Solution Manual For
Accounting Information Systems: A Practitioner Emphasis 7th
Edition By Cynthia D. Heagy, Constance M. Lehmann || ISBN:
978111121951|| All Chapters Complete Covered || NEWEST
VERSION
Grade37 Stuvia
,Chapter 1
Significance of Accounting Information Systems and the
Accountant’s Role
INTRODUCTORY SCENARIO: SUGGESTED SOLUTIONS TOQUESTIONS
1. Employee overtime hours, customer information (e.g., age groups), inventory levels, reorder points, EOQ
calculation, volume/quantity discount analysis, square footage in use v. storage, customer 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., tech support)? What types of pre-
packaged systems are available?
3. Information to help with software division (e.g., total sales dollars, complexity of accounting system). 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 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 TOQUESTIONS
Vignette 1.1
1. Closer relationships with remaining suppliers, the ability to carry less inventory (reducing carrying costs
and risks of theft or loss of inventory), sharing of planning information with suppliers, easier to monitor
vendor performance. Might lose volume discounts if trying to minimize 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 efficient,
increases in efficiency in meeting changes in demand. One disadvantage would relate to problems with
settling disputed orders or payments with loss of “paper trail” that includes authorized signatures.
Vignette 1.2
1. Managers would probably find information in units to be most useful for planning decisions because this
information would represent things over which he/she has control. While the manager might not have control
over salaries, he/she does have control over the amount of overtime and the approval of vacation of the
employees.
2. Managers would probably want information related to production numbers (to determine seasonality; during
slow times, more employees could be on vacation), the number of vacation hours per employee, the number
of overtime hours per employee, backorder information, and information 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 spending pattern
information shared with other parties. Loss of confidential information can be disastrous 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 encrypted and have
limited access.
2. Inventory management (e.g., turnover, obsolescence, supply/demand, reorder levels), potential markets 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 provide 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 questionable since the “tone at the top”
with regard to the project was “ignorance”. Since executive 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 to 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 that 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 involvement 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 protection of
confidential/private information
SOLUTIONS TODISCUSSION QUESTIONS AND PROBLEMS
1. The project that Finkelstein and Associates is considering is a capital investment that requires information 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 incremental 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 accounting 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 disruption, although some data
may be available from industry sources. Additional useful information would include demographic data for
the local community and estimates of local economic activity and consumer buying power.
2. a. and b.
Purchasing data might reveal the degree of competition among vendors and vendors' pricing policies. An
organization might decide to integrate vertically by buying an equity position in key vendors or by producing
some of the needed goods and services itself.
Perpetual inventory records indicate inventory carrying costs and might reveal buying patterns for different
classes of goods. An organization might decide to drop some product lines that are expensive 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 automation or for other
reasons, would enjoy a distinct competitive advantage.
Customer credit and accounts receivable data contain valuable information on customers' financial condition.
An organization would wish to target high-income customers or customers with good credit histories in its
promotional campaigns. Some organizations might also be tempted to sell credit data to other firms to aid their
promotional efforts. However, except for credit companies themselves, such sale of credit data is restricted by
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 organization's own
employees in promotional campaigns. The release of personnel and payroll data to other 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 likely to be involved
primarily because of their expertise in internal controls and their knowledge of what enhances or detracts
from a system's auditability. Accountants are likely to be involved primarily because of their expertise in
evaluating and designing a system's outputs in relation 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. (This Act does not
Accounting Information Systems: A Practitioner Emphasis 7th
Edition By Cynthia D. Heagy, Constance M. Lehmann || ISBN:
978111121951|| All Chapters Complete Covered || NEWEST
VERSION
Grade37 Stuvia
,Chapter 1
Significance of Accounting Information Systems and the
Accountant’s Role
INTRODUCTORY SCENARIO: SUGGESTED SOLUTIONS TOQUESTIONS
1. Employee overtime hours, customer information (e.g., age groups), inventory levels, reorder points, EOQ
calculation, volume/quantity discount analysis, square footage in use v. storage, customer 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., tech support)? What types of pre-
packaged systems are available?
3. Information to help with software division (e.g., total sales dollars, complexity of accounting system). 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 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 TOQUESTIONS
Vignette 1.1
1. Closer relationships with remaining suppliers, the ability to carry less inventory (reducing carrying costs
and risks of theft or loss of inventory), sharing of planning information with suppliers, easier to monitor
vendor performance. Might lose volume discounts if trying to minimize 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 efficient,
increases in efficiency in meeting changes in demand. One disadvantage would relate to problems with
settling disputed orders or payments with loss of “paper trail” that includes authorized signatures.
Vignette 1.2
1. Managers would probably find information in units to be most useful for planning decisions because this
information would represent things over which he/she has control. While the manager might not have control
over salaries, he/she does have control over the amount of overtime and the approval of vacation of the
employees.
2. Managers would probably want information related to production numbers (to determine seasonality; during
slow times, more employees could be on vacation), the number of vacation hours per employee, the number
of overtime hours per employee, backorder information, and information 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 spending pattern
information shared with other parties. Loss of confidential information can be disastrous 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 encrypted and have
limited access.
2. Inventory management (e.g., turnover, obsolescence, supply/demand, reorder levels), potential markets 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 provide 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 questionable since the “tone at the top”
with regard to the project was “ignorance”. Since executive 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 to 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 that 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 involvement 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 protection of
confidential/private information
SOLUTIONS TODISCUSSION QUESTIONS AND PROBLEMS
1. The project that Finkelstein and Associates is considering is a capital investment that requires information 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 incremental 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 accounting 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 disruption, although some data
may be available from industry sources. Additional useful information would include demographic data for
the local community and estimates of local economic activity and consumer buying power.
2. a. and b.
Purchasing data might reveal the degree of competition among vendors and vendors' pricing policies. An
organization might decide to integrate vertically by buying an equity position in key vendors or by producing
some of the needed goods and services itself.
Perpetual inventory records indicate inventory carrying costs and might reveal buying patterns for different
classes of goods. An organization might decide to drop some product lines that are expensive 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 automation or for other
reasons, would enjoy a distinct competitive advantage.
Customer credit and accounts receivable data contain valuable information on customers' financial condition.
An organization would wish to target high-income customers or customers with good credit histories in its
promotional campaigns. Some organizations might also be tempted to sell credit data to other firms to aid their
promotional efforts. However, except for credit companies themselves, such sale of credit data is restricted by
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 organization's own
employees in promotional campaigns. The release of personnel and payroll data to other 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 likely to be involved
primarily because of their expertise in internal controls and their knowledge of what enhances or detracts
from a system's auditability. Accountants are likely to be involved primarily because of their expertise in
evaluating and designing a system's outputs in relation 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. (This Act does not
