Solution Manual for Core Concepts of Accounting Information Systems, 14th Edition

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Core Concepts of Accounting Information Systems, 14thEdition by Simkin, Worrell and SavageCore Concepts of AccountingInformationSystemsFourteenth EditionMark G.Simkin, Ph.D.ProfessorDepartment of Information SystemsUniversity of NevadaJames L. Worrell, Ph.D., CPA, CISA, SIAAssociate ProfessorDepartment of Accounting &FinanceUniversity of Alabama at BirminghamArline A. Savage, Ph.D., CA (SA)Professor and ChairDepartment of Accounting & FinanceUniversity of Alabama at BirminghamSolutions ManualTest BankSample SyllabiPrepared byPaula S. Funkhouser

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Core Concepts of Accounting Information Systems, 14thEdition by Simkin, Worrell and SavageCore Concepts ofAccounting Information SystemsTable of ContentsCHAPTER 1Accounting Information Systems and the AccountantCHAPTER 2Accounting on the InternetCHAPTER 3Information Technology and AISsCHAPTER 4Accounting and Data AnalyticsCHAPTER5Integrated Accounting and Enterprise SoftwareCHAPTER 6Introduction to Internal Control Systemsand Risk ManagementCHAPTER 7Computer Controls for Organizationsand Accounting Information SystemsCHAPTER 8Accounting Information SystemsandBusiness Processes: Part ICHAPTER 9Accounting Information Systemsand Business Processes: Part IICHAPTER 10Cybercrime, Fraud and EthicsCHAPTER 11Information Technology AuditingCHAPTER 12Documenting Accounting Information SystemsCHAPTER 13Developing and ImplementingEffective Accounting Information SystemsCHAPTER 14Database DesignCHAPTER 15Organizing and Manipulating the Data in DatabasesCHAPTER 16Database Forms and Reports

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Core Concepts of Accounting Information Systems, 14thEdition by Simkin, Worrell and SavageCore Concepts of Accounting Information SystemsSemester ScheduleWeekRead ChapterChapter TitlePrior to Class11Accounting Information Systems and the Accountant22Accounting on the Internet33Information Technology and AISs44Accounting and Data Analytics5IntegratingAccounting and Enterprise Software56Introduction to Internal Control Systems and Risk Management67Computer Controls for Organizations and Accounting InformationSystems78Accounting Information Systems and Business Processes:Part I9Accounting Information Systems and Business Processes: Part II8Mid-Term Exam910Cybercrime, Fraud and Ethics1011Information Technology Auditing1112Documenting Accounting Information Systems1213Developing andImplementing Effective Accounting Information Systems1314Database Design1415Organizing and Manipulating the Data in Databases1516Database Forms and Reports16Final Exam

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Core Concepts of Accounting Information Systems, 14thEdition by Simkin, Worrell and SavageCore Concepts of Accounting Information SystemsQuarterScheduleWeekRead ChapterChapter TitlePrior to Class11Accounting Information Systems and the Accountant2Accounting on the Internet23Information Technology and AISs4Accounting and Data Analytics35Integrating Accounting andEnterprise Software6Introduction to Internal Control Systems and Risk Management47Computer Controls for Organizations and Accounting InformationSystems8Accounting Information Systems and Business Processes:Part I9Accounting Information Systems and Business Processes: Part II5Mid-Term Exam610Cybercrime, Fraud and Ethics11Information Technology Auditing712Documenting Accounting Information Systems13Developing and Implementing Effective Accounting Information Systems814Database Design15Organizing and Manipulating the Data in Databases916Database Forms and Reports10Final Exam

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.1Chapter1ACCOUNTING INFORMATION SYSTEMS AND THE ACCOUNTANTDiscussionQuestions1-1.The answer to this question will vary with each university’s location. However, it islikely moststudents will reveal that their parents are employed in non-manufacturing jobs.Instructors may wish to emphasize that the large numbers of service sector employees andknowledge workers reflect a trend.1-2.This questionencouragesstudents to think about some of the information reportinglimitations imposed by the traditional accounting general ledger architecture.Otherbusinessactivities(or business events)that do not require journal entries include(1)obtaining a line ofcredit,(2)issuing purchase requisitions or purchase orders,(3)signing contracts,(4) hiring anew executive,and(5) sending financial information to investors or bank loan personnel.Instructors may wish to point out that important information about acompany’s businessactivitiesmay be included in an annual report outside the financial statements.Themanagementlettersand footnotesin annual reportsmay reveal muchabout a company’s future prospects.Managers have access to much more information thanwhat is publishedin financial reports.Whether or not they would like to have access to more non-financial information, or if theywould prefer that the accounting information system capture data about business events ratherthan accounting transactions, isdebatable. It may also be a function of the accounting system ina particular company. Investors may wish to have more information available to them but thedownside is that too much information can be just as problematic as too little information.1-3.The financial accountingsystemswe have known for more than 500 yearsarechanging dramatically as a result ofadvances ininformationtechnology and financial accountingsoftware. For example, databases allow accountants to collectand storeallthedata (accountingtransaction data and non-financial data) about a business activity or eventin one system,allowing thoseneedingsuchinformationto retrieve it quickly, efficiently, and specifically in anyformat they wish.Financial data canalsobe more easily linkedto nonfinancial data because ofdatabase technology.Thus, itis likely that financial reporting will undergo tremendous changein the next few years as we learn to use technology, including artificial intelligence,moreeffectively in the design ofAISs.ERP systems are another example of the information age's impact on financial accounting. Now,organizations capture morefinancial and non-financialdata and produce more information thanever before. This allowscompanies to integrate their informationsystems, better forecasteverything from raw materials requirements to finished product production,and to perform moresophisticated analyses of important business functions. For instance, sales can be examined atmany different levels and organized according to criteria such as geography, customer, product,or salesperson.

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.2One of the most important changes in AISs is the way these systems will gather financialinformation in the future. Although many of these systems will continue to capture data intraditional batch mode or at POS sites, we expect newer systems to collect more of it on mobiledevices—for example, cell phones, PDAs, and digital cameras.Because more employees andworking at home these days, “digital commuting” may be another trend.1-4.The objective of a company’s financial statements is to communicate relevantfinancial information to such external parties as stockholders, investors, and governmentagencies. Issuing financial statements in XBRL formats contributes to this objective by makingsuch financial data more searchable, comparable, informative, and therefore useful. Also,because XBRLenablescompanies to use standard tags to identify specific accounting values, thelanguage itselfimposes a greater degree of standardization in the informational content of thereports.Finally,XBRLhelps government agencies gather financial data that are moreconsistent, easier to understand,self-checking,and morequickly communicated. Chapter 2contains more about XBRL, including the idea that the language also enables its users to verifyaccounting relationships asassets = liabilities + stockholder equity.1-5.The questions asked here about suspicious activity reporting (SAR) require opinionsfrom students.Regarding thefirst question, whichasks ifSARactivity should be a legal matter,there is little room for disagreement because so much of SAR is mandated by federal legislationsuchastheAnnunzio-Wylie Anti-Money Laundering Act of 1992, the Bank Secrecy Act of1996, and the Patriot Act of 2001.Althoughthere arestatistics on the number of SAR filings,less is known about how much of what appears to be suspiciousarein factviolations of federalstatutes.1-6.The example given in the question demonstrates one way in which computerizationhas refined cost estimation and thushas impactedmanagerial accounting.However, IT hasimpacted almost every area of managerial accounting (and decision making). Consider, forexample, the emergence ofsuchconcepts as just-in-time systems, computer integratedmanufacturing systems, manufacturing resource planning systems, target costing, and activitybased costing–all of these require IT to support managerial decision making. Forecasting andbudgeting are other areas of managerial accounting impactedby advances in technology, as arethemany applicationsof spreadsheet software, decision support systems, and expert systems.Universities are also impacted by the many advances in IT. You might have students type“university use of scorecards” in their favorite browser to discover the many uses this tool offersto administrators in an academic environment.The search results show a variety of usesat suchuniversities as The Ohio State University, CSU-Stanislaus, Clemson University, Colorado StateUniversity, San Jose State University, and others.For example, the University of Denveradapteda version of theBalancedScorecardto evaluate theirStudent Life Assessment Plan(SLAP),which focuses onLearning Outcomes.San Jose State University uses a Scorecard toevaluate and continuously improve their online programs.1-7.The AICPAwebsitelists hundreds of potential assurance services for CPAs to offer.These includeTrust Services and Information Integrity, Guidance on Audit Data Analytics,XBRL Assurance Services,andSystems and Organization Controls for Cybersecurity,

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.3Outsourced Services and Vendor Supply Chains. Several of theassurance services are in theinformation technology management/security category. Classroom discussion might address theparticular skills that CPAs would need for each of the proposed assurance service areas.Skepticism and integrity, for example, are two characteristics typically associated with publicaccountants.Itisinteresting to learnwhich of the existing or proposed assurance services recommended bythe AICPA will actually be offered by a given public accounting organization.Many of thelarger firms already offer at least some of these services, and thelargestaccounting firms todayderive a large portion of their revenues from professional services other than auditingand taxconsulting.Butthe industry shake-up in 2002 mayalsopromptsomeaccounting firms to scaleback services and focus more ontheirauditingbusiness.1-8.This question asks students to interview auditors from professional service firms andasksthem whether or not the firmsoffer any assurance services. Hopefully, several firms dooffer such services and instructors can use this as point of departure for additional discussionabout such work.1-9.Almost everytraditionalaccounting job today requires at least some informationsystems skills. In addition, there are many job opportunities thatrequirecombinedskills inbothaccounting and information systems.Consultingis one key area. Consultants with these skillsets can work at helping companies choose and install accounting software. They can also helpcompanies withreviewsof their business processes. Evaluating information systems security isanother area of consulting where accounting and information systems skills are valuable. Taxplanning, preparation, and consulting are yet other areas.Prior research suggests that it is easier to train an accountant in information systems thanviceversa.Whether this is true or not, it is certainly clear that accounting students with informationsystems skills are valuable employees. Individuals who are technically skilled at computers butlack knowledgeaboutaccountingconceptsare handicapped when trying to help a company todevelop and enhance its information systems. Their lack of accounting skills may lead theiremployer to install information systems that fail to meet their needs.1-10.Employers of both accounting and IS personnel often rank “analytical reasoning” and“writing” skills on the same priority as technical skills, and some rank them even higher.Saidone recruiter at the schoolof one author:“I can train new employees to use our computersystems and perform the majority of the technical tasks we will require of them. What I cannottrain them to do isto think analytically or logically. Andwhat I refuse to do istoteach them tospeak and write clearlyand effectively—skills they should have learned in high school.”Another recruiter said it slightly differently:“Give me a technically-competent accounting or ISstudent who can performAIStasks well, and I will pay them Xdollars. Give meastudent whocan explain to my clients howourservices can solve their business problems and I will pay them2Xdollars.”There are several other attributes beyond “analytical thinking” and “writing” skills that manyemployers also value highly. One of them is “teamwork”—i.e., theeaseand willingness of an

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.4employee to work with othersinstead of working alone.Another is “dedication”—i.e., thewillingness and desire to get a given job doneeven if this means working more than 40 hours aweek.A third is meticulousness—the attention to detail and the desire to get all the detailscorrect.Finally, there is “selflessness”—the willingness to sacrifice personal goals, ego, andtime in order to finish important organizational and professional projects.1-11.This is a growing field of career opportunities for accounting majors that should notbe underestimated!An article in the Wall Street Journal (January 12, 2014; D4), "Skill Sets YouMight Want to Sharpen This Year", included the following: Computer, Communication, ForeignLanguage, Data, and Networking. The data section suggests that understanding data has becomean increasingly important part of success, that everyone should understand how "big data" ordata analysis applies to your career field.A July 2012 White Paper by IT@Intel (Mining Big Data in the Enterprise for Better BusinessIntelligence,by Fania and Miller), notes that one of the biggest challenges in big data isaddressing the lack of skilled experts and thatthe US could face a shortage of 140K to 190K ofpeople with deep analytical skills, and perhaps 1.5 million managers and analysts who do nothave the knowledge to use big data to make effective decisions.Accounting majors who take IT,statistics, and business analytics coursesshould be able to take advantage of these shortages byapplying their skills and abilities in this area.Predictive Analytics jobs are available literally anywhere in the US from NYC to Columbus, OHto Seattle, WA–and many international opportunities.The organizationsinclude Walmart,Bank of America, healthcare firms, universities, insurance companies and the Big-4 publicaccounting firms.For more information: http://predictiveanalyticsjobs.org.Another interesting web sitehttps://www.icrunchdata.com/jobs/.This site identifies the manydifferent types of jobs that are available,such as client service and sales analyst, quantitativeanalyst, risk analyst, etc.Degrees/courses to prepare for these types of jobs are usually called an MS in Analytics orBusiness Analytics. (http://analytics.ncsu.edu/?page_id=4184).At this site, you can click on anyuniversity program to view the structure and content of the degree program.As you can see, thisis a lucrativenew field for accounting majors to consider.The duration of the programs is asfew as 9 months, but most are 12 months or more.Thecurriculumis a careful mix of appliedmathematics, statistics, computer science, and business disciplines.For salary information, this site is very helpful:http://analytics.ncsu.edu/?page_id=248Depending on the decision to be made, the employee who can analyze and make businessdecisions based on big data is in a position to help the firm realize a competitive advantage.Thisis askill that is a critical shortage and sure to impress even the most discriminating supervisor.Problems1-12.

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.5a.ABCactivity based costingc.AICPAAmerican Institute of Certified Public Accountantsd.AISaccounting information systemse.CFOchief financial officerf.CISAcertified information systems auditorg.CPAcertified public accountanth.CPMcorporate performance measurementi.ERPenterprise resource planningj.FASBFinancial Accounting Standards Boardk.HIPAAHealth Insurance Portability and Accountability Actl.ISACAInformation Systems Audit and Control Associationm.ITinformation technologyn.KPIkey performance indicatoro.SARsuspicious activity reportingp.SECSecurities and Exchange Commissionq.SOXSarbanes-Oxleyr.VARvalue-added resellers.XBRLextensible business reporting language1-13.The number of articles in professional accounting journals that relate to informationtechnology has grown significantly during the past several years. Almost every issue of thesejournals has a large number of articles onsuchtopics as accounting software, electroniccommerce, information systems security,SOX software,and new computer tools foraccountants. Several now have separate “Technology” columns or sections devoted to IS topicsor developments. Students completing this exercise are likely to conclude that “informationtechnology” now influencesalmostevery aspect of accounting.1-14.This problem focuses on the human side of organizations—especially ways thatemployeesmightdevise to “beat the system.” Thisproblem isthereforeespecially useful inalerting students to the importance of designing and using systems that employees perceive as“fair,” and classroom discussions should reveal that employees can sabotage even the mostcleverly-designed accounting systems.a.Organizations often use accounting measures such as return on investment (ROA) forperformance evaluation. Unfortunately, managerscanmanipulate these measures, atleast in the short run, by either artificially increasing profits (the numerator) or decreasingassets (the denominator). Some ways to accomplish this are to (1) defer expenses, (2)maximize sales, (3) postpone maintenance on assets, (4) postpone investments in assets,or (5) using historical cost-based assets, adjusted by depreciation instead of market costs(which can result in an infinite return on investment once all the organization's assetshave been fully depreciated). Where net profit is used in the calculation,Shervonne'scomment about including allocated overhead in deriving profitis another argumentagainstusing return on investment.There are many different performance measures the companymightuse—somequantitative and some qualitative.Other accounting measures include(1)segment

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.6margins,(2)units of sales,(3)increases in the number of customers,(4)increases in newcustomers, (5)measures of customer satisfaction, (6)decreases in sales returns,(7)employee complaints, or (8)employee turnover.b.Accounting numbers can frequently lead to dysfunctional behavior if their limitations arenotunderstood. For example, if the incentives are large enoughor the penaltiesforunderperformance are harshenough, managers might be tempted to record “potentialsales” as “actual sales” in a given time period, accelerate the depreciation of assets usingalternate depreciation schedules, “forget” to subtract costs in computing returns, orsabotage the “returns” of other managers in order to improve their own performancevalues. Dysfunctional behavior may also surface if one number is used in isolation. Forinstance, return on assetsdiscriminates against entitieswith larger assetbases. It also hasthe shortcomings mentioned above. However,ROAadjusted for overhead allocationsand current asset valuesmight bea good measure when used in conjunction with othermeasures.c.This part of the problem requires Internet research.However, “residual income” mightbe a bettermeasure to use in this company--a managerial accounting measurement usedto assess and compare the relative success of business units. The basicformulaforcalculatingresidual incomeis to multiply operating assets by the cost of capital, and thentosubtract this value from operatingincome.This measure counteracts some of theproblems associated with return on investment, although it has shortcomings of its own.Profitability, as mentioned, is problematic where allocations are used. Allocations arereally never quite "fair." For instance, rent in a department store might be allocated todepartments based on square footage. Certainly, this would lead to complaints by thedepartment located in back on the sixth floor if they pay more than the department justinside the front door!1-15.This problem requires students to find out “what’s new” in the field of AIS now, andto write a report on their findings.A good starting point for this is to read the “Technology”sections of popular accounting journals, or reference the websites of some of the professionalaccounting associations such as the AICPA or ISACA.1-16.Instructors might want to mention that this problem asks students to consider theaccounting information needs of a subset of not-for-profit organizations, and to note that theaccounting data required by them often does not differ much from for-profit organizations.a.Examples of the financial information gathered and maintained by such groups includedata on dues payments, revenues from such club activities as bakesales, rummage salesandcar washes, newsletter expenses, advertising expenses, office equipment expenses,professional service expenses, and disbursements for items liketravel reimbursements.b.Students mayrealize that these AISs may bemanual accounting information systems.The instructor may reiterate that amanual system gathers the same data that would begathered by a computerized system, stores it for future reference and further processing,

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.7and periodically outputs it in useful formats for club members and perhaps governmentagencies.c.Most recreational clubs have only a single “treasurer” to look after the financial mattersof the organization.This is a good idea to the extent that assigning only one person forthetaskof treasurerlimits the burden of the job to only one individual andensuresaccountability and responsibility to a single person for the “money portion” of clubactivities. But it is also a recipe for fraud, inasmuch as there is no separation of duties.For example, the same person who spends the money writes the checks for it, most clubmembers do not concern themselveswith the financial details ofthe club, and deceptioncan bevery simple.Although it is easy to dismiss the financial activities of most suchorganizations as immaterial because the amounts of monies involved are small, this isoften not true for condo associations, for example.d.Several advantages can accrue to computerizing club finances. Among them are (1)greater accuracy in data recording and data processing, (2) the ability to output financialinformation in a variety of legible and professional-looking formats, (3) added flexibilityin the ways the treasurer can process and output financial information, (4) greater ease inaccessing needed data or generating ad-hoc reports, and (5) the potential for more-timelyreports. Where club treasurers can use an existing personal computer for club tasksand/or the services of the treasurer are free, such computerization can be cost effective.If a club has to pay for either the computer or the services of a treasurer, the cost-effectiveness of computerization becomes less clear.1-17.In this case, students are asked to look at three different sources of information tohelp them invest $10,000 in the common stock of a publicly-held company. In general, they willfind the following:a.Financial Reports from the company’s own website: Most students will indicate that theinformation contained in the reports on the website is “complete,” but that it is notsufficient for making an informed investment decision. Three possible shortcomings are:(1)the information may beself-promoting and therefore positive and upbeat, even if thecompany has been losing money year after year; (2) the information may bemostlylimited to the company itself, and may not discuss the industry in which it competes orpossible negative factors that may affect it; (3) the information may not includesubstantiated predictions about the value of the company’s stock in the future.b.Information found at brokerage or investment firms: For investment purposes, theinformation provided by firms such as e-trade tends to be more useful than a company’sown financial statements. Among the reasons are: (1) the information tends to focus oninvestment decisions rather than provide general information, (2) the user can access andeven customize historical charts that show stock prices, income, revenues and so forth,and (3) these websites often include links to additional news stories and analytical reportsabout the company, the industry in which it competes, and the firm’s future prospects, allwritten by independent and presumably objective reviewers.

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.8c.Information from investment services: This information typically includes dispassionatereviews of a company’s operations, its successes and failures, important managementchanges, the industry in which it operates, and prospects for the future. This informationtypically also includes an overall rating for a particular company such as “hold,”“accumulate,” or “sell.” Whether or not such ratings are “sufficient” to convince astudent to buy stocks is a personal matter, but certainly the information might beconsidered more useful than the simple facts or historical values provided in itemsaandbabove.d.A large number of dry facts about a company are rarely as informative as an objectiveanalysis of it and a recommendation to “buy” or “sell” its stock. After performing thisexercise, students should have a much better feel for the difference between “data” and“information.”1-18.This problem requires students to do some research on the Internetaboutsuspiciousactivity reporting. Specifically,the question asks studentsto indicate what types of activities thevarious banks, casinos, and so forth,should watch for.To illustrate, dealers in gemstones shouldbe sensitive to the possibility of money laundering—for example, when clients buy raregemstones with cash. There are usually dollar thresholds for such activities—e.g., $50,000 inyearly transactions in the case of gemstones.Instructors might want to remind students that thisis an important function of AISs—providing financial information other than annual reports togovernment agencies.1-19.This story is a remarkable case of an individual trying to "whistleblow" on a fraud,over the course of many years, and no one would listen!Mr. Markopolos notified the BostonSEC in 2000 about his suspicions regarding Bernie Madoff.Afull article may be accessed atthis web site: http://www.americanfreepress.net/html/man_who_exposed_madoff_190.htmla.What happened when Mr. Markopolos notified the SEC in 2000? In May of 2000, hesubmitted an 8-page report to the Boston Regional Office of the SEC, listing red flagsand mathematical proof of a major fraud,but got no reply.b.How many more times did Mr. Markopolos notify the SEC of his concerns? He re-submitted his evidence to the Boston and other SEC offices in 2001, 2005, 2007 and2008, to no avail.By this time, Markopolos suspected that Madoff had been operatingwith protection from the inside.c.What was the result of Mr. Markopolos' efforts to notify the authorities about hissuspicions regarding Madoff?Surprisingly,no one paid any attention to Markopolos.Ifnotfor the 2008stock market crash, the crime maystill be in progress.Thefederalauthorities were alerted by Madoff's sons, and Madoff was arrested on December 11,2008.On March 12, 2009, Madoff pled guilty to 11 federal crimes and admitted that hehad been operating a huge Ponzi scheme—as it turned out, the largest in history.CaseAnalyses

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.91-20.Berry & Associates, LLP1.It is usually easier to offer extra services to existing clients than to obtain new clients. Oneof the issues Berry & Associates (B&A), LLP will have to consider is the appearance ofindependence if the organization offers services that might impact its primary business. Forinstance, if B&A decides to get into the business of internal auditing where clients outsourcethis business, the organization will probably want to make sure that it does not perform boththe internal and external audit for a client. Probably the best approach would be for theorganization to poll its clients to learn what they most value and then offer only two or threenew services based on the results.2.The firm’s expertise is currently in retailing, wholesaling, and property management. Itwould be a good idea to try to learn what the issues are for these industries (and look atresults from the client survey suggested above), and then choose assurance services thatmatch these issues. Retailers, in particular, may be interested in developing their businessvia electronic commerce. For example, website verification is an assurance service thatmight make sense for this set of clients. Medium-sized businesses are not likely to employinternal auditors with information systems expertise. Offering assurance services, such asInformation Technology Risk Assessment, might be a good practice for B&A. Finally, theAICPA suggests some industry-specific assurance services, such as mystery shopping (forretail clients), rental property operation reviews (for property management clients), andCPATrust(for companies engaged in electronic commerce).3.The new hires’ expertise in information systems can be leveraged in several ways. First, thenew hires can help train the older staff in computers and information systems. This is adifferent approach from the past and requires older staff (including partners) to becomelearners. However, there is no doubt that the students coming out of schools today havemuch to share with those who graduated even five years ago.The new hires can also work with audit teams to develop new approaches to auditingcomputerized AISs. For example, they may be able to suggest ways to use computer assistedaudit techniques (CAATs–seeChapter11). Thenew hires are likely to be able to suggestbetter ways of conducting audits, based on their computer expertise. For example, they mayknow an optimal way to download client data for auditor analysis or be more familiar withmobile computing devices that can help the company service clients.Probably the most important point here is for B&A to be willing to recognize these skills andutilize the ideas offered by the new hires. To recognize these skills, the company can holdmeetings to generate ideas, and can also have an old-fashioned suggestion box for those hireswho wish to contribute ideas anonymously.The company can even sponsor a yearly contestwith rewards for the “best new ideas.”1-21.Organizational Reports to Stakeholders1.This question asks students to do some Internet research to learn more about how the SEC

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.10involves itself in the annual financial reports that organizations make available to theirstakeholders. The following website is helpful:http://www.sec.gov/about/whatwedo.shtmlOne of the ways that the SEC accomplishes their mission is by enforcing laws, such as:Securities Act of 1933Securities Exchange Act of 1934Trust Indenture Act of 1939Investment Company Act of 1940Investment Advisers Act of 1940Sarbanes-Oxley Act of 2002Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010Another way the SEC accomplishes their mission is by investigating certain actions, such as:Misrepresentation or omission of important information about securitiesManipulating the market prices of securitiesStealingcustomers' funds or securitiesViolating broker-dealers' responsibility to treat customers fairlyInsider trading (violating a trust relationship by trading while in possession ofmaterial, non-public information about a security)Selling unregistered securities2.a.An annual financial report is a one-way communication device. It emphasizes clarity andconciseness, but there is often no immediate feedback from readers about the messagesthey receive from it. Thus, preparers must attempt to identify the users/audience of thereport, and estimate their informational needs. Only then can preparers determine thecontent and language of the report—i.e., the words and phrases that are most familiar andappropriate to users or readers.The preparer must also consider the length, content, and organization of the material inthe annual report. For example, a report that is too long or contains too much detail candetract from the overall goal of communicating important financial information (asopposed to data) to readers. Conversely, a report that is too succinct might trigger readersuspicions that the company is hiding important information.Finally, a logical ordering and an attractive format can also help transmit ideas. At onepoint, some businesses (e.g., Disney Corporation) traditionally included personalmessages from the company’s CEO in order to personalize the report and perhaps make itmore appealing.Similarly, companies that put the basic financial information requiredof them in small print at the end of a yearly report might convey the message that theydon’t want readers to see it.b.The different users of annual reports have differing information needs, backgrounds, andabilities. For some users, the annual report may serve as an introduction to the companyand/or the only source of information about it. But other users read annual reports fromcover to cover, searching for clues about the firm’s future prospects, hidden problems orstrengths, and other information useful for evaluating the company’s investment

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Core Concepts of Accounting Information Systems, 14thEdition, by Simkin,Worrell and SavageSM 1.11potential. Because the same annual report must communicate with all its users, theproblems the corporation faces include the following:In attempting to reach several audiences, companies try to include information foreach audience. As a consequence, the annual report may grow in size and complexityto the point where it contains more information than many users want or are able todigest—a problem discussed in the chapter asinformation overload. In some cases,technical concepts may be reduced to simpler terms, losing precision and concisenessand thereby leading to generalizations that readers may perceive as being of littlevalue.The report developers must exercise care in presenting the information contained inthe report. Key terms or phrases that may be familiar to one user group—forexample, technical terms commonly used in the company’s industry—may not beunderstood by general investors. Similarly, graphic displays that may be useful tosome may be meaningless to others.3.Other than the financial statements and accompanying footnotes, an annual report oftencontains:A discussion and analysis of operating resultsInformation about organizational objectives, strategies, and long term goalsAn indication of management’s outlook for the future (almost always rosy!)A list of the Board of Directors and the officers and top management of the organizationSegment data and performance information for the firm’s major divisionsInformation on new initiatives and researchRecent stock price history and stock informationIn the case of retailers, perhaps a coupon entitling the holder to a discount4.Stating well-defined corporate strategies in a company’s annual report accomplishes thefollowing advantages:Communicates the company’s plan for the future and resolves any disparate issuesProvides a vehicle for communicating the company’s strengthsBuilds investor confidence and portrays a positive imageReassures nervous investors that the company’s managers are working hard for ownerinterestsIt alerts investors to potential adverse, long-term forces in the company’s industrySome of the disadvantages of including corporate strategies in an annual report are:It commits management to fulfilling the stated objectives and strategies, a commitmentthat may cause inflexibilityIt communicates to unintended parties who could put the company at risk (i.e.,competitors)The strategies themselves may make the company appear out-dated by the time they arein print.

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