Solutions Manual For Accounting Information Systems A Practitioner
Emphasis, 7e CynthiaHeagy Constance Lehmann
Chapter 1
Significance of Accounting Information Systems and the
Accountant’s Role
INTRODUCTORY SCENARIO: SUGGESTED SOLUTIONS TO QUESTIONS
1. Employee overtime hours, customer information (e.g., age groups), inventory levels, reorder poin
ts, EOQ calculation, volume/quantity discount analysis, square footage in use v. storage, custo
mer flow data, spoilage
2. How much is client willing to pay? System that is easy for servers to use with proper controls.
Bob’s hourly rate would be a concern for client. Will Bob be around “after the sale” (i.e., tec
h support)? What types of pre-packaged systems are available?
3. Information to help with software division (e.g., total sales dollars, complexity of accounting syst
em). How many computers needed? Any expansion planned? What types of employees do they
have (e.g., waiters would want quick touch screens)?
4 The owner of the restaurant wants a new accounting system because he needs up-to-
date information on how the business is doing. Waiting until the end of the year, or even the ww
quarter, does not give Marshall the information he needs to make those day-to-
day decisions that will ensure the success of his restaurant.
CHAPTER VIGNETTES: SUGGESTED RESPONSES TO QUESTIONS
Vignette 1.1
1. Closer relationships with remaining suppliers, the ability to carry less inventory (reducing carry
ing costs and risks of theft or loss of inventory), sharing of planning information with suppli
ers, easier to monitor vendor performance. Might lose volume discounts if trying to minimiz
e inventory on hand by having smaller shipments from vendors shipped more often.
2. Reduction in paperwork, reduction in input errors, ordering and cash receipt processes more w
efficient, increases in efficiency in meeting changes in demand. One disadvantage would rela
te to problems with settling disputed orders or payments with loss of “paper trail” that incl
udes authorized signatures.
Vignette 1.2
1. Managers] would] probably] find] information] in] units] to] be] most] useful] for] planning] decisions] be]c
ause] this] information] would] represent] things] over] which] he/she] has] control.] While] the] manage
]r] might] not] have] control] over] salaries,] he/she] does] have] control] over] the] amount] of] overtime]
a]nd] the] approval] of] vacation] of] the] employees.
2. Managers] would] probably] want] information] related] to] production] numbers] (to] determine] seasona]li
ty;] during] slow] times,] more] employees] could] be] on] vacation),] the] number] of] vacation] hours] p]
er] employee,] the] number] of] overtime] hours] per] employee,] backorder] information,] and] informati]
on] to] help] the] manager] match] staffing] levels] with] production.
Vignette] 1.3
1. The] privacy] of] information] is] a] major] consideration,] as] the] customer] might] not] want] their] spen]
ding] pattern] information] shared] with] other] parties.] Loss] of] confidential] information] can] be] disa
]strous] to] a] company’s] reputation] and] lead] to] significant] financial] losses] (lost] sales,] fines,] etc.)]
Information] about] customers] must] be] protected] from] information] leakage] to] other] third] parties]w
ho] gain] authorized] (or] unauthorized)] access
, to] information.] At] the] very] least,] confidential] information] about] the] customers] should] be] encrypt
e]d] and] have] limited] access.
2. Inventory] management] (e.g.,] turnover,] obsolescence,] supply/demand,] reorder] levels),] potential] mar]k
ets] or] product] lines] for] expansion,] frequent] buyer] programs.
Vignette] 1.4
1. The] situation] could] have] been] avoided] if] employees] had] been] part] of] the] decision
-]making] and] testing] early] in] the] project.] Employee] buy-
in] is] essential] to] the] success] of] any] new] system] implementation.] It] is] key] that] the] system] prov
]ide] managers] with] information] that] they] need] for] decision-
making.] It] is] also] important] to] have] a] maintenance] contract] in] place,] with] better] reporting] to]
management] and] regular] follow-
up.] It] appears] that] this] decision] was] not] made] by] executive] management,] so] its] success] was] q
uestionable] since] the] “tone] at] the] top”] with] regard] to] the] project] was] “ignorance”.] ] Since] exec]
utive] management] did] not] monitor] the] project,] they] could] not] respond] to] Kluger’s] complaints,]
nor] could] they] provide] “strong] encouragement”] for] continuation] of] the] project] originally] started
]by] Lehmann.] In] fact,] it] appears] that] executive] management] was] not] involved] in] the] decision
] t]o] take] on] the] new] system.] Kluger] was] not] given] the] opportunity] to] learn] the] new] system,
] nor
was] there] motivation] to] learn] the] new] system.] The] company] also] had] inadequate] backup] so] t
hat] the] project] could] continue] in] the] absence] of] a] ] key] employee.
2. .Here] are] some] suggested] ] “next] steps”
Improve] the] governance] process] and] the] “tone] at] the] top”] to] get] executive] management] invol
]vement] and] oversight] of] system] projects—
this] includes] aligning] any] system] ] projects] with] the] strategy] of] the] company
Determine] that] any] system] chosen] by] management] will] provide] quality] information] useful] for]
decision-] making] at] all] levels
Reinstate] the] maintenance] contract] and] set] up] a] training] contract] if] it] is] determined] more] cost-
]effective] and] in] line] with] the] company] business] plan] to] use] the] new] system
Provide] ] training] and] ] employee] ] involvement] in] ] developing] the] ] system
Provide] better] oversight] of] the] controller] function
Vignette] 1.5
1. The] redesign] process] can] be] improved] using] the] following] suggestions:
Set] up] end-user] groups] to] get] input] regarding] output] needs,] data] ] collection] ] needs,] screen,] and] form] layouts
Develop] a] ] schedule] of] tests] to] be] conducted] with] representative] end] users] for] pilot] testing
Allow] end] ] user] input] ] for] changes] and] ] improvements] to] ] system
Set] up] ] training] for] all] affected] ] employees
Get] ] management] ] and] ] programmer] ] buy-
in] for] essential] controls] and] audit] trails] at] the] front] end] of] development
Emphasize] the] importance] of] controls,] protection] of] information] assets,] and] prote]
ction] of] confidential/private] information
SOLUTIONS] TO] DISCUSSION] QUESTIONS] AND] PROBLEMS
1. The] project] that] Finkelstein] and] Associates] is] considering] is] a] capital] investment] that] requires] i]
nformation] on] the] estimated] initial] investment] and] the] estimated] future] return.] ] The] future] return]
would] be] measured] by] net] incremental] cash] flows] to] the] mall] (incremental] cash] inflows] less] in]c
remental] cash] outflows).
Estimated] ] initial] investment] ] would] include:
• Architects] fees
• Renovation] of] existing] facilities
• Construction] ] of] new] facilities] and] ] food] ] court
• Cost] of] disruption] of] trade] during] project
, Estimated] ] net] incremental] cash] flows] would] ] include:
Cash] ] inflows:
• Increased] ] store] rents] from] existing] facilities
• Rents] from] ] new] facilities] and] ] food] ] court
Less] cash] outflows:
• Increased] ] janitorial] costs
• Increased] security] costs
Estimates] of] the] future] cash] inflows] and] outflows] could] be] based] on] the] mall's] historical] accou]
nting] data. ] Estimates] of] the] renovation] and] construction] costs] would] be] based] primarily] on] the]
architect's] judgment] and] experience.] It] would] be] difficult] to] make] precise] estimates] of] the] cos
t]of] trade] disruption,] although] some] data] may] be] available] from] industry] sources.] Additional] us
]eful] information] ] would] include] demographic] data] for] the] local] community] and] estimates] of] loca]
l w
economic] ] activity] ] and] ] consumer] ] buying] power.
2. a.] and] b.
Purchasing] data] might] reveal] the] degree] of] competition] among] vendors] and] vendors'] pricing] polic]
ies.] ] An] organization] might] decide] to] integrate] vertically] by] buying] an] equity] position] in] key] v]e
ndors] or] by] producing] some] of] the] needed] goods] and] services] itself.
Perpetual] inventory] records] indicate] inventory] carrying] costs] and] might] reveal] buying pa]tterns] for]diffe
ww
rent] classes] of] goods.] An] organization] might] decide] to] drop] some] product] lines] that] are] e]xpensi
ve] to] carry] in] inventory] and] for] which] demand] is] decreasing,] erratic,] or] highly] seasonal.
Manufacturing] cost] data] might] shed] light] on] an] organization's] ability] to] compete] in] its] market
.]An] organization] with] unusually] low] manufacturing] costs,] because] of] a] high] degree] of] automati
on ] or] for] other] reasons,] would] enjoy] a] ] distinct] competitive] advantage.
w
Customer] credit] and] accounts] receivable] data] contain] ] valuable] ] information] ] on] customers'] financ
i]al] condition.] An] organization] would] wish] to] target] high-
income] customers] or] customers] with] good] credit] histories] in] its] promotional] campaigns.] Some]or
ganizations] might] also] be] tempted] to] sell] credit] data] to] other] firms] to] aid] their] promotional] e]ff
orts.
However,] except] for] credit] companies] themselves,] such] sale] of] credit] data] is] restricted] b
]y] law] and] may] also] raise] serious] ethical] concerns.
Personnel] and] payroll] records] contain] ] valuable] information] about] employees'] financial] condition]
and] possibly] about] their] tastes] and] habits.] Such] information] might] be] used] to] target] an] organi
z
ation's] own] employees] in] promotional] campaigns.
The] release] of] personnel] and] payroll] data] to] o]t
her] organizations,] except] to] credit] companies,] is] prohibited] by] privacy] laws.
3. External] auditors] and] accountants] need] a] basic] understanding] of] ] accounting] information] ] systems
,] their] components,] their] modes] of] operation,] and] their] supporting] technologies.] Auditors] are] li]k
ely] to] be] involved] primarily] because] of] their] expertise] in] internal] controls] and] their] knowledg]
e] of] what] enhances] or] detracts] from] a] system's] auditability.] Accountants] are] likely] to] be] invol]
ved] primarily] because] of] their] expertise] in] evaluating] and] designing] a] system's] outputs] in] relati
]on] to] the] needs] of] the] organization] and] its] users.
4. Under] Section] ] 201of] ] the] Sarbanes-
Oxley] Act] of] ] 2002,] auditors] are] prohibited] ] from] ] providing] any] non-
audit] service,] including] information] systems] design] and] implementation,] to] its] audit] clients.
, (Thi
]s] Act] does] not
Emphasis, 7e CynthiaHeagy Constance Lehmann
Chapter 1
Significance of Accounting Information Systems and the
Accountant’s Role
INTRODUCTORY SCENARIO: SUGGESTED SOLUTIONS TO QUESTIONS
1. Employee overtime hours, customer information (e.g., age groups), inventory levels, reorder poin
ts, EOQ calculation, volume/quantity discount analysis, square footage in use v. storage, custo
mer flow data, spoilage
2. How much is client willing to pay? System that is easy for servers to use with proper controls.
Bob’s hourly rate would be a concern for client. Will Bob be around “after the sale” (i.e., tec
h support)? What types of pre-packaged systems are available?
3. Information to help with software division (e.g., total sales dollars, complexity of accounting syst
em). How many computers needed? Any expansion planned? What types of employees do they
have (e.g., waiters would want quick touch screens)?
4 The owner of the restaurant wants a new accounting system because he needs up-to-
date information on how the business is doing. Waiting until the end of the year, or even the ww
quarter, does not give Marshall the information he needs to make those day-to-
day decisions that will ensure the success of his restaurant.
CHAPTER VIGNETTES: SUGGESTED RESPONSES TO QUESTIONS
Vignette 1.1
1. Closer relationships with remaining suppliers, the ability to carry less inventory (reducing carry
ing costs and risks of theft or loss of inventory), sharing of planning information with suppli
ers, easier to monitor vendor performance. Might lose volume discounts if trying to minimiz
e inventory on hand by having smaller shipments from vendors shipped more often.
2. Reduction in paperwork, reduction in input errors, ordering and cash receipt processes more w
efficient, increases in efficiency in meeting changes in demand. One disadvantage would rela
te to problems with settling disputed orders or payments with loss of “paper trail” that incl
udes authorized signatures.
Vignette 1.2
1. Managers] would] probably] find] information] in] units] to] be] most] useful] for] planning] decisions] be]c
ause] this] information] would] represent] things] over] which] he/she] has] control.] While] the] manage
]r] might] not] have] control] over] salaries,] he/she] does] have] control] over] the] amount] of] overtime]
a]nd] the] approval] of] vacation] of] the] employees.
2. Managers] would] probably] want] information] related] to] production] numbers] (to] determine] seasona]li
ty;] during] slow] times,] more] employees] could] be] on] vacation),] the] number] of] vacation] hours] p]
er] employee,] the] number] of] overtime] hours] per] employee,] backorder] information,] and] informati]
on] to] help] the] manager] match] staffing] levels] with] production.
Vignette] 1.3
1. The] privacy] of] information] is] a] major] consideration,] as] the] customer] might] not] want] their] spen]
ding] pattern] information] shared] with] other] parties.] Loss] of] confidential] information] can] be] disa
]strous] to] a] company’s] reputation] and] lead] to] significant] financial] losses] (lost] sales,] fines,] etc.)]
Information] about] customers] must] be] protected] from] information] leakage] to] other] third] parties]w
ho] gain] authorized] (or] unauthorized)] access
, to] information.] At] the] very] least,] confidential] information] about] the] customers] should] be] encrypt
e]d] and] have] limited] access.
2. Inventory] management] (e.g.,] turnover,] obsolescence,] supply/demand,] reorder] levels),] potential] mar]k
ets] or] product] lines] for] expansion,] frequent] buyer] programs.
Vignette] 1.4
1. The] situation] could] have] been] avoided] if] employees] had] been] part] of] the] decision
-]making] and] testing] early] in] the] project.] Employee] buy-
in] is] essential] to] the] success] of] any] new] system] implementation.] It] is] key] that] the] system] prov
]ide] managers] with] information] that] they] need] for] decision-
making.] It] is] also] important] to] have] a] maintenance] contract] in] place,] with] better] reporting] to]
management] and] regular] follow-
up.] It] appears] that] this] decision] was] not] made] by] executive] management,] so] its] success] was] q
uestionable] since] the] “tone] at] the] top”] with] regard] to] the] project] was] “ignorance”.] ] Since] exec]
utive] management] did] not] monitor] the] project,] they] could] not] respond] to] Kluger’s] complaints,]
nor] could] they] provide] “strong] encouragement”] for] continuation] of] the] project] originally] started
]by] Lehmann.] In] fact,] it] appears] that] executive] management] was] not] involved] in] the] decision
] t]o] take] on] the] new] system.] Kluger] was] not] given] the] opportunity] to] learn] the] new] system,
] nor
was] there] motivation] to] learn] the] new] system.] The] company] also] had] inadequate] backup] so] t
hat] the] project] could] continue] in] the] absence] of] a] ] key] employee.
2. .Here] are] some] suggested] ] “next] steps”
Improve] the] governance] process] and] the] “tone] at] the] top”] to] get] executive] management] invol
]vement] and] oversight] of] system] projects—
this] includes] aligning] any] system] ] projects] with] the] strategy] of] the] company
Determine] that] any] system] chosen] by] management] will] provide] quality] information] useful] for]
decision-] making] at] all] levels
Reinstate] the] maintenance] contract] and] set] up] a] training] contract] if] it] is] determined] more] cost-
]effective] and] in] line] with] the] company] business] plan] to] use] the] new] system
Provide] ] training] and] ] employee] ] involvement] in] ] developing] the] ] system
Provide] better] oversight] of] the] controller] function
Vignette] 1.5
1. The] redesign] process] can] be] improved] using] the] following] suggestions:
Set] up] end-user] groups] to] get] input] regarding] output] needs,] data] ] collection] ] needs,] screen,] and] form] layouts
Develop] a] ] schedule] of] tests] to] be] conducted] with] representative] end] users] for] pilot] testing
Allow] end] ] user] input] ] for] changes] and] ] improvements] to] ] system
Set] up] ] training] for] all] affected] ] employees
Get] ] management] ] and] ] programmer] ] buy-
in] for] essential] controls] and] audit] trails] at] the] front] end] of] development
Emphasize] the] importance] of] controls,] protection] of] information] assets,] and] prote]
ction] of] confidential/private] information
SOLUTIONS] TO] DISCUSSION] QUESTIONS] AND] PROBLEMS
1. The] project] that] Finkelstein] and] Associates] is] considering] is] a] capital] investment] that] requires] i]
nformation] on] the] estimated] initial] investment] and] the] estimated] future] return.] ] The] future] return]
would] be] measured] by] net] incremental] cash] flows] to] the] mall] (incremental] cash] inflows] less] in]c
remental] cash] outflows).
Estimated] ] initial] investment] ] would] include:
• Architects] fees
• Renovation] of] existing] facilities
• Construction] ] of] new] facilities] and] ] food] ] court
• Cost] of] disruption] of] trade] during] project
, Estimated] ] net] incremental] cash] flows] would] ] include:
Cash] ] inflows:
• Increased] ] store] rents] from] existing] facilities
• Rents] from] ] new] facilities] and] ] food] ] court
Less] cash] outflows:
• Increased] ] janitorial] costs
• Increased] security] costs
Estimates] of] the] future] cash] inflows] and] outflows] could] be] based] on] the] mall's] historical] accou]
nting] data. ] Estimates] of] the] renovation] and] construction] costs] would] be] based] primarily] on] the]
architect's] judgment] and] experience.] It] would] be] difficult] to] make] precise] estimates] of] the] cos
t]of] trade] disruption,] although] some] data] may] be] available] from] industry] sources.] Additional] us
]eful] information] ] would] include] demographic] data] for] the] local] community] and] estimates] of] loca]
l w
economic] ] activity] ] and] ] consumer] ] buying] power.
2. a.] and] b.
Purchasing] data] might] reveal] the] degree] of] competition] among] vendors] and] vendors'] pricing] polic]
ies.] ] An] organization] might] decide] to] integrate] vertically] by] buying] an] equity] position] in] key] v]e
ndors] or] by] producing] some] of] the] needed] goods] and] services] itself.
Perpetual] inventory] records] indicate] inventory] carrying] costs] and] might] reveal] buying pa]tterns] for]diffe
ww
rent] classes] of] goods.] An] organization] might] decide] to] drop] some] product] lines] that] are] e]xpensi
ve] to] carry] in] inventory] and] for] which] demand] is] decreasing,] erratic,] or] highly] seasonal.
Manufacturing] cost] data] might] shed] light] on] an] organization's] ability] to] compete] in] its] market
.]An] organization] with] unusually] low] manufacturing] costs,] because] of] a] high] degree] of] automati
on ] or] for] other] reasons,] would] enjoy] a] ] distinct] competitive] advantage.
w
Customer] credit] and] accounts] receivable] data] contain] ] valuable] ] information] ] on] customers'] financ
i]al] condition.] An] organization] would] wish] to] target] high-
income] customers] or] customers] with] good] credit] histories] in] its] promotional] campaigns.] Some]or
ganizations] might] also] be] tempted] to] sell] credit] data] to] other] firms] to] aid] their] promotional] e]ff
orts.
However,] except] for] credit] companies] themselves,] such] sale] of] credit] data] is] restricted] b
]y] law] and] may] also] raise] serious] ethical] concerns.
Personnel] and] payroll] records] contain] ] valuable] information] about] employees'] financial] condition]
and] possibly] about] their] tastes] and] habits.] Such] information] might] be] used] to] target] an] organi
z
ation's] own] employees] in] promotional] campaigns.
The] release] of] personnel] and] payroll] data] to] o]t
her] organizations,] except] to] credit] companies,] is] prohibited] by] privacy] laws.
3. External] auditors] and] accountants] need] a] basic] understanding] of] ] accounting] information] ] systems
,] their] components,] their] modes] of] operation,] and] their] supporting] technologies.] Auditors] are] li]k
ely] to] be] involved] primarily] because] of] their] expertise] in] internal] controls] and] their] knowledg]
e] of] what] enhances] or] detracts] from] a] system's] auditability.] Accountants] are] likely] to] be] invol]
ved] primarily] because] of] their] expertise] in] evaluating] and] designing] a] system's] outputs] in] relati
]on] to] the] needs] of] the] organization] and] its] users.
4. Under] Section] ] 201of] ] the] Sarbanes-
Oxley] Act] of] ] 2002,] auditors] are] prohibited] ] from] ] providing] any] non-
audit] service,] including] information] systems] design] and] implementation,] to] its] audit] clients.
, (Thi
]s] Act] does] not
