Lecture Accounting information systems: Basic concepts and current issues (4/e): Chapter 4 - Robert L. Hurt

Chapter 4
Management Concepts

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Outline
•

•

•

•

Learning objectives
COSO enterprise risk
management framework
Business process
management
Expectancy theory

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Learning
objectives
1.

Summarize
and explain

the
importance
of COSO’s
Enterprise
Risk
Management
—Integrated
Framework.

3.

4.

5.

List and discuss some basic
principles of business process
management.
Explain expectancy theory.
Apply all three topics within the
context of accounting
information systems.

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COSO ERM framework
•

Definition of enterprise risk

management
Enterprise risk management is a process,
effected by an entity’s board of directors,
management and other personnel, applied in

What similarities & differences do you see between the
ERM and
internal control
definitions?
strategy
setting
and across
the enterprise,
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COSO ERM framework
•

•

Internal
environment
Objective setting

•

Event identification

•

Risk assessment

•

Risk response

•

Control activities

•

•

Information and
communication
Monitoring

What similarities & differences do you see between the
ERM and internal control frameworks?
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COSO ERM framework
•

Internal
environment
Organization’s

overall attitude
toward managing risk

•

•

Event identification
What could happen
to interfere with
achieving those
objectives?

Objective setting
What the
organization is trying
to achieve (in
general, not just with

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COSO ERM framework
•

Risk assessment
–

How likely is each
event to occur?

–

Inherent and
residual risk

–

Assessed
qualitatively

•

Risk response
–

Generic
response(s) to
each risk

–

Four alternatives
•

Accept

•

Reduce

•

Avoid

•

Share
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COSO ERM framework
•

Control activities
Specific ideas for
implementing the
generic response(s)

•

Information &
communication
Similar to the same
element of the
internal control
framework

•

Monitoring
Similar to the same
element of the
internal control
framework

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COSO ERM framework
•

Internal
environment

•

Objective setting
The Red Cross

The Board of

wants to increase

Directors forms a

monetary donations

“risk assessment”

by 10% in the

committee, which

coming year.

includes both
directors and

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COSO ERM framework
•

Event identification
The Red Cross does not adequately identify
potential new donors.

•

Risk assessment
–

Inherent: high

–

Residual: moderate
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COSO ERM framework
•

Control activities
–

•

Information &
communication

Accept:
Acknowledge and
discuss the risk.

A company’s SEC
filings and other
external

–

Reduce: Ask each
current donor to
provide contact

communications
outline the ERM
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COSO ERM framework
•

Monitoring
On a quarterly basis, a sample of employees
completes a survey about the effectiveness of
the ERM plan; the survey results are analyzed
by the risk assessment committee.

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Business process management
•

One definition
–

A systematic approach to analyzing,
redesigning, improving and managing a
specific process

–

Processes can include:
•

Sales / collection

•

Acquisition / payment

•

Conversion

•

Financing

•

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Business process management
Generalized model
of BPM
1)

Select the process
and define its
boundaries.

2)

Observe,

document, and
map the process
steps and flow.

3)

Collect process-

4)

Analyze the
collected data.

5)

Identify and
prioritize potential
process
improvements.

6)

Optimize the
process.

7)

Implement and
monitor process
improvements.

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Business process management
1)

Capital One wants

2)

Capital One

to improve its

creates an

process for

ordered list of the

requesting

steps it currently

insurance

uses to request
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Business process management
3)

Capital One tracks the length of time and
cost involved in its current process. It
also collects data on employee &
customer satisfaction with it.

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Business process management
4)

A process improvement team analyzes
the data using appropriate tools (e.g.,
statistical analysis, benchmarking with
similar firms).

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Business process management
5)

The process

7)

The process

improvement

improvement

team suggests

team collects

three ways to

additional data

improve the

and analyzes it to

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Expectancy theory
•

•

Suggested by

•

So long as

Victor Vroom

organizations

A way to

employ people,

conceptualize

understanding

human motivation

human motivation
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Expectancy
theory
•

•

•

1.

Three elements
Motivation is the
product of the
three.
If any one of the
three is “zero,”
then motivation is
zero.

Expectancy
If I put in the effort, will I be
successful in achieving my goal?

2.

Instrumentality
If I’m successful, will I be
rewarded?

3.

Valence
Do I value the reward?

Motivation =
Expectancy X Instrumentality X Valence
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Expectancy

theory
•

1.

If I work a lot of extra hours, will I
complete all my assigned tasks?

Here’s an
example of

Expectancy

2.

Instrumentality
If I complete all my assigned
tasks, will I get a pay raise?

each element.
3.

Valence
Do I value getting a pay raise?

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