DISCUSSION QUESTIONS
1. The reporting requirements of external users such as lending institutions, the IRS, the SEC, and
stockholders are subject to stringent reporting standards. Thus, firms have historically placed a very
high emphasis on the accuracy of the AIS and the reports they produce for external agencies since
2. The level of detail necessary for the stockholders is highly aggregated and typically follows the
format prescribed by the SEC and GAAP. Much more detailed information is necessary for middle
3. Financial transactions affect the accounts in the financial statements in some manner. Three
examples are 1) use of equipment-depreciation, 2) payment of a bond payable, and 3) receipt of cash
from a customer for a sale previously made on account. Nonfinancial transactions include business
4. Three functions of information systems are 1. To support the stewardship function of management.
2. To support management decision making. 3. To support the firm’s day-to-day operations. Managers
of all areas typically need data from both the ais and the mis. If the data needed by managers for
5. The transaction processing systems only differ in the types of data elements collected. Both
service and manufacturing industries need to collect data regarding business processes. While a
manufacturing firm may collect data regarding the amount of scrap generated at a particular
6. The General Ledger System (GLS) summarizes all of the transaction cycle activity and general
journal entries. The GLS provides most of the input in the Financial Reporting System (FRS). The FRS
7. If the collected data are not accurate and/or not correctly entered, then the resulting information
will not be accurate. Also, if the data processing system is not correctly processing the information,
8. Efficiency is crucial to an AIS. The cost of collecting and producing information should not
outweigh its benefits. Further, the applications should be run in a manner that places the least strain on
In order for a system to be effective, the appropriate data should be processed, and the resulting
information disseminated to the appropriate users. For example, an accounts receivable delinquent
9. This statement means that the accounting system is a representation of the operations of a firm.
As machines operate, workers perform their duties, raw materials are transferred into finished goods
10. Accounting independence is important because the separation between the record-keeping
functions and the physical resources is crucial. This concept is extremely important for cash receipts
11. The internal auditors are responsible for detecting and pursuing fraud within the firm. If
management-level employees are involved, the internal auditors may fear losing their jobs if they blow
12. In a centralized data-processing environment, the computer services personnel are all housed in
one department where all of the systems development and maintenance takes place. End users must
formally request any additions or enhancements to the current system. In a distributed data processing
13. The conceptual system represents the logic and decision rules to be applied, while the physical
system represents the means of accomplishing the tasks. Many different possibilities (physical systems)
may be available to accomplish the conceptual system. The accountant is important in the design of the
14. To be effective, the audit committee must be willing to challenge the internal auditors (or the
entity performing that function) as well as management when necessary. Part of the role of committee
members is to look for ways to identify risk. For instance, they might serve as a sounding board for
15. Yes and No. Virtually all publicly traded firms have computerized AISs as well as most small-
and medium-sized firms. Audits of non-computerized systems are becoming rare. Thus, one may say
16. Cloud computing, is location-independent computing whereby shared data centers deliver hosted
IT services over the Internet. The concept can be equated to the way in which electricity is delivered to
a private home. The homeowner enters into a contract with the local public utility company to deliver
electricity as needed. The public utility company may generate some of this electricity, but during high
demand periods it will go to the national electric grid to tap into the production of other electricity
17. The accounting function provides record-keeping services for all of the operations and day-to-day
activities of other departments, which affect the financial position of the organization. Record-keeping
18. An external audit is an independent attestation performed by an expert—the auditor—who
expresses an opinion regarding the presentation of financial statements. This task, known as the attest
function, is performed by CPAs who work for public accounting firms that are independent of the client
19. Corporate management has long complained about the administrative burden and high cost
associated with managing and maintaining IT functions. In an effort to bring costs under control and to
escape their IT headaches, many corporate executives look to IT outsourcing. Under this practice the
organization sells its IT resources (hardware, software, and facilities) to a third-party outsourcing
MULTIPLE CHOICE
1. C
3. A
9. D