AIS Electronic Commerce Systems.pptx

Electronic Commerce

Systems

Three aspects of e-commerce

o _{Inter-organizational use of networks to support}

distributed data processing

o _{B-2-B transactions conducted via EDI systems}

o _{Internet based commerce including}

What is e-Commerce?

o _{Involves the electronic processing and transmission of data}

- _{Electronic buying and selling of goods and services} - _{Online delivery of digital products}

- _{Electronic funds transfer} - _{Electronic trading of stocks} - _{Direct consumer marketing}

Role of the Accountant

o _{Familiarity with technologies and techniques}

underlying e-commerce - _{Hardware failures} - _{Software errors}

- _{Unauthorized access from remote locations}

o _{Exposure of the organizations accounting system to}

Risks

- _{Lost transactions in transit and never get processed} - _{Digitally altered to change their financial effect}

- _{Corrupted by transit signals on transmission lines} - _{Diverted to or initiated by the perpetrator of fraud}

Inter-organizational e-Commerce

o _{Physical arrangements of components (e.g. nodes,}

servers, communication links, etc.) is a network topology

o _{Topologies of intranet networks}

- _{Star topology}

- _{Hierarchical typology} - _{Ring topology}

- _{Bus topology} - _{Client networks}

o _{A variation on or a combination of these basic}

Network Control

o _{Communications sessions between senders and receivers}

established

o _{Manage the flow of data across the network}

o _{Detect and resolve collisions between competing nodes}

Network Control Methods

o _Polling

o _{Token passing} o _{Carrier sensing}

EDI

o _{The intercompany exchange of computer-possible business}

information in standard format

- _{Coordinate sales and production operations} - _{Maintain an interrupted flow of raw materials}

Benefits of EDI

o _{Data keying}

o _{Error reduction} o _{Paper reduction} o _Postage

o _{Automated procedures} o _{Inventory reduction}

Internet Technologies

o _{Packet switching}

o _{Virtual private networks} o _Extranets

o _{World Wide Web} o _{Internet addresses}

Internet Address

o _{Three types of addresses}

- _{E-mail address} - _{Web site URL}

E-Mail Address

o

_{Format = user name@domain name}

-

_{.com commercial}

-

_{.net network provider}

-

_{.org nonprofit organizarion}

-

_{.edu education and research}

-

_{.mil military agency}

URL Address

o _{Address that defines a path to a facility or file on the Web} o _{They are typed into the browser to access Web site home}

pages and individual Web pages

o Can be embedded in Web pages to provide hypertext lnks to other pages

o _{General format is protocol prefix, domain name,}

subdirectory name, and document name

o _{E.g. to access the South Western Publishing home page:}

http://www.cengage.com/accounting/hall

o _{The protocol prefix is http://, and the domain name is}

Intranet Risk

o _{Interception of network messages} o _{Assess to corporate database}

o _{Privileged employees} o _{Reluctance to prosecute}

Internet Risk

o _{Theft of credit card numbers} o _{Theft of passwords}

o _{Consumer privacy}

Security, Trust & Assurance

o _Encryption

o _{Digital authentication} o _Firewalls

Implications for Accountants

o _{Privacy violation}

o _{Continuous auditing} o _{Electronic audit trials} o _{Confidentiality of data} o _{Authentication}

o _{Nonrepudiation} o _{Data integrity} o _{Access controls}

Transaction Processing,

o _{Overview of transaction processing}

o _{Relationship among accounting records in forming an audit trial in}

both manual and computer-based systems

o _{Documentation techniques used to represent systems}

o _{Review of fundamental feature of batch and real-time technologies}

and their implication for transaction processing

Manual Accounting Records

o _Documents

- _{Source documents} - _{Product documents}

- _{Turnaround documents}

o

_Journals

o

_Registers

o

_Ledgers

Computer-Based Systems

- _{Master files}

- _{Transaction files} - _{Reference files} - _{Archive files}

Documentation Techniques

o _{Entity relationship diagrams} o _{Systems flowcharts}

o _{Programme flowcharts}

Data Flow Diagrams (DFDs)

o _{Used to represent the logical elements of a system}

o _{Used to represent systems at different levels of detail from very}

general to highly detail

o _{Entities in a DFD are external objects (e.g. other interacting systems}

or functions) or at the boundary of the system being modelled

o _{They represent sources of and destinations for data}

o _{They are always labeled as nouns to the organization (e.g. customer,}

o _{Processes in the DFD should be labelled with a description verb (e.g.}

ship goods, receive customer order, update records, etc.)

o _{Process objects should not be represented as nouns (AR Department,}

sales Department, Warehouses etc.)

o _{Labeled arrows connecting the process objects represent flows of}

data such as Sales Order, Invoice, Shipping Notice

o _{Data stores represent the accounting records used in each process} o _{Labeled arrows represent the data flow between processes, data}

Entity Relationship (ER) Diagrams

o _{A documentation technique used to represent the relationship}

between entities

o _{Physical resources (e.g. automobiles, cash, inventory, etc.), events}

(ordering sales inventory, receiving cash, shipping goods etc.), and agents (salesperson, customer, vendor etc.) about which data are captured by the organization represent entities.

o _{modelling of an organization’s database is a typical example of the}

o _{Square symbol represents entities in the system}

o _{The labeled connecting line represents the nature of the relationship}

between two entities

o _{The degree of the relationship called cardinality represent a numeric}

mapping between entity instances

o _{E.g. cardinality represents the maximum number of records in one flow}

file that are related to a single records in order file if entities in ER diagram are files of records

o _{Cardinality reflects normal business rules as well as organizational policy} o _{E.g. A 1:1 cardinality suggests that each sales person in the organization}

is assigned one company car

o _{An M:M relationship between vendor and inventory means that the}

organization buys the same type of products from one or more vendors

o _{A policy to buy particular item from a single vendor would be reflected}

Relationship between ERs and DFDs

o _{They depict different aspects of the same system, but they are}

related and can be reconciled

o _{A DFD is a model of system processes, and the ER diagram models}

the data used in or affected by the system

o _{The two diagrams are related through data; each data source in}

System Flowcharts

o _{A graphical representation of the physical relationships among key}

elements of a system.

o _{The elements include organizational departments, manual activities,}

computer programs, hard-copy accounting records (documents, journals, ledgers, and files), and digital records (reference files, transaction files, archive files, and master files)

o _{Describe the type of computer media (magnetic tape, magnetic disks,}

Rules and Conventions Governing

Flowcharting

o _{It should be labeled to clearly identify the system that it represents}

o _{The correct symbols should be used to represent the various entities in}

the system

o _{All symbols on the flow chart should be labeled}

o _{Lines should have arrowheads to clearly show the process flow and}

sequence of events

o _{If complex processes need additional explanation for clarity, a text}

description should be included on the flow chart or in an attached document referenced by the flow chart

Flowcharting Manual Activities

o _{An auditor needs to flowchart a sales order system to}

evaluate its internal controls and procedures

o _{Interview individuals involved in the sales order process to}

determine their activities

o _{This is captured in a set of written facts which are}

Steps in Manual Flowcharting

o _{Layout the physical system and label each of them (e.g. sales}

department, credit department, warehouse, and shipping)

o _{Transcribe the written facts into visual format (or visually}

represent the system facts)

Example

A clerk in the sales department receives a hard-copy customer order by mail and manually prepares four hard-copies of a sales order. Copy 1 of the sales order is sent to the credit department for approval. The other 3 copies and the original customer order are filed temporarily, pending credit approval. The credit department clerk validates the customer’s order against hard-copy credit records kept in the credit department. The clerk signs hard-copy 1 to signify approval and returns it to the sales clerk. The sales clerk files a copy 1 and the customer order in the department when credit approval is given. The clerk sends copy 2 to the warehouse and copies 3 and 4 to the shipping department. The warehouse clerk picks the product from the shelves records the transfer in the hard-copy stock records, and sends the products and copy 2 to the shipping department. The shipping department receives copy 2 and the goods from the warehouse, attaches copy 2 as a packing slip, and ships the goods to the customer. Finally, the clerk files copies 3 and 4 in the shipping department.

Computerized Flowcharting

o _{Credit department is replaced with computer department}

in the manual system

o _{Sales clerk activity is now automated hence manual process}

Computer Based Accounting Systems

o _{Batch systems}

Batch Processing

o _{A batch is a group of similar transactions (e.g. sales orders)}

accumulated over time before processing together.

o _{Permits the efficient management of large volume of transactions.} o _Advantages:

- _{Operational efficiency is improved}

- _{Effective control over transaction process}

- _{Economies are derived by making transaction batches large}

Disadvantages of Batch Processing

o _{Finding an error in a large batch may prove difficult}

o _{There are time lags between occurrence and recording}

Factors that influence Batch system Design

o _{Volume of transactions} o _{Industry competitiveness} o _{Frequency of errors}

o _{Financial implication of undetected error} o _{Cost of processing}

Real-Time Systems

o _{Processes transactions individually at the moment the}

event occurs.

o _{There are no time lags between occurrence and recording} o _{Demands much organizational resources than the batch}

Transaction Processing & Business

Processes

o _{The finance/expenditure cycle} o _{The production/conversion cycle} o _{The revenue cycle}

o _{The human resource/payroll cycle}

General Ledger/Reporting Cycle Give cash Get cash Give cash Get goods/raw materials Give

cash _laborGet

Give labor Give raw materials Get finished goods Give goods Get cash Financing cycle Expenditure cycle HR/payroll cycle Revenue cycle Conversion cycle Funds Funds Data Funds

Data Data

Finished goods Data Raw materials Labor Data

The Revenue Cycle

o _{Sales order procedures}

- _{Receiving and processing a customer order} - _{Filing the order and shipping products to the}

customer

- _{Billing the customer at the proper time} - _{Correctly accounting for the transaction}

Receive Customer Order

o _{The sales process begins with the receipt of a customer order}

indicating the type quantity of merchandise required

o _{Transcribe the order into a formal sales order which captures}

vital information

- _{Customer name} - _Address

- _{Account number}

- _{Name, number and description of items sold} - _{Quantities and unit prices of the items sold}

o _{Copy of customer order is placed in the customer open order}

Check Credit

o _{Credit approval process which ia an authorization control and is}

performed separately from the sales activity

o _{The receive-order tasks sends the sales order (credit copy) to the}

check-credit task for approval

o _{The return approved sales order then triggers continuation of the sales}

process by releasing sales order information simultaneously to various tasks

- _{Stock release} - _{Packing slip}

- _{Shipping notice} - _{Sales invoice}

Pick Goods

o _{The receive order activity forwards the stock release (packing ticket) to}

the pick goods function in the warehouse

o _{This document:}

- _{Identifies the inventory that must be located and picked from the} warehouse shelves

- _{Provides formal authorization for warehouse personnel to release} the specified items

o _{After picking the stock, the order is verified for accuracy and the goods}

Ship Goods

o _{The packing slip ultimately travels with the goods to the customer} o _{The shipping notice is forwarded later to the billing function as}

evidence that the customer’s order was filled and shipped

- _{The date of shipment}

- _{The items and quantities actually chipped} - _{The name of the carrier}

- _{Fright charges}

o _{Shipping clerk reconciles the physical items with the stock release, the}

Ship Goods

o _{The shipping clerk packages the goods, attaches the packing slip,}

completes the shipping notice and prepares a bill of lading

o _{The bill of lading is a formal contract the seller and the shipping}

company (carrier) to transport the goods to the customer

o _{This document establishes legal ownership and responsibility for assets}

in transit

o _{The shipping clerk records the shipment in the shipping log, forwards}

the shipping notice and the stock release to the bill-customer function as proof of shipment, and updates the customer open order file

Bill Customer

o _{The completed sales invoice is the customer bill which formally depicts}

the charges to the customer.

o _{The shipment of goods marks the completion of economic event and the}

point at which the customer should be billed

o _{Billing for goods not shipped causes confusion, damages customer}

relations and requires additional work to make adjustments to accounting records

o _{the billing function performs the following record-keeping related tasks}

- _{Record the sale in the sales journal}

- _{Forwards the ledger copy of the sales order to the update accounts} receivable task

o _{Systems and procedures for acquiring raw materials}

and finished goods from suppliers

o _{Human resources and payroll system} o _{Fixed assets system}

Purchases processes procedures

o _{Identifying inventory needs} o _{Placing the order}

o _{Receiving the inventory} o _{Recognizing the liability}

Monitor inventory Records

o _{Inventory depletion:}

- _{Transferring raw materials into the production process} (conversion cycle)

- _{Selling finished goods to customers (revenue cycle)}

o _{Typically a separate inventory requisition is prepared for}

Prepare Purchase Order

o _{Copies of the purchase order are sent to}

- _{The vendor}

- _{Set up accounts payable function for filing} temporarily in the AP pending file

- _{The receive goods function (blind copy)} - _{The open/close purchase order file}

Receive Goods/Inventory

o _{Goods arriving from the vendor are reconciled with the blind copy} of the PO

o _{The blind copy contains no quantity or price information about the} products being received

o _{The purpose of the blind copy is to compel the receiving clerk to} physically count and inspect inventories prior to completing the receiving report

Receive Goods/Inventory

o _{A copy is attached to the physical inventories to either the raw}

materials store room or finished goods warehouse for safekeeping

o _{Another copy is filed with the open/close OP file to close out the}

PO

o _{A third copy is sent to the AP department, where it is filed in the AP}

pending file

o _{A fourth copy is sent to inventory control for updating the inventory}

records

Set-up Accounts Payable

o _{The AP function has received and temporarily filed copies of}

the PO and receiving report during the course of this transaction

o _{The firm will defer the recognition of liability until the}

supplier invoice arrives

o _{The accountant will need to estimate the value of the}

obligation until the invoice arrives

o _{The financial information is reconciled with the receiving}

report and the PO in the pending file (a three-way match)

o _{The transaction is recorded in the purchases journal and}

Cash Disbursements

o _{Identify liabilities due}

o _{Prepare cash disbursement} o _{Update AP records}

Automatic Purchases Procedures using

Batch Processing Technology

o _{Data processing department (step 1)}

- _{A record is created in the open purchase requisition file}

- _{Each record in the requisition file defines a separate inventory} item to be replenished

o _{The record contains:}

- _{The inventory item number} - _{A description of the item} - _{The quantity to be ordered} - _{The standard unit price}

Purchasing Department

o _{A multipart PO is prepared with copies sent to:}

- _{The vendor} - _AP

- _Receiving

- _{Data processing}

Data Processing Department (Step 2)

o _{A copy of the PO is sent to data processing and used to create a record}

in the open PO file

o _{The associated requisitions are then transferred from the open}

purchase requisition file to the close purchase requisition file

Receiving Department

o _{A receiving report is prepared and copies are sent to}

- _{The stores (with the goods)} - _Purchasing

- _AP

Data Processing Department (Step 3)

o _{Creation of receiving report file from data provided by receiving} report documents

o _{A batch program updates the inventory subsidiary file from the} receiving report file

o _{‘’on order’’ flag is removed by the programme from the updated} inventory records and calculates batch of inventory receipts

o _{The associated records in the open PO are transferred to the closed} PO file

Data Processing Department (Step 4)

o _{Voucher file is created from the voucher documents}

o _{Voucher records are validated by a batch programme}

against the valid vendor file and adds them to the voucher register (AP subsidiary file)

o _{Finally batch totals are prepared for subsequent posting to}

Cash Disbursements Procedures

(Data Processing Department

)

o _{The system scans the due date field of the voucher register for items}

due

o _{Cheques are printed for these items}

o _{Each cheque is recorded in the cheque register (cash disbursement}

journal)

o _{Cheque number recorded in the voucher register to close the voucher}

and transfer the items to the closed AP file

o The cheques along with a transaction listing are sent to cash disbursements department

Data Processing Department

o _{Batch totals of open (unpaid) and closed (paid) AP,}

inventory increases, and cash disbursements are posted to the AP control, inventory control and cash accounts in the general ledger

o _{The totals of closed AP and cash disbursements should}

Cash Disbursements Department

o _{Reconciliation of the cheques with transaction listing and}

submitted to management for signing

o _{Cheques are then mailed to suppliers}

o _{A copy is sent to AP and another copy filed with cash}

disbursements along with the transaction listing

o _{AP clerk transfers these closed items to the closed voucher file}

Summary of Computer Processes

The following procurement tasks are performed automatically

o _{The inventory file is searched for items that have fallen to their reorder}

points

o _{A record is entered in the purchase requisition file for each item to be}

replenished

o _{Requisitions are consolidated according to vendor number}

o _{Vendor mailing information is retrieved from the valid vendor file} o _{Purchase orders are prepared and added to the open PO file}

o _{A transaction listing of POs is sent to the purchasing department for}

Receiving Department

The following tasks are performed automatically by the system

o _{Quantities of items received are matched against the open PO record,}

and amount is placed in the logical field to indicate the receipt of inventories

o _{A record is added to the receiving report file}

o _{The inventory subsidiary records are updated to reflect the receipt of}

the inventory items

o _{The general ledger inventory control account is updated}

o _{The record is removed from the open PO file and added to the open AP}

Cash Disbursements Department

The following cash processing tasks are performed automatically by the system

o _{The due date fields of the AP records are scanned for items due to be}

paid

o _{Cheques are automatically printed, signed and distributed to the mail}

room for mailing to vendors

o _{The payments are recorded in the cheque register file}

o _{Items paid are transferred from the open AP file to the closed AP file} o _{The general ledger AP and cash accounts are updated}

o _{Reports detailing these transactions are transmitted via terminal to the}

AP and cash disbursements departments for management review and filing

Production Methods

o _{Continuous processing}

o _{Make-to-order processing} o _{Batch processing}

Batch Processing

Consists of 4 basic processes

o _{Plan and control production}

o _{Perform production operations} o _{Maintain inventory control}

Batch Processing Documents

o _{The production schedule} o _{The bill of materials (BOM)} o _{A route sheet}

o _{The work order} o _{A move ticket}