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    Accounting Information System (Chapter 3)

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    Cassie
    The document discusses various topics related to business ethics and fraud including ethical issues with information technology, common fraud schemes, internal controls, and SAS 78/COSO. It also defines management fraud and employee fraud, and describes different types of fraud schemes and statements.

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    Attribution Non-Commercial (BY-NC)
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    Accounting Information System (Chapter 3)

    Uploaded by

    Cassie
    8K views50 pages
    The document discusses various topics related to business ethics and fraud including ethical issues with information technology, common fraud schemes, internal controls, and SAS 78/COSO. It also defines management fraud and employee fraud, and describes different types of fraud schemes and statements.

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    Accounting Information System by James Hall chapter 3 powerpoint presentation

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    Accounting Information System (chapter 3)

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    The document discusses various topics related to business ethics and fraud including ethical issues with information technology, common fraud schemes, internal controls, and SAS 78/COSO. It also defines management fraud and employee fraud, and describes different types of fraud schemes and statements.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    8K views50 pages

    Accounting Information System (Chapter 3)

    Uploaded by

    Cassie
    The document discusses various topics related to business ethics and fraud including ethical issues with information technology, common fraud schemes, internal controls, and SAS 78/COSO. It also defines management fraud and employee fraud, and describes different types of fraud schemes and statements.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 50

    m 

    
       6th edition
    James A. Hall

    g  
     g g 
    !"#$
    ~ 
      
    Ê x oad issues pe taining to business ethics
    Ê Ethical issues elated to the use of info mation
    technology
    Ê Distinguish between management f aud and
    employee f aud
    Ê Common types of f aud schemes
    Ê Key featu es of SAS 78 / COSO inte nal cont ol
    f amewo 
    Ê Objects and application of physical cont ols
    x  
    {hy should we be conce ned about ethics in
    the business wo ld?
    Ê Ethics a e needed when conflicts a iseȄthe
    need to choose
    Ê In business, conflicts may a ise between:
    Ê employees
    Ê management
    Ê staeholde s
    Ê Litigation
    x  
    x involves finding the answe s to two
    questions:
    Ê How do manage s decide on what is ight in
    conducting thei business?
    Ê Once manage s have ecognized what is ight, how do
    they achieve it?
    ÿ
     
    x  

       
    conce ns the social impact of compute technology (ha dwa e,
    softwa e, and telecommunications).
    { 
      
     
    D • 
    D   
           
    D       
    D    
    D      
    D     
    D    
    D    
    © 
    
    ÿ  
    Ê ÿ  
     d false statement o
    disclosu e
    Ê     d a fact must be substantial in
    inducing someone to act
    Ê 
        must exist
    Ê ñhe mis ep esentation must have esulted in
    a     upon info mation, which
    caused someone to act
    Ê ñhe mis ep esentation must have caused
    a 
    
    
    ÿ
     
      
    
    ÿ  
      ÿ 
    ÿ  
    Ê Loss due to f aud equal to 6% of evenuesȄ
    app oximately $660 billion
    Ê Loss by position within the company:

    Ê Othe esults: highe losses due to men,


    employees acting in collusion, and employees
    with advance deg ees
    
    
    
     
     
    
    Ê ©  m
      uditing fi ms also engaged by thei
    clients to pe fo m nonaccounting activities
    Ê ©  
     
     di ecto s who also se ve on the boa ds
    of othe companies, have a business t ading elationship, have a
    financial elationship as stocholde s o have eceived pe sonal loans,
    o have an ope ational elationship as employees
    Ê Î      sho t-te m stoc
    options as compensation esult in sho t-te m st ategies aimed at
    d iving up stoc p ices at the expense of the fi mǯs long-te m health.
    Ê  
    
     m 
     a cha acte istic common to many
    financial statement f aud schemes.
    Ê En on made elabo ate use of special pu pose entities
    Ê {o ldCom t ansfe ed t ansmission line costs f om cu ent expense
    accounts to capital accounts
     ~ 
     
    Its p incipal efo ms pe tain to:
    Ê C eation of the Public Company Accounting
    Ove sight xoa d (PCAOx)
    Ê Audito independenceȄmo e sepa ation between a
    fi mǯs attestation and non-auditing activities
    Ê Co po ate gove nance and esponsibilityȄaudit
    committee membe s must be independent and the
    audit committee must ove see the exte nal audito s
    Ê Disclosu e equi ementsȄinc ease issue and
    management disclosu e
    Ê New fede al c imes fo the dest uction of o
    tampe ing with documents, secu ities f aud, and
    actions against whistleblowe s
    
    ÿ  
    Ê Committed by      
     
    Ê ‰sually consists of: an employee taing cash o othe
    assets fo pe sonal gain by ci cumventing a companyǯs
    system of inte nal cont ols
    ÿ  
    Ê Pe pet ated at levels of management above the
    one to which inte nal cont ol st uctu e elates
    Ê F equently involves using financial statements to
    c eate an illusion that an entity is mo e healthy
    and p ospe ous than it actually is
    Ê Involves misapp op iation of assets, it f equently
    is sh ouded in a maze of complex business
    t ansactions
    ÿ   
    ñh ee catego ies of f aud schemes acco ding to the
    Association of Ce tified F aud Examine s:
    A. f audulent statements
    x. co uption
    C. asset misapp op iation
    !ÿ   
    Ê isstating the financial statements to mae the copy
    appea bette than it is
    Ê ‰sually occu s as management f aud
    Ê ay be tied to focus on sho t-te m financial measu es
    fo success
    Ê ay also be elated to management bonus pacages
    being tied to financial statements
    x!
    
    
    Ê Examples:
    Ê b ibe y
    Ê illegal g atuities
    Ê conflicts of inte est
    Ê economic exto tion
    Ê Fo eign Co upt P actice Act of 1977:
    Ê indicative of co uption in business wo ld
    Ê impacted accounting by equi ing accu ate eco ds and
    inte nal cont ols
    !
     
    
    Ê ost common type of f aud and often occu s as
    employee f aud
    Ê Examples:
    Ê maing cha ges to expense accounts to cove theft of
    asset (especially cash)
    Ê  : using custome ǯs chec f om one account to
    cove theft f om a diffe ent account
    Ê 
     
    : deleting, alte ing, o adding false
    t ansactions to steal assets

      ÿ   
    Ê ñheft, misuse, o misapp op iation of assets by
    alte ing compute - eadable eco ds and files
    Ê ñheft, misuse, o misapp op iation of assets by
    alte ing logic of compute softwa e
    Ê ñheft o illegal use of compute - eadable
    info mation
    Ê ñheft, co uption, illegal copying o intentional
    dest uction of softwa e
    Ê ñheft, misuse, o misapp op iation of compute
    ha dwa e
    ‰ 
      
    
      
          
    
    
    ÿ  
    Ê ñhis aspect of the system is the  
    
    because it is elatively easy to change data as it is being
    ente ed into the system.
    Ê Also, the GIGO (ga bage in, ga bage out) p inciple
    eminds us that if the input data is inaccu ate,
    p ocessing will esult in inaccu ate output.
    
    ÿ  
    •
    
    
    
    Ê alte ing p og ams to allow illegal access to and/o
    manipulation of data files
    Ê dest oying p og ams with a vi us
    ~ 
     
    
    Ê misuse of company compute esou ces, such as
    using the compute fo pe sonal business
     ÿ  
    Ê Alte ing, deleting, co upting, dest oying, o stealing
    an o ganizationǯs data
    Ê Oftentimes conducted by disg untled o ex-employee
    
    
    " 
    ÿ  
      
     
       
    
     
    Ê sea ching th ough the t ash cans on the compute
    cente fo disca ded output (the output should be
    sh edded, but f equently is not)
     
    
    ~ 
    
    
     
    ü  
     of the fi m
     
     
     
     of accounting
    eco ds and info mation
     •
    of the fi mǯs ope ations
      
      with managementǯs
    p esc ibed policies and p ocedu es
    
      
    
      

    
    ~ 
    Ê     
    ñhe establishment and maintenance of a system of inte nal
    cont ol is the esponsibility of management.
    Ê    
    
    ñhe cost of achieving the objectives of inte nal cont ol should
    not outweigh its benefits.
    Ê     •
    
    ñhe techniques of achieving the objectives will va y with
    diffe ent types of technology.
    ©
    
     
    
    
    Ê Possibility of honest e o s
    Ê Ci cumvention via collusion
    Ê anagement ove ide
    Ê Changing conditions--especially in companies with
    high g owth
     
     
    # 

    
    $%#&
    Ê 
      of an asset
    Ê ñ of an asset
    Ê g

     of info mation


    Ê 
     of the info mation system
    ñ  
    
     
    •  
       
     
    Undesirable Events

    Preventive Preventive Preventive Preventive

    Levels Detective Detective Detective


    of
    Control

    Corrective Corrective Corrective


    '() ~~
    Desc ibes the elationship between the fi mǯsǥ
    Ê inte nal cont ol st uctu e,
    Ê audito ǯs assessment of is, and
    Ê the planning of audit p ocedu es
    à
    

     

    %"#$#$
    ##"&"!
    '$''# 
    ÿ 
    
    

    
    *'() ~~
    1. Cont ol envi onment
    2. Ris assessment
    3. Info mation and communication
    4. onito ing
    5. Cont ol activities
    ü*ñ 
    
    
    
    Ê Integ ity and ethics of management
    Ê O ganizational st uctu e
    Ê Role of the boa d of di ecto s and the audit
    committee
    Ê anagementǯs policies and philosophy
    Ê Delegation of esponsibility and autho ity
    Ê Pe fo mance evaluation measu es
    Ê Exte nal influencesȄ egulato y agencies
    Ê Policies and p actices managing human
    esou ces
    *%#
    Ê Identify, analyze and manage iss elevant to
    financial epo ting:
    Ê changes in exte nal envi onment
    Ê isy fo eign ma ets
    Ê significant and apid g owth that st ain inte nal
    cont ols
    Ê new p oduct lines
    Ê est uctu ing, downsizing
    Ê changes in accounting policies
    *
    
    
     
    
    Ê ñhe AIS should p oduce high quality info mation
    which:
    Ê identifies and eco ds all   t ansactions
    Ê p ovides   info mation in app op iate detail to
    pe mit p ope classification and financial epo ting
    Ê   measu es the financial value of t ansactions
    Ê accu ately eco ds t ansactions  
     
     
    
    
    
    
     
    
    Ê Audito s must obtain sufficient nowledge of the IS to
    unde stand:
    Ê the classes of t ansactions that a e mate ial
    Ê how these t ansactions a e initiated [input]
    Ê the associated accounting eco ds and accounts used in
    p ocessing [input]
    Ê the t ansaction p ocessing steps involved f om the
    initiation of a t ansaction to its inclusion in the financial
    statements [p ocess]
    Ê the financial epo ting p ocess used to compile financial
    statements, disclosu es, and estimates [output]

    A %#'#( !#)


    *
    
    
    ñhe p ocess fo assessing the quality of inte nal cont ol
    design and ope ation
    [ñhis is feedbac in the gene al AIS model.]
    Ê Sepa ate p ocedu esȄtest of cont ols by inte nal audito s
    Ê Ongoing monito ing:
    Ê compute modules integ ated into outine ope ations
    Ê management epo ts which highlight t ends and
    exceptions f om no mal pe fo mance

    A %#'#( !#)


    **
    
    
    Ê Policies and p ocedu es to ensu e that the app op iate
    actions a e taen in esponse to identified iss
    Ê Fall into two distinct catego ies:
    Ê Iñ cont olsȄ elate specifically to the compute
    envi onment
    Ê Physical cont olsȄp ima ily pe tain to human activities
    ñ
    ñ
    ñ
    
    
    Ê Ú
     
    pe tain to the entitywide
    compute envi onment
    Ê Examples: cont ols ove the data cente , o ganization
    databases, systems development, and p og am
    maintenance
    Ê     
    ensu e the integ ity of
    specific systems
    Ê Examples: cont ols ove sales o de p ocessing, accounts
    payable, and pay oll applications
     ñ
     
    
    
    Ê ñ ansaction Autho ization
    Ê Seg egation of Duties
    Ê Supe vision
    Ê Accounting Reco ds
    Ê Access Cont ol
    Ê Independent Ve ification
     
    
    
    ñ
       
      
    Ê used to ensu e that employees a e ca ying out only
    autho ized t ansactions
    Ê 
     (eve yday p ocedu es) o    (non-
    outine t ansactions) autho izations
     
    
    
    
        
    Ê In manual systems, sepa ation between:
    Ê 
    ! 
      
     
    Ê  
     
      
    Ê  
    Ê In compute ized systems, sepa ation between:
    Ê 
    
     
    Ê 
    
    
     
    Ê 
    
       
     
    
    
     
     
    Ê a compensation fo lac of seg egation; some may
    be built into compute systems
     
    
    Ê p ovide an audit t ail
     
    
    
    g 
    
    Ê help to safegua d assets by est icting physical
    access to them
     
      
    Ê eviewing batch totals o econciling subsidia y
    accounts with cont ol accounts
    · 
     
      

    g# (* $


    -.$,

    g# (* g+ $


    -.$

    g+ $

    g# (* ", "


    ", "

    -.$/
     
    
    ñ
     
    ñ
       
      
    Ê ñhe ules a e often embedded within compute
    p og ams.
    Ê EDI/JIñ: automated e-o de ing of invento y without
    human inte vention
     
    
    ñ
     
    
        
    Ê A compute p og am may pe fo m many tass that a e
    deemed incompatible.
    Ê ñhus the c ucial need to sepa ate p og am development,
    p og am ope ations, and p og am maintenance.
     
    
    ñ
     
     
     
    Ê ñhe ability to assess competent employees becomes
    mo e challenging due to the g eate technical
    nowledge equi ed.
     
    
    ñ
     
     
    
    Ê ledge accounts and sometimes sou ce documents a e
    ept magnetically
    Ê no audit t ail is eadily appa ent
     
    
    ñ
     
    g 
    
    Ê Data consolidation exposes the o ganization to compute
    f aud and excessive losses f om disaste .
     
    
    ñ
     
     
      
    Ê {hen tass a e pe fo med by the compute athe than
    manually, the need fo an independent chec is not
    necessa y.
    Ê Howeve , the p og ams themselves a e checed.

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