examples of the financial information gathered and maintained by such groups include
data on dues payments, revenues from such club activities as bake sales, rummage sales
and car washes, newsletter expenses, advertising expenses, office equipment expenses,
professional service expenses, and disbursements for items like travel reimbursements.
b. Students may realize that these AISs may be manual accounting information systems.
The instructor may reiterate that a manual system gathers the same data that would be
gathered by a computerized system, stores it for future reference and further processing,
SM 1.6
, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
and periodically outputs it in useful formats for club members and perhaps government
agencies.
c. Most recreational clubs have only a single “treasurer” to look after the financial matters
of the organization. This is a good idea to the extent that assigning only one person for
the task of treasurer limits the burden of the job to only one individual and ensures
accountability and responsibility to a single person for the “money portion” of club
activities. But it is also a recipe for fraud, inasmuch as there is no separation of duties.
For example, the same person who spends the money writes the checks for it, most club
members do not concern themselves with the financial details of the club, and deception
can be very simple. Although it is easy to dismiss the financial activities of most such
organizations as immaterial because the amounts of monies involved are small, this is
often not true for condo associations, for example.
d. Several advantages can accrue to computerizing club finances. Among them are (1)
greater accuracy in data recording and data processing, (2) the ability to output financial
information in a variety of legible and professional-looking formats, (3) added flexibility
in the ways the treasurer can process and output financial information, (4) greater ease in
accessing needed data or generating ad-hoc reports, and (5) the potential for more-timely
reports. Where club treasurers can use an existing personal computer for club tasks
and/or the services of the treasurer are free, such computerization can be cost effective.
If a club has to pay for either the computer or the services of a treasurer, the cost-
effectiveness of computerization becomes less clear.
1-17. In this case, students are asked to look at three different sources of information to
help them invest $10,000 in the common stock of a publicly-held company. In general, they will
find the following:
a. Financial Reports from the company’s own website: Most students will indicate that the
information contained in the reports on the website is “complete,” but that it is not
sufficient for making an informed investment decision. Three possible shortcomings are:
(1) the information may be self-promoting and therefore positive and upbeat, even if the
company has been losing money year after year; (2) the information may be mostly
limited to the company itself, and may not discuss the industry in which it competes or
possible negative factors that may affect it; (3) the information may not include
substantiated predictions about the value of the company’s stock in the future.
b. Information found at brokerage or investment firms: For investment purposes, the
information provided by firms such as e-trade tends to be more useful than a company’s
own financial statements. Among the reasons are: (1) the information tends to focus on
investment decisions rather than provide general information, (2) the user can access and
even customize historical charts that show stock prices, income, revenues and so forth,
and (3) these websites often include links to additional news stories and analytical reports
about the company, the industry in which it competes, and the firm’s future prospects, all
written by independent and presumably objective reviewers.
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, Core Concepts of Accounting Information Systems, 14th Edition, by Simkin, Worrell and Savage
c. Information from investment services: This information typically includes dispassionate
reviews of a company’s operations, its successes and failures, important management
changes, the industry in which it operates, and prospects for the future. This information
typically also includes an overall rating for a particular company such as “hold,”
“accumulate,” or “sell.” Whether or not such ratings are “sufficient” to convince a
student to buy stocks is a personal matter, but certainly the information might be
considered more useful than the simple facts or historical values provided in items a and
b above.
d. A large number of dry facts about a company are rarely as informative as an objective
analysis of it and a recommendation to “buy” or “sell” its stock. After performing this
exercise, students should have a much better feel for the difference between “data” and
“information.”
1-18. This problem requires students to do some research on the Internet about suspicious
activity reporting. Specifically, the question asks students to indicate what types of activities the
various banks, casinos, and so forth, should watch for. To illustrate, dealers in gemstones should
be sensitive to the possibility of money laundering—for example, when clients buy rare
gemstones with cash. There are usually dollar thresholds for such activities—e.g., $50,000 in
yearly transactions in the case of gemstones. Instructors might want to remind students that this
is an important function of AISs—providing financial information other than annual reports to
government agencies.
1-19. This story is a remarkable case of an individual trying to "whistleblow" on a fraud,
over the course of many years, and no one would listen! Mr. Markopolos notified the Boston
SEC in 2000 about his suspicions regarding Bernie Madoff. A full article may be accessed at
this web site: http://www.americanfreepress.net/html/man_who_exposed_madoff_190.html
a. What happened when Mr. Markopolos notified the SEC in 2000? In May of 2000, he
submitted an 8-page report to the Boston Regional Office of the SEC, listing red flags
and mathematical proof of a major fraud, but got no reply.
b. How many more times did Mr. Markopolos notify the SEC of his concerns? He re-
submitted his evidence to the Boston and other SEC offices in 2001, 2005, 2007 and
2008, to no avail. By this time, Markopolos suspected that Madoff had been operating
with protection from the inside.
c. What was the result of Mr. Markopolos' efforts to notify the authorities about his
suspicions regarding Madoff? Surprisingly, no one paid any attention to Markopolos. If
not for the 2008 stock market crash, the crime may still be in progress. The federal
authorities were alerted by Madoff's sons, and Madoff was arrested on December 11,
2008. On March 12, 2009, Madoff pled guilty to 11 federal crimes and admitted that he
had been operating a huge Ponzi scheme—as it turned out, the largest in history.
Case Analyses
SM 1.8
