What you’ll be doing …
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Evaluating an AIS
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Review system documentation, interview participants, observe
transactions
Know what information to look for
Know where to get information
Develop a plan to get information
Organize information in meaningful/useful ways
Goal is to provide a general AIS knowledge that can be
applied to any system
1
Auditing Standard No. 2

An Audit of Internal Control Over Financial Reporting
Performed in Conjunction with an Audit of Financial
Statements
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Managers and auditors understand procedures that initiate
and process transactions
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Public Company Auditing Oversight Board
Business processes
Managers and auditors understand how transactions are
recorded and reported

AIS
2
Business Processes and AIS
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Business Processes
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Manner in which work is organized, coordinated, and focused to
produce a valuable product or service
Concrete work flows of material, information, and knowledge
 Sets of activities or events
Unique ways to coordinate work, information, and knowledge
Ways in which management chooses to coordinate work
Accountants are interested in Transaction Cycles
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Acquisition (purchasing)
Conversion (transforming resources)
Revenue (providing goods and services and collection)
3
Revenue Cycle
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Likely Events
1.
2.
3.
4.
5.
6.
7.
Respond to customer inquiries
Develop agreements with customers to provide goods and
services in the future
Provide services or ship goods to customer
Bill customer
Collect cash
Deposit cash in bank
Prepare reports
4
Acquisition Cycle

Likely Events
1.
2.
3.
4.
5.
6.
7.
Consult with suppliers
Process requisitions
Develop agreements with suppliers to purchase goods or
services in future
Receive goods or services from the supplier
Recognize claim for goods and services received
Select invoices for payment
Write checks
5
Guidelines for Finding Events
1.
2.
3.
4.
Recognize the first event in a process when a person or
department within an organization becomes responsible
for an activity
Ignore activities that do not require an internal agent
Recognize a new event when responsibility is transferred
from one internal agent to another
Recognize a new event when a process has been
interrupted and resumed later by the same internal agent
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5.
After the interruption, someone outside the organization or the
process may restart the process.
Alternatively, the process may continue at a scheduled time.
Use an event name and description that reflects the broad
nature of an event
6
Event Characteristics
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When you find events, think about
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Internal agent assuming responsibility
When the event starts
Specific activities in the event
May be necessary to sub-divide events as process unfolds
Not all guidelines apply to all cases
7
Organizing Data in an AIS
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Entity – something about which we collect data
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Field – single piece of data about an entity (e.g. last name)
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Events, agents, resources
a.k.a. attribute
Record – a set of related fields about an entity
File – a set of records
Entity: employee
fields
file
records
8
Types of Files
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Transaction File
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Store information about events
e.g. customer orders
Master file
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Store information about non-event entities
External agents, internal agents, goods and services
 Reference data
• Data that describe the entity
• Relatively permanent; not affected by transactions
• e.g. customer’s name, product ID#

Summary data
• Summarize past transactions
• Beginning inventory
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Master Files
Inventory File (Goods and Services)
Summary Fields
Reference Fields
ISBN
0-256-23696-7
0-127-35124-8
0-135-22456-7
0-146-18976-4
0-145-21687-7
0-235-624-6
Author
Barnes
Cromwell
Cromwell
Johnson
Platt
Rosenberg
Title
Introduction to Business
Building Database Applications
Management Information Systems
Principles of Accounting
Introduction to E-commerce
HTML and Javascript Primer
Price
$78.35
$65.00
$68.00
$70.00
$72.00
$45.00
Quantity Quantity
on Hand Allocated
4,000
300
3,500
0
5,000
50
8,000
260
5,000
40
6,000
0
Customer File (External Agents)
Reference Fields
Customer #
3450
3451
3452
Name
Brownsville, C.C.
Educate, Inc.
Bunker Hill College
Address
Brownsville, TX
Fairhaven, MA
Bunker Hill, MA
10
Contact
Person
Smith
Costa
LaFrank
Phone
(956) 555-0531
(508) 888-4531
(617) 888-8510
Transaction Files
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Order file (event)
Order # Order Date
0100011
05/11/06
0100012
05/15/06
0100013
05/16/06
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Customer #
3451
3451
3450
Status
Open
Open
Open
Order Detail (event)
ISBN
0-256-23696-7
0-146-18976-4
0-135-22456-7
0-146-18976-4
0-145-21687-7
0-146-18976-4
0-256-23696-7
Quantity
200
150
50
75
40
35
100
11
Why?
Usually include price
and quantity
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Order #
0100011
0100011
0100012
0100012
0100012
0100013
0100013
Usually include a date
Why quantity? Price?
Since price is in the
master file and not the
transaction file, what
can we conclude?
Relationships Between Master and
Transaction Files
Customer File (Master)
Customer #
3451
Order # Order Date
0100011
05/11/06
Customer #
3451
Order # ISBN
0100011 0-256-23696-7
0100011 0-146-18976-4
Name
Educate, Inc.
Status
Open
Quantity
200
150
Address
Fairhaven, MA
Author
Barnes
Johnson
Platt
Phone
(508) 888-4531
Order File (Transaction)
Order Detail (Transaction)
Inventory File (Master)
ISBN
0-256-23696-7
0-146-18976-4
0-145-21687-7
Contact
Person
Costa
Title
Introduction to Business
Principles of Accounting
Introduction to E-commerce
12
Quantity Quantity
Price on Hand Allocated
$78.35
4,000
300
$70.00
8,000
260
$72.00
5,000
40
Finding Data
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Find out what types of people, business units, things,
places, events, materials, or other organizations are
associated with, or interact with, the system and about
which data must be maintained.
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Events
Resources
Agents
Look for forms that are used
Don’t ask technical questions!
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Yes: Tell me what you did today
No: What information did you enter in the transaction file?
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Events and Activities
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Most events can be broken down in to activities
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Events that use data
Recording
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Updating
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Preparation of transaction files
Changing summary data in the master file
 Quantity on hand
File Maintenance
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Adding and deleting master records, changing master file reference
data
14