CHAPTER 1

THE INFORMATION SYSTEM: AN ACCOUNTANT’S PERSPECTIVE

REVIEW QUESTIONS

1. Operational, operations management, middle management, and top management. Horizontal flows
support operation-level tasks. The information is highly detailed about the day-to-day operations.
Vertical flows distribute summarized information to managers at all levels, and this information flows
upward. Instructions, quotas, and budgets also flow downward.

2. Data are facts that are collected in a “raw” form and made meaningful through processes such as
sorting, aggregating, classifying, mathematically manipulating, and summarizing. The meaningful data is
considered to be information.

3. AISs process financial transactions and certain nonfinancial transactions that directly affect the
processing financial transactions. The external financial reporting documents of AIS are subject to legal
and professional standards. Consequently, management and accountants have greater legal
responsibility for AIS applications than for MIS applications. The MIS processes nonfinancial transactions
that are outside the scope of the AIS. MIS applications expand the information set provided to such
areas as production, sales, marketing, and inventory management. MIS often draws from and builds on
data from the AIS.

4. Revenue cycle, expenditure cycle, and conversion cycle.

6. Relevance, accuracy, completeness, summarization, and timeliness.

7. Relevance and efficiency.

8. Data attribute (field), record, file, and database.

9. Storage, retrieval, and deletion.

10. Feedback is output that is sent back to the system as a source of data. Feedback is useful because it
can be used to initiate or adjust the system processes.

11. a. to support the stewardship function of management,

b. to support the decision-making processes of managers, and

c. to support the day-to-day operations of the firm.

12. Stewardship is the responsibility of management to properly utilize the resources of the firm
entrusted to them. Information systems provide management with reports to better manage the
resources and also provide responsibility reports by which management may be evaluated.

13. a. Materials Management

1. purchasing

2. receiving

3. stores

b. Production

1. production planning

2. quality control

3. maintenance

c. Marketing

1. advertising

2. market research

3. sales order processing

d. Distribution
 1. warehousing

2. shipping

e. Personnel

1. recruiting

2. training

3. benefits

4. counseling

f. Finance

1. portfolio management

2. treasury

3. credit

4. cash disbursement

5. cash receipt

g. Accounting

1. inventory control

2. cost accounting

3. payroll

4. accounts payable

5. accounts receivable

6. billing

7. fixed-asset accounting

8. general ledger

h. Computer Service

1. data processing

2. systems development and maintenance

14. Internal auditors are responsible for in-house appraisal of the financial reporting system. Internal
auditors are concerned with deterring and detecting fraud and for conducting EDP audits. External
auditors are independent CPAs engaged by the firm to attest to the completeness and accuracy of the
financial statements. External auditors work together with the internal auditors.

15. The database administrator is responsible for the security and integrity of data stored in a central
database.

16. The role of the accounting function is to manage the financial information resources of the firm.
First, the accountants must capture and record business events of a firm and their financial impact.
Secondly, the accounting function distributes transaction information to decision makers and operations
personnel to help them coordinate their many tasks. The accountants must also assign accountability for
each of these tasks.

17. In a centralized data processing approach, the computer services function is centrally located. The
databases are housed in one place where all of the data processing occurs by one or more main
computers. All systems development and maintenance work for the entire organization is performed by
systems professionals. End users wishing to have new systems or features must submit a formal request
to this group and are usually prioritized and placed in a queue.

In a distributed data-processing approach, the CPUs are spread out and control over data and processing
is at the information processing unit (IPU) level. Thus, end users have more influence over the systems
development projects, which are typically handled by systems professionals at the IPU level.
Chapter 1—The Information System: An Accountant’s Perspective

TRUE/FALSE

1. Information is a business resource.

ANS: T PTS: 1

2. IT outsourcing is location-independent computing.

ANS: F PTS: 1

3. Transaction processing systems convert non-financial transactions into financial transactions.

ANS: F PTS: 1
 4. Information lacking reliability may still have value.

ANS: F PTS: 1

5. A balance sheet prepared in conformity with GAAP is an example of discretionary reporting.

ANS: F PTS: 1

6. The Management Reporting System provides the internal financial information needed to manage
a business.

ANS: T PTS: 1

7. Most of the inputs to the General Ledger System come from the Financial Reporting System.

ANS: F PTS: 1
 8. When preparing discretionary reports, organizations can choose what information to report and
how to present it.

ANS: T PTS: 1

9. Retrieval is the task of permanently removing obsolete or redundant records from the database.

ANS: F PTS: 1

10. Systems development represents 80 to 90 percent of the total cost of a computer system.

ANS: F PTS: 1

11. The database administrator is responsible for the security and integrity of the database.

ANS: T PTS: 1
 12. Custom software is completely finished, tested, and ready for implementation.

ANS: F PTS: 1

13. The internal auditor represents the interests of third-party outsiders.

ANS: F PTS: 1

14. Information Technology (IT) audits can be performed by both internal and external auditors.

ANS: T PTS: 1

15. Custom software is the most affordable systems development option.

ANS: F PTS: 1

16. A database is a collection of interconnected computers and communications devices that allows
users to communicate, access data and applications, and share information and resources.
ANS: F PTS: 1

17. Systems maintenance consumes the majority of a system’s total costs.

ANS: T PTS: 1

18. Cloud computing is a practice in which the organization sells its IT resources to a third-party
outsourcing vendor then leases back IT services from the vendor for a contract period.

ANS: F PTS: 1

19. A potential benefit of cloud computing is that the client firm does not need to know where its
data are bring processed.

ANS: F PTS: 1

20. One of the greatest disadvantages of database systems is that all data is always available to all
users.
ANS: F PTS: 1

21. Under SOX legislation public accounting firms are no longer allowed to provide consulting services
to audit clients.

ANS: T PTS: 1

22. Under SOX legislation public accounting firms are no longer allowed to provide consulting services
to their clients.

ANS: F

NOTE: They may not provide such services to audit clients, but may still provide them to non-audit
clients

PTS: 1

MULTIPLE CHOICE
 1. Which of the following is not a business resource?

a.

raw material

b.

labor

c.

information

d.

all are business resources

ANS: D PTS: 1

2. Which level of management is responsible for short-term planning and coordination of activities
necessary to accomplish organizational objectives?

a.

operations management

b.

middle management

c.

top management

d.

line management
ANS: B PTS: 1

3. Which level of management is responsible for controlling day-to-day operations?

a.

top management

b.

middle management

c.

operations management

d.

executive management

ANS: C PTS: 1

4. Location-independent computing in which shared data centers deliver hosted IT services over the
Internet.

a.
IT outsourcing

b.

Network administration

c.

Cloud computing

d.

Custom software

ANS: C PTS: 1

5. The value of information for users is determined by all of the following but

a.

reliability

b.

relevance

c.

convenience

d.

completeness
ANS: C PTS: 1

6. An example of a nonfinancial transaction is

a.

sale of products

b.

cash disbursement

c.

log of customer calls

d.

purchase of inventory

ANS: C PTS: 1

7. An example of a financial transaction is

a.

the purchase of computer

b.
a supplier’s price list

c.

a delivery schedule

d.

an employee benefit brochure

ANS: A PTS: 1

8. Which subsystem is not part of the Accounting Information System?

a.

Transaction Processing System

b.

Expert System

c.

General Ledger/Financial Reporting System

d.

Management Reporting System

9. The major difference between the Financial Reporting System (FRS) and the Management
Reporting System (MRS) is the

a.

FRS provides information to internal and external users; the MRS provides information to internal users

b.

FRS provides discretionary information; the MRS provides nondiscretionary information

c.

FRS reports are prepared using information provided by the General Ledger System; the MRS provides
information to the General Ledger System

d.

FRS reports are prepared in flexible, nonstandardized formats; the MRS reports are prepared in
standardized, formal formats

ANS: A PTS: 1

10. The purpose of the Transaction Processing System includes all of the following except

a.

converting economic events into financial transactions

b.

recording financial transactions in the accounting records

distributing essential information to operations personnel to support their daily operations

d.

measuring and reporting the status of financial resources and the changes in those resources

ANS: D PTS: 1