Summary Class notes - Accounting Analytics

Course
- Accounting Analytics
- Della Via
- 2018 - 2019
- Erasmus Universiteit Rotterdam (Erasmus Universiteit Rotterdam, Rotterdam)
- Accountancy and Financial Management
285 Flashcards & Notes
1 Students
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Summary - Class notes - Accounting Analytics

  • 1521500400 Lecture 1

  • AIS
    -Working with data: companies generate, manage and analyze information
    -Information origin vs use à where is the information coming from? In other courses you focus on the use of information, which models etc. Origin is also important, where is it coming from?
    -Design, select & implement reliable systems à combination between auditors and IT consultants. Auditor is not checking only FS, but only the control system/IT system. You need to check of the flow of information is correctly formed and if the right controls are in place.
    -Maintain control of processes
    -Assure control
  • What are the most important characteristics of Big Data?
    - Volume: amount of data
    - Velocity (snelheid): due to competition, speed is crucial
    - Variety: different types of data
  • The growing importance of AIS is due to:
    - Ever-increasing volumes of accounting data and business data processing
    - Ever-increasing demands of internal and external users to reduce data processing times
    - Ever-increasing computerization of accounting transactions
    - An evermore critical emphasis on reliable processing and information output, i.e., the growing importance of "being in control"
  • What is an Information System?
    An information system is the set of formal procedures by which data are collected, processed into information, and distributed to users. --> input, process, output
  • Process
    A set of transactions to get from input to output
  • Transaction
    An agreement between two entities to exchange goods or services or any other event that can be measured in economic terms by an organization.
  • Financial transaction
    Economic events that affect the assets, liabilities and equities of the organization. There is a legal obligation to process the transaction correctly.
  • Non-financial transactions
    All other events processed by the organization's information system (e.g. adding person to the list of creditworthy customers). The authority is not interested in this, but it is really important for a company.
  • What is an Accounting Information System (AIS)? (Three characteristics)
    - It identifies, collects, processes and communicates economic information about a firm using a wide variety of technologies

    - It captures, processes and records financial transactions and non-financial transactions that affect the processing of financial transactions.

    - It distributes transaction information to internal and external users.
  • Accounting Information Systems (AIS) process ...
    - Financial transactions
    - Non-financial transactions that directly affect the processing of financial transactions
  • Management Information Systems (MIS) process ...
    - Non-financial transactions that are not normally processed by traditional AIS
  • What are the three major AIS subsystems?
    - Transaction processing system (TPS)
    - General Ledger/Financial Reporting System (GL/FRS)
    - Management Reporting System (MRS)
  • Transaction processing system (TPS)
    - Most common, use for daily operations
    - Records all financial transactions in accounting records
    - Distributes essential information to operations personnel for daily activity
  • General Ledger/Financial Reporting System (GL/FRS)
    - Processes summarized transactions from TPS and updates GL control accounts
    - Produces financial statements and reports: typically non-discretionary
  • Management Reporting System (MRS)
    - Produces special-purpose reports for internal use: typically discretionary
    --> Reports for managers, reports to make decisions
  • What are the major AIS objectives?
    The major AIS objectives are to support:
    - the stewardship function of management
    - management decision making
    - the firm's day-to-day operations
  • Who are the users of Accounting Information System
    - Employees (managers, employees in production, employees in other levels)
    - Auditors
    - Investors
    - Tax authorities
  • Internal users use the Management Reporting System (MRS)
  • What are examples of internal users (managerial/strategic)?
    - Departmental managers
    - Financial accountants
    - Management accountants
    - Internal auditors
  • What are examples of the MRS output (managerial/strategic)?
    - Budgets
    - Variance reports
    - Performance reports
    - Cost-volume-profit analysis
  • Which types of management reports do you have?
    - Programmed reports
    - Ad hoc reports
  • Programmed reports
    - Scheduled reports: produced at specified intervals (e.g. weekly)
    - On-demand reports: triggered by events (e.g. inventory levels drop to a certain level)
  • Ad hoc reports
    - Designed and created "as needed"
    - Situation arise that require new information
  • What are examples of internal users (operational)?
    - Customer representative
    - Warehouse worker
    - Factory staff
    - Payroll staff
  • What are the examples of the MRS output (operational)?
    - Customer buying history
    - Expected inventory list
    - Production schedule
    - Employee records
  • Look at slide 21
    Look at slide 21
  • External users use the General Ledger/Financial Reporting System (GL/FRS)
  • What are example of external users?
    - Shareholders
    - Suppliers
    - Potential lenders
    - External auditors
    - Market regulators
    - Government regulators
    - Taxation authorities
    - Other interest groups such as trade unions, employee groups, ...
  • What are examples of GL/FRS outputs?
    - Published profit and loss accounts
    - Balance sheet
    - Cash flow statements
    - Tax declaration
  • Slide 23
    Slide 23
  • Data
    Facts with no direct effect on an user's action
  • Information
    Processed data which causes the user to take an action
  • Action
    Whatever you do with information, even if you decide not to undertake any actions. Actions can by physical or non-physical.
  • Data sources can be internal and external
  • Examples of internal data sources
    Movement of raw materials into work-in-process, depreciation of plant and equipment
  • Examples of external data sources
    Sale of goods and services, purchase of inventory
  • What types of input do you have with data collection?
    - Physical input: time cart, I type something on the keyboard
    - Non-physical input: scanned barcode (automated or manual)
  • What are the objectives of data collection?
    - Validity
    - Completeness
    - Accuracy
    - Relevance
    - Efficiency
  • Data processing
    Data require processing to produce information. Tasks range from simple to complex.
  • Database
    Physical repository for financial and nonfinancial data (e.g. cabinet or computer disk)
  • Database management
    Data organized in a logical manner
  • What are the two main roles of accountants in AIS?
    - System designers (together with IT professionals): conceptual and physical system
    - System auditors
  • System auditors
    - External audits (financial): independent attest service: test of controls and substantive tests
    - Internal audits: for the interest of the organization
    - Fraud audits: investigate specific anomalies and gather evidence of fraud
  • Test of controls
    Test if the system itself works correctly (right checks, documents etc)
  • Substantive tests
    Focused on the financial amounts à do we have the right amounts in the … etc
  • What are the three (five) most important cycles?
    - Revenue cycle
    - Production cycle
    - Expenditure cycle
    (- HR/Payroll cycle)
    (- Financing cycle)
  • Revenue cycle
    - We sell the car (physical component)
    - We receive the money for the car (financial component)
    --> How to sell our product
  • Production cycle
    - Manufacture the car
    - This is different for service companies, but you can also identify what they 'produce'
  • Expenditure cycle
    -Spend money
    -Get resources for the production
    -Managing the materials
  • HR/Payroll cycle
    -Managing the employees
    -Hiring, training employees
    -Financing the employees
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Summary - Class notes - Accounting Analytics

  • 1524607200 chapter 1, 2, 3

  • Business process
    a set of related, coordinated, and structured activities and tasks that are performed by a person, a computer, or a machine and that help accomplish a specific organizational goal
  • 5 types of transaction cycles (business processes)
    1. Renevue cycle =  activities associated with selling goods or services in exchange for cash or a future promise to receive cash 
    2. Expenditure cycle =  activities associated with purchasing inventory for resale or raw materials in exchange for cash of a future promise to receive cash     
    3. Production/conversion cycle =  activities associated with using labor, raw materials and equipment to produce finished goods     
    4. HR/payroll cycle =  activities associated with hiring, training, compensating, evaluation, promoting and terminating employees     
    5. Financing cycle =  activities associated with raising money by selling shares in the company to investors and borrowing money as well as paying dividends and interest.
  • Accounting information system
    a system that collects, records, stores and processes data to produce information for decision makers. It includes people, procedures and instructions, data, software, information technology infrastructure, and internal controls and security measures.
  • 6 components of an AIS
    -people who use the system
    -procedures and instructions used to collect, process and store data
    -data about the organization and its business activities
    -software used to process the data
    -information technology infrastructure
    -internal controls and security measures
  • AIS fulfills 3 business functions:
    -collect and store data about organizational activities, resources and personnel
    -transform data to information
    -provide adequate controls to safeguard the organization’s assets and data
  • How does AIS add value?
    -improving quality and reducing costs of products and services
    -improving efficiency
    -sharing knowledge
    -improving efficiency and effectiveness of its supply chain
    -improving the internal control structure
    -improving decision making 
  • Factors influencing the design of AIS
    -Business strategy
    -Information technology
    -Organizational culture
  • Source document =
    document used to capture transaction data at its source – when the transaction takes place (e.g. sales order/purchase order)
  • Turnaround document =
    company output sent to an external party, who often adds data to the document and returns to the company as input document.
  • Audit trail =
    the traceable path of a transaction through a data processing system from point of origin to final output or backward from final output to point of origin. Used to check validity and accuracy of ledger postings
  • Online real-time processing vs. batch processing
    computer system processing immediately after transaction occurs vs. accumulating transaction records at a regular interval.
    Combination = online batch processing = transaction data are entered and edited as they occur and stored for later processing.
  • Enterprise Resource Planning System (ERP) =
     integrates all aspects of an organization’s activities – such as accounting, finance, marketing, HR etc. – into one system.
    ERP systems are modular + preferably centralized.
  • Advantages centralized ERP system
    -Provides integrated, enterprise wide, single view of the organization’s data and financial situation
    -Data input is captured or keyed once. 
    -Greater visibility and monitoring opportunities
    -Better access control. 
    -Procedures and reports standardized across business units
    -Customer service improves because quicker access 
    -Manufacturing plants receive new orders in real time + automation of manufacturing process increase productivity
  • Disadvantages centralized ERP system
    -High costs
    -Implementing is very time consuming
    -       Causes business processes to have to change
    -Complexity of integrating many different business models activities and systems
    -Resistance of departments or employees
  • Segregation of duties =
    separate responsibility for custody of assets, authorization of activities that affect those assets and recording information about activities and the status of organizational assets
  • 3 common system documentation tools
    - Data flow diagram
    - Flow chart
    - Business process diagram
  • Data flow diagram =
    graphical description of data sources, data flows, transformation processes, data storage and data destinations
  • Flowcharts = , and give the types of flowcharts
    graphical description of data. It is a pictorial, analytical technique used to describe some aspects of an information system in a clear concise and logical manner.
    oDocument flowchart: illustrates the flow of documents and data among areas of responsibility within an organization
    oSystem flowchart: depicts the relationship among system input, processing, storage and output
    oProgram flowchart: illustrates the sequence of logical operations performed by a computer in executing a program
  • Business process diagram =
    graphical description of the business processes used by a company
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Latest added flashcards

What are the requirements of presentation?
- Present the financial statements in a consistent (human readable) manner in accordance with laws and regulations as well as commonly used reporting models supporting a true and fair view opinion.
- Present the auditor's report in an ISA consistent and human readable manner
- Incorporate all presentation requirements in the XBRL taxonomy whenever possible
- Adhere to the "Consistent Presentation" specification that adresses those presentation requirements not included in taxonomy
Why do you need consistent presentation?
Lot's of people don't know how to read XBRL, they want to see it visualized. Therefore, you need a human readable format: a specific way to show how those documents are generated based on taxonomy and instance document
In central gateway, it checks when you submit your documents on the validations performed:
·Completeness check (2x XBRL, 1x XML)
·XBRL validity check
·XML validity check 
·Signature validation (integrity of signature)         -> check if nothing is modified
·Certificate validation (authenticity of auditor)     -> check if signature is from certified auditor
What are the advantages of a digital signature?
The advantage is that you cannot change it (repellent against fraud, as you cannot change any information after you have signed --> the hash will change)
Explain the process on the picture
1.Pinpoint which part you want to hash (in FS). If you want to change things in the scope you can exclude what you need to revise from the hash, e.g. the date.
2.Hash is sent to signature file (contains the hash + digital signature)
3.It references to signature policy = what is the intention of  all the different signature
4.Similar way also hashed to auditor’s report in XBRL format 
5.So the signature files contains both the liability of the FS and the auditor’s report
What are the key characteristics of a PKI certificate?
Key characteristics of using such a certificate (which consist of public + private key) is that it is only provided to certified auditors in the Netherlands. This means that if you are not an auditor, you cannot get that certificate, which is actively checked in the central gateway. This assured that only certified auditors can sign the auditor’s report (no one can fake a signature). 
Linking & Signing
-Use of electronic signatures to sign the auditor’s report
-Use of a professional PKI certificate (issued only to certified auditors) to sign the auditor’s report. PKI = public key infrastructure.
-Ensure an irrefutable link between the financial statements and the auditor’s report
-Use of XAdES (XML Advanced Electronic Signatures) as specification for the electronic signatures
Taxonomy
- Auditor’s report also in XBRL format –idea is completely new. Always part of paper based
- Separation between financial statements and auditor’s report due to ownership of the documents
- Two different taxonomies as the basis for these instance documents. GAAP taxonomy for financial statements; auditor’s report taxonomy for auditor’s report 
What are the three pillars of the methodology?
1. Taxonomies
2. Linking & Signing
3. Consistent Presentation
XBRL instance document
Financial statements. XBRL replaces the paper-based filings