Accounting information systems (14/e): part 1

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Accounting
Information
Systems

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Accounting
Information
Systems
FOURTEENTH EDITION

Marshall B. Romney
Brigham Young University

Paul John Steinbart
Arizona State University

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Library of Congress Cataloging-in-Publication Data
Names: Romney, Marshall B., author. | Steinbart, Paul John, author.
Title: Accounting information systems / Marshall B. Romney, Brigham Young
   University, Paul John Steinbart, Arizona State University.
Description: Fourteenth Edition. | New York : Pearson, [2016] | Revised
   edition of the authors’ Accounting information systems, [2015] | Includes
   bibliographical references and index.
Identifiers: LCCN 2016043449| ISBN 9780134474021 (hardcover) | ISBN
   0134474023 (hardcover)
Subjects: LCSH: Accounting—Data processing. | Information storage and
   retrieval systems—Accounting.
Classification: LCC HF5679 .R6296 2016 | DDC 657.0285—dc23
LC record available at />10 9 8 7 6 5 4 3 2 1

ISBN 10: 0-13-447402-3
ISBN 13: 978-0-13-447402-1

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Brief Contents

Preface  xix

PART I Conceptual Foundations of Accounting
Information Systems  1
CHAPTER 1 Accounting Information Systems: An Overview   2
CHAPTER 2 Overview of Transaction Processing and Enterprise
­Resource Planning Systems   24
CHAPTER 3 Systems Documentation Techniques   50
CHAPTER 4 Relational Databases  84

PART II Control and Audit of Accounting Information
Systems  125
CHAPTER 5 Fraud  126
CHAPTER 6 Computer Fraud and Abuse Techniques   156
CHAPTER 7 Control and Accounting Information Systems   196
CHAPTER 8 Controls for Information Security   236
CHAPTER 9 Confidentiality and Privacy Controls   270
CHAPTER 10 Processing Integrity and Availability Controls   296
CHAPTER 11 Auditing Computer-Based Information Systems   322

PART III Accounting Information Systems Applications   351

CHAPTER 12 The Revenue Cycle: Sales to Cash Collections   352
CHAPTER 13 The Expenditure Cycle: Purchasing to Cash
­Disbursements  394
CHAPTER 14 The Production Cycle   432
CHAPTER 15 The Human Resources Management and
Payroll ­Cycle  462
CHAPTER 16 General Ledger and Reporting System   492
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BRIEF CONTENTS

PART IV The REA Data Model   525
CHAPTER 17 Database Design Using the REA Data Model   526
CHAPTER 18 Implementing an REA Model in a Relational Database   560
CHAPTER 19 Special Topics in REA Modeling   584

PART V The Systems Development Process   617
CHAPTER 20 Introduction to Systems Development and
Systems ­Analysis  618
CHAPTER 21 AIS Development Strategies   654
CHAPTER 22 Systems Design, Implementation, and Operation   682
Glossary  708

Index  729

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Contents

Preface  xix

PART I Conceptual Foundations of Accounting Information
Systems  1
CHAPTER 1 Accounting Information Systems: An Overview   2
Introduction  3
Information Needs and Business Processes   4
Information Needs  5
Business Processes  6

Accounting Information Systems   10
How an AIS Can Add Value to an Organization   11
The AIS and Corporate Strategy   13
The Role of the AIS in the Value Chain   13
Summary and Case Conclusion   15  ■  Key Terms  16
AIS IN ACTION: Chapter Quiz   16  ■  Discussion Questions  17  ■  Problems  18
CASE 1-1  Ackoff’s Management Misinformation Systems   21
AIS IN ACTION SOLUTIONS: Quiz Key   22

CHAPTER 2 Overview of Transaction Processing and Enterprise
­Resource Planning Systems   24
Introduction  25
Transaction Processing: The Data Processing Cycle   26
Data Input  26
Data Storage  27
Data Processing  33
Information Output  33

Enterprise Resource Planning (ERP) Systems   35
Summary and Case Conclusion   38  ■  Key Terms  38
AIS IN ACTION: Chapter Quiz   38  ■  Discussion Questions  39  ■  Problems  40
CASE 2-1  Bar Harbor Blueberry Farm   46
AIS IN ACTION SOLUTIONS: Quiz Key   47

CHAPTER 3 Systems Documentation Techniques   50
Introduction  51
Data Flow Diagrams   52
Subdividing the DFD   54
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CONTENTS

Flowcharts  58
Types of Flowcharts   58
Program Flowcharts  63

Business Process Diagrams   63
Summary and Case Conclusion   65  ■  Key Terms  66
AIS IN ACTION: Chapter Quiz   66  ■  Comprehensive Problem  67  ■  Discussion Questions  67  ■   
Problems  68
CASE 3-1 Dub 5  75
AIS IN ACTION SOLUTIONS: Quiz Key   76  ■  Comprehensive Problem Solution   78

CHAPTER 4 Relational Databases  84
Introduction  84
Databases and Files   85
Using Data Warehouses for Business Intelligence   86
The Advantages of Database Systems   87
The Importance of Good Data   87

Database Systems  88
Logical and Physical Views of Data   88
Schemas  88
The Data Dictionary   90
DBMS Languages  90

Relational Databases  90
Types of Attributes  90
Designing a Relational Database for S&S, Inc.   92
Basic Requirements of a Relational Database   94
Two Approaches to Database Design   95

Creating Relational Database Queries   95
Query 1  97
Query 2  99
Query 3  100
Query 4  100
Query 5  102
Database Systems and the Future of Accounting   102
Summary and Case Conclusion   103  ■  Key Terms  104
AIS IN ACTION: Chapter Quiz   104  ■  Comprehensive Problem  105  ■   
Discussion Questions  106  ■  Problems  106
CASE 4-1 Research Project  113
AIS IN ACTION SOLUTIONS: Quiz Key   114  ■  Comprehensive Problem Solution   115  ■   
Appendix: Data Normalization   118  ■  Summary  121  ■  Second Normalization Example   121

PART II Control and Audit of Accounting Information
Systems  125
CHAPTER 5 Fraud  126
Introduction  127
AIS Threats  128
Introduction to Fraud   130
Misappropriation of Assets  131
Fraudulent Financial Reporting   132
SAS No. 99 (AU-C Section 240): The Auditor’s Responsibility to Detect Fraud   133

Who Perpetrates Fraud and Why   133
The Fraud Triangle  134

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Computer Fraud  138
The Rise in Computer Fraud   138
Computer Fraud Classifications   140

Preventing and Detecting Fraud and Abuse   142
Summary and Case Conclusion   143  ■  Key Terms  144
AIS IN ACTION: Chapter Quiz   144  ■  Discussion Questions  145  ■  Problems  146
CASE 5-1  David L. Miller: Portrait of a White-Collar Criminal   150
CASE 5-2 Heirloom Photo Plans  152
AIS IN ACTION SOLUTIONS: Quiz Key   153

CHAPTER 6 Computer Fraud and Abuse Techniques   156
Introduction  156
Computer Attacks and Abuse   157
Social Engineering  165
Malware  170
Summary and Case Conclusion   179  ■  Key Terms  180
AIS IN ACTION: Chapter Quiz   181  ■  Discussion Questions  182  ■  Problems  182
CASE 6-1 Shadowcrew  192
AIS IN ACTION SOLUTIONS: Quiz Key   193

CHAPTER 7 Control and Accounting Information Systems   196
Introduction  197

Why Threats to Accounting Information Systems are Increasing   197

Overview of Control Concepts   198
The Foreign Corrupt Practices and Sarbanes–Oxley Acts   199

Control Frameworks  200
COBIT Framework  200
COSO’S Internal Control Framework   202
COSO’S Enterprise Risk Management Framework   202
The Enterprise Risk Management Framework Versus the Internal Control
Framework  204

The Internal Environment   204
Management’s Philosophy, Operating Style, and Risk Appetite   205
Commitment to Integrity, Ethical Values, and Competence   205
Internal Control Oversight by the Board of Directors   206
Organizational Structure  206
Methods of Assigning Authority and Responsibility   206
Human Resources Standards that Attract, Develop, and Retain
Competent Individuals  206
External Influences  208

Objective Setting and Event Identification   208
Objective Setting  208
Event Identification  209

Risk Assessment and Risk Response   209
Estimate Likelihood and Impact   210
Identify Controls  211
Estimate Costs and Benefits   211

Determine Cost/Benefit Effectiveness   211
Implement Control or Accept, Share, or Avoid the Risk   211

Control Activities  212
Proper Authorization of Transactions and Activities   212
Segregation of Duties   213

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CONTENTS

Project Development and Acquisition Controls   215
Change Management Controls   216
Design and Use of Documents and Records   216
Safeguard Assets, Records, and Data   216
Independent Checks on Performance   217

Communicate Information and Monitor Control Processes   218
Information and Communication   218
Monitoring  218
Summary and Case Conclusion   221  ■  Key Terms  222
AIS IN ACTION: Chapter Quiz   222  ■  Discussion Questions  224  ■  Problems  224
CASE 7-1  The Greater Providence Deposit & Trust Embezzlement   232
AIS IN ACTION SOLUTIONS: Quiz Key   233

CHAPTER 8 Controls for Information Security   236
Introduction  237
Two Fundamental Information Security Concepts   238
1. Security Is a Management Issue, Not Just a Technology Issue   238
2. The Time-Based Model of Information Security   239

Understanding Targeted Attacks   240
Protecting Information Resources   241
People: Creation of a “Security-Conscious” Culture   242
People: Training  242
Process: User Access Controls   243
Process: Penetration Testing  246
Process: Change Controls and Change Management   247
IT Solutions: Antimalware Controls   247
IT Solutions: Network Access Controls   247
IT Solutions: Device and Software Hardening Controls   251
IT Solutions: Encryption   254
Physical Security: Access Controls   254

Detecting Attacks  255
Log Analysis  255
Intrusion Detection Systems   256
Continuous Monitoring  256

Responding to Attacks  257
Computer Incident Response Team (CIRT)   257
Chief Information Security Officer (CISO)   257

Security Implications of Virtualization, Cloud Computing,

and the Internet of Things   258
Summary and Case Conclusion   259  ■  Key Terms  260
AIS IN ACTION: Chapter Quiz   260  ■  Discussion Questions  261  ■  Problems  262
CASE 8-1  Assessing Change Control and Change Management   266
CASE 8-2 Research Project  267
AIS IN ACTION SOLUTIONS: Quiz Key   267

CHAPTER 9 Confidentiality and Privacy Controls   270
Introduction  271
Preserving Confidentiality  271
Identify and Classify Information to Be Protected   272
Protecting Confidentiality with Encryption   272
Controlling Access to Sensitive Information   272
Training  274

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Privacy  274
Privacy Controls  274
Privacy Concerns  275
Privacy Regulations and Generally Accepted Privacy Principles   277

Encryption  278
Factors That Influence Encryption Strength   279
Types of Encryption Systems   280
Hashing  282
Digital Signatures  282
Digital Certificates and Public Key Infrastructure   284
Virtual Private Networks (VPNS)   285
Summary and Case Conclusion   285  ■  Key Terms  286
AIS IN ACTION: Chapter Quiz   286  ■  Discussion Questions  288  ■  Problems  288
CASE 9-1  Protecting Privacy of Tax Returns   292
CASE 9-2  Generally Accepted Privacy Principles   293
AIS IN ACTION SOLUTIONS: Quiz Key   293

CHAPTER 10 Processing Integrity and Availability Controls   296
Introduction  296
Processing Integrity  297
Input Controls  297
Processing Controls  299
Output Controls  300
Illustrative Example: Credit Sales Processing   301
Processing Integrity Controls in Spreadsheets   302

Availability  303
Minimizing Risk of System Downtime   303
Recovery and Resumption of Normal Operations   304
Summary and Case Conclusion   308  ■  Key Terms  309
AIS IN ACTION: Chapter Quiz   309  ■  Discussion Questions  310  ■  Problems  311
CASE 10-1 Ensuring Systems Availability  318
CASE 10-2  Ensuring Process Integrity in Spreadsheets   319
AIS IN ACTION SOLUTIONS: Quiz Key   320

CHAPTER 11 Auditing Computer-Based Information Systems   322
Introduction  323
The Nature of Auditing   324
Overview of the Audit Process   324
The Risk-Based Audit Approach   326

Information Systems Audits  327
Objective 1: Overall Security   327
Objective 2: Program Development and Acquisition   329
Objective 3: Program Modification   330
Objective 4: Computer Processing   331
Objective 5: Source Data   334
Objective 6: Data Files   335

Audit Software  336
Operational Audits of an AIS   338
Summary and Case Conclusion   338  ■  Key Terms  339
AIS IN ACTION: Chapter Quiz   339  ■  Discussion Questions  340  ■  Problems  341
CASE 11-1 Preston Manufacturing  348
AIS IN ACTION SOLUTIONS: Quiz Key   348

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CONTENTS

PART III Accounting Information Systems Applications   351
CHAPTER 12 The Revenue Cycle: Sales to Cash Collections   352
Introduction  354
Revenue Cycle Information System   356
Process  356
Threats and Controls   356

Sales Order Entry   359
Taking Customer Orders   359
Credit Approval  362
Checking Inventory Availability  364
Responding to Customer Inquiries   365

Shipping  366
Pick and Pack the Order   367
Ship the Order   368

Billing  371
Invoicing  371
Maintain Accounts Receivable  373

Cash Collections  377
Process  377
Threats and Controls   378
Summary and Case Conclusion   380  ■  Key Terms  381
AIS IN ACTION: Chapter Quiz   381  ■  Discussion Questions  382  ■   
Problems  382
CASE 12-1  Research Project: How CPA Firms Are Leveraging

New Developments in IT   391
AIS IN ACTION SOLUTIONS: Quiz Key   391

CHAPTER 13 The Expenditure Cycle: Purchasing to Cash
­Disbursements  394
Introduction  395
Expenditure Cycle Information System   396
Process  396
Threats and Controls   399

Ordering Materials, Supplies, and Services   402
Identifying What, When, and How Much to Purchase   402
Choosing Suppliers  405

Receiving  409
Process  409
Threats and Controls   410

Approving Supplier Invoices   411
Process  411
Threats and Controls   413

Cash Disbursements  415
Process  415
Threats and Controls   415
Summary and Case Conclusion   417  ■  Key Terms  418
AIS IN ACTION: Chapter Quiz   418  ■  Discussion Questions  419  ■   
Problems  420
CASE 13-1  Research Project: Impact of Information Technology on Expenditure Cycle Activities,
Threats, and Controls   429

AIS IN ACTION SOLUTIONS: Quiz Key   429

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CHAPTER 14 The Production Cycle   432
Introduction  433
Production Cycle Information System   435
Process  436
Threats and Controls   436

Product Design  437
Process  437
Threats and Controls   439

Planning and Scheduling   439
Production Planning Methods   439
Key Documents and Forms   439
Threats and Controls   443

Production Operations  444
Threats and Controls   444

Cost Accounting  446
Process  446
Threats and Controls   447
Summary and Case Conclusion   452  ■  Key Terms  453
AIS IN ACTION: Chapter Quiz   453  ■  Discussion Questions  454  ■  Problems  455
CASE 14-1  The Accountant and CIM   459
AIS IN ACTION SOLUTIONS: Quiz Key   459

CHAPTER 15 The Human Resources Management and
Payroll ­Cycle  462
Introduction  463
HRM/Payroll Cycle Information System   464
Overview of HRM Process and Information Needs   464
Threats and Controls   466

Payroll Cycle Activities  469
Update Payroll Master Database   470
Validate Time and Attendance Data   471
Prepare Payroll  474
Disburse Payroll  477
Calculate and Disburse Employer-Paid Benefits, Taxes, and Voluntary
Employee Deductions  479

Outsourcing Options: Payroll Service Bureaus and Professional
Employer Organizations  479
Summary and Case Conclusion   480  ■  Key Terms  481
AIS IN ACTION: Chapter Quiz   481  ■  Discussion Questions  482  ■  Problems  483
CASE 15-1  Research Report: HRM/Payroll Opportunities for CPAs   489
AIS IN ACTION SOLUTIONS: Quiz Key   489

CHAPTER 16 General Ledger and Reporting System   492
Introduction  493
General Ledger and Reporting System   494
Process  495
Threats and Controls   495

Update General Ledger   497
Process  497
Threats and Controls   497

Post Adjusting Entries  501
Process  501
Threats and Controls   502

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Prepare Financial Statements   502
Process  502
Threats and Controls   507

Produce Managerial Reports   508
Process  508

Threats and Controls   508
Summary and Case Conclusion   513  ■  Key Terms  514
AIS IN ACTION: Chapter Quiz   514  ■  Discussion Questions  515  ■  Problems  515
CASE 16-1 Exploring XBRL Tools  520
CASE 16-2  Evaluating a General Ledger Package   521
CASE 16-3  Visualization Tools for Big Data   521
AIS IN ACTION SOLUTIONS: Quiz Key   521

PART IV The REA Data Model   525
CHAPTER 17 Database Design Using the REA Data Model   526
Introduction  526
Database Design Process   527
Entity-Relationship Diagrams  528
The REA Data Model   529
Three Basic Types of Entities   530
Structuring Relationships: The Basic REA Template   530

Developing an REA Diagram   533
Step 1: Identify Relevant Events   533
Step 2: Identify Resources and Agents   535
Step 3: Determine Cardinalities of Relationships   536

What an REA Diagram Reveals About an Organization   540
Business Meaning of Cardinalities   540
Uniqueness of REA Diagrams   541
Summary and Case Conclusion   542  ■  Key Terms  543
AIS IN ACTION: Chapter Quiz   543  ■  Comprehensive Problem  546  ■   
Discussion Questions  546  ■  Problems  547
CASE 17-1  REA Data Modeling Extension   551
AIS IN ACTION SOLUTIONS: Quiz Key   552  ■  Comprehensive Problem Solution   556

CHAPTER 18 Implementing an REA Model in a Relational
Database  560
Introduction  561
Integrating REA Diagrams Across Cycles   561
Merging Redundant Resource Entities   564
Merging Redundant Event Entities   565
Validating the Accuracy of Integrated REA Diagrams   566

Implementing an REA Diagram in a Relational Database   566
Step 1: Create Tables for Each Distinct Entity and M:N Relationship   566
Step 2: Assign Attributes to Each Table   568
Step 3: Use Foreign Keys to Implement 1:1 and 1:N Relationships   569
Completeness Check  570

Using REA Diagrams to Retrieve Information from a Database   571
Creating Journals and Ledgers   571
Generating Financial Statements   572
Creating Managerial Reports   573
Summary and Case Conclusion   573  ■  Key Term  574

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AIS IN ACTION: Chapter Quiz   574  ■  Comprehensive Problem  575  ■   
Discussion Questions  575  ■  Problems  576
CASE 18-1 Practical Database Design  578
AIS IN ACTION SOLUTIONS: Quiz Key   579  ■  Comprehensive Problem Solution   581

CHAPTER 19 Special Topics in REA Modeling   584
Introduction  585
Additional Revenue and Expenditure Cycle Modeling Topics   585
Additional Revenue Cycle Events and Attribute Placement   585
Additional Expenditure Cycle Events and Attribute Placement   587
Sale of Services   590
Acquisition of Intangible Services   590
Digital Assets  591
Rental Transactions  591

Additional REA Features   593
Employee Roles  593
M:N Agent–Event Relationships  593
Locations  593
Relationships Between Resources and Agents   593

Production Cycle REA Model   594
Additional Entities—Intellectual Property   594
Production Cycle Events   596
New REA Feature   596

Combined HR/Payroll Data Model   597
HR Cycle Entities   597
Tracking Employees’ Time  598

Financing Activities Data Model   599
Summary and Case Conclusion   600
AIS IN ACTION: Chapter Quiz   603  ■  Discussion Questions  604  ■  Problems  605
CASE 19-1 Practical Database Assignment  610
AIS IN ACTION SOLUTIONS: Quiz Key   610  ■  Appendix: Extending the REA Model to Include
I­nformation About Policies   614

PART V The Systems Development Process   617
CHAPTER 20 Introduction to Systems Development and Systems
­Analysis  618
Introduction  619
Systems Development  621
The Systems Development Life Cycle   621
The Players  622

Planning Systems Development   623
Planning Techniques  623

Feasibility Analysis  625
Capital Budgeting: Calculating Economic Feasibility   626

Behavioral Aspects of Change   628
Why Behavioral Problems Occur   628
How People Resist Change   628
Preventing Behavioral Problems   629

Systems Analysis  630
Initial Investigation  630
Systems Survey  631

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CONTENTS

Feasibility Study  633
Information Needs and Systems Requirements   633
Systems Analysis Report  635
Summary and Case Conclusion   636  ■  Key Terms  637
AIS IN ACTION: Chapter Quiz   638  ■  Comprehensive Problem  639  ■   
Discussion Questions  639  ■  Problems  640
CASE 20-1 Audio Visual Corporation  648
AIS IN ACTION SOLUTIONS: Quiz Key   649  ■  Comprehensive Problem Solution   652

CHAPTER 21AIS Development Strategies   654
Introduction  655
Purchasing Software  655
Selecting a Vendor  656
Acquiring Hardware and Software   656
Evaluating Proposals and Selecting a System   657

Development by In-House Information Systems Departments   659
End-User-Developed Software  659
Advantages and Disadvantages of End-User Computing   660

Managing and Controlling End-User Computing   661

Outsourcing the System   662
Advantages and Disadvantages of Outsourcing   662

Methods for Improving Systems Development   663
Business Process Management   664
Prototyping  665
Agile Methodologies  667
Computer-Aided Software Engineering   670
Summary and Case Conclusion   671  ■  Key Terms  671
AIS IN ACTION: Chapter Quiz   672  ■  Comprehensive Problem Freedom from
Telemarketers—the Do Not Call List   673  ■  Discussion Questions  673  ■   
Problems  674
CASE 21-1 Wong Engineering Corp.  678
AIS IN ACTION SOLUTIONS: Quiz Key   679  ■  Comprehensive
Problem Solution  681

CHAPTER 22Systems Design, Implementation, and Operation   682
Introduction  683
Conceptual Systems Design   683
Evaluate Design Alternatives  683
Prepare Design Specifications and Reports   685

Physical Systems Design   685
Output Design  686
File and Database Design   686
Input Design  687
Program Design  688
Procedures and Controls Design   689

Systems Implementation  690
Implementation Planning and Site Preparation   690
Selecting and Training Personnel   691
Complete Documentation  692
Testing the System   692

Systems Conversion  693
Operation and Maintenance   694

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Summary and Case Conclusion   695  ■  Key Terms  696
AIS IN ACTION: Chapter Quiz   696  ■  Comprehensive Problem Hershey’s Big Bang ERP   697  ■   
Discussion Questions  698  ■  Problems  699
CASE 22-1 Citizen’s Gas Company  704
AIS IN ACTION SOLUTIONS: Quiz Key   705  ■  Comprehensive Problem Solution   707

Glossary  708
Index  729

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Preface

To the Instructor
This book is intended for use in a one-semester course in accounting information systems at
either the undergraduate or graduate level. Introductory financial and managerial accounting
courses are suggested prerequisites, and an introductory information systems course that covers a computer language or software package is helpful, but not necessary.
The book can also be used as the main text in graduate or advanced undergraduate management information systems courses.
The topics covered in this text provide information systems students with a solid understanding of transaction processing systems that they can then build on as they pursue more indepth study of specific topics such as databases, data warehouses and data mining, networks,
systems analysis and design, cloud computing, virtualization, computer security, and information system controls.

ENHANCEMENTS IN THE FOURTEENTH EDITION
We made extensive revisions to the content of the material to incorporate recent developments,
while retaining the features that have made prior editions easy to use. Every chapter has been
updated to include up-to-date examples of important concepts. Specific changes include:
1. We discuss the new revision to the COSO framework and have updated the discussion of
IT controls to reflect the new distinction between governance and management that was
introduced in COBIT 5.
2. Updated discussion of information security countermeasures, including the security and
control implications associated with virtualization and cloud computing.

3. Updated end-of-chapter discussion questions and problems, including Excel exercises that are based on articles from the Journal of Accountancy so that students can
­develop the specific skills used by practitioners. Most chapters also include a problem
that consists of multiple-choice questions that we have used in our exams to provide
students with an additional chance to check how well they understand the chapter
material.
4. Many new computer fraud and abuse techniques have been added to help students understand the way systems are attacked.
5. Chapter 21 includes a new section on agile development technologies that discusses
scrum development, extreme programming, and unified process development.

CUSTOMIZING THIS TEXT
Pearson Custom Library can help you customize this textbook to fit how you teach the course.
You can select just the chapters from this text that you plan to cover and arrange them in the
sequence you desire. You even have the option to add your own material or third party content.
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In addition, you may choose an alternate version of the REA material presented in
Chapters 17–19 that uses the Batini style notation instead of the crows feet notation featured in
this book.
To explore how to create a customized version of the book you can contact your Pearson
representative.

SUPPLEMENTAL RESOURCES
As with prior editions, our objective in preparing this fourteenth edition has been to simplify
the teaching of AIS by enabling you to concentrate on classroom presentation and discussion,
rather than on locating, assembling, and distributing teaching materials. To assist you in this
process, the following supplementary materials are available to adopters of the text:
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Solutions Manual prepared by Marshall Romney at Brigham Young University and Paul
John Steinbart at Arizona State University
Instructors Manual prepared by Robyn Raschke at University of Nevada–Las Vegas
Test Item File prepared by Lawrence Chui at University of St. Thomas
TestGen testing software, a computerized test item file
PowerPoint Presentation slides developed by Robyn Raschke at University of Nevada–
Las Vegas

The fourteenth edition includes an entirely new set of PowerPoint slides that make extensive use of high-quality graphics to illustrate key concepts. The slides do not merely consist
of bullet points taken verbatim from the text, but instead are designed to help students notice
and understand important relationships among concepts. The large number of slides provides
instructors a great deal of flexibility in choosing which topics they wish to emphasize in class.
In addition, you can access all these supplements from the protected instructor area of
www.pearsonhighered.com.
We recognize that you may also wish to use specific software packages when teaching
the AIS course. Contact your Pearson representative to learn about options for bundling this
text (or a customized version) with software packages or other texts such as Computerized

Practice Set for Comprehensive Assurance & System Tool (CAST); Manual Practice Set for
Comprehensive Assurance and Systems Tool (CAST); Comprehensive Assurance & System
Tools (CAST): An Integrated Practice Set; or Assurance Practice Set for Comprehensive Assurance & System Tool (CAST), all written by Laura R. Ingraham and J. Gregory Jenkins, both
at North Carolina State University.

REVEL™
Educational Technology Designed for the Way Today’s Students Read, Think, and Learn
When students are engaged deeply, they learn more effectively and perform better in their
courses. This simple fact inspired the creation of REVEL: an interactive learning environment
designed for the way today’s students read, think, and learn.
REVEL enlivens course content with media interactives and assessments—integrated directly within the authors’ narrative—that provide opportunities for students to read, practice, and
study in one continuous experience. This immersive educational technology replaces the textbook and is designed to measurably boost students’ understanding, retention, and preparedness.
Learn more about REVEL />
To the Student
As did previous editions, the fourteenth edition of Accounting Information Systems is designed
to prepare you for a successful accounting career whether you enter public practice, industry,
or government. All of you will be users of accounting information systems. In addition to being
users, some of you will become managers. Others will become internal and external auditors,
and some of you will become consultants. Regardless of your role, you will need to understand
how accounting information systems work in order to effectively measure how cost-effectively

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they perform, to assess their reliability and that of the information produced, or to lead the
redesign and implementation of new and better systems. Mastering the material presented in
this text will give you the foundational knowledge you need in order to excel at all those tasks.
This text discusses important new IT developments, such as virtualization and the move to
cloud computing, because such developments affect business processes and often cause organizations to redesign their accounting systems to take advantage of new capabilities. The focus,
however, is not on IT for the sake of IT, but on how IT affects business processes and controls.
Indeed, new IT developments not only bring new capabilities, but also often create new threats
and affect the overall level of risk. This text will help you understand these issues so that you
can properly determine how to modify accounting systems controls to effectively address those
new threats and accurately assess the adequacy of controls in those redesigned systems. We also
discuss the effect of recent regulatory developments, such as the SEC mandate to use XBRL and
the pending switch from GAAP to IFRS, on the design and operation of accounting systems.
In addition to technology- and regulatory-driven changes, companies are responding to the
increasingly competitive business environment by reexamining every internal activity in an effort to reap the most value at the least cost. As a result, accountants are being asked to do more
than simply report the results of past activities. They must take a more proactive role in both
providing and interpreting financial and nonfinancial information about the organization’s activities. Therefore, throughout this text we discuss how accountants can improve the design and
functioning of the accounting information system (AIS) so that it truly adds value to the organization by providing management with the information needed to effectively run an organization.

Key Learning Objectives
When you finish reading this text, you should understand the following key concepts:
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The basic activities performed in the major business cycles
What data needs to be collected to enable managers to plan, evaluate, and control the
business activities in which an organization engages
How IT developments can improve the efficiency and effectiveness of business processes
How to design an AIS to provide the information needed to make key decisions in each
business cycle
The risk of fraud and the motives and techniques used to perpetrate fraud
The COSO and COSO-ERM models for internal control and risk management, as well as
the specific controls used to achieve those objectives
The Control Objectives for Information and Related Technology (COBIT) Framework
for the effective governance and control of information systems and how IT affects the
implementation of internal controls
The AICPA’s Trust Services framework for ensuring systems reliability by developing
procedures to protect the confidentiality of proprietary information, maintain the privacy
of personally identifying information collected from customers, assure the availability of
information resources, and provide for information processing integrity
Fundamentals of information security
Goals, objectives, and methods for auditing information systems
Fundamental concepts of database technology and data modeling and their effect on an AIS

The tools for documenting AIS work, such as REA diagrams, data flow diagrams, business processing diagrams, and flowcharts
The basic steps in the system development process to design and improve an AIS

Features to Facilitate Learning
To help you understand these concepts the text includes the following features:
1. Each chapter begins with an integrated case that introduces that chapter’s key concepts and topics and identifies several key issues or problems that you should be able

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to solve after mastering the material presented in that chapter. The case is referenced
throughout the chapter and the chapter summary presents solutions to the problems and
issues raised in the case.
2. Focus Boxes and real-world examples to help you understand how companies are using
the latest IT developments to improve their AIS.
3. Hands-on Excel exercises in many chapters to help you hone your computer skills.
Many of these exercises are based on “how-to” tutorials that appeared in recent issues of
the Journal of Accountancy.
4. Numerous problems in every chapter provide additional opportunities for you to demonstrate your mastery of key concepts. Many problems were developed from reports in
current periodicals. Other problems were selected from the various professional examinations, including the CPA, CMA, CIA, and SMAC exams. One problem consists of a set of
multiple-choice questions in order to provide practice in answering exam-style questions.
Each chapter also has one or more cases that require more extensive exploration of
specific topics.

5. Chapter quizzes at the end of each chapter enable you to self-assess your understanding
of the material. We also provide detailed explanations about the correct answer to each
quiz question.
6. Extensive use of Full-Color Graphics. The text contains hundreds of figures, diagrams,
flowcharts, and tables that illustrate the concepts taught in the chapters. Color is used to
highlight key points.
7. Definitions of key terms are repeated in the glossary margins in each chapter. In addition, a comprehensive glossary located at the back of the book makes it easy to look up
the definition of the various technical terms used in the text.
8. Extensive on-line support at Pearson’s content-rich, text-supported Companion Website
at www.pearsonhighered.com/romney/.

Excel Homework Problems
Accountants need to become proficient with Excel because it is a useful tool for tasks related
to every business process. That is why each of the chapters in the business process section
contains several homework problems that are designed to teach you new Excel skills in a context related to one of the business processes discussed in the chapter.
As with any software, Microsoft regularly releases updates to Microsoft Office, but not
everyone always immediately switches. Eventually, however, during your career you will periodically move to a newer version of Excel. When you do, you will find that sometimes you
need make only minor changes to existing spreadsheets, but other times you may have to
make more significant changes because the newer version of Excel now incorporates different
features and functions.
So how do you keep abreast of changes? And how can you learn new Excel skills “on
the job” to simplify tasks that you now find yourself doing repeatedly? You could pay to
take a course, but that can be costly, time-consuming and may not always be timely. Alternatively, you can develop life-long learning skills to continuously update your knowledge.
One important way to do this is to begin now to save copies of two types of articles that regularly appear in the Journal of Accountancy. The first is the monthly column titled “Technology Q&A,” which often contains answers to questions about how do you do something
in a newer version of Excel that you know how to do in an older version. The second type
of article is a complete tutorial about a powerful way to use one or more Excel functions to
automate a recurring task. Often, this second type of article has an online spreadsheet file
that you can download and use to follow along with the example and thereby teach yourself
a new skill.
The Journal of Accountancy web site maintains an archive of these articles that you can

search to see if there is one that addresses a task that is new for you. Even if the article explains how to do something (such as create a pivot table) in an older version of Excel, in most
cases you will find that many of the steps have not changed. For those that have, if you read

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the old way to do it as described in the article, you can then use Excel’s built-in help feature to
see how to do the same task in the newer version that you are now using.
The Excel homework problems in the five business process chapters in this textbook let
you practice using Journal of Accountancy articles to help you develop new skills with Excel.
Many of the problems reference a Journal of Accountancy tutorial article. Some are written
for the version of Excel that you currently use, in which case it will be straightforward to
follow the article to solve the problem. Others, however, were written for earlier versions of
Excel, which gives you an opportunity to practice learning how to use Excel’s help functions
to update the steps in the tutorial.

Content and Organization
This text is divided into five parts, each focused on a major theme.

PART I: CONCEPTUAL FOUNDATIONS OF ACCOUNTING
INFORMATION SYSTEMS
Part I consists of four chapters which present the underlying concepts fundamental to an understanding of AIS. Chapter 1 introduces basic terminology and provides an overview of AIS
topics. It discusses how an AIS can add value to an organization and how it can be used to help

organizations implement corporate strategy. It also discusses the types of information companies need to successfully operate and introduces the basic business processes that produce that
information. It concludes by describing the role of the AIS in an organization’s value chain.
Chapter 2 introduces transaction processing in automated systems, presenting basic information input/output, processing, and data storage concepts. You will see the wide range
of data that must be collected by the AIS. This information helps you to understand what
an AIS does; as you read the remainder of the book, you will see how advances in IT affect
the manner in which those functions are performed. Chapter 2 also introduces you to Enterprise Resource Planning (ERP) systems and discusses their importance and uses in modern
business.
Chapter 3 covers three of the most important tools and techniques used to understand,
evaluate, design, and document information systems: data flow diagrams, business process
diagrams, and flowcharts. You will learn how to read, critique, and create systems documentation using these tools.
Chapter 4 introduces the topic of databases, with a particular emphasis on the relational
data model and creating queries in Microsoft Access. The chapter also introduces the concept
of business intelligence.

PART II: CONTROL AND AUDIT OF ACCOUNTING INFORMATION SYSTEMS
The seven chapters in Part II focus on threats to the reliability of AIS and applicable controls
for addressing and mitigating the risks associated with those threats. Chapter 5 introduces
students to the different kinds of threats faced by information systems, primarily focusing on
the threat of fraud. The chapter describes the different types of fraud and explains how fraud is
perpetrated, who perpetrates it, and why it occurs.
Chapter 6 discusses computer fraud and abuse techniques. Three major types of computer
fraud are discussed: computer attacks and abuse, social engineering, and malware. The chapter explains the dozens of ways computer fraud and abuse can be perpetrated.
Chapter 7 uses the COSO framework, including the expanded enterprise risk management (COSO-ERM) model, to discuss the basic concepts of internal control. It also introduces
the COBIT framework which applies those concepts to IT, thereby providing a foundation for
effective governance and control of information systems.
Chapter 8 focuses on information security. It introduces the fundamental concepts of defense-in-depth and the time-based approach to security. The chapter provides a broad survey
of a variety of security topics including access controls, firewalls, encryption, and incident
detection and response.

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Chapter 9 discusses the many specific computer controls used in business organizations to
achieve the objectives of ensuring privacy and confidentiality, and includes a detailed explanation of encryption.
Chapter 10 addresses the controls necessary to achieve the objectives of accurate processing of information and ensuring that information is available to managers whenever and
wherever they need it.
Chapter 11 describes principles and techniques for the audit and evaluation of internal
control in a computer-based AIS and introduces the topic of computer-assisted auditing.

PART III: ACCOUNTING INFORMATION SYSTEMS APPLICATIONS
Part III focuses on how a company’s AIS provides critical support for its fundamental business
processes. Most large and many medium-sized organizations use enterprise resource planning
(ERP) systems to collect, process, and store data about their business processes, as well as to
provide information reports designed to enable managers and external parties to assess the organization’s efficiency and effectiveness. To make it easier to understand how an ERP system
functions, Part III consists of five chapters, each focusing on a particular business process.
Chapter 12 covers the revenue cycle, describing all the activities involved in taking customer orders, fulfilling those orders, and collecting cash.
Chapter 13 covers the expenditure cycle, describing all the activities involved in ordering,
receiving, and paying for merchandise, supplies, and services.
Chapter 14 covers the production cycle, with a special focus on the implications of recent
cost accounting developments, such as activity-based costing, for the design of the production
cycle information system.
Chapter 15 covers the human resources management/payroll cycle, focusing primarily on
the activities involved in processing payroll.

Chapter 16 covers the general ledger and reporting activities in an organization, discussing topics such as XBRL, the balanced scorecard, the switch from GAAP to IFRS, and the
proper design of graphs to support managerial decision making.
Each of these five chapters explains the three basic functions performed by the AIS: efficient transaction processing, provision of adequate internal controls to safeguard assets (including data), and preparation of information useful for effective decision making.

PART IV: THE REA DATA MODEL
Part IV consists of three chapters that focus on the REA data model, which provides a conceptual tool for designing and understanding the database underlying an AIS. Chapter 17 introduces the REA data model and how it can be used to design an AIS database. The chapter
focuses on modeling the revenue and expenditure cycles. It also demonstrates how the REA
model can be used to develop an AIS that can not only generate traditional financial statements and reports but can also more fully meet the information needs of management.
Chapter 18 explains how to implement an REA data model in a relational database system. It also shows how to query a relational database in order to produce various financial
statements and management reports.
Chapter 19 explains how to develop REA data models of the production, HR/payroll, and
financing cycles. It also discusses a number of advanced modeling issues, such as the acquisition and sale of intangible products and services and rental transactions.

PART V: THE SYSTEMS DEVELOPMENT PROCESS
Part V consists of three chapters that cover various aspects of the systems development process. Chapter 20 introduces the systems development life cycle and discusses the introductory steps of this process (systems analysis, feasibility, and planning). Particular emphasis is
placed on the behavioral ramifications of change.
Chapter 21 discusses an organization’s many options for acquiring or developing an AIS
(e.g., purchasing software, writing software, end-user-developed software, and outsourcing)
and for speeding up or improving the development process (business process reengineering,
prototyping, agile methodologies, and computer-assisted software engineering).

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