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Accountants are concerned about internal control structure.

Preventive-detective-control model classifies control as preventive, detective and corrective.

The COSO framework consists of five components: control environment, risk assessment, information and communication, monitoring, control activities.

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Auditors encounter fraud.

Employee fraud- generally designed to directly convert cash or other assets to the employee’s personal benefit.

Management fraud- misstatement of financial data and reports to gain additional compensation or to escape the penalty for poor performance.

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Sarbanes-Oxley Act (SOX) has many provisions designed to deal with specific problems relating to corporate governance, capital markets and auditing profession.

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Ethical issues of direct concern to accountants and managers:

Privacy

Security ownership of property

Equity in access

Environmental issues

Artificial intelligence

Unemployment and displacement

Misuse of computers.

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Accountants should act ethically.

Ethical issues in business are grouped into four areas: equity, honesty, rights and exercise of corporate power.

Computer ethics is the analysis of the nature and social impact of computer technology and corresponding formulation and justification of policies for the ethical use of such technology.

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Accountants should differentiate batch processing and real-time transaction processing model.

Batch processing- gathering transactions into group/batches and then processing the entire batch as a single event.

Real-time processing- process individual transactions continuously as they occur.

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Accountants must have ability to document systems in graphic form. Types of documentation techniques are: data flow diagrams, entity relationship diagrams, system flowcharts, program flowcharts, record layout diagrams.

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Systems Documentation Techniques (AIS Ch 3)

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Accountants record financial data in manual system or computer-based system. Accounting records in manual systems are documents, journals, ledgers. Digital accounting system store data in digital computer files: master files, transaction files, reference files, archive files. The accounting records in both systems form an audit trail.

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Accountants capture and record the financial effects of the economic events that constitute the firm’s transactions. Accountants distributes transaction information to operations personnel to coordinate their key tasks.

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Transaction cycles:

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Accountants play the role on AIS development as domain experts. Accountants are responsible for specifying certain reporting requirement, operational rules and framing internal control objectives that the system must achieve. Accountants perform audits of business organizations which involve AIS. Accountants need to have a thorough understanding of AIS functions and internal controls.

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General model for AIS:

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Accountants must have conceptual view of the information system that clearly distinguishes key processes, areas of risk and legal responsibility from other aspects of the system. AIS processes financial and non-financial transactions while MIS processes nonfinancial transactions.

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In AIS, accountants summarize the results of a firm transactions and issue reports such as financial statements, special purpose financial reports to help managers make informed decisions.

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AIS composed of three subsystems:

Transaction processing system

General ledger/financial reporting system,

Management reporting system.