978-0134474021 Chapter 22 Solutions Manual Part 2

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b. Identify and describe three ways Mickie violated internal control principles during the

AIS implementation.

Most of the control features of the “old” system were retained in the “new” system;

Proper backup procedures were not implemented in many areas. This put the system and

Systems, programming, and operating documentation were behind schedule.

Separation of duties was violated by allowing

c. Identify and describe the weaknesses in Mickie’s approach to implementing the new

AIS. How could you improve the development process for the remaining parts of the

AIS?

Weaknesses Recommendations

No systems analysis or feasibility

study.

Perform a thorough systems analysis that includes a

feasibility study.

project completion. An accepted implementation plan for

each module must be formalized and followed

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Accounting Information Systems

22.5 Ryon Pulsipher, manager of Columbia’s property accounting division, has had difficulty

responding to the following departmental requests for information about fixed assets.

1. The controller has requested individual fixed assets schedules to support the general

ledger balance. Although Ryon has furnished the information, it is late. The way the

records are organized makes it difficult to obtain information easily.

2. The maintenance manager wants to verify the existence of a punch press that he

thinks was repaired twice. He has asked Ryon to confirm the asset number and the

location of the press.

3. The insurance department wants data on the cost and book values of assets to include

in its review of current insurance coverage.

4. The tax department has requested data to determine whether Columbia should switch

depreciation methods for tax purposes.

5. The internal auditors have spent significant time in the property accounting division

to confirm the annual depreciation expense.

Ryon’s property account records, kept in an Excel spreadsheet, show the asset acquisition

date, its account number, the dollar amount capitalized, and its estimated useful life for

depreciation purposes. After many frustrations, Ryon realizes his records are inadequate

and that he cannot supply data easily when requested. He discusses his problems with the

controller, Gig Griffith.

RYON: Gig, something has to give. My people are working overtime and can’t keep

up. You worked in property accounting before you became controller. You know I

can’t tell the tax, insurance, and maintenance people everything they need to know

from my records. Internal auditing is living in my area, and that slows down the

work. The requests of these people are reasonable, and we should be able to answer

their questions and provide the needed data. I think we need an automated property

accounting system. I want to talk with the AIS people to see if they can help me.

GIG: I think that’s a great idea. Just be sure you are personally involved in the

design of any system so you get all the info you need. Keep me posted on the

project’s progress. Adapted from the CMA Exam.

a. Identify and justify four major objectives Columbia’s automated property accounting

system should possess to respond to departmental requests for information.

Chapter 1 lists the following seven characteristics of useful information

Verifiable. Information is verifiable if two independent, knowledgeable people produce

the same information.

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Accounting Information Systems

The CMA exam answer included a characteristic not on the above list:

b. Identify the data that should be included in the database for each asset.

Asset name

Manufacturer

22.6 A credit union is developing a new AIS. The internal auditors suggest planning the systems

development process in accordance with the SDLC concept. The following nine items are

identified as major systems development activities that will have to be completed.

1. System test

2. User specifications

3. Conversion

4. Systems survey

5. Technical specifications

6. Post-implementation planning

7. Implementation planning

8. User procedures and training

9. Programming

Adapted from the CIA Exam.

a. Arrange the nine items in the sequence in which they should logically occur.

The logical sequence of occurrence is as follows:

1. Systems Survey

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Accounting Information Systems

b. One major activity is converting data files from the old system to the new one. List

three types of file conversion documentation that would be of particular interest to an

auditor.

1. Conversion completion documentation indicating that all previously existing files have

2. Operating test documentation indicating that the converted files are able to support the

3. Application approval documentation indicating that the implemented system had proper

22.7 MetLife, an insurance company, spent $11 billion to acquire Travelers Life and Annuity from

Citicorp in one of the largest insurance company acquisitions of all time. The Metlife CIO

estimated it would take three years to integrate the two systems. Because the integration

project was especially critical, he figured he could accomplish the integration in 18 months if

he pulled out all the stops. The MetLife CEO gave him nine months to complete the task. To

pull off the integration in nine months, he had to:

Integrate over 600 IS applications, all with their own infrastructure and business

processes. The new systems had to comply with “One MetLife,” a company policy that all

information systems had to have a common look and feel companywide and be able to

function seamlessly with other MetLife systems.

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Accounting Information Systems

a. What tasks do you think MetLife would have to perform to successfully integrate the

Traveler systems into MetLife’s?

Separate Travelers’ IS operations and assets from Citicorp’s so MetLife could begin the

systems integration process.

Perform a security and privacy analysis of all of Travelers’ systems and determine needed

Change Travelers’ laptop and desktop infrastructure so that it matched that of MetLife.

Enlarge MetLife’s distribution system by integrating over 150 annuity and life insurance

Add all 4000 plus Travelers’ employees to MetLife’s Human Resources and Payroll

Move Travelers’ 6 life insurance and 2 annuity product lines to MetLife’s systems.

Integrate the two company’s data centers. This required some data centers to be combined

Determine system test capacities, build test environments, and lock down testing

Travel to every country and every major Travelers office to train former Travelers

b. Search the Internet for articles that describe the integration process. Write a two-page

summary of the problems and successes that MetLife experienced while integrating the

two systems.

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Accounting Information Systems

22.8 During final testing, just before launching a new payroll system, the project manager at

Reutzel Legal Services found that the purchased payroll system was doing the following:

Writing checks for negative amounts

Printing checks with names and employee numbers that did not match

Making errors; for example, $8 per hour became $800 per hour if a decimal point was not entered

Writing checks for amounts greater than a full year’s salary

Fortunately, payroll was still installed on time, and only 1.5% of the checks had to be

manually reissued every payday until the problem was solved.

Other problems were that no one had made sure the new system was compatible with the

existing payroll database, and there appeared to be no formal transition between the

development of the project and the implementation of the project. The system was never run

in parallel.

Although the programming manager lost his job, the payroll problems helped raise awareness

of the company’s growing dependence on IT. Lacking a major problem, there was a

perception that the information system did not affect operations.

a. What does “the system was never run in parallel” mean?

Running in parallel refers to operating the old and new systems simultaneously for a period.

b. If the company had run the system in parallel, what should have occurred?

Parallel processing protects companies from errors, but it is costly and stressful because the

same set of transactions and activities must be processed twice. This places a significant

c. What other testing methodologies could have been used by the firm?

The company could have implemented a pilot conversion where one office or branch of the

d. What other types of problems are evident from reading the case?

There does not appear to be proper management or leadership of the system development,

implementation, or testing processes involved in this system. For example

Final testing should have been attempted prior to just before launching the payroll system.

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Accounting Information Systems

22.9 A new program at Jones and Carter Corporation (JCC) was supposed to track customer calls.

Unfortunately, the program took 20 minutes to load on a PC, and it crashed frequently. The

project did not have a traditional reporting structure, and it appeared that no one was

actually in charge. The lead project manager quit halfway through the project, the in-house

programmers were reassigned to other projects or let go, and two layers of management

loosely supervised the systems analyst.

Management hired consultants to fix the application, but after three months and $200,000, the

project was discontinued. JCC did not check the references of the consulting firm it hired to

create the new system. The consultants, who were located two states away, made many

programming errors. Although the systems analyst caught some of the consultant’s mistakes,

they grew increasingly distant and difficult to work with. They would not even furnish the

source code to the project managers, most likely because they were afraid of revealing their

incompetence.

a. Identify potential causes for the system implementation failure.

•Leadership and managerial oversight is clearly lacking at Jones and Carter Corp (JCC).

When the project was managed internally, the following problems existed:

oThere was no evident reporting structure to support and manage the project. It

appeared that no one was actually in charge

•Management falsely assumed that the problems could be solved by hiring a consultant.

When a consulting firm was hired, it does not appear that anyone checked out their

b. What steps should JCC have taken to successfully design and implement the call

tracking system?

Start and end the process with a clearly designated manager over the project and with

clearly defined lines of authority.

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Accounting Information Systems

SUGGESTED ANSWERS TO THE CASES

22.1 Citizen’s Gas Company (CGC) provides natural gas service to 200,000 customers. The

customer base is divided into the following three revenue classes:

Residential customer gas usage is highly correlated with the weather. Commercial customer

usage is partially weather dependent. Industrial customer usage is governed almost entirely

by business factors.

The company buys natural gas from 10 pipeline companies in the amounts specified in

contracts that run for 5 to 15 years. For some contracts, the supply is in equal monthly

increments; for other contracts, the supply varies according to the heating season. Supply

over the contract amounts is not available, and some contracts contain take-or-pay clauses.

That is, the company must pay for the gas volume specified in the contract, regardless of the

amount used.

To match customer demand with supply, gas is pumped into a storage field when supply

exceeds customer demand. Gas is withdrawn when demand exceeds supply. There are no

restrictions on the gas storage field except that the field must be full at the beginning of each

gas year (September 1). Consequently, when the contractual supply for the remain- der of the

gas year is less than that required to satisfy projected demand and fill the storage field, CGC

curtails service to industrial customers (except for heating quantities). The curtailments must

be carefully controlled to prevent either an oversupply at year-end or a curtailing of

commercial or residential customers so the storage field can be filled at year-end.

In recent years, CGC’s planning efforts have not been able to control the supply during the

gas year or provide the information needed to establish long-term contracts. Customer

demand has been projected only as a function of the total number of customers. Commercial

and industrial customers’ demand for gas has been curtailed. This has resulted in lost sales

and caused an excess of supply at the end of the gas year.

To correct the problems, CGC has hired a director of corporate planning. She is presented

with a conceptual design for an information system that will help analyze gas supply and

demand. The system will provide a monthly gas plan for the next five years, with particular

emphasis on the first year. The plan will provide detailed reports that assist in the decision-

making process. The system will use actual data during the year to project demand for the

year. The president has indicated that she will base her decisions on the effect alternative

plans have on operating income. Adapted from the CMA Exam.

1. Discuss the criteria to consider in specifying the structure and features of CGC’s new

system.

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Class Customers Sales in Cubic Feet Revenues

Residential 160,000 80 billion $160 million

Commercial 38,000 15 billion $ 25 million

Industrial 2,000 50 billion $ 65 million

Totals 145 billion $250 million

Accounting Information Systems

Frequency of use The frequency of system use provides direction as to the level of

Turnaround required The need for timely reporting at month end provides guidance as to

2. Identify the data that should be incorporated into CGC’s new system to provide adequate

planning capability. Explain why each data item it is important and the level of detail

needed for the data to be useful.

Number of customers The customer count should be projected by month, unless customer

Weather data The weather data needed to project heating requirements should be entered

Heating factors Heating factors are data that convert weather data to customers’ demand.

Customer unit demand The average monthly consumption for each commercial and

Sales forecasts The sales to the top industrial accounts should be forecast individually by

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Accounting Information Systems

Customer rate structure The customer rate structure should provide monthly rate

Supplier contract terms For each supply contract, the contract term (beginning and end

Storage field capacity The capacity of the gas storage field is required in order to

Priority system A priority system needs to be established in case the company needs to

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