AIS Chapter 3 - Accounting Information Systems PDF

CHAPTER III Under this chapter we will learn 1.The System Development Process 1.System Development and Documentation Tools and Techniques: DFD, and Flow Chart 2.System Development Processes (Methodology, System Investigation, Planning, Analysis, Design, Implementation)  Acquisition of in...

CHAPTER III Under this chapter we will learn 1.The System Development Process 1.System Development and Documentation Tools and Techniques: DFD, and Flow Chart 2.System Development Processes (Methodology, System Investigation, Planning, Analysis, Design, Implementation)  Acquisition of information system Two ways:  develop customized systems from scratch through in house system development activities, and  purchase predesigned commercial systems from software vendors. Three basic types of commercial software  Turnkey systems  Backbone systems  Vender supported systems  System Development and Documentation Tools and Techniques: DFD, and Flow Chart Documentation explains how a system works, including the who, what, when, where, why , and how of data entry, data processing, data storage, information output, and system controls. Popular means of documenting a system include diagrams, flowcharts, tables, and other graphical representations of data and information. These are supplemented by a narrative description of the system, a written step-by-step explanation of system components and interactions. Documentation - Narratives, flowcharts, diagrams, and other written materials that explain how a system works.  Why about Documentation? Documentation in a CB environment is necessary for many reasons. A “picture is worth a thousand words” is extremely applicable when it comes to documenting systems. A written description of a system can be wordy and difficult to follow. Experience has shown that a visual image can convey vital system information more effectively and efficiently than words. As both systems designers and auditors, accountants use system documentation routinely.  Why about Documentation? cont Documentation skills are important on the following levels: 1. At a minimum, you must be able to read documentation to determine how a system works. 2. You may need to evaluate documentation to identify internal control strengths and weaknesses and recommend improvements as well as to determine if a proposed system meets the company’s needs. 3. More skill is needed to prepare documentation that shows how an existing or proposed system operates. The ability to document systems in graphic form is thus an important skill for accountants to master.  Documentation techniques common documentation techniques: – Entity Relationship Diagram – Data Flow Diagrams – Flowcharts Document Flowcharts System Flowcharts Program Flow charts  Entity Relationship (ER) Diagram is a documentation technique to represent the relationship between entities in a system. The REA model version of ER is widely used in AIS. REA uses 3 types of entities: – resources (cash, raw materials) – events (release of raw materials into the production process) – agents (inventory control clerk, vendor, production worker)  Cardinalities… represents the numerical mapping between entities: – one-to-one – one-to-many – many-to-many  Cardinalities Entity Relationship Entity Sales- 1 1 Car person Assigned 1 M Customer Places Order M M Inventory Vendor Supply 9  Data Flow Diagrams (DFD)… data flow diagram (DFD) – A graphical description of the flow of data within an organization, including data sources/ destinations, data flows, transformation processes, and data storage. represent the logical elements of the system do not represent the physical system context diagram - Highest-level DFD; a summary-level view of a system, showing the data processing system, its input(s) and output(s), and their sources and destinations.(Level 0,1,etc) The first number is about process and the decimal point number is about level of details.( eg 2.0,2.1,2.2 …) Data Flow Diagram(DFD) Symbols  Flowcharts A flowchart is a pictorial, analytical technique used to describe some aspect of an information system in a clear, concise, and logical manner. Flowcharts record how business processes are performed and how documents flow through the organization.  Flowcharts… illustrate the relationship among processes and the documents that flow between them contain more details than data flow diagrams clearly depict the separation of functions in a system A flowchart is a pictorial, analytical technique used to describe some aspect of an information system in a clear, concise, and logical manner. Flowcharts record how business processes are performed and how documents flow through the organization.  They are also used to analyze how to improve business processes and document flows.  Flowcharts… Flowchart, which is a graphical description of a system. There are several types of flow charts, including: a. Document flowchart, which shows the flow of documents and information between departments or areas of responsibility b.System flowchart, which shows the relationship among the input, processing, and output in an information system c. Program flowchart, which shows the sequence of logical operations a computer performs as it executes a program.  Flowcharts… Flowcharting symbols are divided into four categories, 1. Input/output symbols show input to or output from a system. 2. Processing symbols show data processing, either electronically or by hand. 3. Storage symbols show where data is stored. 4. Flow and miscellaneous symbols indicate the flow of data, where flowcharts begin or end, where decisions are made, and how to add explanatory notes to flowcharts. General guidelines for preparing good flowcharts are presented in Focus 3-2. Common Flowcharting Symbols Common Flowcharting Symbols cont…  TYPES OF FLOWCHARTS  Document flowcharts were developed to illustrate the f low of documents and data among areas of responsibility within an organization. They trace a document from its cradle to its grave, showing where each document originates, its distribution, its purpose, its disposition, and everything that happens as it f lows through the system. Eg.internal control flowchart – Used to describe, analyze, and evaluate internal controls, including identifying system strengths, weaknesses, and inefficiencies. Document Flowchart of Payroll Processing at S&S Document Flowchart of Payroll Processing at S&S Cont…  Business Process Diagrams (BPD) A Business Process Diagram (BPD) is a visual way to describe the different steps or activities in a business process. For example, there are many activities in the revenue cycle. Among them are receiving an order, checking customer credit, verifying inventory availability, and confirming customer order acceptance.  System Development Processes (Methodology, System Investigation, Planning, Analysis, Design, Implementation) Why system development is important? Because we live in a highly competitive and ever-changing world, at any given time most organizations are improving or replacing their information systems. Companies change their systems for the following reasons: Changes in user or business needs. Technological changes Improved business processes. Competitive advantage. Productivity gains Systems integration. Systems age and need to be replaced THE SYSTEMS DEVELOPMENT LIFE CYCLE(SDLC)  Planning Systems Development Planning has distinct advantages. It enables the system’s goals and objectives to correspond to the organization’s overall strategic plan. The basis for the systems plan is the orgn’s strategic plan, w/h specifies where the firm plans to go & how it will get there. Therefore effective system planning provides goal congruence b/n individual projects and Org’s over all strategic plan.  Advantages of system planning It enables the system’s goals and objectives to correspond to the organization’s overall strategic plan. Systems are more efficient, subsystems are coordinated, and there is a sound basis for selecting new applications for development. Duplication, wasted effort, and cost and time overruns are avoided. The system is less costly and easier to maintain. Finally, management is prepared for resource needs, and employees are prepared for the changes that will occur.  Plann… Two systems development plans are needed: Project development plan. prepared by the project team, contains a cost–benefit analysis, developmental and operational requirements (people, hardware, software, and financial), and a schedule of the activities required to develop and operate the new application. Master plan: a long-range master plan, prepared by the information systems steering committee, specifies what the system will consist of, how it will be developed, who will develop it, how needed resources will be acquired, and where the AIS is headed  WPLANNING TECHNIQUES should do system planning? PERT and Gantt charts are techniques for scheduling and monitoring systems development activities program evaluation and review technique (PERT) - A way to plan, develop, coordinate, control, and schedule systems development activities; all activities, and precedent and subsequent relationships among activities, are identified and shown on a PERT diagramm Critical path - The PERT path requiring the greatest amount of time to complete a project; if a critical path activity is delayed, the whole project is delayed. If possible, resources can be shifted to critical path activities to reduce project completion time. 2. Project Planning The purpose of project planning is to allocate resources to individual applications within the framework of the strategic plan. It includes the following steps – 1. Recognizing the problem – 2. Defining the problem – 3. Specifying system objectives – 4. Determining project feasibility – 5. Preparing a formal project proposal – 6. Evaluating & prioritizing competing proposals – 7. Producing a project schedule – 8. Announcing a new system project  \ Planning techniques cont.… contCONT tGantt tePlanning chart - A bar graph mIt shows used for project planning. planning project activities on occurs at two levels the left, units of time across the top, and the time each activity is expected to take as a horizontal bar.s at the mausualears As activities are completed, they are recorded on the Gantt chart by filling in the bar; thus, at any time it is possible to determine which activities are on schedule and which are behind. The primary advantage of the Gantt chart is the ability to show graphically the entire schedule for a large, complex project, including progress to date and status. A disadvantage is that the charts do not show the relationships among project activities. Gantt chart  Feasibility study - is an investigation to determine whether it is practical to develop a new application or system. There are five important aspects to be considered during a feasibility study: 1. Economic feasibility. Will system benefits justify the time, money, and resources required to implement it? 2. Technical feasibility. Can the system be developed and implemented using existing technology? 3. Legal feasibility. Does the system comply with all applicable federal and state laws, administrative agency regulations, and contractual obligations? 4. Scheduling feasibility. Can the system be developed and implemented in the time allotted? 5. Operational feasibility. Does the organization have access to people who can design, implement, and operate the proposed system? Will people use the system?  CAPITAL BUDGETING: CALCULATING ECONOMIC FEASIBILITY aspects of a firm’s business activities is as volatile & unpredictable as informatio strategic system planning? capital budgeting model – A return-on-investment technique used to compare estimated benefits and costs to determine whether a system is cost beneficial. The following are three commonly used capital budgeting techniques: 1. Payback period. The payback period is the number of years required for the net savings to equal the initial cost of the investment. The project with the shortest payback period is usually selected. 2. Net present value (NPV). All estimated future cash flows are discounted back to the present, using a discount rate that reflects the time value of money. The initial outlay costs are deducted from the discounted cash flows to obtain the net present value (NPV). A positive NPV indicates the alternative is economically feasible. The highest positive NPV is usually selected. 3. Internal rate of return (IRR). The internal rate of return (IRR) is the effective interest rate that results in an NPV of zero. A project’s IRR is compared with a minimum acceptable rate to determine acceptance or rejection. The proposal with the highest IRR is usually selected.  CHAPTER 4: Relational Databases BJECTIVES LEARNING OBJECTIVES BJECTIVES After studying this chapter, you should be able to: 1. Explain the importance and advantages of databases, as well as the difference between database systems and file-based legacy systems. 2.Explain database systems, including logical and physical views, schemas, the data dictionary, and DBMS languages. 3.Describe what a relational database is, how it organizes data, and how to create a set of well-structured relational database tables.   Feasibility Analysis feasibility study - An investigation to determine whether it is practical to develop a new application or system. There are five important aspects to be considered during a feasibility study: 1. Economic feasibility. Will system benefits justify the time, money, and resources required to implement it? Payback, NPV, and IRR are common capital budgeting techniques used to evaluate project economic feasibility. 2. Technical feasibility. Can the system be developed and implemented using existing technology? 3. Legal feasibility. Does the system comply with all applicable federal and state laws, administrative agency regulations, and contractual obligations? 4. Scheduling feasibility. Can the system be developed and implemented in the time allotted? 5. Operational feasibility. Does the organization have access to people who can design, implement, and operate the proposed system? Will people use the system?  System Analysis When a new or improved system is needed, a written request for systems development is prepared. The request describes the current problems, the reasons for the change, the proposed system’s objectives, and its anticipated benefits and costs. Initial investigation - A preliminary investigation to determine whether a proposed new system is both needed and feasible.