Question

Action Items

1. Read the article below: Information Systems and Internal Control.
2. Write: Develop a bulleted list of five to seven (5-7) issues or best practices that you identified based on your reading of this article and how it may impact you while performing in an accounting position.

Information Systems and Internal Control.:

G1.05 Functions That Benefit from IS

Functions that benefit from IS have increased remarkably from the simple military and government uses in the early years. Computers are used to process accounting and financial information of all types. It is not unusual to find entities whose financial records exist only in machine-readable form. Hence, financial statements, general ledgers, and original entry records (e.g., payroll registers, cash receipts, and disbursements journals) are all computerized. Most of these used to be processed in a batch mode, meaning that all homogeneous transactions were grouped together in batches that were submitted to the data center, which then set up and processed the data according to applicable instructions. Most applications have since been converted to the faster, cheaper, and more useful online processing mode involving networks and applications that take advantage of databases and object-oriented software.

While the applicability of computers to financial information has been substantial, the ultimate worth of the computer to management goes far beyond finance functions. In fact, advances in computer technology are usually adopted first by the scientific and technical community. Thus, unique applications that employ some or all advances described are being used for such diverse fields as medical science, nuclear physics, aerospace, computer technology, semiconductors, and telecommunications. Products that feature three-dimensional design capability, imaging, graphics, and simulation offer researchers, designers, and engineers powerful and flexible tools to speed creative processes and make them more reliable.

Functions outside the laboratory have also enjoyed the advantages of advanced computer technology. Manufacturing is a good example. Computer-integrated manufacturing (CIM), a concept that has gained in popularity, represents the ultimate goal of many companies: to achieve a totally automated factory environment in which such functions as engineering, purchasing, manufacturing, and quality control are integrated, through online database-oriented systems, such as MRP II (discussed in Chapter F3 ). The automation of CIM transcends MRP II to encompass submanufacturing applications, such as scheduling, process planning, manufacturing cell control, and maintenance. CIM also incorporates the innovation of using EDI to extend electronic links beyond the company to include major suppliers.

Chapter F6 describes how marketing data warehouses are being developed to enhance the reliability and success of marketing strategies. Some of these involve the use of expert systems, which managements use to check the effectiveness of sales promotions and inducements, sales force compensation, pricing strategies, and marketing forecasting and targeting techniques. The integrated databases that form the nucleus of marketing information systems are becoming strategic assets that give companies a competitive advantage.

Competitive advantage is the aim of companies everywhere as they apply advanced systems technology. For example, companies in the retail industry are perfecting point-of-sale systems and sophisticated electronic storefronts; in the oil and gas industry, the major companies are applying expert systems to the challenges of geological analysis, process control, and chemical spills; life insurers are reducing file storage through electronic filing and are using computers and telecommunications to improve links with agents; electronics companies are designing products, such as computers, by using workstations united through LANs and WANs; and in the banking and finance arena, companies are using advanced systems technologies to speed transaction processing and to improve documentation management.⁴

The application of advanced IS technology is notable, but less dramatic for traditional accounting systems, such as payrolls, general ledgers, cost ledgers, fixed assets, accounts receivable, and accounts payable processing. Although more modern products are available, many companies are still using systems designed in the 1980s to perform these functions. A high percentage of these require inordinate support from IS departments to keep them running, are difficult to change, and are poorly documented. During the late 1980s, the opportunity for change grew in earnest. Independent software developers successfully designed software packages to permit real-time data entry and editing and updating of certain files, and to allow interactive query and reporting capabilities. Those systems also offered enhanced control and auditing features that home-grown systems frequently lacked. In the 1990s, this trend continued, with centralized systems being totally rewritten and deployed across decentralized platforms.

Government units are striving to take advantage of advancing systems technology to streamline their operations. Examples of this include the SEC's electronic data gathering, analysis, and retrieval system, more familiarly known as EDGAR. Since 1996, all companies have been required to use EDGAR in the electronic filing of required SEC reports. The IRS continues to encourage the electronic filing of income tax returns, and, in the Department of Defense, disbursing offices continue to enable the electronic handling of billings and payments through EDI.

To support the IS needs of business and government, a multi-billion-dollar industry has evolved, consisting of manufacturers of very large mainframe computers; sophisticated network equipment, virtualized servers that rival mainframes in their sheer computing power, and a host of desktops, laptops, and mobile computing devices that place state-of-the-art computing power in the palm of one's hand. The advent of affordable computing, combined with the universal availability of the Internet, has further accelerated both the revolution in IS and the decentralization of IS capability and responsibility.

Answer 1

One of the best practice I feel, after reading the above given paragraph, is that of the use of Expert Systems designed to take over the decision making process leading to an effective and efficient management.

1. Expert systems are applicable to accounting areas where an expert exists, definitions of facts and decision rules are clear, and the system application boundaries are known. They cannot be used when data is incomplete or ambiguous.

2. Users of expert systems require little or no computer experience. A user begins by querying the expert system about a particular accounting topic. The system responds with its own questions and continues to reframe user queries until a correct answer is derived. The system further provides the reasoning behind the answer.

3. Expert systems are currently used in accounting for audit planning, internal-control analysis, account attribute analysis, quality, review, accounting decisions, tax planning, management consulting, and training. Current accounting applications include Loanprobe by KPMG Peat Marwick that can be used in bank audits to test loan loss reserves, ASQ by Ernst & Young that automates the audit process for manufacturing firms, and FSA by Arthur Andersen that aids in quality review and ratio development for inquiries.

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