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Library of Congress Cataloging-in-Publication Data
Bagranoff, Nancy A.
Core concept of accounting information systems / Nancy A. Bagranoff,
Mark G. Simkin, Carolyn Strand Norman.—11th ed.
p. cm.
Includes index.
ISBN 978-0-470-50702-5 (pbk.)
1. Accounting – Data processing. 2. Information storage and retrieval systems – Accounting. I. Simkin, Mark G.
II. Norman, Carolyn Strand. III. Title.
HF5679.M62 2010
657.0285– dc22
2009026526
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1

Nancy A. Bagranoff received her A.A. degree from Briarcliff College, B.S. degree from the Ohio State University, and M.S. degree in accounting from Syracuse University. Her
DBA degree was conferred by The George Washington University in 1986 (accounting major and information systems minor). From 1973 to 1976, she was employed by General
Electric in Syracuse, New York, where she completed the company’s Financial Management
Training Program. Dr. Bagranoff passed the CPA examination in the District of Columbia in 1982. She spent fall 1995 as Faculty in Residence at Arthur Andersen where she worked for the Business Systems Consulting and Computer Risk Management groups. Professor
Bagranoff has published several articles in such journals as Journal of Information
Systems, Journal of Accounting Literature, Computers and Accounting, The Journal of
Accounting Education, Behavioral Research in Accounting, Journal of Accountancy , and
The Journal of Accounting and EDP . Dr. Bagranoff is also co-author of Core Concepts of
Consulting for Accountants and Core Concepts of IT Auditing . She is currently Professor of Accounting and the Dean of the College of Business and Public Administration at Old
Dominion University. She was formerly President of the Information Systems section and
Vice President—Education, of the American Accounting Association. She is currently the
President of the American Accounting Association.
Mark G. Simkin received his A.B. degree from Brandeis University and his MBA and Ph.D.
degrees from the Graduate School of Business at the University of California, Berkeley.
Before assuming his present position of professor in the Department of Accounting and
Information Systems, University of Nevada, Professor Simkin taught in the Department of
Decision Sciences at the University of Hawaii. He has also taught at California State University, Hayward, and the Japan America Institute of Decision Sciences, Honolulu; worked as a research analyst at the Institute of Business and Economic Research at the University of California, Berkeley; programmed computers at IBM’s Industrial Development—Finance
Headquarters in White Plains, New York; and acted as a computer consultant to business companies in California, Hawaii, and Nevada. Dr. Simkin is the author of more than 100 articles that have been published in such journals as Decision Sciences, JASA, The Journal of Accountancy, Communications of the ACM, Interfaces, The Review of Business and
Economic Research, Decision Sciences Journal of Innovative Education, Information
Systems Control Journal , and the Journal of Bank Research .
Carolyn Strand Norman received her B.S. and M.S.I.A. degrees from Purdue University and her Ph.D. from Texas A&M University. Dr. Norman is a Certified Public Accountant, licensed in Virginia. She is a retired Lieutenant Colonel who was a management analyst with the United States Air Force. At the Pentagon, she developed compensation and entitlements legislation, working frequently with House and Senate staffers. Prior to assuming her current position, Dr. Norman taught at Seattle Pacific University where she co-authored the book,
XBRL Essentials with Charles Hoffman, and was selected as Scholar of the Year for the
School of Business and Economics. Dr. Norman has published more than 40 articles in such journals as Behavioral Research in Accounting, Journal of Accounting and Public Policy,
Journal of Information Systems, Advances in Accounting Behavioral Research, Issues in
Accounting Education, Journal of Accounting Education , and Research in Government and Nonprofit Accounting .
iii

Information technologies impact every aspect of accounting, including financial reporting, managerial accounting, auditing, and tax. The nature of the work done by accountants continues to evolve as these technologies advance. For example, less than 30 years ago, accountants could have spent much of their day footing ledgers and making hand calculations. Today, of course, accountants use the many helpful functions in spreadsheet software, and update or change calculations instantly, instead of the days it would have taken with paper and pencil. Internet technologies continue to change the way accountants do things. And because most accounting systems are now computerized, accountants must understand software and system processes to effect and evaluate systems of internal control. Business and auditing failures continue to force the profession to emphasize internal controls and to rethink the state of assurance services. As a result, the subject of accounting information systems (AIS) will continue to be an important part of the new vision of the accounting profession.
The purpose of this book is to help students understand basic AIS concepts. Exactly what comprises these AIS concepts is subject to some interpretation, and is certainly changing over time, but most accounting professionals believe that it is the knowledge that accountants will need for understanding and using information technologies and for knowing how an AIS gathers and transforms data into useful decision-making information.
In this edition of our textbook, we include the core concepts of accounting information systems indicated by chapter in the table below. The book is flexible enough that instructors may choose to cover the chapters in any order.
ACCOUNTING INFORMATION SYSTEMS
COURSE CONTENT AREA COVERAGE
Content Area
AIS Applications
Auditing
Database Concepts
Internal Control
Management of Information Systems
Management Use of Information
Systems Development Work
Technology of Information Systems
Use of Systems Technology
7,8,9
7,8,9
14
4,5,6
10,11,12
1,2,13
1,3,7,8,9,15
13
2, All
All
Despite the commonality of subjects in the AAA study, the content of AIS courses continues to vary widely from school to school. Some schools, for example, use their AIS courses to teach accounting students how to use computers. In other colleges and universities, the course focuses on business processes and data modeling. Other courses emphasize transaction processing and accounting as a communication system, and have little to do with the technical aspects of how underlying accounting data are processed or stored.
Given the variety of objectives for an AIS course and the different ways that instructors teach it, we developed a textbook that attempts to cover only the core concepts of AIS. In writing the text, we assumed that students have completed basic courses in financial and managerial accounting and have a basic knowledge of computer hardware and software v

vi Preface concepts. The text is designed for a one-semester course in AIS and may be used at the community college, baccalaureate, or graduate level.
Our hope is that individual instructors will use this book as a foundation for an AIS course, building around it to meet their individual course objectives. Thus, we fully expect that many instructors will supplement this textbook with other books, cases, software, or readings. The arrangement of the chapters permits flexibility in the instructor’s subject matter coverage. Certain chapters may be omitted if students have covered specific topics in prior courses.
Part One introduces students to the subject of AIS. In the first chapter, we lay the basic foundation for the remainder of the text and set the stage for students to think about the high degree of technology that is common to the accounting profession. This chapter also includes a section on careers in AIS so that students can understand the career paths that combine accounting with the study of information systems. Students taking the AIS course may or may not have had an earlier course in information technology. Chapter
2 allows those who did not have such a course to learn about the latest technologies and emphasizes their use in accounting. For students who have had earlier courses in computers and/or information systems, this chapter serves as a review. Chapter 3 is about systems documentation, a matter of critical importance to the success of an AIS and also to the understanding of an accounting information system. This chapter describes the various tools that accountants can use to document an AIS for their own and others’ understanding of information flows.
Part Two discusses databases and data modeling. Chapter 4 begins our coverage by discussing database concepts in general, describes the steps required to create database tables and records, and emphasizes such database concerns as security, privacy, and concurrency. This chapter also responds to increasing instructor interest in teaching the
REA approach to data modeling. Chapter 5 continues these discussions, focusing on such topics as normalization, and using Microsoft Access to illustrate uses of data definition languages and data manipulation languages. Chapter 6 continues the discussion of how to use Microsoft Access to develop database forms and reports. This chapter is more ‘‘how to’’ than the other chapters in the book and it allows the instructor to guide students with hands-on experience in using software to implement the database concepts they have learned.
Business processes and software solutions for improving those processes are gaining in importance in today’s businesses. Chapters 7 and 8 discuss several core business processes and highlight a number of Business Process Management (BPM) solutions that are currently available in the marketplace. Instructors who focus on transaction cycles in their AIS courses may choose to use supplemental pedagogical tools, such as software and practice sets, to cover this material in more depth. In Chapter 9 we discuss accounting and enterprise software, also providing advice in AIS selection.
Part Four is an overview of the value of internal controls and the consequences when controls are not developed (or are weak). Chapter 10 focuses on computer crime, ethics, and privacy to help students understand the need for internal controls. The next two chapters introduce the students to internal controls that are necessary at each level of the organization. Although the subject of internal control appears repeatedly throughout the book, we examine this subject in depth in Chapters 11 and 12.
The last section of the book examines special topics in AIS. Recognizing that some students in current AIS courses may have taken a prior course in management information systems (MIS) and thus are already familiar with systems development topics, the emphasis in Chapter 13 is on the accountant’s role in designing, developing, implementing, and maintaining a system. Information technology auditing is an increasingly important field

Preface vii and represents a great career opportunity for students who understand both accounting and IT. Chapter 14 extends our coverage of internal controls to the general subject of auditing in an IT environment. Finally, although we have integrated Internet technology throughout this book, its influence on accounting information systems is so great that we devoted a special chapter to it. Chapter 15 provides a basic overview of Internet concepts, discusses financial reporting on the Internet, including an expanded section on XBRL, explores the accounting components of ecommerce, and covers the issues of privacy and security.
This edition of our book uses a large number of special features to enhance the coverage of chapter material as well as to help students understand chapter concepts. Thus, each chapter begins with an outline and a list of learning objectives that emphasize the important subject matter of the chapter. This edition of the book also includes more real world cases-in-point, which are woven into the text material and illustrate a particular concept or procedure. Each chapter also includes a more-detailed real-world case or concept in an end-of-chapter AlS-at-Work feature.
Each chapter ends with a summary and a list of key terms, and also includes multiple-choice questions for self-review with answers, and three types of end-of-chapter exercises to help students understand the material: discussion questions, problems, and cases. This wide variety of questions, Test Yourself multiple choice questions and answers, problems, and cases enables students to examine many different aspects of each chapter’s subject matter and also enables instructors to vary the exercises they use each semester.
The end-of-chapter materials also include a list of references and recommended readings that allow interested students to explore the chapter material in greater depth. In addition, instructors may wish to assign one or a number of articles listed in each chapter reference section to supplement chapter discussions. These articles are also an important resource for instructors to encourage students to begin reading professional journals. We include articles from Strategic Finance, The Journal of Accountancy , and The Internal Auditor , which represents the journals of three important accounting professional organizations.
There are two major supplements to this textbook. One is an instructor’s manual containing suggested answers to the end-of-chapter discussion questions, problems, and cases. There is also a test bank of true-false and multiple-choice questions.
This edition of our book includes a number of changes from prior editions. These include:
• Additional Test Yourself multiple choice questions at the end of each chapter to help students assess their understanding of the chapter material.
• Expanded coverage of topics that are increasingly impacting AIS, including a new discussion of suspicious activity reporting, updated narrative on business continuity planning and disaster recovery, new accounting frauds, the Sarbanes Oxley Act of 2002, an introduction of COBIT version 4.1, synergies that are available to organizations (i.e.,
ERPs, SOX, COBIT, and BPM), emphasis on risk and governance, lean production and lean accounting, and XBRL.
• An expanded section in Chapter 1 on career paths for those majoring in AIS.

viii Preface
• Increased usage of bullets and tables to review or explain material in an efficient format that appeals to students. For example, all of the chapter summaries are now in bullet format.
• Many new Case-in-Points that identify examples of the discussion in the textbook. These examples illustrate the topic to give students a better grasp of the material.
• Color! This edition uses color to offset cases and to make the book more interesting to read.
• Chapter reorganization, with database chapters moved closer to the front, as requested by our adopters. Instructors still have the flexibility to integrate the database concepts and database development anywhere in their course.
• An updated glossary of AIS terms at the end of the book.
• One chapter on developing and implementing AISs, with a focus on the role of accountants in these studies. Because many students cover these concepts in other MIS and computer courses, this allows the instructor to assign the chapter as a review, rather than as a major segment of the course.
• New AIS at Work features at the end of many chapters to help students better understand the impact of systems in a wide variety of contexts.
• A number of new cases at the end of chapters so that instructors have more choices of comprehensive assignments for students.
We wish to thank the many people who helped us during the writing, editing, and production of our textbook. Our families and friends are first on our list of acknowledgments. We are grateful to them for their patience and understanding as we were writing this book.
Next, we thank those instructors who read earlier drafts of this edition of our textbook and provided many useful suggestions for improving the final product. In addition, we are indebted to the many adopters of our book who frequently provide us with feedback.
We sincerely appreciate Paula Funkhouser who revised chapters 4, 5, and 6 on this edition as well as helped us with our supplementary materials on this and several previous editions. We also thank our development editor, Chris DeJohn, and our production editor,
Joyce Poh, for their contributions to this edition of our book. Finally, we thank all of our many students who have given us feedback when we’ve used the book. We do listen!
Nancy A. Bagranoff
Mark G. Simkin
Carolyn Strand Norman
February 2009

PART ONE AN INTRODUCTION TO ACCOUNTING INFORMATION SYSTEMS/ 1
CHAPTER 1 Accounting Information Systems and the Accountant / 3
Introduction /
4
What are Accounting Information Systems?
/ 4
What’s New in Accounting Information Systems?
/
9
Accounting and IT / 14
Careers in Accounting Information Systems /
21
CHAPTER 2 Information Technology and AISs / 35
Introduction / 36
The Importance of Information Technology to Accountants /
36
Input, Processing, and Output Devices / 38
Secondary Storage Devices /
48
Data Communications and Networks / 52
Computer Software / 60
CHAPTER 3 Documenting Accounting Information Systems / 73
Introduction /
74
Why Documentation is Important / 74
Document and System Flowcharts /
77
Process Maps and Data Flow Diagrams / 85
Other Documentation Tools / 93
End-User Computing and Documentation / 98
PART TWO DATABASES/ 113
CHAPTER 4 Data Modeling / 115
Introduction / 116
An Overview of Databases
/
116
Steps in Creating a Database Using REA / 123
Creating Database Tables and Records
/
132
CHAPTER 5 Organizing and Manipulating the Data in Databases / 153
Introduction /
154
Normalization
/
154
Validating the Data in Databases / 158
Extracting Data From Databases: Data Manipulation Languages (DMLs)
/
162
Object-Oriented Databases, Multimedia Databases, and Data Warehouses / 171
CHAPTER 6 Database Forms and Reports / 187
Introduction / 188
Forms / 188
Reports / 196
PART THREE USING ACCOUNTING INFORMATION/ 215
CHAPTER 7 Accounting Information Systems and Business Processes: Part I / 217
Introduction / 218
Business Process Fundamentals
/
218
Collecting and Reporting Accounting Information / 221
The Sales Process
/
225
The Purchasing Process / 230
Current Trends in Business Processes /
237
CHAPTER 8 Accounting Information Systems and Business Processes: Part II / 249
Introduction / 250
The Resource Management Process
/
250
The Production Process / 256 ix

x Contents
The Financing Process / 262
Business Processes in Special Industries
/
265
Business Process Reengineering / 271
CHAPTER 9 Accounting and Enterprise Software / 281
Introduction /
282
Integrated Accounting Software Programs / 282
Enterprise-Wide Information Systems /
287
Selecting a Software Package / 298
PART FOUR CONTROLS, SECURITY, PRIVACY, AND ETHICS FOR ACCOUNTING INFORMATION
SYSTEMS/ 311
CHAPTER 10 Computer Crime, Ethics, and Privacy / 313
Introduction / 314
Computer Crime, Abuse, and Fraud /
314
Three Examples of Computer Crime / 321
Mitigating Computer Crime and Fraud /
326
Ethical Issues, Privacy, and Identity Theft
/
333
CHAPTER 11 Introduction to Internal Control Systems / 347
Introduction / 348
Internal Control Systems /
348
Types of Controls / 356
Control Activities /
358
Evaluating Controls / 365
CHAPTER 12 Computer Controls for Organizations and Accounting Information Systems / 377
Introduction / 378
General Controls for Organizations
/
378
General Controls for Information Technology / 390
Application Controls for Transaction Processing /
395
PART FIVE SPECIAL TOPICS IN ACCOUNTING INFORMATION SYSTEMS/ 413
CHAPTER 13 Developing and Implementing Effective Accounting Information Systems / 415
Introduction / 416
Systems Development Life Cycle
/
416
Systems Planning / 418
Systems Analysis
/
420
Systems Design / 425
Implementation, Follow-Up, and Maintenance /
433
CHAPTER 14 Information Technology Auditing / 449
Introduction / 450
The Audit Function / 450
The Information Technology Auditor’s Toolkit
/
457
Auditing Computerized Accounting Information Systems / 460
Information Technology Auditing Today
/
467
CHAPTER 15 Accounting on the Internet / 481
Introduction / 482
The Internet and World Wide Web /
482
XBRL: Financial Reporting on the Internet / 486
Electronic Commerce / 489
Privacy and Security on the Internet
/
494
Privacy Statement / 506
Disclosure of Business Practices, Shipping, and Billing /
506
Glossary / 511
Index / 523