Solutions Manual For Accounting Information Systems A Practitioner Emphasis, 7e CynthiaHeagy Constance Lehmann

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 SCE NARIO: SUGGE STED SOLUT IONS T O QUESTIONS
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1. Employee overtime hours, customer information (e.g., age groups), inventory levels, reorder poin
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ts, EOQ calculation, volume/quantity discount analysis, square footage in use v. storage, custo
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mer flow data, spoilage
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2. How much is client willing to pay? System that is easy for servers to use with proper controls.
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wBob’s hourly rate would be a concern for client. Will Bob be around “after the sale” (i.e., tec
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h support)? What types of pre-packaged systems are available?
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3. Information to help with software division (e.g., total sales dollars, complexity of accounting syst
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em). How many computers needed? Any expansion planned? What types of employees do they
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whave (e.g., waiters would want quick touch screens)?
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4 The owner of the restaurant wants a new accounting system because he needs up-to-
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date information on how the business is doing. Waiting until the end of the year, or even the
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quarter, does not give Marshall the information he needs to make those day-to-
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day decisions that will ensure the success of his restaurant.
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CHAPTER VIGNETTES: SUGGESTE D RESPONSE S T O QUESTIONS
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Vignette 1.1
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1. Closer relationships with remaining suppliers, the ability to carry less inventory (reducing carry
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ing costs and risks of theft or loss of inventory), sharing of planning information with suppli
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ers, easier to monitor vendor performance. Might lose volume discounts if trying to minimiz
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e inventory on hand by having smaller shipments from vendors shipped more often.
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2. Reduction in paperwork, reduction in input errors, ordering and cash receipt processes more
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wefficient, increases in efficiency in meeting changes in demand. One disadvantage would rela
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te to problems with settling disputed orders or payments with loss of “paper trail” that incl
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udes authorized signatures.
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Vignette 1.2
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1. Managers would probably find information in units to be most useful for planning decisions be
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cause this information would represent things over which he/she has control. While the manage
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r might not have control over salaries, he/she does have control over the amount of overtime a
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nd the approval of vacation of the employees.
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2. Managers would probably want information related to production numbers (to determine seasona
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lity; during slow times, more employees could be on vacation), the number of vacation hours p
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er employee, the number of overtime hours per employee, backorder information, and informati
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on to help the manager match staffing levels with production.
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Vignette 1.3
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1. The privacy of information is a major consideration, as the customer might not want their spen
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ding pattern information shared with other parties. Loss of confidential information can be disa
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strous to a company’s reputation and lead to significant financial losses (lost sales, fines, etc.)
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Information about customers must be protected from information leakage to other third parties
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who gain authorized (or unauthorized) access
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, to information. At the very least, confidential information about the customers should be encrypte
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d and have limited access.
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2. Inventory management (e.g., turnover, obsolescence, supply/demand, reorder levels), potential mar
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kets or product lines for expansion, frequent buyer programs.
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Vignette 1.4
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1. The situation could have been avoided if employees had been part of the decision-
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making and testing early in the project. Employee buy-
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in is essential to the success of any new system implementation. It is key that the system prov
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ide managers with information that they need for decision-
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making. It is also important to have a maintenance contract in place, with better reporting to
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management and regular follow- ww ww ww


up. It appears that this decision was not made by executive management, so its success was q
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uestionable since the “tone at the top” with regard to the project was “ignorance”. Since exec
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utive management did not monitor the project, they could not respond to Kluger’s complaints,
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nor could they provide “strong encouragement” for continuation of the project originally started
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wby Lehmann. In fact, it appears that executive management was not involved in the decision t
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o take on the new system. Kluger was not given the opportunity to learn the new system, nor
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wwwas there motivation to learn the new system. The company also had inadequate backup so t
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hat the project could continue in the absence of a key employee.
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2. .Here are some suggested “next steps”
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• Improve the governance process and the “tone at the top” to get executive management invol
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vement and oversight of system projects—
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this includes aligning any system projects with the strategy of the company
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• Determine that any system chosen by management will provide quality information useful for
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wdecision- making at all levelsww ww ww ww


• Reinstate the maintenance contract and set up a training contract if it is determined more cost-
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effective and in line with the company business plan to use the new system
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• Provide training and employee involvement in developing the system
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• Provide better oversight of the controller function
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Vignette 1.5
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1. The redesign process can be improved using the following suggestions:
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• Set up end-user groups to get input regarding output needs, data collection needs, screen, and form layouts
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• Develop a schedule of tests to be conducted with representative end users for pilot testing
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• Allow end user input for changes and improvements to system
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• Set up training for all affected employees
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• Get management and programmer buy-
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in for essential controls and audit trails at the front end of development
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• Emphasize the importance of controls, protection of information assets, and prote
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ction of confidential/private information
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SOLUTIONS TO DISCUSSION QUESTIONS AND PROBLEMS
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1. The project that Finkelstein and Associates is considering is a capital investment that requires i
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nformation on the estimated initial investment and the estimated future return. The future return
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would be measured by net incremental cash flows to the mall (incremental cash inflows less in
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cremental cash outflows). ww ww




Estimated initial investment would include:
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• Architects fees ww


• Renovation of existing facilities ww ww ww


• Construction of new facilities and food courtww ww ww ww ww ww


• Cost of disruption of trade during project
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, Estimated net incremental cash flows would include:
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Cash inflows: ww


• Increased store rents from existing facilities
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• Rents from new facilities and food court
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Less cash outflows:
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• Increased janitorial costs ww ww


• Increased security costs ww ww




Estimates of the future cash inflows and outflows could be based on the mall's historical accou
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nting data. Estimates of the renovation and construction costs would be based primarily on the
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warchitect's judgment and experience. It would be difficult to make precise estimates of the cost
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wwof trade disruption, although some data may be available from industry sources. Additional us
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eful information would include demographic data for the local community and estimates of local
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weconomic activity and consumer buying power.
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2. a. and b.
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Purchasing data might reveal the degree of competition among vendors and vendors' pricing polic
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ies. An organization might decide to integrate vertically by buying an equity position in key v
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endors or by producing some of the needed goods and services itself.
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Perpetual inventory records indicate inventory carrying costs and might reveal buying patterns for
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wdifferent classes of goods. An organization might decide to drop some product lines that are e
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xpensive to carry in inventory and for which demand is decreasing, erratic, or highly seasonal.
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Manufacturing cost data might shed light on an organization's ability to compete in its market.
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An organization with unusually low manufacturing costs, because of a high degree of automation
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or for other reasons, would enjoy a distinct competitive advantage.
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Customer credit and accounts receivable data contain valuable information on customers' financi
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al condition. An organization would wish to target high-
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income customers or customers with good credit histories in its promotional campaigns. Some
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organizations might also be tempted to sell credit data to other firms to aid their promotional e
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fforts. However, except for credit companies themselves, such sale of credit data is restricted b
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y law and may also raise serious ethical concerns.
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Personnel and payroll records contain valuable information about employees' financial condition
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and possibly about their tastes and habits. Such information might be used to target an organiz
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ation's own employees in promotional campaigns. The release of personnel and payroll data to o
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ther organizations, except to credit companies, is prohibited by privacy laws.
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3. External auditors and accountants need a basic understanding of accounting information systems
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, their components, their modes of operation, and their supporting technologies. Auditors are li
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kely to be involved primarily because of their expertise in internal controls and their knowledg
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e of what enhances or detracts from a system's auditability. Accountants are likely to be invol
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ved primarily because of their expertise in evaluating and designing a system's outputs in relati
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on to the needs of the organization and its users.
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4. Under Section 201of the Sarbanes-
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Oxley Act of 2002, auditors are prohibited from providing any non-
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audit service, including information systems design and implementation, to its audit clients.
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s Act does not
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, directly apply to non-
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public companies.) Accountants can still provide consulting services, and this will continue to b
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e a large practice-just not to their own audit clients.
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5. If accounting systems are to do their job of providing high quality accounting information effe
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ctively and efficiently, users must participate in systems development. Some aspects of develop
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ment require specialized expertise, for example, in computer science or auditing, that users ma
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y not have. However, many other aspects relate to the types of accounting information that are
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wwneeded and the way in which that information should be presented to users. In these areas, u
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sers are the experts. A system developed entirely by technical specialists may be technologica
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lly superior but may fail to meet the users' needs.
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User participation in systems development does not necessarily mean membership on systems pr
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ojects. The required participation can be provided in other ways, such as regular meetings with
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project members. But experience has shown that the intimacy of contact provided by project me
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mbership is the best way to ensure that the users' point of view is represented in development
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wdecisions.

6. The CPA license is a highly respected certification providing evidence of accounting competenc
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e and authorizing the holder to engage in types of public accounting practice regulated by stat
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e law. However, other certifications are more directly relevant to other types of accounting pra
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ctice, such as management accounting or internal auditing. Although the CMA and CIA design
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ations do not carry the legal status of the CPA license and may not yet have the same public
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wwrecognition, they are growing rapidly in acceptance in their respective fields. A student who
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plans to practice in one of these fields is likely to be served better by a specialized certificatio
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n than by obtaining a CPA license
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7. The purpose of this activity is to get students to start thinking about what a basic accounting
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information system is and to initiate a lively discussion. The instructor should allow considerabl
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e flexibility in answers to this question. When the students are finished, tell them they just cr
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eated an “accounting system.”
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Randomly select one team to present its solution to the class. At the appropriate time in the p
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resentation, the instructor should raise questions for any team to answer.
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What is a transaction?
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What is a journal entry?
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How can you ensure that this transaction gets recorded? Recorded only one time? Recorde
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d in the correct time period? Recorded for the correct amount?
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How can you be sure an employee does not steal the ski poles?
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What happens if the sales amount is recorded as, e.g., $1,500 instead of $1,600? How can
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you prevent this from happening?
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How can we know if this order exceeds Snowmass’ credit limit?
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What information does the accounting system need to provide so you can determine:
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How profitable are the ski poles a ww ww ww ww ww ww


re? Should you offer another prod ww ww ww ww ww


uct?
Which salesperson is getting the highest volume of orders for ski ww ww ww ww ww ww ww ww ww ww


poles? Is this salesperson offering too many sales discounts? ww ww ww ww ww ww ww ww ww


Which salesperson is making the most profit on sale ww ww ww ww ww ww ww ww


s? Which salespeople sold what ski products? ww ww ww ww ww ww


Which customers bought which ski products? ww ww ww ww ww




If you manufacture (as opposed to buying the finished good to resell) these ski poles will your
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accounting system provide the following?
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How long did it take you from the time you received the customer’s order for 50 ski poles u
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ntil you delivered them to the customer? If it takes too long, a competitor no doubt is eager t
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