Solutions Manual for Accounting Information Systems Connecting Careers, Systems, and Analytics 1st E by digitaldownload87

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CHAPTER 1 Accounting as Information Learning Objectives 1. Explain how accounting affects both the demand for and supply of information. 2. Compare traditional transaction-based accounting systems to process-based information systems. 3. Explain management’s relationship to information and information systems. 4. Describe the relationship between accounting and data analytics.

ANSWERS TO MULTIPLE CHOICE QUESTIONS 1. C

12. C

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.1

LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.3

2. D

13. C

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Communication, AICPA AC: Reporting, Section: 1.3

3. A

14. A

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Communication, AICPA AC: Reporting, Section: 1.3

4. D

15. A

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 1.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Communication, AICPA AC: Reporting, Section: 1.3

5. A

16. B

LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 1.2

LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.3

6. B

17. D

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 1.2

LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA AC: Reporting, Section: 1.3

7. C

18. B

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 1.2

LO 4, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.4

8. C

19. C

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA AC: Reporting, Section: 1.2

LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.4

9. B

20. C

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA AC: Reporting, Section: 1.2

LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.4

10. A

21. D

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.2

LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.4

11. B LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Reporting, Section: 1.3

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ANSWERS TO DISCUSSION AND RESEARCH QUESTIONS DQ1. Student answers will vary. For example: (1):

(2):

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LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Communication, AICPA AC: Reporting, Section: 1.1

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DQ2. The reality of accounting is that there is a circular flow of cause and effect. What we see here is both demand and supply of information, often in real time due to advances in technology. (1) From the bottom up, the model shows the supply of information from preparers to users. Economic activity results in accounting judgments, as accountants must make judgment calls of what most accurately reflects the business reality of the economic exchange within the confines of a financial reporting framework like GAAP or IFRS. Recall from your financial accounting course: These judgment calls may involve the use of accounting estimates and the selection of accounting policies. Examples of estimates are establishing a fair value for an intangible asset such as goodwill or determining the allowance for doubtful accounts. Here is an extract from Facebook’s 2020 10K report: “Estimating fair value requires judgment and use of estimates such as discount rates, forecast cash flows, holding period, and market data of comparable companies, among others.” An example of the selection of an accounting policy is the recognition of revenue on a gross or net basis. Here is an example from Facebook’s 2020 10K report: “Gross vs. Net in Revenue Recognition For revenue generated from arrangements that involve third-party publishers, there is significant judgment in evaluating whether we are the principal, and report revenue on a gross basis, or the agent, and report revenue on a net basis. In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price. The assessment of whether we are considered the principal or the agent in a transaction could impact our revenue and cost of revenue recognized on the consolidated statements of income.” These judgments affect the usefulness of information, and then users’ decisions. Good judgments lead to economic prosperity and a more prosperous society. Accounting professionals serve the public interest. (2) We can also look at the arrows in reverse by emphasizing the demand for information, which starts at the top of the model with users seeking information about economic activity to facilitate decision-making. Examples include the demand to know profits, inventory levels, cash flows, etc. The practice of accounting has consequences, as the decisions that users made based on accounting information results in economic activity, and we have a circular flow starting from the bottom of the model again. LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Communication, AICPA AC: Systems and Process Management, Section: 1.1

DQ3. (1) The overriding purpose of a business is to make a profit and generate enough cash flow to continue operations. Without the profit motive, it would not be a business (at least not for very long). Social responsibility should be at the forefront of businesses’ minds as they decide on their strategic plans and objectives. However, businesses, whether they are socially responsible or not, must make profit to survive. (2) Student answers will vary but examples include: Resources: 4 Solutions Manual

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Raw materials and manufacturing capabilities A partnership with an existing backpack fabrication company RFID tags and RFID middleware Systems developers, designers, etc. to build mobile app and supporting systems. Outputs: Completed backpacks with RFID sensors embedded in liner Pencil cases, book covers, etc. with integrated RFID tags. Stand-alone RFID tags to attach to individual items Mobile app for configuring your daily schedule and items needed. (3) Seed money will be needed to begin manufacturing, though a partnership with an existing backpack fabrication company would be easier. Revenues will include sales of backpacks and items that are scannable. The app will be included with the backpack sale, though a free app with ads is available for download as well in the mobile app store. It provides calendaring and packing list features without the scanning capabilities. Revenues are generated through ad sales. LO 1, Blooms: Application, Difficulty: Medium, TOT: 20 min., AACSB: Communication, AICPA AC: Systems and Process Management, Section: 1.1

DQ4. A business process is group of related business events (also called business activities) intended to accomplish the strategic objectives of the business. We can decompose a business process into business events. A business event in a business process is an activity performed by the business, e.g., “take customer order” (Hint: the description of each business event includes at least a verb and a noun). Examples of business events: take customer order, hire employee, pay employee, pay vendor; declare dividends, pay dividends, get a loan, pay a loan installment, order equipment, receive equipment, acquire a competitor. For the acquisition of supplies, a simple business process with three business events could be as follows: • Event 1: Order supplies from vendor • Event 2: Receive supplies from vendor • Event 3: Pay vendor for supplies LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 1.1

DQ5. The AIS involves a subset of all business data, which makes it one part of a firm’s overall information system. While we have many business events or activities in an organization, the AIS uses only the data from business events that result in an economic exchange of resources. Accounting filters the firm’s data and limits it to the data reflected in an accounting transaction. What makes AIS unique are aspects such the need for compliance with regulations such as SOX, the need to generate information for financial decision making support, and the need to use it to implement internal controls, among other things. LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.1

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DQ6. Student answers will vary. LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Communication, AICPA AC: Systems and Process Management, Section: 1.2

DQ7. The information system, with inputs, processing, storage and outputs, provides information on how well (or not) the business processes are functioning towards achievement of the firm’s strategic objectives. In a process-based system, the accounting system is part of the overall information system. It is not a stand-alone system. A process-based system stores data about all business events of interest to the firm, including nonfinancial and nonaccounting data. The reports generated by a process-based system are more flexible in format, and provide diverse information, depending on their purpose. They include standard accounting reports. LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.2

DQ8. Student answers will vary but examples include: 1. Repay employee’s student loans, with amounts depending on levels of performance (human resources). 2. Buy sustainably sourced products (raw materials and supplies). 3. Recycle or reuse supplies (supplies). 4. Volunteer for community services (employees). 5. Conduct responsible research using alternative methods to animals (R&D). LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 1.2

DQ9. Student answers will vary but examples include: 1. Reduce energy consumption in manufacturing. 2. Reduce water usage in manufacturing. 3. Protect manufacturing workers (like welders) from harmful omissions. 4. Manufacture sustainable products. 5. Track carbon footprint. 6. Reduce raw material waste. 7. Eliminate use of harmful products. LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 1.2

DQ10. At this stage, as students have not yet covered ERP systems, the conceptual focus will most likely be on how the business processes determine the information system, because the information system captures the data about the business processes, in addition to helping execute the business processes. Without business processes to generate business activities or events, there would be no need for an information system!

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Students who may have taken an MIS course that includes ERP systems may look at it from the perspective of an ERP system dictating business processes to achieve “best practices.” However, some could argue that for some processes this would be fine (e.g., standardizing acquisition and payment processes), but that it could stifle innovation for conversion processes. Firms could lose their competitive advantage if their value-add activities are the same as those of their competitors, as they would not be differentiating themselves. LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.2

DQ11. (1) Planning includes (a) developing a strategic plan to create a sustainable competitive advantage, (b) planning business processes focused on achieving strategic goals, (c) identifying key profit drivers and developing benchmark metrics for them, (d) identifying opportunities and assessing their risk, and (e) forecasting future performance. (2) Implementation includes (a) operationalizing the strategic plan by dividing high-level business processes into smaller processes and activities, (b) assigning employees to perform the activities, (c) motivating employees to maximize their performance, and (d) embedding internal controls in processes and systems to prevent and detect errors and fraud. (3) Control by monitoring includes (a) evaluating the results of an activity or an entire business process to see whether they meet expectations, (b) evaluating the operating results to see if the business processes are achieving the organization's objectives, (c) monitoring key performance indicators and comparing them to benchmarks, (d) auditing processes, systems, controls, and transactions, and (e) comparing actual performance and metrics to forecasts and budgets. (4) Changing and improving processes includes (a) changing plans and expectations or changing an activity or a process so that actual results meet expectations, (b) prosecuting occupational fraudsters to the full extent of the law and sending a message of zero tolerance for fraud to management and other employees, and (c) improving internal controls to decrease opportunities for errors and fraud. Management plans and implements processes to achieve its strategic objectives. The business events and activities embedded in the business processes create data of interest to the firm. The database management system (DBMS) captures the data for storage in the database. The data is processed and retrieved in the form of reports, dashboards, and queries. Management uses the information retrieved from the information system (including financial accounting information and cost accounting information) to monitor the business processes to ensure that they do what they are supposed to do. If things go wrong, management takes corrective action to change the business processes, business activities or internal controls. The result is more planning, implementation, monitoring, and changing and improving processes, and the cycle continues. LO 3, Blooms: Application, Difficulty: Medium, TOT: 20 min., AACSB: Communication, AICPA AC: Systems and Process Management, Section: 1.3

DQ12.

Student answers will vary.

Quality information for a business is the degree of fit of the information for a particular purpose in a specified task setting. The information should meet overall expectations for its intended use, subject to cost versus benefit considerations.

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My choice of a fundamental characteristic is faithful representation or accuracy, meaning that the information must correspondent with the facts or occurrences it represents, and be complete, unbiased and free of material error or misstatement. My choice of an enhancing characteristic is timeliness, which relates to the speed at which the information can be available and still be quality information. Fundamental characteristics are primary, and enhancing characteristics are secondary. The fundamental characteristics make information more useful when compared to enhancing characteristics. If information is a faithful representation of the financial results and condition of an organization (the financial statements), this is a primary characteristic because, regardless of the enhancing characteristics, like issuing the financial statements on time, materially inaccurate financial statements are of no use to decision makers. LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 20 min., AACSB: Reflective Thinking, AICPA AC: Systems and Process Management, Section: 1.3

DQ13. Student answers will vary but will likely include Excel, SQL databases, querying, and visualization (Tableau, Power BI, etc.). LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 15 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 1.4

SOLUTIONS TO APPLICATION AND ANALYSIS QUESTIONS A1.1. Take customer order (information event) 2. Collect payment from customer (operating event) 3. Print customer receipt (information event) 4. Bake scone for order (operating event) 5. Deliver scone to customer at counter (operating event) 6. Customer completes text message survey (information event) LO 1, Blooms: Analysis, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA AC: Systems and Process Management, Section: 1.1

A2. Business Event/Activity

Business Process Approach

Traditional Accounting Cycle(s)

1. Ship goods to credit customer

Sales and collection

Revenue/accounts receivable

2. Pay hourly employees for the week

Acquisition and payment

Payroll

3. Sell goods for cash

Sales and collection

Revenue

4. Order a new factory machine

Acquisition and payment

N.A. Nonaccounting event

5. Receive raw materials from vendor

Acquisition and payment

Expenditures/Accounts payable

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6. Receive payment from credit customer

Sales and collection

Accounts receivable

7. Take out loan to pay for new factory machine

Acquisition and payment

Financing

8. Pay a dividend to shareholders

Acquisition and payment

Financing

9. Manufacture a product

Conversion

Production/cost accounting

10. Write off uncollectible account

Sales and collection

Accounts receivable

11. Issue new common stock

Acquisition and payment

Financing

LO 2, Blooms: Analysis, Difficulty: Medium, TOT: 15 min., AACSB: Analytic, AICPA AC: Systems and Process Management, Section: 1.2

A3. Type of Quality Characteristic

Field(s) that failed

How to fix

Consistency

There should be three leading 0s (ID 239)

Confirmatory value

Date

The date was misstated; you can verify that there are not 31 days in April (ID 000240)

Understandability

Item

PBC should be spelled out “Peanut Butter Cookies” (ID 000241)

Completeness

Customer Last Name

The last name is missing (ID 000242)

LO 3, Blooms: Analysis, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Reporting, Section: 1.3

A4. Answer Information Situation

Characteristic

At the beginning of the COVID-19 pandemic, the United States was behind many other countries in testing people for the coronavirus. News reports said that people with symptoms struggled for access to tests, often in vain. The lack of testing availability resulted in reports of COVID cases that bore no resemblance to the reality of how much the virus had really spread. Consequently, there was fear and uncertainty.

B. Relevance

This characteristic strongly factors into the reason for reporting land and buildings at historical cost in a company’s Balance Sheet, even though this value may bear no resemblance to the fair market value of the asset.

F. Faithful representation

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In the income statement of a company, sales transactions included in the revenue amount are those, and only those, that reflect revenue earned during the reporting period—no more and no less.

A. Completeness

In the management decision to replace a long-haul transportation truck used for the past 10 years, inclusion of information about the original cost of the truck in a report has no ________ (fill in the characteristic).

B. Relevance

Disney World provides guests with Magic Bands, which are wristbands that collect data on who the guests are, where they are, what rides they go on, and what they buy. Disney characters greet children wearing the bands by name. Magic Bands provide Disney with an incredible amount of data about guest profiles and preferences. Information like this can help Disney improve decision making for optimal management of its resorts.

C. Predictive value

Alicia’s Accessories is developing a proprietary big data system called Just-in-Time. The intention of the system is to continuously monitor and improve operations, products, marketing, sales, and employee training and to improve competitive advantage. The data comes from the company’s point-of-sale systems, inventory systems, promotions, customer feedback and surveys, and loyalty programs. Just-in-Time provides information every 30 minutes at headquarters for immediate decision making. Operational glitches get immediate attention.

E. Timeliness

According to the magazine Fast Company, not making the content of business websites available to people with disabilities means potentially losing around $500 million in spending power. This amount does not include losses from lawsuits. Fast Company provides examples of business that were sued for failing to offer an ADA-compliant website: Domino’s and Beyoncé’s Parkwood Entertainment.

D. Understandability

Oil and gas companies consistently apply the same industry-specific accounting standards to their financial statements, and so there should be a high level of __________ (fill in the characteristic) within that industry.

H. Comparability

A company with information about a probable and material lawsuit must report it in the notes to its financial statement. An attempt to withhold this information indicates bias and not ________ (fill in characteristic).

A. Completeness

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An employee was eating a bag of chips while changing the machine settings

may result in

A piece of duct tape is used to hold one of the machine pieces together

may result in

Chapter 2

Sanitation and health violations occur if food is found outside of the break room. Food outside of the breakroom might invite unwanted critters to the plant. Injury to the employee, as the piece might fall off at any moment. Danger to the facility if the piece falls off and breaks something else.

LO 1, Blooms: Analysis, Difficulty: Medium, TOT: 15 min., AACSB: Analytic, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.1

A2. Risk Statement 1. Because wiring from suppliers does not meet specifications, it will be necessary to return the wiring to the suppliers for a refund. 2. Because working conditions for employees in the factory are not safe, there may be legal consequences like compensation for lost wages, medical bills, and production delays in the event of accidents. 3. Because of sales staff members lacking knowledge about the features and benefits of the new service the company is selling, prospective customers are confused and don’t subscribe to the service, resulting in decreased sales revenues. 4. Because of poor strategic planning, the business may not meet its earnings forecasts and may therefore suffer financial losses, reputational loss, and a decrease in its stock price. 5. If product reliability test failures exceed 5%, the resulting schedule delay to fix failures would exceed two weeks, causing increased cost and customer dissatisfaction. 6. Poor short-term financial forecasts may result in cash flow issues, negatively impacting the company’s credit rating and its ability to borrow at a reasonable cost. Solutions Manual

Business Process Purchases and payments

Business Function(s) Purchasing

Conversion

Production operations

Sales and collections

Sales

Impacts all business processes

Board of directors and executives; all functional areas

Conversion

Production operations

Purchases and payments

Treasury management

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7. Customer data theft caused by defective system changes could result in significant financial fraud losses due to fines, loss of customers, and regulatory sanctions. 8. Returns by customers in a superstore are at risk of being diverted, with the returned goods never reaching the warehouse, resulting in inventory shrinkage. 9. Because of inadequate background checks, an employee with a criminal background may be hired, with the potential for losses from fraud or theft in the workplace. 10. Because of inadequate timekeeping, employees could be paid for time not worked, resulting in fictitious costs and reduced profits.

Chapter 2

Purchases and payments

Information technology

Sales and collections

Customer service

Purchases and payments

Human resources

Purchases and payments

Payroll

LO 1, Blooms: Application, Difficulty: Medium, TOT: 30 min., AACSB: Analytic, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.1

A3. Risk Scenario 1. Employees are required to work from home, remotely, if there is no need for a physical presence in the workplace. Because managers cannot supervise employees in person, the employees may not be as productive as when they are on the premises, resulting in much lower productivity for the same cost to the organization. 2. Because of COVID-19, walk-in customers, the main revenue source for the business, can no longer come to the store due to the shutdown. The CFO arranges to borrow money from a bank at a higher-thanusual rate of interest in an attempt to bridge the gap in the revenue stream. She is concerned about the company’s ability to repay the loan principal by the due date specified in the debt agreement. 3. At a university, in an effort to ensure that the football program starts the season, the board of trustees mandates a restart of face-to-face classes before the rate of infection from the virus has decreased in that state. The board proposes mandatory monitoring of the health of faculty and students through the use of an app, testing, distancing in class and on campus, and mask wearing. The university faces a risk of lawsuits by faculty and students who are infected by the virus on campus, regardless of the precautions, resulting in a financial loss due to settlements and legal fees. 4. A commercial diving school continues to run its certification program during the COVID-19 pandemic. It uses an app for instructors and students to mandatorily report on their health conditions every Solutions Manual

Risk Category Operational

Financial

Strategic

Compliance

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three days. Administration discloses to colleagues, without permission, that an instructor has reported an underlying condition of concern. The instructor rightly claims that the school has breached the law (HIPAA) by disclosing his medical condition to colleagues. 5. A member of the executive team at a major corporation has joked on social media about the coronavirus and mocked people infected with the virus. He also used a racial slur against an Asian man who responded to one of his posts. The public relations department is trying to manage the public outrage resulting from the executive’s posts.

Reputational

LO 2, Blooms: Application, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.2

A4. Student answers about priority will vary. The correct notecard answers and an example of a student’s prioritization answer are: Risk A customer receiving the wrong order may result in an upset customer. A customer posting a negative review on the social media page may result in reputational damage. A customer returning a used/damaged laptop sticker and demanding a full refund may result in a loss of revenue. A customer suffering an allergic reaction to the glue on the sticker may result in an upset customer and a possible lawsuit. A customer providing a fake credit card number may result in loss of revenue.

Note Card Letter E

Priority 5

LO 3, Blooms: Analysis, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.3

A5. Student answers about likelihood, impact, risk score, and manager reasoning may vary. The answers for priority should be as shown below.

Risk Likelihood Important influencers 3 with contracts to publish content only on this platform leaving the site may result in significant revenue loss due to lower customer traffic.

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Impact 2

Risk Score 6

Manager Reasoning Influencers could take customers away. However, many of our customers will find other channels to follow, which will keep them on the platform even if an influencer leaves.

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Priority 3

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An influencer making offensive remarks during a live stream may result in reputational damage to the site.

A lack of proper security processes may result in a hacker stealing customer information such as names and credit card numbers.

Since live streaming is usually unscripted and unedited, an influencer can state something that is against the belief system at the platform. The company could face a potential lawsuit, but it is more likely that the influencer will be sued. While the company has site security in place, there is always a possibility of the hackers getting through. It would be detrimental if customer information was released, resulting in huge reputational impact. The company could face a significant lawsuit.

Chapter 2 2

LO 3, Blooms: Application, Difficulty: Medium, TOT: 15 min., AACSB: Analytic, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.3

A6. 1. You cancel your plans and stay up all night cramming. You risk being tired during the test, but you think you can cram enough to just maybe pull this off. 2. You cancel your plans and study for two hours before your normal bedtime and get a good night’s rest. Maybe that is going to be enough. 3. You go to dinner but come home right after to study the rest of the night. You think you can manage both. 4. You go to dinner and stay out with your friends afterward. It is going to be what it is going to be, and it is too late for whatever studying you can do to make any difference anyway. 5. You tell your friends you are sick and tell your professor you are too sick for class the next day. You schedule a makeup exam for next week and spend adequate time studying for it. 6. You pay someone else to take your license and go take the exam for you. (Note: It happens, although this is a terrible idea. Never do this! It is unethical and the consequences may be severe.) Solutions Manual

Mitigation

Acceptance

Avoidance; Mitigation

Transfer; this is an unethical answer, but it is a loose example of transferring a risk using a contract.

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LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Knowledge, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.4

A7. Student answers will vary. Below are some examples of best possible answers. This question is an opportunity to show students that there often are not wrong answers in business. It takes critical thinking to come up with best possible solutions. 1. Biometric screening at the door. Using fingerprints to enter the room will prevent unauthorized personnel from using someone else’s badge to enter. This is a type of risk mitigation. 2. Removing the desks and chairs and banning food and drinks from the server room. This is a type of risk avoidance. 3. Replacing the outlets, making sure the fire safety plan is in place. This is a type of risk mitigation. LO 1-4, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.1-4

A8 to A10.

Student answers will vary significantly.

A8. 1. Possible issues: Mild winter Single source of flour No visibility into planting techniques Wheat diseases 2. Examples of risk statements: A mild winter may result in an inability to acquire ingredients for products. A mild winter may result in a bad harvest that ruins wheat and makes it hard to get flour. A lack of wheat crop may result in a breakdown in the supply chain. Wheat disease may result in inability to create products. A9. Most likely categories: Most risk statements will fall into either physical (weather) or operational. A10. Demonstrating form prioritization: Students should demonstrate an ability to use critical thinking to rank risks. Proper risk formula [impact x likelihood = risk score] should be used. Understanding that the higher the risk score, the higher the priority should be demonstrated. LO 1-4, Blooms: Application, Difficulty: Medium, TOT: 20 min., AACSB: Analytic, AICPA AC: Risk Assessment, Analysis, Management, Section: 2.1-4

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CHAPTER 3 Risk Management and Internal Controls Learning Objectives: 1. Distinguish among the three functions of internal controls. 2. Characterize a control by its location and implementation method. 3. Explain the three lines of defense to ensure effectiveness of internal controls. 4. Describe the importance of frameworks in an internal control environment.

ANSWERS TO MULTIPLE CHOICE QUESTIONS 13. C

1. D LO 1, BT: E, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA: AC: Systems and Process Management, Section: 3.1

2. B LO 1, BT: S, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

3. D LO 1, BT: A, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

4. B LO 1, BT: K, Difficulty: Medium, TOT:2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

5. D LO 1, BT: A, Difficulty: Easy, TOT: 1 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

6. B LO 1, BT: K, Difficulty: Medium, TOT:2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

7. D LO 1, BT: K, Difficulty: Medium, TOT:2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

8. C LO 2, BT: K, Difficulty: Easy, TOT:2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.2

9. C LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.2

10. D LO 2, BT: A, Difficulty: Easy, TOT: 1 min., AACSB: Technology and Data Analytics, AICPA AC: Systems and Process Management, Section: 3.2

11. C LO 2, BT: A, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.2

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LO 3, BT: K, Difficulty:/Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

14. B LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

15. A LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

16. D LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

17. A LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

18. D LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

19. D LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

20. D LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

21. B LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Knowledge, AICPA AC: Risk Assessment, Analysis and Management, Section: 3.3

22. A LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

23. C LO 4, BT: C, Difficulty: Difficulty: Medium, TOT: 2 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

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12. D

24. C

LO 2, BT: A Difficulty: Medium, TOT:2 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 3.2

LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.3

ANSWERS TO DISCUSSION AND RESEARCH QUESTIONS DQ1. Segregation of duties is a preventive control that lessens the risk of error and fraud by ensuring that at least two people are responsible for the different parts of a business event or activity. The work of one employee acts as a check on the work of another employee. For separation of accounting duties, management should, if cost beneficial, structure work assignments to separate the following three activities: • •

•

Authorizing transactions and decisions; Recording data about business activities, such as preparing source documents, inputting data into the information system, and data in maintaining accounting records, files, and databases; and Having custody of assets such as cash, inventory, tools, fixed assets, and supplies.

LO 1, BT: A, Difficulty: Easy, TOT: 5 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

DQ2. Preventive controls are internal controls that management implements to keep problems from happening. Examples are computer passwords, access controls, employee screening, and training. Detective controls alert management of a preventive control that has not worked as intended. They find errors and fraud after they have occurred. Examples are cash counts, bank reconciliations, and inventory counts. Corrective controls are the procedures that a company uses to correct a detected problem and prevent it from happening again. Examples are quarantining a computer virus and implementing segregation of duties after detecting a fraud. LO 1, BT: K, Difficulty: Easy, TOT: 5 min., AACSB: N/A, AICPA AC: Systems and Process Management, Section: 3.1

DQ3. Management override is when a human circumvents the designed controls and exploits the gap in the controls that humans create. A real-life example comes from SEC Accounting and Auditing Enforcement Release No. 1,287 (Guilford Mills, Inc.). It describes a fraudulent financial reporting case in which the controller entered false journal entries by debiting accounts payable and crediting cost of goods sold. The effect was to understate accounts payables and significantly increase gross profit and net income. LO 1, BT: C, Difficulty: Easy, TOT:5 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

DQ4. Continuous monitoring leverages technology to provide regular insights into how a control or process is performing. It allows management to track business processes continually, to ensure that they are functioning as intended and to identify any anomalies, should the processes deviate from intended levels of performance and effectiveness. Continuous monitoring helps management to operationalize overall risk management. It is proactive rather than reactive at identifying problems. Example: Identifying payments to vendors without a matching purchase order and receiving report. Solutions Manual Chapter 3 – Risk Management and Internal Controls 3-2 Copyright © 2022 John Wiley & Sons, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited

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LO 2, BT: A, Difficulty: Medium, TOT:5 min., AACSB: Knowledge, AICPA AC, Section: 3.2

DQ5. Manual controls require a physical interaction by a human. Examples are reviewing documentation, signing a physical paper, entering data into a system, etc. Automated controls – once created – occur without the intervention of a human. Examples include data flow from one system to another, automatic calculations, auto populating the financial reports with information from the AIS, security access for networks, etc. Generally, automated controls are more reliable because they are not subject to human error or manipulation. LO 2, BT: A, Difficulty: Medium, TOT:5 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.2

DQ6. Answers will vary based on the student’s perspective about whether the original conviction was an overreach or an adequate move to protect the public. LO 2, BT: E, Difficulty: Hard, TOT: 10 min., AACSB: Ethics, AICPA AC: Systems and Process Management, Section: 3.2

DQ7. Student answers will vary. The new model is designed to depict the structure of interactions and responsibilities between management, internal audit, and to achieve more effective collaboration and alignment. The new model clearly defines roles and communication lines, including where collaboration is appropriate. It should make it easier for businesses to take a proactive, principlesbased approach to risk management. LO 3, BT: C, Difficulty: Medium, TOT: 5 min., AACSB: Communication, AICPA AC: Systems and Process Management, Section: 3.3

DQ8. The control environment is the most important because has a downstream effect on the other components. It is the foundation for the other components because top management sets the overall tone for the firm. If the tone at the top is poor, it has a negative impact on the other components. LO 3, BT: E, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA AC: Systems and Process Management, Section: 3.2, 3.3

SOLUTIONS TO APPLICATION AND ANALYSIS QUESTIONS A1.There is a lack of separation of duties over Accounts Payable. Josephine has too many incompatible duties. For separation of accounting duties, management should structure work assignments to separate the following three activities: o Authorizing transactions and decisions, o Recording accounts payable transactions, and o Having custody of assets such as cash (which includes checks). • Josephine is authorizing payments to vendors, • She is recording accounting entries and has control over Accounts Payable records, and • She has access to the checks for payments to vendors. The consequences could be payments to fictitious vendors and loss of company assets. These duties need to be separated, and other employees should be preparing supporting documentation, authorizing payments, and taking physical possession of checks. LO 1, BT: E, Difficulty: Medium, TOT: 5 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1

A2. Solutions Manual

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(B) Internal Control C A E B D

LO 1-2, BT: A, Difficulty: Hard, TOT:10 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1, 3.2

A3. Term Second line of defense Board of directors Managing risk External Audit Regulators Support on risk-related matters Third line of defense Internal audit Risk management and compliance First line of defense Management Independent advice

Location D A C G G D E E D C C F

LO 3, BT: A, Difficulty: Medium, TOT:10 min., AACSB: Analytic, AICPA AC: Systems and Process Management, Section: 3.3

A4. 1. COSO Internal Control—Integrated Framework 2. SEC 3. SOX 4. COSO Internal Control—Integrated Framework 5. SOX

LO 4, BT: E, Difficulty: Medium, TOT: 5 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.4

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A5.Portia’s Ports is already on track to be prepare for a public offering. Based on SEC regulations, the ERM Team should adopt an internal control framework. If you compare Portia’s Ports’ current operations to the COSO Internal Control—Integrated Framework, the control environment, risk assessment, control activities, and monitoring activities are already well-aligned with the COSO framework. The ERM Team should adopt this framework and do an in-depth analysis to identify any gaps while also reviewing SOX regulations closely for what requirements they need to meet before the IPO. LO 4, BT: E, Difficulty: Medium, TOT: 5 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.4

A6.

LO 4, BT: E, Difficulty: Medium, TOT: 5 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.4

A7.Only # 4 is “yes”; the remainder are “no.” The control environment, or the tone at the top, is exceptionally poor, and indicates a significant risk of fraud, for the following reasons: • High turnover in CFO position is troubling. The CFO is responsible for financial reporting and this high turnover, with no explanation, is a red flag for financial statement fraud. • There is strong potential for losses arising from violations of laws and regulations. There should have been disclosure of potential losses arising from the Medicare lawsuit. The allegation of falsification of records is significant. • Executive compensation is dependent on financial performance, and this creates an incentive to overstate earnings. • The CEO appears to dominate and intimidate the Board and employees with his autocratic management style. • Executives use company assets for personal reasons without disciplinary action. This sets a poor example for everyone else in the firm. • Risk assessment is poor. • There are strong indications that financial statements may be fraudulently misstated. These situations are troubling: The CEO said that “I am not an accountant,” and that he did not understand “why I am expected to know what the accountants do.” There is also no evidence Solutions Manual

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of the Board questioning the reasonableness of the financial statements or of the audit committee raising issues about the financial reporting process or the system of internal control. Adding to concerns is the evidence that the CEO tried to circumvent general accepted accounting practices by coercing his employees to tamper with the financial statements. The instructor may want to tell the students that this question comes from real information from the HealthSouth financial statement fraud case. LO 4, BT: E, Difficulty: Medium, TOT: 10 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.4

A8. Question 1: Control objectives: Operation, Reporting, Compliance Components with downstream impact: 1. Control environment, 2. Risk assessment, 3. Control activities, 4. Information and communication, 5. Monitoring Question 2: 1. a. A. Operations, H. Reporting, E. Compliance b. B. Risk assessment 2. a. A. Operations, H. Reporting b. D. Information and communication 3. a. A. Operations objective b. F. Control activities 4. a. A. Operations, H. Reporting, E. Compliance b. G. Control environment (setting the tone) 5. a. A. Operations b. C. Monitoring 6. a. E. Compliance b. F. Control activities 7. a. A. Operations, H. Reporting, E. Compliance b. G. Control environment 8. a. A. Operations, H. Reporting b. C. Monitoring LO 1-4, BT: E, Difficulty: Medium, TOT: 15 min., AACSB: Knowledge, AICPA AC: Systems and Process Management, Section: 3.1-3.4

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CHAPTER 4 Software and Systems Learning Objectives: 1. Summarize the characteristics and components of information systems. 2. Identify technologies used by startups and small businesses. 3. Explain how growing businesses enhance their systems. 4. Describe the features of and implementation considerations for an enterprise resource planning (ERP) system.

ANSWERS TO MULTIPLE CHOICE QUESTIONS 1. C

10. C

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2

2. D

11. A

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

3. D

12. C

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

4. B

13. C

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

5. A

14. D

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

6. C

15. B

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2

LO 4, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

7. B

16. C

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2

LO 4, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

8. C

17. D

LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2

LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

9. B

18. B

LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2

LO 4, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

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ANSWERS TO DISCUSSION AND RESEARCH QUESTIONS DQ1. The four main types and their functions are: •

•

Transaction processing systems: Support day-to-day business activities, including both financial and non-financial transactions (recall information events like placing an order). These are also called operational systems. Used by workers for basic operations. Management information systems: Provide information to assist in routine management activities. Uses data from transaction processing systems. The AIS is a type of management information system. Used by managers. Decision support systems: Provide information to assist in solving non-routine problems and support long-range planning. Used by upper-level managers, such as senior managers or directors. Executive support systems: A subset of decision support systems specifically designed for long-range, strategic decision making. Used by executive leadership.

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

DQ2. Accounting systems are transaction processing systems. As this system collects the data that is created, it must be fast, available, and ensure integrity of the data. Performance and availability are critical as users must be able to access the system any time it is necessary, and the system needs to be able to handle any level of volume from customers. Also, the information created by the data must be accurate, so it is important that the integrity of the data is not comprised. LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

DQ3. Batch professing is different from real-time processing due to the way it processes transactions later. Because the transactions are processed later, any databases may not be updated for several hours. With real-time processing, transactions are processing immediately, which then updates the databases. There are three main benefits of batch processing. First, processing can be scheduled to minimize the impact on key operational systems. Second, the processing schedules are easy to maintain. Third, data processed through batches tends to have less errors due the pre-established steps and schedules. LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

DQ4. Accounting software packages like QuickBooks are popular because small businesses do not have the resource advantage of larger companies and must be able handle many of the same responsibilities with fewer people. These packages help businesses with basic business payments, such as managing and paying bills, and handling payroll functions, including time tracking and inventory management. They are also a general ledger where businesses record their journal entries. By using these packages, small business owners can track the financial health of their business and make better financial decisions by using general ledger data to create pre-designed reports for users. QuickBooks and other vendors also offer an online product that allows access to the financial information of the business when they are away working remotely. LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2

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DQ5. Segregation of duties: Because small businesses have fewer employees, it is hard to enforce proper segregation of duties and incompatible functions are frequently combined, increasing the risk of errors and fraud. Physical access: It is important that computers and other hardware (external hard drives, printers, etc.) are located in safe areas where physical access is controlled. In small businesses, especially startups, many employees use their personal devices for work. Controls can be especially difficult to enforce when employees take personal devices home for use outside of business hours. For example, a stolen laptop could mean a loss of work that might never be recoverable and a loss of proprietary company information. Logical access: Smaller business often cannot afford to implement complex, sophisticated security measures, so many small businesses must deal with logical access issues on a regular basis, which can result in unauthorized access to systems. LO 2, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2

DQ6. The three main systems approaches are centralized, decentralized, and distributed. A centralized system is where all users are connected to one central location that all users can access. All the business processing occurs, and the information is stored in that location. Decentralized systems utilize multiple locations connected to a central site. The outside locations process data, summarize it, and communicate the data back to the central site. Distributed systems are like decentralized system; however, it no longer has a central site that connects to all the outside locations. In a distributed system, users have access to all the data, depending on their access privileges, and all users are inner connected throughout the business. LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

DQ7. Student answers should focus on the basic definitions of centralized, decentralized, and distributed systems. They should also outline the advantages and disadvantages of each system, and how those could impact the current environment. They should also include examples of how each system is used, and cover the various risks presented in the chapter, including how those risks could impact the decision making. LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

DQ8. Student responses will differ based on their selection of a specific case. Here is a sample response: Case: USA Waste acquired Waste Management for $20 billion. Why the implementation failed: Together, the two companies had around 300 difference AS400 mainframe systems in different locations. When they became a single entity, there wasn’t a scalable IT infrastructure system to support the single, larger company. The following year, the entire senior management team was removed and a new executive team was deployed to clean up the IT mess left behind.

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How management could have been prevented the failure: There was inadequate planning. Executives should have done their due diligence and they should have found out about the absence of a scalable architecture prior to the merger happening. Source: https://www.zdnet.com/article/promises-promises-a-look-at-waste-managements-caseagainst-sap/ Another case of what can go wrong is Banco Sabadell’s acquisition and integration of Lloyds Banking Group’s Spanish business, TSB. Source: https://www.raconteur.net/finance/mergers-acquisitions/failed-mergers-acquisitions/ LO 3, Blooms: Application, Difficulty: Medium, TOT: 20 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

DQ9. As the ERP system moves up in size, it can handle a larger number of transactions which will require larger databases and systems. All those items will require an organization to invest a larger amount of money for the installation and the time to install the system increases as well. If the wrong sized ERP is chosen, the organization will spend more money than necessary, the system will take too long to install, and the project will probably fail. LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

DQ10. The three different ways are: 1. Out of the box (also known as off the shelf): The software will work immediately when implemented and the expectation is that the business will adapt its processes to match the software’s pre-existing configuration. 2. Configurable: This software can have some custom add-ins provided by the vendor, and the customer can implement them, if they are useful to the organization. 3. Customizable: The software functionality and workflows are custom made for the business. LO 4, Blooms: Knowledge, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

DQ11. ERP systems were developed to automate and integrate all or many of an organization’s business processes. The ideal state is one that reflects best practices and functions as single software system, using one application and a single database to share data across the enterprise, a unified interface, and real-time access to information. The results are integrated information flows. Adopting firms expect ERP systems to improve operating performance and therefore financial performance. ERP was developed to manage and automate all aspects of an organization’s business operations, including sales and distribution, materials, human resources, production planning, purchasing, sales, customer relationships, supply chain, product life-cycle, business intelligence and accounting. Networks are used to connect an ERP system to the IT systems of vendors and customers. This allows different functional areas within the organization to communicate with one another and with customers and vendors more effectively. The successful implementation of an ERP system should lead to significant benefits such as reduced labor, better cash flow management, increased accounts receivable turnover, fewer bad debts, more timely reporting, reduced inventory, tightened supply chain links, improved production scheduling, Solutions Manual

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reduced manufacturing costs, reduced order processing time, improved customer service, and consequently, an increase in competitiveness, profitability and stock prices. However, a history of failures show that the successful implementation and integration rate remains an issue as implementation is expensive and complex. LO 4, Blooms: Application, Difficulty: Medium, TOT: 20 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

DQ12. Student responses will vary based on their selection of a specific case. Here is a sample student response: MillerCoors contracted with the Indian firm HCL Technologies to implement a new ERP system. MillerCoors had recently purchased new breweries that were running seven different versions of ERP software. Management decided that it needed one system. The rollout of the new software was a disaster and led to numerous systems disruptions. Two years later, MillerCoors and HCL had sued and counter sued each other for breach of contract. The filings revealed that MillerCoors sued on the basis that HCL’s software was not adequate to meet the demands of the business. In HCL’s response, they claimed that they delivered the software as requested and that management at MillerCoors did not clarify their business needs, and that they had not requested the necessary functions in the software contract. Examination of the contract showed that the MillerCoors legal team had used standard service contracts in the HCL negotiations. The lawsuit was eventually settled out of court. After taking over the operations of the new breweries, it appears that management of MillerCoors was not prepared for the monumental task of integrating all of the disparate systems into one main system. Management should have better planning and they should have specifically tailored their software requests in the contract to their needs. Source: http://www.cio.com/article/2429865/enterprise-resource-planning-10-famous-erp-disastersdustups-and-disappointments.html. LO 4, Blooms: Application, Difficulty: Medium, TOT: 20 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

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SOLUTIONS TO APPLICATION AND ANALYSIS QUESTIONS

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

A2. Activities

Processing Options

1. Parts sold daily at a small locally owned auto parts store

Batch

2. Filling prescriptions at a drugstore

Real-time

3. Daily ATM deposits

Batch

4. Weekly customer address updates

Batch

5. Daily credit card transactions

Batch

6. Monthly bill generation

Batch

7. Twice-per-day payment method updates

Batch

8. Tickets for a concert

Real-time

9. Point-of-sales transactions

Real-time

10. Biweekly payroll

Batch

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1

A3.1. Unauthorized physical access 2. Inadequate segregation of duties 3. Unauthorized physical access 4. Unauthorized logical access 5. Unauthorized physical access 6. Inadequate segregation of duties 7. Inadequate segregation of duties 8. Unauthorized logical access 9. Unauthorized logical access LO 2, Blooms: Analysis, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA AC: Systems and Process Management, Section 4.2

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A4. Needs

Software

1. Show differences between sales by cookie type.

Excel

2. Generate income statements.

QuickBooks

3. Create a pivot table to summarize data.

Excel

4. Run a query on the average sales per month.

Access

5. Create job-based access criteria for the accounting system.

GAP

6. Update the rate of pay for employees.

QuickBooks

7. Create a graph showing which products are the most profitable. 8. Create a new process for counting cash in cash registers.

Excel

9. Add new vendor information for making a payment.

QuickBooks

GAP

LO 2, Blooms: C, Difficulty: Easy, TOT: 10 min., AACSB: Analytic, AICPA AC: Systems and Process Management, Section 4.2

A5.1. Lowest probability of business disruption: Centralized: If the system crashes, the whole system goes down and users cannot access the data. Decentralized: If the system is disrupted, it can remain active if at least one of the servers continues to operate. There is a lower risk of complete disruption than a centralized system. One central server failure causes a part of system to fail, not the whole system. Distributed: A distributed system is safe from the independent failure of components and there is unlikely to be a disruption. 2. Lowest maintenance costs: Centralized: Most affordable to maintain with only one central location Decentralized: Higher maintenance costs than a centralized system because there are more locations to maintain. Distributed: Highest maintenance costs as the newest technology of the three. 3. Most scalable (in terms of growth of system): Centralized: Low rating in terms of scalability. Cannot be scaled to the extent of decentralized systems. Decentralized: Moderately scalable. Added hardware and software can lead to increase in performance of the entire system. Distributed: Extremely scalable as it has evolved from the other systems. 4. Most efficiency in processing large volume of transactions: Centralized: Longer access times for users who are far from the central server. Bottlenecks can happen when traffic spikes.

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Decentralized: Processing and access time to the data is faster because there are more central servers and also nodes in regions where user activity is high. Minimal problem of performance bottlenecks because the processing load is balanced across the system. Distributed: Processing and access to data is very fast because users share ownership of the data and systems resources. LO 3, Blooms: Analysis, Difficulty: Medium, TOT: 20 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.3

A6. Software

Method of Adoption

1. SAP

C. Customizable

2. Quicken

A. Out of the box

3. SAGE300

B. Configurable

4. Excel

A. Out of the box

5. Salesforce

B. Configurable

6. Apache

B. Configurable

7. Oracle PeopleSoft Benefits Admin

C. Customizable

8. SAS Viya

B. Configurable

9. Microsoft Windows

A. Out of the box

LO 4, Blooms: Application, Difficulty: Medium, TOT: 15 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.4

A7.1. Budget overrun, In-house development 2. Copyright infringement, Third-party purchase 3. Data breach, Both 4. Technical risk, In-house development 5. External risk, In-house development 6. Business disruption, Third-party purchase LO 1 & 4, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.1 & 4

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A8. Client Criteria 1. Centralized system

6. Ease of implementation 7. Minimal technical expertise requirements

Matching System(s) A. Stand-alone desktop, B. SaaS, C. Onsite ERP B. SaaS B. SaaS B. SaaS A. Stand-alone desktop, B. SaaS, C. Onsite ERP B. SaaS B. SaaS

8. Data security

B. SaaS

9. Access from anywhere, at any time, and from any device

B. SaaS, C. Onsite ERP

10. Most flexibility and scalability

B. SaaS

2. Low initial upfront cost 3. Low maintenance costs 4. Minimal updating of the system 5. Ability to monitor financial performance

The client should choose SaaS as it meets all the criteria. LO 2 - 4, Blooms: Application, Difficulty: Medium, TOT: 15 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section 4.2-4

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CHAPTER 5 Data Storage and Analysis Learning Objectives 1. Differentiate between data elements and data types. 2. Explain how data is stored. 3. Summarize the five characteristics of big data. 4. Apply data analytics to accounting problems.

ANSWERS TO MULTIPLE CHOICE QUESTIONS 1. A

10. C

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.3

2. C

11. A

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.3

3. C

12. A

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

LO 3, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA AC: Technology and Tools, Section: 5.3

4. C

13. B

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.3

5. A

14. C

LO 1, Blooms: Comprehension, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA AC: Technology and Tools, Section: 5.1

LO 3, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.3

6. D

15. C

LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.2

LO 4, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.4

7. C

16. B

LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.2

LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.4

8. C

17. B

LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.2

LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.4

9. B

18. B

LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.2

LO 4, Blooms: Comprehension, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.4

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ANSWERS TO DISCUSSION AND RESEARCH QUESTIONS DQ1. Knowing how to use unstructured data will help accounting professionals add value for their employers and clients. By not using unstructured data and ignoring around 80% of the data out there, accountants will forgo opportunities to provide valuable insights and solve problems in innovative ways. LO 1, Blooms: Application, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, Technology, AICPA AC: Technology and Tools, Section: 5.1

DQ2. Key differences include: 80% of business data is unstructured. Most business decisions are based on only 20% of a company’s data (structured).

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

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DQ3. The key data elements, in order from largest to smallest, are: Data Element Databases: Files: Records: Fields: Bytes (characters): Bits:

are composed of files are composed of records are composed of fields are composed of bytes are composed of bits the smallest element in a computer system

LO 1, Blooms: Knowledge, Difficulty: Easy, TOT: 3 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

DQ4. Since most reports for accounting purposes are created from structured data that is stored in relational databases—including data warehouses and data marts—knowing how data is linked and where the data is stored gives an accounting professional comfort that they are using accurate information. Querying data using SQL is a highly sought-after skill for accounting professionals. LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.2

DQ5. a. Volume is the quantity and scale of data generated every second. b. Velocity is the speed at which speed data changes and is processed. c. Variety is the diversity of data created or collected and is categorized into two types—structured and unstructured. d. Veracity is the extent to which data can be trusted for insights. e. Value is the usefulness, worth or degree of importance of the results of the analysis. Value is the most important of the 5Vs because data isn’t useful to a company unless it can be converted into valuable or useful information to aid decision-making. If the result of the analysis is not useful, why bother doing the analysis at all? LO 3, Blooms: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.3

DQ6. Answers will vary by student. Examples include: 5Vs Volume Velocity Variety

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Challenges Standard tools like Excel and Access aren’t equipped to handle large sets of data. Companies can find it overwhelming to deal with the speed of data creation and its arrival in their systems. Many companies are not equipped to handle the types of unstructured data they have and use manual processes of accessing and reviewing files instead of leveraging advanced technology to organize, manage, and query unstructured data.

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Because of high velocity and variety, unstructured data will be prone to many imprecisions and inaccuracies. While companies may capture large quantities of big data, they can lack the capabilities to interpret how to turn that data into useful information.

Veracity Value

LO 3, Blooms: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.3

DQ7. Descriptive analytics tell us what has already happened by looking at historical data and condensing it into smaller, more meaningful bits of information. It is easy to access to this data and visualize in software tools like Tableau. It addresses questions like: “What happened?” “How many times did this happen?” “When did it happen?”

Example: A report comparing the amount invoiced by vendors for last year and this year, by quarter. Diagnostic analytics provide insight into why something happened. These procedures drill down into data on a granular level and often consist of looking at the data sets in a variety of ways to identify trends or investigate causes. Diagnostic analysis uses historical data. Accountants use it to troubleshoot issues and investigate them by drilling down to the root cause. It addresses questions like: “Why did this happen?” “Where did this come from?” “How can we avoid this problem in future?”

Example: Analysis of the computer login data for employees to see who is logging into their computer outside of the expected work week hours. Predictive analytics use statistical modeling and algorithms to predict what is likely to happen. These require assumptions and provide possible outcomes based on those assumptions. Predictive analytics cannot tell you what will happen in the future; it can only forecast what might happen using probabilities by logically predicting outcomes using statistical modeling and predictive algorithms. This analysis uses historical and live data. It addresses questions like: “What is likely to happen?” “Should we make this decision?”

Example: Connect a dashboard to a live database to show risks in real-time to predict logins that may result in fraudulent activity or external access to the network. Prescriptive analytics answer the question of what we should do. It is the most advanced and sophisticated form of analytics and requires cutting-edge technology and advanced programming to design. It is costly to implement. The analyst develops the decision-making protocol by using historical data to train the program on what to do in a real-time situation. It uses the three previous analytics types for insights and uses live, historical, and external data. It answers the question: Solutions Manual

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Examples will vary by student: Create a program that uses advanced algorithms to test the potential outcomes of every new login into the system to determine whether there is a high risk of a malicious login. If it determines a high-risk login, the login is blocked, and the program sends a message to the IT team notifying them of the potential threat. LO 4, Blooms: Application, Difficulty: Medium, TOT: 15 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.4

DQ8. Student examples will vary. Create a trend analysis for sales taxes paid in different states to identify and investigate anomalies: An online company sells goods in all 50 states. Sales tax penalties for underpayment can be severe. This is diagnostic data analysis. LO 4, Blooms: Application, Difficulty: Medium, TOT: 5 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.4

DQ9. Student answers will vary. LO 4, Blooms: Application, Difficulty: Medium, TOT: 20 min., AACSB: Communication, AICPA AC: Technology and Tools, Section: 5.4

SOLUTIONS TO APPLICATION AND ANALYSIS QUESTIONS A1. Unstructured Data Item A photo of an inventory item that the firm sells A bar code that is assigned to an item in the company’s warehouse Results of X-rays and MRIs in a doctor’s office Satellite and topographical imagery of land and buildings that a business owns in 30 states Scripts of calls from the customer call center Scanned copy of a paper notification that our overdraft limit has been increased Facebook posts of customer complaints about poor service Text messages about products the firm ordered Survey data about a new product that the firm sells Patient symptoms during a doctor's visit

Database Tables(s) 1. E. Product List or G. Inventory 2. G. Inventory 3. A. Patients 4. B. Property 5. D. Customers 6. C. Banks 7. D. Customers 8. J. Purchase Orders 9. E. Product List or G. Inventory 10. A. Patients

LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

A2. Solutions Manual

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1. A 2. C 3. B 4. D LO 1, Blooms: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1

A3. 1. Stock IDs 6117 and 6119 2. Customer IDs 602, 603 and 605 3. Customer ID 604, Zebo LLC, received discounts on Stock IDs 6116 ($1,000), 6121 ($1,998) and 6115 ($2,000). 4. No, it appears that Stock ID 6120 ordered by Lillianna Fiala has not been delivered. 5. The following columns are found in at least two tables and create a relationship between these tables: Customer ID Order ID Stock ID LO 2, Blooms: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.2

A4. (1) (2) (3) (4)

production database query structured data data warehouse

LO 2, Blooms: Knowledge, Difficulty: Easy, TOT: 3 min., AACSB: Communication, AICPA AC: Technology and Tools, Section: 5.2

A5. 1. Variety: Storing different varieties of data such as unstructured and structured data of different types, including photos, text files, and tables of profile information, creates a challenge for a business. 2. Volume: The number of users and sales multiplied by all the different types of information being stored means Pizza Palace is creating and receiving large volumes of data every year. 3. Value: Cost-benefit analyses to determine if the results of the analytic are worth the resources needed to create it is an example of determining whether the data and the analytic have value.

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4. Velocity: Receiving multiple types of data (map locations, orders, profiles, payments, etc.) and moving a sale from point-of-sale through front door delivery in less than 40 minutes demonstrates how quickly data is received. 5. Veracity: Typos and slang are examples of data issues that must be cleansed or reformatted before a data analytic tool can be reliable. If the data is left dirty, the tool will miss many instances of phrases because of typos. This makes the data unreliable until it is cleansed. LO 3, Blooms: Application, Difficulty: Medium, TOT: 25 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.3

A6. To answer the question of when Mirabel Enterprises began to see the decline in maintenance contract renewals, the best form of analysis is descriptive analytics. These procedures tell us what has already happened by looking at historical data and condensing it into smaller, more meaningful bits of information. This data is easy to access and easy to visualize in tools like Tableau. To answer the question of whether there are indicators that point to why Mirabel Enterprises has experienced the decline in maintenance contract renewals, the best form of analysis would be diagnostic analytics. These procedures drill down into data on a granular level and often consist of looking at the data sets in a variety of ways to identify trends or investigate causes, once again using historical data. LO 1-4, Blooms: Knowledge, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1-4

A7. Descriptive analytics. “What happens when we send collections emails during peak marketing?” is an example of a descriptive question of “what already happened”. LO 1-4, Blooms: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1-4

A8. 1. Descriptive. It answers the question “What happened?” 2. Descriptive. It answers the question “What happened?” 3. Diagnostic. It answers the question “Why did it happen?” by looking for a trend in the results. LO 1-4, Blooms: Application, Difficulty: Medium, TOT: 15 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 5.1-4

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CHAPTER 6 Designing Systems and Databases Learning Objectives: 1. Outline the systems development life cycle (SDLC) stages. 2. Compare and contrast Waterfall and Agile systems development methodologies. 3. Distinguish among different types of modern databases. 4. Design relational database tables by using an entity relationship diagram (ERD). 5. Construct queries to retrieve data and answer business questions.

ANSWERS TO MULTIPLE CHOICE QUESTIONS 1. C

9. A

LO 1, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.1

LO 3, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.3

2. B

10. C

LO 1, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.1

LO 3, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.3

3. D

11. B

LO 1, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.1

LO 4, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.4

4. B

12. A

LO 1, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.1

LO 4, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.4

5. D

13. B

LO 2, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.2

LO 4, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.4

6. C

14. D

LO 2, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.2

LO 5, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.5

7. A

15. B

LO 2, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.2

LO 5, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.5

8. D

16. C

LO 3, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.3

LO 5, BT: Knowledge, Difficulty: Easy, TOT: 1 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.5

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ANSWERS TO DISCUSSION AND RESEARCH QUESTIONS DQ1. Alicia’s Accessories can use parallel, phased, or pilot implementation. It should not use direct cutover for this situation. Student answers will vary but should discuss the cost and risk profile of their selected choice: Parallel: High costs and low risk Phased: Moderate costs and moderate risk Pilot: Moderate costs and moderate risk LO 1, BT: Comprehension, Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Risk Assessment, Analysis, and Management, Section: 6.1

DQ2. Student answers will vary. Direct cutover means low cost and high risk if the new system fails because customer orders may go unfulfilled as production would be at a standstill. Parallel implementation means lower risk and high cost to keep both systems going. Phased implementation for manufacturing raw cookie dough is not feasible because the nature of the product does not allow for modules. Pilot implementation, with moderate cost and risk, would be a good option as a few pilot factories could go live first and issues resolved before full rollout. LO 1, BT: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.1

DQ3. Student responses will vary but should focus on corporate culture, appetite for risk, and the nature of the development project. The advantages and disadvantages of Waterfall versus Agile will impact their responses, such as: • Agile strengths: In-person team, creative developers, new system with room for creativity and flexibility. • Agile weaknesses: Must be able to manage risks in real time and may not be conducive to decentralized, virtual work, as has needed to occur during the COVID-19 pandemic. Agile excels when teams can meet frequently (in-person). • Waterfall strengths: Predefined system requirements and regulatory specifications. • Waterfall weaknesses: Because of its linear nature, it is difficult to respond to in real-time to risks and change. Risks can mount as managers don’t respond to mitigate risks until the project is completed. LO 2, BT: Analysis, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.2

DQ4. Student answers will vary but should include the project description strengths for the chosen methodology: Agile strengths: In-person team, creative developers, new system with room for creativity and flexibility. Waterfall strengths: Predefined system requirements and regulatory specifications. Solutions Manual

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LO 2, BT: C, Difficulty: Easy, TOT: 3 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.2

DQ5. A user defines a class and assigns objects that are placed “within” the class. When a user queries a class, all objects in the class will be returned. Unlike relational databases, users are unable to query individual items in an object-oriented database. Objects can belong to more than one class. LO 3, BT: Comprehension, Difficulty: Easy, TOT: 3 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.3

DQ6. Relational databases traditionally require a database administrator to manually add space to the database as needed. NoSQL databases have increased scalability. Many NoSQL databases will automatically scale as the data sets grow larger. LO 3, BT: Comprehension, Difficulty: Easy, TOT: 3 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.3

DQ7. Conceptual, logical, and physical ERDs represent three levels of an ERD. While all the three levels show entities with attributes and relationships, they differ in their purposes and their target audiences. •

•

Conceptual ERDs show the business objects that should be in a system and the relationships between them, without cardinalities. They present an overall picture of the system by defining the entities that exist, but not the tables. Business analysts use conceptual models. Logical ERDs provide more detail than a conceptual ERD by defining explicitly the columns or attributes of each entity. They do not show the primary and foreign keys. Business analysts use conceptual models. Physical ERDs represent the design blueprint for a relational database. A physical data model expands the logical data model by assigning each column with type, length, etc. and shows how that data should be structured in the database. These ERDs are used by the designers and includes identification of primary keys and foreign keys.

LO 3, BT: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.3

DQ8. Relationships indicate associations between tables, and they show how things of significance are related. We navigate the relationships by using keys. The foreign key (FK) is a primary key from one table that ‘visits’ another table. The foreign key must match to an existing primary key, a database rule known as referential integrity. This controlled redundancy allows linking of tables, creating the physical relationship between them. LO 4, BT: Comprehension, Difficulty: Easy, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.4

DQ9. Accounting is a data-driven profession. All accounting professionals work with data and they will need to interact with databases to extract the information they need. SQL is the tool that connects the user to the data in the database. It is a ubiquitous database language used to store, query, and access data. You will often be asked to “show me the data” to support a position you may take. You need to know how to get that data. As an auditor, for example, you can use SQL to retrieve a client’s data and display the information results from that data in a variety of formats for audit purposes. SQL allows you to be more productive, or else you may have to wait days or weeks for IT to extract the data for you. SQL also allows you to aggregate data in seconds and perform other data analytics tasks. LO 5, BT: Analysis, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.5

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DQ10. Student answers will vary. Examples include: • • • • •

Selecting and extracting data matching specified criteria, such inventory quantities on hand in excess of quantities sold over a specified time period Deleting records from the database based on established criteria, such as deleting approved vendors who are inactive Creating a report that shows which countries your inventory items are sourced from Creating a report that shows unfilled orders from customers Creating a report that shows the average cost price for manufacturing a batch of cookie dough

LO 5, BT: Analysis, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.5

SOLUTIONS TO APPLICATION AND ANALYSIS QUESTIONS A1.1. Requirements definition 2. systems model 3. graphical user interface (GUI) 4. requirements definition 5. conceptual design 6. technical architecture specifications LO 1, BT: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.1

A2.1. B. Economic feasibility: This fact states the benefits of the project. 2. A. Technical feasibility: This fact states the talent availability of building and supporting the project. 3. C. Operation feasibility: This fact states how the project will integrate with existing company systems. 4. B. Economic feasibility: This fact states the costs of the project. Yes, this project passes the feasibility test. LO 1, BT: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.1

A3.1. development 2. design 3. testing 4. implementation 5. planning 6. analysis 7. testing 8. planning 9 . design 10. maintenance LO 1, BT: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.1

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A4.1. B. Product owner 2. A. Business stakeholder 3. C. Scrum master 4. D. Core team member LO 2 BT: Application, Difficulty: Medium, TOT: 10 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.2

A5.Rachael: Did you hear that the client wants us to change the layout on the login page? We finished that weeks ago. They should have said something when they saw that product increment. You: That is true. But John, our product owner, is meeting with them tomorrow. He knows we need to continue to timebox our work and focus on the essential parts of the app. Rachael: Yeah, changing layouts isn’t essential. John should add that to the product backlog. We can work on that during the next sprint if we have time. You: Exactly. Otherwise, we are going to miss our deadlines due to scope creep. John wouldn’t let that happen. That is not part of our Agile principles. LO 2 BT: Knowledge Difficulty: Easy, TOT: 3 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.2

A6. Description 1. Set, based on predefined scope of project 2. Create a bare-bones application or system that performs at a minimal level and then iterate to improve it 3. Measured against the project plan and well documented 4. Measured by whether the project delivery is on time, within budget, and to scope 5. Well defined prior to starting development 6. More flexible in that it can be set or alternatively based on feedback from each iteration 7. Typically not available until at least the testing stage 8. Linear and inflexible, with each stage of the project completed before the next stage begins 9. Normally available in early phases of the project Solutions Manual

Schedule and budget

Waterfall or Agile? Waterfall

Goal

Agile

Metrics for progress

Waterfall

Metrics for success

Waterfall

Scope

Waterfall

Schedule and budget

Agile

Availability of working product or system Stages

Waterfall

Availability of working product or system

Agile

Attribute

Waterfall

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10. Measured by whether the project meets end-user requirements 11. Create a completed application or system 12. Iterative and flexible, with the ability to move forward and backward across stages if necessary 13. Measured against a minimal level of performance with minimal documentation 14. Undefined prior to starting with development

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Metrics for success

Agile

Goal

Waterfall

Stages

Agile

Metrics for progress

Agile

Scope

Agile

LO 2 BT: Knowledge Difficulty: Easy, TOT: 5 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.2

A7.Part 4: Students may find it difficult to clearly identify the answers to parts 1, 2, and 3. This is because many DBMS are hybrids or multi-purpose systems. While terms like “structured” and “unstructured” data are clear academically, in the real world, students will find these concepts are often blurred and difficult to navigate. Selected DBMS

Part 1: Databases Supported

Part 2: Data Supported

Part 3: Languages Used

Oracle

Hybrid: Oracle is an RDBMS for relational databases. It supports some features of object-relational data, but it is not a fully objectoriented database system.

Structured data and sometimes unstructured data.

SQL

Microsoft SQL Server

Relational: Microsoft SQL Server is an RDBMS for relational databases. SQL Server is an example of a pure relational database.

Structured data.

SQL

MongoDB

NoSQL: MongoDB is an open-source DBMS for document-oriented databases. Documentoriented databases are a type of NoSQL database. NoSQL, Object-oriented, or document-oriented are all correct answers.

Structured data and unstructured data. MongoDB focuses on JSON files.

Primarily Java MongoDB provides drivers for supporting additional languages including: Python, PHP, Perl, JSON, Java, Ruby, Scala, C, C#, .Net, and more.

Amazon DynamoDB

NoSQL: DynamoDB is a Structured data and NoSQL DBMS. It a hybrid of unstructured data a relational database style Chapter 6 – Designing Systems and Databases

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primarily in JSON files.

Python Perl PHP Ruby Erlang JavaScript

Part 5: Because of the difficulty in navigating technology like this, businesses are often confused about which systems and databases to adopt. Specialists are hired to assist with system migrations and database designing. The complexity of both data and the technology to support it create challenges for companies of all sizes. LO 3, BT: Analysis, Difficulty: Hard, TOT: 30 min., AACSB: Reflective Thinking, AICPA AC: Technology and Tools, Section: 6.3

A8.Customer_Order table: Order_No (PK) Order_Date Customer_ID (FK) Total_Price Order_Details table: Order_No (PK) (FK) Pizza_Code (PK) (FK) Order_Qty Pizza table: Pizza_Code (PK) Pizza_Name Unit_Price Customer table: Customer_ID (PK) Customer_Name Customer_Address Customer_Phone LO 3-4, BT: Application, Difficulty: Medium TOT: 20 min., AACSB: Technology, AICPA AC: Technology and Tools, Section: 6.3 and 6.4

A9. 1. Table 1: General Journal Entries JE_No

JE_Date

Account_Name

Account_No

Debit

Credit

Explanation

7/1/20XX

Cash

1001

5,000

Credit sale

7/1/20XX

Accounts Receivable

1004

70,000

Credit sale

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7/1/20XX

Sales

4001

75,000

Credit sale

7/1/20XX

Cost of Goods Sold

5001

40,000

COGS

7/1/20XX

Inventory

1030

40,000

COGS

7/2/20XX

Accounts Payable

2001

8,000

Paid invoice

7/2/20XX

Cash

1001

8,000

Paid invoice

2. Three columns taken together uniquely identify a row: JE_No in combination with JE_Date and Account_No. Explanation: At the beginning of the second fiscal year, the first journal entry number will reset to 1, so JE_No cannot be used to uniquely identify a row. In addition, each journal entry results in multiple rows with the same JE_No and the same date. In fiscal year 2 and subsequent fiscal years, the JE_Date, in combination with JE_No and Account_No will uniquely identify rows in this flat-file table.

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3. Table A: Transaction Listing JE_Number

JE_Date

Explanation

7/1/20XX

Credit sale with down payment

7/1/20XX

Cost of goods sold

7/2/20XX

Payment of invoice

Table B: Transaction Details JE_Number

JE_Date

Account_No

Amount

7/1/20XX

1001

5,000

7/1/20XX

1004

70,000

7/1/20XX

4001

(75,000)

7/1/20XX

5001

40,000

7/1/20XX

1030

(40,000)

7/2/20XX

2001

8,000

7/2/20XX

1001

(8,000)

Table C: Chart of Accounts Account_No

Account_Name

1001

Cash

1004

Accounts receivable

1030

Inventory

2001

Accounts payable

4001

Sales

5001

Cost of goods sold

Each transaction in the transaction listing must have more than one transaction detail, and each transaction detail must belong to one and only one transaction (i.e., journal entry). Each transaction detail line item must have one and only one general ledger account number, and each general ledger account number may have zero or more transaction detail line items. LO 4, BT: Application, Difficulty: Hard, TOT: 30 min., AACSB: Technology, AICPA AC: Systems and Process Management, Section: 6.4

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