What youll be doing

1
What youll be doing

• Evaluating an AIS
• Review system documentation, interview
  participants, observe transactions
• Know what information to look for
• Know where to get information
• Develop a plan to get information
• Organize information in meaningful/useful ways
• Goal is to provide a general AIS knowledge that
  can be applied to any system

2
Auditing Standard No. 2

• An Audit of Internal Control Over Financial
  Reporting Performed in Conjunction with an Audit
  of Financial Statements
• Public Company Auditing Oversight Board
• Managers and auditors understand procedures that
  initiate and process transactions
• Business processes
• Managers and auditors understand how transactions
  are recorded and reported
• AIS

3
Business Processes and AIS

• Business Processes
• Manner in which work is organized, coordinated,
  and focused to produce a valuable product or
  service
• Concrete work flows of material, information, and
  knowledge
• Sets of activities or events
• Unique ways to coordinate work, information, and
  knowledge
• Ways in which management chooses to coordinate
  work
• Accountants are interested in Transaction Cycles
• Acquisition (purchasing)
• Conversion (transforming resources)
• Revenue (providing goods and services and
  collection)

4
Revenue Cycle

• Likely Events
• Respond to customer inquiries
• Develop agreements with customers to provide
  goods and services in the future
• Provide services or ship goods to customer
• Bill customer
• Collect cash
• Deposit cash in bank
• Prepare reports

5
Acquisition Cycle

• Likely Events
• Consult with suppliers
• Process requisitions
• Develop agreements with suppliers to purchase
  goods or services in future
• Receive goods or services from the supplier
• Recognize claim for goods and services received
• Select invoices for payment
• Write checks

6
Guidelines for Finding Events

• Recognize the first event in a process when a
  person or department within an organization
  becomes responsible for an activity
• Ignore activities that do not require an internal
  agent
• Recognize a new event when responsibility is
  transferred from one internal agent to another
• Recognize a new event when a process has been
  interrupted and resumed later by the same
  internal agent
• After the interruption, someone outside the
  organization or the process may restart the
  process.
• Alternatively, the process may continue at a
  scheduled time.
• Use an event name and description that reflects
  the broad nature of an event

7
Event Characteristics

• When you find events, think about
• Internal agent assuming responsibility
• When the event starts
• Specific activities in the event
• May be necessary to sub-divide events as process
  unfolds
• Not all guidelines apply to all cases

8
Organizing Data in an AIS

• Entity something about which we collect data
• Events, agents, resources
• Field single piece of data about an entity
  (e.g. last name)
• a.k.a. attribute
• Record a set of related fields about an entity
• File a set of records

Entity employee
fields
file
records
9
Types of Files

• Transaction File
• Store information about events
• e.g. customer orders
• Master file
• Store information about non-event entities
• External agents, internal agents, goods and
  services
• Reference data
• Data that describe the entity
• Relatively permanent not affected by
  transactions
• e.g. customers name, product ID
• Summary data
• Summarize past transactions
• Beginning inventory

10
Master Files
Inventory File (Goods and Services)
Summary Fields
Reference Fields
Customer File (External Agents)
Reference Fields
11
Transaction Files

• Usually include a date
• Why?
• Usually include price and quantity
• Why quantity? Price?
• Since price is in the master file and not the
  transaction file, what can we conclude?

Order file (event)
Order Detail (event)
12
Relationships Between Master and Transaction Files
Customer File (Master)
Order File (Transaction)
Order Detail (Transaction)
Inventory File (Master)
13
Finding Data

• Find out what types of people, business units,
  things, places, events, materials, or other
  organizations are associated with, or interact
  with, the system and about which data must be
  maintained.
• Events
• Resources
• Agents
• Look for forms that are used
• Dont ask technical questions!
• Yes Tell me what you did today
• No What information did you enter in the
  transaction file?

14
Events and Activities

• Most events can be broken down in to activities
• Events that use data
• Recording
• Preparation of transaction files
• Updating
• Changing summary data in the master file
• Quantity on hand
• File Maintenance
• Adding and deleting master records, changing
  master file reference data