Solutions Manual For Accounting Information Systems A Practitioner
Emphasis, 7e CynthiaHeagy Constance Lehmann
Chapter 1
Significance of Accounting Information Systems and the
Accountant’s Role
INTRODUCTORY SCENARIO: SUGGESTED SOLUTIONS TO QUESTIONS
1. Employee overtime hours, customer information (e.g., age groups), inventory levels, reorder poin
ts, EOQ calculation, volume/quantity discount analysis, square footage in use v. storage, custo
mer flow data, spoilage
2. How much is client willing to pay? System that is easy for servers to use with proper controls.
Bob’s hourly rate would be a concern for client. Will Bob be around “after the sale” (i.e., tec
h support)? What types of pre-packaged systems are available?
3. Information to help with software division (e.g., total sales dollars, complexity of accounting syst
em). How many computers needed? Any expansion planned? What types of employees do they
have (e.g., waiters would want quick touch screens)?
4 The owner of the restaurant wants a new accounting system because he needs up-to-
date information on how the business is doing. Waiting until the end of the year, or even the ww
quarter, does not give Marshall the information he needs to make those day-to-
day decisions that will ensure the success of his restaurant.
CHAPTER VIGNETTES: SUGGESTED RESPONSES TO QUESTIONS
Vignette 1.1
1. Closer relationships with remaining suppliers, the ability to carry less inventory (reducing carry
ing costs and risks of theft or loss of inventory), sharing of planning information with suppli
ers, easier to monitor vendor performance. Might lose volume discounts if trying to minimiz
e inventory on hand by having smaller shipments from vendors shipped more often.
2. Reduction in paperwork, reduction in input errors, ordering and cash receipt processes more w
efficient, increases in efficiency in meeting changes in demand. One disadvantage would rela
te to problems with settling disputed orders or payments with loss of “paper trail” that incl
udes authorized signatures.
Vignette 1.2
1. Managers would probably find information in units to be most useful for planning decisions be
cause this information would represent things over which he/she has control. While the manage
r might not have control over salaries, he/she does have control over the amount of overtime a
nd the approval of vacation of the employees.
2. Managers would probably want information related to production numbers (to determine seasona
lity; during slow times, more employees could be on vacation), the number of vacation hours p
er employee, the number of overtime hours per employee, backorder information, and informati
on to help the manager match staffing levels with production.
Vignette 1.3
1. The privacy of information is a major consideration, as the customer might not want their spen
ding pattern information shared with other parties. Loss of confidential information can be disa
strous to a company’s reputation and lead to significant financial losses (lost sales, fines, etc.)
Information about customers must be protected from information leakage to other third parties
who gain authorized (or unauthorized) access
, to information. At the very least, confidential information about the customers should be encrypte
d and have limited access.
2. Inventory management (e.g., turnover, obsolescence, supply/demand, reorder levels), potential mar
kets or product lines for expansion, frequent buyer programs.
Vignette 1.4
1. The situation could have been avoided if employees had been part of the decision-
making and testing early in the project. Employee buy-
in is essential to the success of any new system implementation. It is key that the system prov
ide managers with information that they need for decision-
making. It is also important to have a maintenance contract in place, with better reporting to
management and regular follow-
up. It appears that this decision was not made by executive management, so its success was q
uestionable since the “tone at the top” with regard to the project was “ignorance”. Since exec
utive management did not monitor the project, they could not respond to Kluger’s complaints,
nor could they provide “strong encouragement” for continuation of the project originally started
by Lehmann. In fact, it appears that executive management was not involved in the decision t
o take on the new system. Kluger was not given the opportunity to learn the new system, nor
was there motivation to learn the new system. The company also had inadequate backup so t
hat the project could continue in the absence of a key employee.
2. .Here are some suggested “next steps”
Improve the governance process and the “tone at the top” to get executive management invol
vement and oversight of system projects—
this includes aligning any system projects with the strategy of the company
Determine that any system chosen by management will provide quality information useful for
decision- making at all levels
Reinstate the maintenance contract and set up a training contract if it is determined more cost-
effective and in line with the company business plan to use the new system
Provide training and employee involvement in developing the system
Provide better oversight of the controller function
Vignette 1.5
1. The redesign process can be improved using the following suggestions:
Set up end-user groups to get input regarding output needs, data collection needs, screen, and form layouts
Develop a schedule of tests to be conducted with representative end users for pilot testing
Allow end user input for changes and improvements to system
Set up training for all affected employees
Get management and programmer buy-
in for essential controls and audit trails at the front end of development
Emphasize the importance of controls, protection of information assets, and prote
ction of confidential/private information
SOLUTIONS TO DISCUSSION QUESTIONS AND PROBLEMS
1. The project that Finkelstein and Associates is considering is a capital investment that requires i
nformation on the estimated initial investment and the estimated future return. The future return
would be measured by net incremental cash flows to the mall (incremental cash inflows less in
cremental cash outflows).
Estimated initial investment would include:
• Architects fees
• Renovation of existing facilities
• Construction of new facilities and food court
• Cost of disruption of trade during project
, Estimated net incremental cash flows would include:
Cash0 0 inflows:
• Increased0 0 store0 rents0 from0 existing0 facilities
• Rents0 from0 0 new0 facilities0 and0 0 food0 0 court
Less0 cash0 outflows:
• Increased0 0 janitorial0 costs
• Increased0 security0 costs
Estimates0 of0 the0 future0 cash0 inflows0 and0 outflows0 could0 be0 based0 on0 the0 mall's0 historical0 a
ccou0nting0 data. 0 Estimates0 of0 the0 renovation0 and0 construction0 costs0 would0 be0 based0 primarily
0 on0 the0architect's0 judgment0 and0 experience.0 It0 would0 be0 difficult0 to0 make0 precise0 estimat
es0 of0 the0 cost0of0 trade0 disruption,0 although0 some0 data0 may0 be0 available0 from0 industry0 so
urces.0 Additional0 us0eful0 information0 0 would0 include0 demographic0 data0 for0 the0 local0 communit
y0 and0 estimates0 of0 loca0l w
economic0 0 activity0 0 and0 0 consumer0 0 buying0 power.
2. a.0 and0 b.
Purchasing0 data0 might0 reveal0 the0 degree0 of0 competition0 among0 vendors0 and0 vendors'0 pricing0 p
olic0ies.0 0 An0 organization0 might0 decide0 to0 integrate0 vertically0 by0 buying0 an0 equity0 position0 in
0 key0 v0endors0 or0 by0 producing0 some0 of0 the0 needed0 goods0 and0 services0 itself.
Perpetual0 inventory0 records0 indicate0 inventory0 carrying0 costs0 and0 might0 reveal0 buying pa0tterns0 for0
ww
different0 classes0 of0 goods.0 An0 organization0 might0 decide0 to0 drop0 some0 product0 lines0 that0 are
0 e0xpensive0 to0 carry0 in0 inventory0 and0 for0 which0 demand0 is0 decreasing,0 erratic,0 or0 highly
0 seasonal.
Manufacturing0 cost0 data0 might0 shed0 light0 on0 an0 organization's0 ability0 to0 compete0 in0 its0
market.0An0 organization0 with0 unusually0 low0 manufacturing0 costs,0 because0 of0 a0 high0 degree0
of0 automation 0 or0 for0 other0 reasons,0 would0 enjoy0 a0 0 distinct0 competitive0 advantage.
w
Customer0 credit0 and0 accounts0 receivable0 data0 contain0 0 valuable0 0 information0 0 on0 customers'0 fi
nanci0al0 condition.0 An0 organization0 would0 wish0 to0 target0 high-
income0 customers0 or0 customers0 with0 good0 credit0 histories0 in0 its0 promotional0 campaigns.0 So
me0organizations0 might0 also0 be0 tempted0 to0 sell0 credit0 data0 to0 other0 firms0 to0 aid0 their0 prom
otional0 e0fforts.
However,0 except0 for0 credit0 companies0 themselves,0 such0 sale0 of0 credit0 data0 is0 restrict
ed0 b0y0 law0 and0 may 0 also0 raise0 serious0 ethical0 concerns.
Personnel0 and0 payroll0 records0 contain0 0 valuable0 information0 about0 employees'0 financial0 condit
ion0and0 possibly0 about0 their0 tastes0 and0 habits.0 Such0 information0 might0 be0 used0 to0 target0
an0 organiz
ation's0 own0 employees0 in0 promotional0 campaigns.
The0 release0 of0 personnel0 and0 payroll0 data0 to0
o0ther0 organizations,0 except0 to0 credit0 companies,0 is0 prohibited0 by0 privacy0 laws.
3. External0 auditors0 and0 accountants0 need0 a0 basic0 understanding0 of0 0 accounting0 information0 0 systems
,0 their0 components,0 their0 modes0 of0 operation,0 and0 their0 supporting0 technologies.0 Auditors0 are
0 li0kely0 to0 be0 involved0 primarily0 because0 of0 their0 expertise0 in0 internal0 controls0 and0 their
0 knowledg0e0 of0 what0 enhances0 or0 detracts0 from0 a0 system's0 auditability.0 Accountants0 are0 likel
y0 to0 be0 invol0ved0 primarily0 because0 of0 their0 expertise0 in0 evaluating0 and0 designing0 a0 syste
m's0 outputs0 in0 relati0on0 to0 the0 needs0 of0 the0 organization0 and0 its0 users.
4. Under0 Section0 0 201of0 0 the0 Sarbanes-
Oxley0 Act0 of0 0 2002,0 auditors0 are0 prohibited0 0 from0 0 providing0 any0 non-
, audit0 service,0 including0 information0 systems0 design0 and0 implementation,0 to0 its0 audit0 clients.
(Thi
0s0 Act0 does0 not
Emphasis, 7e CynthiaHeagy Constance Lehmann
Chapter 1
Significance of Accounting Information Systems and the
Accountant’s Role
INTRODUCTORY SCENARIO: SUGGESTED SOLUTIONS TO QUESTIONS
1. Employee overtime hours, customer information (e.g., age groups), inventory levels, reorder poin
ts, EOQ calculation, volume/quantity discount analysis, square footage in use v. storage, custo
mer flow data, spoilage
2. How much is client willing to pay? System that is easy for servers to use with proper controls.
Bob’s hourly rate would be a concern for client. Will Bob be around “after the sale” (i.e., tec
h support)? What types of pre-packaged systems are available?
3. Information to help with software division (e.g., total sales dollars, complexity of accounting syst
em). How many computers needed? Any expansion planned? What types of employees do they
have (e.g., waiters would want quick touch screens)?
4 The owner of the restaurant wants a new accounting system because he needs up-to-
date information on how the business is doing. Waiting until the end of the year, or even the ww
quarter, does not give Marshall the information he needs to make those day-to-
day decisions that will ensure the success of his restaurant.
CHAPTER VIGNETTES: SUGGESTED RESPONSES TO QUESTIONS
Vignette 1.1
1. Closer relationships with remaining suppliers, the ability to carry less inventory (reducing carry
ing costs and risks of theft or loss of inventory), sharing of planning information with suppli
ers, easier to monitor vendor performance. Might lose volume discounts if trying to minimiz
e inventory on hand by having smaller shipments from vendors shipped more often.
2. Reduction in paperwork, reduction in input errors, ordering and cash receipt processes more w
efficient, increases in efficiency in meeting changes in demand. One disadvantage would rela
te to problems with settling disputed orders or payments with loss of “paper trail” that incl
udes authorized signatures.
Vignette 1.2
1. Managers would probably find information in units to be most useful for planning decisions be
cause this information would represent things over which he/she has control. While the manage
r might not have control over salaries, he/she does have control over the amount of overtime a
nd the approval of vacation of the employees.
2. Managers would probably want information related to production numbers (to determine seasona
lity; during slow times, more employees could be on vacation), the number of vacation hours p
er employee, the number of overtime hours per employee, backorder information, and informati
on to help the manager match staffing levels with production.
Vignette 1.3
1. The privacy of information is a major consideration, as the customer might not want their spen
ding pattern information shared with other parties. Loss of confidential information can be disa
strous to a company’s reputation and lead to significant financial losses (lost sales, fines, etc.)
Information about customers must be protected from information leakage to other third parties
who gain authorized (or unauthorized) access
, to information. At the very least, confidential information about the customers should be encrypte
d and have limited access.
2. Inventory management (e.g., turnover, obsolescence, supply/demand, reorder levels), potential mar
kets or product lines for expansion, frequent buyer programs.
Vignette 1.4
1. The situation could have been avoided if employees had been part of the decision-
making and testing early in the project. Employee buy-
in is essential to the success of any new system implementation. It is key that the system prov
ide managers with information that they need for decision-
making. It is also important to have a maintenance contract in place, with better reporting to
management and regular follow-
up. It appears that this decision was not made by executive management, so its success was q
uestionable since the “tone at the top” with regard to the project was “ignorance”. Since exec
utive management did not monitor the project, they could not respond to Kluger’s complaints,
nor could they provide “strong encouragement” for continuation of the project originally started
by Lehmann. In fact, it appears that executive management was not involved in the decision t
o take on the new system. Kluger was not given the opportunity to learn the new system, nor
was there motivation to learn the new system. The company also had inadequate backup so t
hat the project could continue in the absence of a key employee.
2. .Here are some suggested “next steps”
Improve the governance process and the “tone at the top” to get executive management invol
vement and oversight of system projects—
this includes aligning any system projects with the strategy of the company
Determine that any system chosen by management will provide quality information useful for
decision- making at all levels
Reinstate the maintenance contract and set up a training contract if it is determined more cost-
effective and in line with the company business plan to use the new system
Provide training and employee involvement in developing the system
Provide better oversight of the controller function
Vignette 1.5
1. The redesign process can be improved using the following suggestions:
Set up end-user groups to get input regarding output needs, data collection needs, screen, and form layouts
Develop a schedule of tests to be conducted with representative end users for pilot testing
Allow end user input for changes and improvements to system
Set up training for all affected employees
Get management and programmer buy-
in for essential controls and audit trails at the front end of development
Emphasize the importance of controls, protection of information assets, and prote
ction of confidential/private information
SOLUTIONS TO DISCUSSION QUESTIONS AND PROBLEMS
1. The project that Finkelstein and Associates is considering is a capital investment that requires i
nformation on the estimated initial investment and the estimated future return. The future return
would be measured by net incremental cash flows to the mall (incremental cash inflows less in
cremental cash outflows).
Estimated initial investment would include:
• Architects fees
• Renovation of existing facilities
• Construction of new facilities and food court
• Cost of disruption of trade during project
, Estimated net incremental cash flows would include:
Cash0 0 inflows:
• Increased0 0 store0 rents0 from0 existing0 facilities
• Rents0 from0 0 new0 facilities0 and0 0 food0 0 court
Less0 cash0 outflows:
• Increased0 0 janitorial0 costs
• Increased0 security0 costs
Estimates0 of0 the0 future0 cash0 inflows0 and0 outflows0 could0 be0 based0 on0 the0 mall's0 historical0 a
ccou0nting0 data. 0 Estimates0 of0 the0 renovation0 and0 construction0 costs0 would0 be0 based0 primarily
0 on0 the0architect's0 judgment0 and0 experience.0 It0 would0 be0 difficult0 to0 make0 precise0 estimat
es0 of0 the0 cost0of0 trade0 disruption,0 although0 some0 data0 may0 be0 available0 from0 industry0 so
urces.0 Additional0 us0eful0 information0 0 would0 include0 demographic0 data0 for0 the0 local0 communit
y0 and0 estimates0 of0 loca0l w
economic0 0 activity0 0 and0 0 consumer0 0 buying0 power.
2. a.0 and0 b.
Purchasing0 data0 might0 reveal0 the0 degree0 of0 competition0 among0 vendors0 and0 vendors'0 pricing0 p
olic0ies.0 0 An0 organization0 might0 decide0 to0 integrate0 vertically0 by0 buying0 an0 equity0 position0 in
0 key0 v0endors0 or0 by0 producing0 some0 of0 the0 needed0 goods0 and0 services0 itself.
Perpetual0 inventory0 records0 indicate0 inventory0 carrying0 costs0 and0 might0 reveal0 buying pa0tterns0 for0
ww
different0 classes0 of0 goods.0 An0 organization0 might0 decide0 to0 drop0 some0 product0 lines0 that0 are
0 e0xpensive0 to0 carry0 in0 inventory0 and0 for0 which0 demand0 is0 decreasing,0 erratic,0 or0 highly
0 seasonal.
Manufacturing0 cost0 data0 might0 shed0 light0 on0 an0 organization's0 ability0 to0 compete0 in0 its0
market.0An0 organization0 with0 unusually0 low0 manufacturing0 costs,0 because0 of0 a0 high0 degree0
of0 automation 0 or0 for0 other0 reasons,0 would0 enjoy0 a0 0 distinct0 competitive0 advantage.
w
Customer0 credit0 and0 accounts0 receivable0 data0 contain0 0 valuable0 0 information0 0 on0 customers'0 fi
nanci0al0 condition.0 An0 organization0 would0 wish0 to0 target0 high-
income0 customers0 or0 customers0 with0 good0 credit0 histories0 in0 its0 promotional0 campaigns.0 So
me0organizations0 might0 also0 be0 tempted0 to0 sell0 credit0 data0 to0 other0 firms0 to0 aid0 their0 prom
otional0 e0fforts.
However,0 except0 for0 credit0 companies0 themselves,0 such0 sale0 of0 credit0 data0 is0 restrict
ed0 b0y0 law0 and0 may 0 also0 raise0 serious0 ethical0 concerns.
Personnel0 and0 payroll0 records0 contain0 0 valuable0 information0 about0 employees'0 financial0 condit
ion0and0 possibly0 about0 their0 tastes0 and0 habits.0 Such0 information0 might0 be0 used0 to0 target0
an0 organiz
ation's0 own0 employees0 in0 promotional0 campaigns.
The0 release0 of0 personnel0 and0 payroll0 data0 to0
o0ther0 organizations,0 except0 to0 credit0 companies,0 is0 prohibited0 by0 privacy0 laws.
3. External0 auditors0 and0 accountants0 need0 a0 basic0 understanding0 of0 0 accounting0 information0 0 systems
,0 their0 components,0 their0 modes0 of0 operation,0 and0 their0 supporting0 technologies.0 Auditors0 are
0 li0kely0 to0 be0 involved0 primarily0 because0 of0 their0 expertise0 in0 internal0 controls0 and0 their
0 knowledg0e0 of0 what0 enhances0 or0 detracts0 from0 a0 system's0 auditability.0 Accountants0 are0 likel
y0 to0 be0 invol0ved0 primarily0 because0 of0 their0 expertise0 in0 evaluating0 and0 designing0 a0 syste
m's0 outputs0 in0 relati0on0 to0 the0 needs0 of0 the0 organization0 and0 its0 users.
4. Under0 Section0 0 201of0 0 the0 Sarbanes-
Oxley0 Act0 of0 0 2002,0 auditors0 are0 prohibited0 0 from0 0 providing0 any0 non-
, audit0 service,0 including0 information0 systems0 design0 and0 implementation,0 to0 its0 audit0 clients.
(Thi
0s0 Act0 does0 not
