Accounting Information Systems provides a comprehensive knowledgebase of the systems that generate, evaluate, summarize, and report accounting information. Balancing technical concepts and student comprehension, this textbook introduces only the most-necessary technology in a clear and accessible style. The text focuses on business processes and accounting and IT controls, and includes discussion of relevant aspects of ethics and corporate governance. Relatable real-world examples and abundant end-of-chapter resources reinforce Accounting Information Systems (AIS) concepts and their use in day-to-day operation.

Now in its fourth edition, this popular textbook explains IT controls using the AICPA Trust Services Principles framework—a comprehensive yet easy-to-understand framework of IT controls—and allows for incorporating hands-on learning to complement theoretical concepts. A full set of pedagogical features enables students to easily comprehend the material, understand data flow diagrams and document flowcharts, discuss case studies and examples, and successfully answer end-of-chapter questions. The book’s focus on ease of use, and its straightforward presentation of business processes and related controls, make it an ideal primary text for business or accounting students in AIS courses.

About the Authors v

Preface vii

Acknowledgments xi

To the Students xiii

A List of Real-World Examples in This Textbook xv

Module 1 Introduction Defines business processes AIS, and all foundational concepts. This module provides the knowledge building blocks to support the remaining chapters.

1 Introduction to AIS 1

Overview of Business Processes (Study Objective 1) 1

Overview of an Accounting Information System (Study Objective 2) 4

Business Process Linkage Throughout the Supply Chain (Study Objective 3) 5

IT Enablement of Business Processes (Study Objective 4) 7

Basic Computer and IT Concepts (Study Objective 5) 10

The Internal Control Structure of Organizations (Study Objective 7) 19

The Importance of Accounting Information Systems to Accountants (Study Objective 8) 24

The Relation of Ethics to Accounting Information Systems (Study Objective 9) 25

Summary of Study Objectives 26

Key Terms 27

End of Chapter Material 28

Concept Check 28

Discussion Questions 28

Brief Exercises 29

Problems 29

Cases 31

Solutions to Concept Check 31

2 Foundational Concepts of the AIS 33

Interrelationships of Business Processes and the AIS (Study Objective 1) 34

Types of Accounting Information Systems (Study Objective 2) 36

Client–Server Computing (Study Objective 3) 40

Cloud Computing (Study Objective 4) 41

Accounting Software Market Segments (Study Objective 5) 45

Input Methods Used in Business Processes (Study Objective 6) 48

Processing Accounting Data (Study Objective 7) 50

Outputs from the AIS Related to Business Processes (Study Objective 8) 52

Documenting Processes and Systems (Study Objective 9) 53

Ethical Considerations at the Foundation of Accounting Information Systems (Study Objective 10) 61

Summary of Study Objectives 62

Key Terms 63

End of Chapter Material 64

Concept Check 64

Discussion Questions 65

Brief Exercises 65

Problems 66

Cases 67

Solutions to Concept Check 68

Module 2 Control Environment Describes the proper control environment to oversee and control processes.

3 Fraud, Ethics, and Internal Control 69

Introduction to the Need for a Code of Ethics and Internal Controls (Study Objective 1) 69

Accounting-Related Fraud (Study Objective 2) 72

The Nature of Management Fraud (Study Objective 3) 75

The Nature of Employee Fraud (Study Objective 4) 76

The Nature of Customer Fraud (Study Objective 5) 78

The Nature of Vendor Fraud (Study Objective 6) 78

The Nature of Computer Fraud (Study Objective 7) 78

Policies to Assist in the Avoidance of Fraud and Errors (Study Objective 8) 82

Maintenance of a Code of Ethics (Study Objective 9) 82

Maintenance of Accounting Internal Controls (Study Objective 10) 83

Maintenance of Information Technology Controls (Study Objective 11) 94

The Sarbanes–Oxley Act of 2002 (Study Objective 12) 96

Summary of Study Objectives 98

Key Terms 99

End of Chapter Material 100

Concept Check 100

Discussion Questions 101

Brief Exercises 101

Problems 102

Cases 103

Solutions to Concept Check 105

4 Internal Controls and Risks in IT Systems 107

An Overview of Internal Controls for IT Systems (Study Objective 1) 107

General Controls for IT Systems (Study Objective 2) 110

General Controls from an AICPA Trust Services Criteria Perspective (Study Objective 3) 120

Hardware and Software Exposures in IT Systems (Study Objective 4) 125

Application Software and Application Controls (Study Objective 5) 135

Ethical Issues in IT Systems (Study Objective 6) 143

Summary of Study Objectives 144

Key Terms 145

End of Chapter Material 146

Concept Check 146

Discussion Questions 147

Brief Exercises 147

Problems 148

Cases 149

Solutions to Concept Check 150

5 IT Governance 153

Introduction to IT Governance (Study Objective 1) 153

An Overview of the SDLC (Study Objective 2) 157

Elements of the Systems Planning Phase of the SDLC (Study Objective 3) 160

Elements of the Systems Analysis Phase of the SDLC (Study Objective 4) 163

Elements of the Systems Design Phase of the SDLC (Study Objective 5) 167

Elements of the Systems Implementation Phase of the SDLC (Study Objective 6) 174

Elements of the Operation and Maintenance Phase of the SDLC (Study Objective 7) 177

The Critical Importance of IT Governance in an Organization (Study Objective 8) 178

Ethical Considerations Related to IT Governance (Study Objective 9) 179

Summary of Study Objectives 181

Key Terms 183

End of Chapter Material 183

Concept Check 183

Discussion Questions 184

Brief Exercises 184

Problems 184

Cases 185

Solutions to Concept Check 186

6 Enterprise Resource Planning (ERP) Systems 187

Overview of ERP Systems (Study Objective 1) 187

History of ERP Systems (Study Objective 2) 192

Current ERP System Characteristics (Study Objective 3) 194

ERP Modules (Study Objective 4) 195

ERP Market Segments, Cloud Computing and Digital Transformation (Study Objective 5) 197

Implementation of ERP Systems (Study Objective 6) 201

Benefits and Risks of ERP Systems (Study Objective 7) 207

ERP Systems and the Sarbanes–Oxley Act (Study Objective 8) 210

Summary of Study Objectives 212

Key Terms 214

End of Chapter Material 214

Concept Check 214

Discussion Questions 215

Brief Exercises 215

Problems 216

Cases 216

Solutions to Concept Check 217

7 Auditing Information Technology-Based Processes 218

Introduction to Auditing IT Processes (Study Objective 1) 218

Types of Audits and Auditors (Study Objective 2) 219

Information Risk and IT-Enhanced Internal Control (Study Objective 3) 221

Authoritative Literature Used in Auditing (Study Objective 4) 222

Management Assertions and Audit Objectives (Study Objective 5) 224

Phases of an IT Audit (Study Objective 6) 225

Use of Computers in Audits (Study Objective 7) 229

Tests of Controls (Study Objective 8) 230

Tests of Transactions and Tests of Balances (Study Objective 9) 237

Audit Completion/Reporting (Study Objective 10) 239

Other Audit Considerations (Study Objective 11) 241

Ethical Issues Related to Auditing (Study Objective 12) 245

Summary of Study Objectives 248

Key Terms 249

End of Chapter Material 250

Concept Check 250

Discussion Questions 252

Brief Exercises 253

Problems 253

Cases 254

Solutions to Concept Check 254

Module 3 Business Processes The sets of business processes and the internal controls in organizations. With process maps, document flowcharts, and data flow diagrams, the core business processes are described and the necessary controls to manage risk are discussed.

8 Revenue and Cash Collection Processes and Controls 256

Introduction to Revenue Processes (Study Objective 1) 256

Sales Processes (Study Objective 2) 261

Risks and Controls in Sales Processes (Study Objective 2, Continued) 268

Sales Return Processes (Study Objective 3) 272

Risks and Controls in the Sales Return Processes (Study Objective 3, Continued) 272

Cash Collection Processes (Study Objective 4) 277

Risks and Controls in the Cash Collection Processes (Study Objective 4, Continued) 278

IT-Enabled Systems of Revenue and Cash Collection Processes (Study Objective 5) 285

E-Business Systems and the Related Risks and Controls (Study Objective 6) 287

Electronic Data Interchange (EDI) Systems and the Risks and Controls (Study Objective 7) 290

Point of Sale (POS) Systems and the Related Risks and Controls (Study Objective 8) 294

Ethical Issues Related to Revenue Processes (Study Objective 9) 295

Corporate Governance in Revenue Processes (Study Objective 10) 297

Summary of Study Objectives 298

Key Terms 300

End of Chapter Material 300

Concept Check 300

Discussion Questions 301

Brief Exercises 302

Problems 303

Cases 308

Solutions to Concept Check 312

9 Expenditures Processes and Controls—Purchases 314

Introduction to Expenditures Processes (Study Objective 1) 314

Purchasing Processes (Study Objective 2) 317

Risks and Controls in the Purchasing Process (Study Objective 2, Continued) 327

Purchase Return Process (Study Objective 3) 331

Risks and Controls in the Purchase Return Processes (Study Objective 3, Continued) 335

Cash Disbursement Processes (Study Objective 4) 337

Risks and Controls in the Cash Disbursement Processes (Study Objective 4, Continued) 343

IT Systems of Expenditures and Cash Disbursement Processes (Study Objective 5) 346

Computer-Based Matching (Study Objective 6) 348

Risks and Controls in Computer-Based Matching (Study Objective 6, Continued) 349

Evaluated Receipt Settlement (Study Objective 7) 350

Risks and Controls in Evaluated Receipt Settlement (Study Objective 7, Continued) 351

E-Business and Electronic Data Interchange (EDI) (Study Objective 8) 352

Risks and Controls in E-Business and EDI (Study Objective 8, Continued) 353

E-Payables (Study Objective 9) 355

Procurement Cards (Study Objective 10) 356

Ethical Issues Related to Expenditures Processes (Study Objective 11) 356

Corporate Governance in Expenditure Processes (Study Objective 12) 358

Summary of Study Objectives 359

Key Terms 361

End of Chapter Material 362

Concept Check 362

Discussion Questions 363

Brief Exercises 364

Problems 364

Cases 367

Solutions to Concept Check 371

10 Expenditures Processes and Controls—Payroll and Fixed Assets 373

Introduction to Payroll and Fixed Asset Processes (Study Objective 1) 373

Payroll Processes (Study Objective 2) 377

Risks and Controls in the Payroll Processes (Study Objective 3) 385

IT Systems of Payroll Processes (Study Objective 4) 387

Fixed Asset Processes (Study Objective 5) 390

Risks and Controls in Fixed Asset Processes (Study Objective 6) 398

IT Systems of Fixed Asset Processes (Study Objective 7) 401

Ethical Issues Related to Payroll and Fixed Asset Processes (Study Objective 8) 403

Corporate Governance in Payroll and Fixed Asset Processes (Study Objective 9) 405

Summary of Study Objectives 407

Key Terms 408

End of Chapter Material 408

Concept Check 408

Discussion Questions 410

Brief Exercises 410

Problems 411

Cases 412

Solutions to Concept Check 414

11 Conversion Processes and Controls 416

Basic Features of Conversion Processes (Study Objective 1) 416

Components of the Logistics Function (Study Objective 2) 419

Cost Accounting Reports Generated by Conversion Processes (Study Objective 3) 427

Risks and Controls in Conversion Processes (Study Objective 4) 428

IT Systems of Conversion Processes (Study Objective 5) 431

The Supply Chain and Enterprise (ERP) Systems (Study Objective 6) 435

Ethical Issues Related to Conversion Processes (Study Objective 7) 437

Corporate Governance in Conversion Processes (Study Objective 8) 438

Summary of Study Objectives 438

Key Terms 439

End of Chapter Material 440

Concept Check 440

Discussion Questions 441

Brief Exercises 442

Problems 443

Cases 443

Solutions to Concept Check 446

12 Administrative Processes and Controls 448

Introduction to Administrative Processes (Study Objective 1) 448

Financial Capital Processes (Study Objective 2) 451

Investment Processes (Study Objective 3) 453

Risks and Controls in Capital and Investment Processes (Study Objective 4) 454

General Ledger Processes (Study Objective 5) 455

Risks and Controls in General Ledger Processes (Study Objective 6) 459

Reporting as an Output of the General Ledger Processes (Study Objective 7) 465

Ethical Issues Related to Administrative Processes and Reporting (Study Objective 8) 467

Corporate Governance in Administrative Processes and Reporting (Study Objective 9) 469

Summary of Study Objectives 470

Key Terms 472

End of Chapter Material 472

Concept Check 472

Discussion Questions 473

Brief Exercises 473

Problems 474

Case 474

Solutions to Concept Check 475

Module 4 IT Infrastructure to Enable Processes The hardware, software, and systems that support business processes.

13 Data and Databases 476

The Need for Data Collection and Storage (Study Objective 1) 476

Storing and Accessing Data (Study Objective 2) 478

Data Processing Techniques (Study Objective 3) 480

Databases (Study Objective 4) 481

The Need for Normalized Data (Study Objective 5) 485

Use of a Data Warehouse to Analyze Data (Study Objective 6) 488

Data Analysis Tools (Study Objective 7) 491

Distributed Data Processing (Study Objective 8) 493

Cloud-Based Databases (Study Objective 9) 495

Big Data and Data Analytics (Study Objective 10) 497

IT Controls for Data and Databases (Study Objective 11) 499

Ethical Issues Related to Data Collection and Storage (Study Objective 12) 499

Summary of Study Objectives 502

Key Terms 504

End of Chapter Material 504

Concept Check 504

Discussion Questions 505

Brief Exercises 506

Problems 507

Cases 507

Solutions to Concept Check 508

14 E-Commerce and E-Business 510

Introduction to E-Commerce and E-Business (Study Objective 1) 510

The History of the Internet (Study Objective 2) 512

The Physical Structure and Standards of the Internet (Study Objective 3) 514

E-Commerce and Its Benefits (Study Objective 4) 518

Privacy Expectations in E-Commerce (Study Objective 5) 522

E-Business and IT Enablement (Study Objective 6) 523

E-Business Enablement Examples and Digital Transformation (Study Objective 7) 527

Intranets and Extranets to Enable E-Business (Study Objective 8) 530

Internal Controls for the Internet Intranets and Extranets (Study Objective 9) 532

XML and XBRL as Tools to Enable E-Business (Study Objective 10) 533

Ethical Issues Related to E-Business and E-Commerce (Study Objective 11) 536

Summary of Study Objectives 538

Key Terms 540

End of Chapter Material 540

Concept Check 540

Discussion Questions 541

Brief Exercises 541

Problems 542

Cases 542

Solutions to Concept Check 543

Index I-1

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