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
cause 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
lity; 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
who gain authorized (or unauthorized) access
, to information. At the very least, confidential information about the customers should be encrypte
d and have limited access.
2. Inventory management (e.g., turnover, obsolescence, supply/demand, reorder levels), potential mar
kets 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
cremental 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 ` cost`of` trade` disru
ption,` although` some` data` may` be` available` from` industry` sources.` Additional` us`eful` information` ` wo
uld` include` demographic` data` for` the` local` community` and` estimates` of` local̀ 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`endors` 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`different
ww
` classes ` of` goods.` An ` organization` might ` decide ` to ` drop ` some` product` lines ` that ` are` e`xpensive` to` ca
rry` 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` o
rganization` with` unusually` low` manufacturing` costs,` because` of` a` high` degree` of` automation ` or` for` o
w
ther` reasons,` would` enjoy` a` ` distinct` competitive` advantage.
Customer` credit` and` accounts` receivable` data` contain` ` valuable` ` information` ` on` customers'` financi`al` c
ondition.` An` organization` would` wish` to` target` high-
income` customers` or` customers` with` good` credit` histories` in` its` promotional` campaigns.` Some`organiz
ations` might` also` be` tempted` to` sell` credit` data` to` other` firms` to` aid` their` promotional` e`fforts.
However,` except` for` credit` companies` themselves,` such` sale` of` credit` data` is` restricted` b`y` la
w` and` may ` also` raise` serious` ethical` concerns.
Personnel` and` payroll` records` contain` ` valuable` information` about` employees'` financial` condition`and` p
ossibly` about` their` tastes` and` habits.` Such` information` might` be` used` to` target` an` organiz
ation's` own` employees` in` promotional` campaigns.
The` release` of` personnel` and` payroll` data` to` o`ther
` 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`kely` t
o` 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` b
ecause` 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
, directly` apply` to` non-
public` companies.)
Accountants` can` still` provide` consulting` services,` and` this` will` continue` to` b`e` a
` large` practice-just` not` to` their` own` audit` clients.
5. If` accounting` systems` are` to` do` their` job` of` providing` high` quality` accounting` information` effe`ctivel
y` and` efficiently,` users` must` participate` in` systems` development.` Some` aspects` of` develop`ment` requi
re` specialized` expertise,` for` example,` in` computer` science` or` auditing,` that` users` ma`y` not` have.` Ho
wever,` many` other` aspects` relate` to` the` types` of` accounting` information` that` are`needed` and` the` way
` in ` which` that ` information` should` be` presented` to ` users.` In ` these ` areas,` u `sers ` are` the` experts.
A` system` developed` entirely` by` technical` specialists` may` be` technologica
lly` superior` but` may ` fail` to` meet` the` users'` needs.
User` participation` in` systems` development` does` not` necessarily` mean` membership` on` systems` pr`ojects
.` The` required` participation` can` be` provided` in` other` ways,` such` as` regular` meetings` with`project` me
mbers.` But` experience` has` shown` that` the` intimacy` of` contact` provided` by` project` me`mbership` is` the
` best ` way` to ` ensure ` that ` the` users'` point` of ` view` is ` represented` in ` development `decisions.
6. The` CPA` license` is` a` highly` respected` certification` providing` evidence` of` accounting` competenc`e` an
d` authorizing` the` holder` to` engage` in` types` of` public` accounting` practice` regulated` by` stat`e` law.` H
owever,` other` certifications` are` more` directly` relevant` to` other` types` of` accounting` pra`ctice,` such` as`
management` accounting` or` internal` auditing.` Although` the` CMA` and` CIA` design`ations` do` not` carry`
the` legal` status` of` the` CPA` license` and` may` not` yet` have` the` same` public
recognition,` they` are` growing` rapidly` in` acceptance` in` their` respective` fields.
A` student` who`pla
ns` to` practice` in` one` of` these` fields` is` likely` to` be` served` better` by` a` specialized` certificatio`n` than`
by` obtaining` a` CPA` license
7. The` purpose` of` this` activity` is` to` get` students` to` start` thinking` about` what` a` basic` accounting`informa
tion` system` is` and` to` initiate` a` lively` discussion.
The` instructor` should` allow` considerabl` e
` flexibility` in ` answers ` to ` this` question.` ` When ` the` students` are` finished,` tell ` them` they` just` cr`eated `
an` “accounting` system.”
Randomly` select` one` team` to` present` its` solution` to` the` class.
At` the` appropriate` time` in` the` p` re
sentation,` the` instructor` should` raise` questions` for` any` team` to` answer.
What` is` a` transaction?`Wh
at` is` a` journal` entry?
How` can` you` ensure` that` this` transaction` gets` recorded? Recorded` only` one` time?
Recorde`d` in` the` correct` time` period?
Recorded` for` the` correct` amount?
How` can` you` be` sure` an` employee` does` not` steal` the` ski` poles?
What` happens` if` the` sales` amount` is` recorded` as,` e.g.,` $1,500` instead` of` $1,600?
How` can`
you` prevent` this` from` happening?
How` can` we` know` if` ` this` order` exceeds` Snowmass’` credit` limit?
What` information` ` does` the` accounting` system` ` need` ` to` ` provide` ` so` ` you` ` can` ` determine:
How` profitable` are` the` ski` poles` a`re?
` Should` you` offer` another` prod`uct?
Which` salesperson` is` getting` the` highest` volume` of` orders` for` ski
poles?` Is` this` salesperson` offering` too` many ` sales` discounts?
Which` salesperson` is` making` the` most` profit` on` sale`s?
` Which ` salespeople` sold ` what` ski ` products?
Which` customers` bought` ` which` ski` products?
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
cause 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
lity; 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
who gain authorized (or unauthorized) access
, to information. At the very least, confidential information about the customers should be encrypte
d and have limited access.
2. Inventory management (e.g., turnover, obsolescence, supply/demand, reorder levels), potential mar
kets 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
cremental 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 ` cost`of` trade` disru
ption,` although` some` data` may` be` available` from` industry` sources.` Additional` us`eful` information` ` wo
uld` include` demographic` data` for` the` local` community` and` estimates` of` local̀ 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`endors` 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`different
ww
` classes ` of` goods.` An ` organization` might ` decide ` to ` drop ` some` product` lines ` that ` are` e`xpensive` to` ca
rry` 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` o
rganization` with` unusually` low` manufacturing` costs,` because` of` a` high` degree` of` automation ` or` for` o
w
ther` reasons,` would` enjoy` a` ` distinct` competitive` advantage.
Customer` credit` and` accounts` receivable` data` contain` ` valuable` ` information` ` on` customers'` financi`al` c
ondition.` An` organization` would` wish` to` target` high-
income` customers` or` customers` with` good` credit` histories` in` its` promotional` campaigns.` Some`organiz
ations` might` also` be` tempted` to` sell` credit` data` to` other` firms` to` aid` their` promotional` e`fforts.
However,` except` for` credit` companies` themselves,` such` sale` of` credit` data` is` restricted` b`y` la
w` and` may ` also` raise` serious` ethical` concerns.
Personnel` and` payroll` records` contain` ` valuable` information` about` employees'` financial` condition`and` p
ossibly` about` their` tastes` and` habits.` Such` information` might` be` used` to` target` an` organiz
ation's` own` employees` in` promotional` campaigns.
The` release` of` personnel` and` payroll` data` to` o`ther
` 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`kely` t
o` 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` b
ecause` 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
, directly` apply` to` non-
public` companies.)
Accountants` can` still` provide` consulting` services,` and` this` will` continue` to` b`e` a
` large` practice-just` not` to` their` own` audit` clients.
5. If` accounting` systems` are` to` do` their` job` of` providing` high` quality` accounting` information` effe`ctivel
y` and` efficiently,` users` must` participate` in` systems` development.` Some` aspects` of` develop`ment` requi
re` specialized` expertise,` for` example,` in` computer` science` or` auditing,` that` users` ma`y` not` have.` Ho
wever,` many` other` aspects` relate` to` the` types` of` accounting` information` that` are`needed` and` the` way
` in ` which` that ` information` should` be` presented` to ` users.` In ` these ` areas,` u `sers ` are` the` experts.
A` system` developed` entirely` by` technical` specialists` may` be` technologica
lly` superior` but` may ` fail` to` meet` the` users'` needs.
User` participation` in` systems` development` does` not` necessarily` mean` membership` on` systems` pr`ojects
.` The` required` participation` can` be` provided` in` other` ways,` such` as` regular` meetings` with`project` me
mbers.` But` experience` has` shown` that` the` intimacy` of` contact` provided` by` project` me`mbership` is` the
` best ` way` to ` ensure ` that ` the` users'` point` of ` view` is ` represented` in ` development `decisions.
6. The` CPA` license` is` a` highly` respected` certification` providing` evidence` of` accounting` competenc`e` an
d` authorizing` the` holder` to` engage` in` types` of` public` accounting` practice` regulated` by` stat`e` law.` H
owever,` other` certifications` are` more` directly` relevant` to` other` types` of` accounting` pra`ctice,` such` as`
management` accounting` or` internal` auditing.` Although` the` CMA` and` CIA` design`ations` do` not` carry`
the` legal` status` of` the` CPA` license` and` may` not` yet` have` the` same` public
recognition,` they` are` growing` rapidly` in` acceptance` in` their` respective` fields.
A` student` who`pla
ns` to` practice` in` one` of` these` fields` is` likely` to` be` served` better` by` a` specialized` certificatio`n` than`
by` obtaining` a` CPA` license
7. The` purpose` of` this` activity` is` to` get` students` to` start` thinking` about` what` a` basic` accounting`informa
tion` system` is` and` to` initiate` a` lively` discussion.
The` instructor` should` allow` considerabl` e
` flexibility` in ` answers ` to ` this` question.` ` When ` the` students` are` finished,` tell ` them` they` just` cr`eated `
an` “accounting` system.”
Randomly` select` one` team` to` present` its` solution` to` the` class.
At` the` appropriate` time` in` the` p` re
sentation,` the` instructor` should` raise` questions` for` any` team` to` answer.
What` is` a` transaction?`Wh
at` is` a` journal` entry?
How` can` you` ensure` that` this` transaction` gets` recorded? Recorded` only` one` time?
Recorde`d` in` the` correct` time` period?
Recorded` for` the` correct` amount?
How` can` you` be` sure` an` employee` does` not` steal` the` ski` poles?
What` happens` if` the` sales` amount` is` recorded` as,` e.g.,` $1,500` instead` of` $1,600?
How` can`
you` prevent` this` from` happening?
How` can` we` know` if` ` this` order` exceeds` Snowmass’` credit` limit?
What` information` ` does` the` accounting` system` ` need` ` to` ` provide` ` so` ` you` ` can` ` determine:
How` profitable` are` the` ski` poles` a`re?
` Should` you` offer` another` prod`uct?
Which` salesperson` is` getting` the` highest` volume` of` orders` for` ski
poles?` Is` this` salesperson` offering` too` many ` sales` discounts?
Which` salesperson` is` making` the` most` profit` on` sale`s?
` Which ` salespeople` sold ` what` ski ` products?
Which` customers` bought` ` which` ski` products?
