M2 - Information Systems Controls Overview

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Questions and Answers

What type of control ensures that processing of data is both accurate and complete?

Input control

Processing control (correct)

Access control

Output control

Which of the following describes a characteristic of Enterprise Resource Planning (ERP) systems?

They utilize a central repository for data input. (correct)

They are only applicable to accounting departments.

They operate independently of other business functions.

They require extensive manual data entry from users.

Which general control is NOT typically associated with an information system?

IT infrastructure

Software acquisition

Operational training (correct)

Security management

What is a likely outcome of a reasonableness test when the offset transaction total exceeds the original transaction?

An error message is prompted. Signup and view all the answers

What type of control restricts user admission to an information system?

Access control Signup and view all the answers

What is the primary function of a Transaction Processing System (TPS)?

To convert economic events into financial transactions Signup and view all the answers

Which subsystem is responsible for providing internal financial information for day-to-day business problems?

Management Reporting System (MRS) Signup and view all the answers

In which step of the AIS process are source documents filed?

Source documents are filed Signup and view all the answers

What is a key function of the Revenue and Cash Collection Cycle?

Record sales transactions after customer payment Signup and view all the answers

Which of the following is a function of the Purchasing and Disbursement Cycle?

Enter quantities received into receiving reports Signup and view all the answers

What technology does Robotic Process Automation (RPA) primarily utilize?

Artificial intelligence and machine learning Signup and view all the answers

Which COSO principle emphasizes the importance of quality information in internal controls?

Principle 13 Signup and view all the answers

What is a potential risk associated with outsourcing services?

High staff turnover Signup and view all the answers

Which cycle involves the management of cash and working capital decisions?

Treasury Cycle Signup and view all the answers

What type of system is characterized by decentralized control and multiple transaction validation?

Blockchain Signup and view all the answers

Which of the following is NOT a goal of AIS subsystems?

Prepare annual audits Signup and view all the answers

What process involves calculating depreciation and updating the GL?

Fixed Asset Cycle Signup and view all the answers

Which system is designed to encode, decode, and interpret human language?

Natural Language Processing Software Signup and view all the answers

Which key function is associated with managing employee data in the HR and Payroll Cycle?

Calculating payroll Signup and view all the answers

Study Notes

Types of Processing Controls

Input Controls: Ensure data integrity at entry, meeting predefined parameters.
Output Controls: Provide additional processing integrity checks, including reconciliation and user review.
Processing Controls: Guarantee accurate and complete processing.
Access Controls: Restrict user access to the system.

General Controls in an Information System

Software Acquisition: Managing the procurement of software.
IT Infrastructure: Maintaining the hardware and networking components.
Security Management: Implementing and enforcing security policies.
Development, Operations, and Maintenance Controls: Guiding and monitoring application development, operation, and upkeep.

Enterprise Resource Planning (ERP)

Cross-functional Systems: Support various business functions.
Centralized Data Repository: Facilitates easier data input.

Accounting Information System (AIS)

Primary Tool: Facilitates interactions for accountants and financial managers.
Component of ERP: Could be part of a larger ERP system.
Reasonableness Test: Alerts when transaction offset totals exceed original amounts.

AIS - Three Subsystems

Transaction Processing System (TPS): Converts economic events into financial transactions (sales, conversion, expenditure, payroll cycles).
Financial Reporting System (FRS): Aggregates daily financial information with infrequent events (mergers, lawsuits).
Management Reporting System (MRS): Presents internal financial information for operational decision-making (budgeting, variance analysis, cost-volume profit analysis).

Goals of AIS Subsystems

Record Valid Transactions: Ensure only accurate events are documented.
Classify Transactions: Group transactions into appropriate categories.
Record Transactions at Correct Value: Ensure accurate financial value.
Record Transactions in Correct Accounting Period: Match transaction timing with accounting periods.

AIS Process

Input by End User
Filing of Source Documents
Journal Entry of Transactions
Posting to General Ledger and Subsidiary Ledgers
Trial Balance Preparation
Adjustments, Accruals, and Corrections
Financial Report Generation

Cycles within AIS

Purchasing and Disbursements Cycle: Managing vendor payments and inventory/asset tracking.
Treasury Cycle: Managing cash, investments, and working capital.
Payroll Cycle: Calculating and paying employee wages.
Revenue and Collections Cycle: Handling customer orders, billing, and payments.

Key AIS Functions (by Cycle)

Revenue & Collections: Credit approval, invoice recording, inventory release, shipping, sales update, invoice closing, ledger posting, customer payment updates.
Purchasing & Disbursements: Vendor approval, purchase order preparation, receipt recording, invoice processing, payment authorization, check distribution, inventory/asset updates.
HR & Payroll: Employment data updates, labor cost allocation, payroll calculation, payroll register.
Production: Tracking labor, material, and manufacturing overhead costs, production run monitoring.
Fixed Asset: Asset record creation, depreciation calculation, disposal accounting.
Treasury: Investment tracking, dividend/interest updates, cash management.
General Ledger & Reporting: Continuous ledger updates, trial balance generation, adjusting journal entries, financial statement generation, account closing.

Application Software Provider (ASP) for ERP

Lower Costs: Reduces upfront investment and maintenance costs .
Flexibility: Adaptability to varying business needs.
Suitable for Smaller Companies: Pay-as-you-go pricing model.

Processes Driven by IT Systems

Automation: Computer programs automate repetitive tasks.
Shared Services: Pooling resources for redundant processes.
Outsourcing: Contracting work to external providers.
Offshore Operations: Relocating operations to a different country.

Offshore Operations - Areas

IT: Infrastructure and networks
Knowledge: Specialized skill sets (e.g., medical imaging).
Business Processes: Customer service, accounting.
Software R&D: Supporting innovation in software creation.

Risks in Outsourcing

Quality Risks: Defective products/services.
Service Quality: Poorly designed service contracts.
Productivity: Efficiency concerns and slow response times.
Staff Turnover: Skilled worker loss.
Language Barriers: Communication issues.
Security Concerns: Data breaches.
Outsourcer Qualifications: Insufficient skillsets/knowledge.
Labor Insecurity: Worker exploitation concerns.

Technology-Driven Forms

Robotic Process Automation (RPA): AI/ML-powered software for repetitive tasks.
Natural Language Processing (NLP): Encoding, decoding, and interpreting human language (e.g., Siri, Alexa).
Neural Networks: Modeling human brain function for complex tasks.

Principle 11: General control over technology to achieve organizational goals.
Principle 13: Acquisition and utilization of quality information for internal controls.
Principle 14: Effective communication of information to aid internal controls.

Blockchain

Control System: Originally designed for Bitcoin management.
Decentralized: Reduced accountability concerns.
Resistant to Alteration: Secure from tampering.
Multiple Transaction Validation: Ensures transaction accuracy.

Applying COSO to Blockchain

Preventative and Detective Controls: Focus on inherent blockchain features and security measures.

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Description

Explore the various types of processing and general controls within information systems, including input, output, and access controls. This quiz will also cover categories like Enterprise Resource Planning (ERP) and Accounting Information Systems (AIS). Test your understanding of how these components work together to ensure data integrity and security.