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CHAPTER 1
ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1.1

The value of information is the difference between the benefits realized from using that
information and the costs of producing it. Would you, or any organization, ever produce
information if its expected costs exceeded its benefits? If so, provide some examples. If not,
why not?
Most organizations produce information only if its value exceeds its cost. However, there are two
situations where information may be produced even if its cost exceeds its value.
a. It is often difficult to estimate accurately the value of information and the cost of producing
it. Therefore, organizations may produce information that they expect will produce benefits
in excess of its costs, only to be disappointed after the fact.
b. Production of the information may be mandated by either a government agency or a private
organization. Examples include the tax reports required by the IRS and disclosure
requirements for financial reporting.

1.2

Can the characteristics of useful information listed in Table 1-1 be met simultaneously? Or
does achieving one mean sacrificing another?
Several of the criteria in Table 1.1 can be met simultaneously. For example, more timely
information is also likely to be more relevant. Verifiable information is likely to be more reliable.
However, achieving one objective may require sacrificing another. For example, ensuring that
information is more complete may reduce its timeliness. Similarly, increased verifiability and
reliability may reduce its timeliness.
The decision maker must decide which trade-offs are warranted in a given situation.

1-1

Ch. 1: Accounting Information Systems: An Overview

1.3

You and a few of your classmates decided to become entrepreneurs. You came up with a
great idea for a new mobile phone application that you think will make lots of money. Your
business plan won second place in a local competition, and you are using the $10,000 prize to
support yourselves as you start your company.
a. Identify the key decisions you need to make to be successful entrepreneurs, the
information you need to make them, and the business processes you will need to engage
in.
b. Your company will need to exchange information with various external parties. Identify
the external parties, and specify the information received from and sent to each of them.
The author turns this question into an in-class group activity. Students are divided up in groups,
told to close their books, and given 15 minutes to:
a. Think through the business processes, key decisions, and information needs issues in their
group.
b. Identify the external users of information and specify the information received from and sent
to each of them.
One group is selected to present their answers to the class. The other groups are told to challenge
the group’s answers, provide alternative answers, and chip in with additional answers not provided
by the selected group. Since the group that presents is not selected until after the time has expired,
students are motivated to do a good job, as they will be presenting to their peers.
The value of this activity is not in arriving at a “right answer” as there are many right answers and
student answers will vary. Instead, it is in thinking through the issues presented in Table 1-2
(business processes, key decisions, and information needs) and Figure 1-1 (interactions with
external parties). Student answers should contain many of the things in Table 1-2 and Figure 1-1 as
well as others not shown, as a retail operation differs from an application development enterprise.
The author concludes the exercise by having the students turn to Table 1-2 and Figure 1-1 while he
emphasizes the need for owners, managers, and employees of organizations to identify the
information needed to make key decisions in the company’s business processes and the key
information interchanges with external parties. All of the data needed to produce this information
must be entered into the AIS, processed, stored, protected, and made available to the appropriate
users.
While this active learning activity takes more time than a lecture does, it drives the point home
much better than a lecture would. It also keeps the students more engaged in the material.

1-2

Accounting Information Systems

1.4

How do an organization’s business processes and lines of business affect the design of its
AIS? Give several examples of how differences among organizations are reflected in their
AIS.
An organization’s AIS must reflect its business processes and its line of business. For example:
•
•
•
•

•
•

1.5

Manufacturing companies will need a set of procedures and documents for the production
cycle; non-manufacturing companies do not.
Government agencies need procedures to track separately all inflows and outflows from
various funds, to ensure that legal requirements about the use of specific funds are followed.
Financial institutions do not need extensive inventory control systems.
Passenger service companies (e.g., airlines, bus, and trains) generally receive payments in
advance of providing services. Therefore, extensive billing and accounts receivable
procedures are not needed; instead, they must develop procedures to account for prepaid
revenue.
Construction firms typically receive payments at regular intervals, based on the percentage of
work completed. Thus, their revenue cycles must be designed to track carefully all work
performed and the amount of work remaining to be done.
Service companies (e.g., public accounting and law firms) do not sell physical goods and,
therefore, do not need inventory control systems. They must develop and maintain detailed
records of the work performed for each customer to provide backup for the amounts billed.
Tracking individual employee time is especially important for these firms because labor is the
major cost component.

Figure 1-4 shows that organizational culture and the design of an AIS influence one another.
What does this imply about the degree to which an innovative system developed by one
company can be transferred to another company?
Since people are one of the basic components of any system, it will always be difficult to transfer
successfully a specific information systems design intact to another organization. Considering in
advance how aspects of the new organizational culture are likely to affect acceptance of the system
can increase the chances for successful transfer. Doing so may enable the organization to take steps
to mitigate likely causes of resistance. The design of an AIS, however, itself can influence and
change an organization’s culture and philosophy. Therefore, with adequate top management
support, implementation of a new AIS can be used as a vehicle to change an organization. The
reciprocal effects of technology and organizational culture on one another, however, mean that it is
unrealistic to expect that the introduction of a new AIS will produce the same results observed in
another organization.

1-3

Ch. 1: Accounting Information Systems: An Overview

1.6

Figure 1-4 shows that developments in IT affect both an organization’s strategy and the
design of its AIS. How can a company determine whether it is spending too much, too little,
or just enough on IT?
There is no easy answer to this question. Although a company can try to identify the benefits of a
new IT initiative and compare those benefits to the associated costs, this is often easier said than
done. Usually, it is difficult to measure precisely the benefits of new uses of IT. Nevertheless,
companies should gather as much data as possible about changes in market share, sales trends, cost
reductions, and other results that can plausibly be associated with an IT initiative and that were
predicted in the planning process.

1.7

Apply the value chain concept to S&S. Explain how it would perform the various primary
and support activities.
The value chain classifies business activities into two categories: primary and support.
The five primary activities at S&S:
a. Inbound logistics includes all processes involved in ordering, receiving, and temporarily
storing merchandise that is going to be sold to S&S customers.
b. S&S does not manufacture any goods, thus its operations activities consists of displaying
merchandise for sale and protecting it from theft.
c. Outbound logistics includes delivering the products to the customer.
d. Sales & marketing includes ringing up and processing all sales transactions and advertising
products to increase sales.
e. Service includes repairs, periodic maintenance, and all other post-sales services offered to
customers.
The four support activities at S&S:
a. Firm infrastructure includes the accounting, finance, legal, and general administration
functions required to start and maintain a business.
b. Human resource management includes recruiting, hiring, training, evaluating,
compensating, and dismissing employees.
c. Technology includes all investments in computer technology and various input/output
devices, such as point-of-sale scanners. It also includes all support activities for the
technology.
d. Purchasing includes all processes involved in identifying and selecting vendors to supply
goods and negotiating the best prices, terms, and support from those suppliers.

1-4

Accounting Information Systems

1.8

Information technology enables organizations to easily collect large amounts of information
about employees. Discuss the following issues:
These questions involve traditional economic cost/benefit issues and less well-defined ethical
issues.
a. To what extent should management monitor employees’ e-mail?
Generally, the courts have held that organizations have the right to monitor employees’ email.
Such monitoring can have disastrous effects on employee morale, however. On the other hand,
it might provide legitimate information about group members’ individual contributions and
productivity.
b. To what extent should management monitor which Web sites employees visit?
Students are likely to argue whether or not this should be done. One potential benefit that could
be argued is the likelihood that if employees are aware that they will be monitored they will be
less prone to surf the Web for non-work-related uses.
c. To what extent should management monitor employee performance by, for example,
using software to track keystrokes per hour or some other unit of time? If such
information is collected, how should it be used?
Arguments pro and con can be generated about the effects of such monitoring on performance
and on morale. Clearly, the specifics of any incentive schemes tied to such metrics are
important.
d. Should companies use software to electronically “shred” all traces of e-mail?
Arguments can be raised on both sides of this issue. Try to get students to go beyond the legal
ramifications of recent news stories and to explore the ethical implications of destroying
different kinds of email.
e. Under what circumstances and to whom is it appropriate for a company to distribute
information it collects about the people who visit its Web site?
Direct students to the guidelines followed by organizations that certify how various web sites
use the information they collect. Students are likely to make the argument that personal
information is inherently private and sacrosanct. To challenge that view, ask them about the
legitimacy of developing and maintaining a reputation. Doesn’t that involve the divulgence and
sharing of personal information among strangers? Ask the class if it is feasible (or undesirable)
to totally prevent or prohibit such sharing of information.
The instructor should also refer the students to Generally Accepted Privacy Principles (GAPP),
as one of its criteria concerns sharing information with 3rd parties. The instructor and the
students could read the GAPP criterion about sharing data together, and then discuss what they
think. Remind the students that GAPP is not regulatory law – just recommended best practice.

1-5

Ch. 1: Accounting Information Systems: An Overview

SUGGESTED ANSWERS TO PROBLEMS

19.1 We-Fix-Computers, Inc. provides spare parts and service for a wide variety of
computers. Customers may purchase parts to take home for do-it-yourself repairs, or they
may bring their systems in for repair, in which case they pay for both the parts and the
labor associated with the type of service required. Some services do not include any new
parts, just a labor charge for that service. Individual customers must pay for all parts
purchases in full at the time of sale. Individual customers must pay 50% down when they
bring their computers in for servicing and pay the balance at pickup. Corporate customers,
however, are billed monthly for all sales (parts or service). Although We-Fix-Computers,
Inc. has several different banking accounts, all sales are deposited intact into its main
checking account.
We-Fix-Computers, Inc. purchases its inventory of parts from more than a dozen different
vendors. Orders are usually delivered the next day; sometimes, however, suppliers ship
only partial orders. We-Fix-Computers pays for some of its purchases COD, but usually
pays by the 10th of the month for all purchases made the prior month. None of its suppliers
allows it to make installment payments.
Required
Draw an integrated REA diagram for We-Fix-Computers’ revenue and expenditure cycles.

Employees

Order Inventory

Inventory

Sales

Employee

Vendors
Customer
Service

Receive Inventory

Employees

Vendors

Disburse
Cash

Cash

Receive
Cash

19-4
© 2009 Pearson Education, Inc. Publishing as Prentice Hall

Employee

Accounting Information Systems

19.2 The Mesa Veterinary Hospital is run by Dr. Brigitte Roosevelt. She has two
employees in the office and has asked you to develop a database to help better track her
data. Dr. Roosevelt currently uses her personal computer only for word processing, but she
is interested in also using it to maintain pet histories and accounting information. She is
excited about the transition and is counting on you to help her through the process. She
describes her daily activities as follows:
When new customers come to Mesa Veterinary Hospital, the “owners” of the pets are required
to complete an introductory form. This form includes the following:
• Owner name
• Address
• Day phone
• Night phone
They are also required to provide the following information about each pet, as some people
own many pets:
• Pet name
• Breed
• Color
• Birth date
Dr. Roosevelt would like to enter this information once and then have the system retrieve it for
all subsequent visits.
When customers call to make appointments, one of the office clerks asks what kind of services
they require (e.g., is it a routine exam, a surgery, etc.). Dr. Roosevelt sees only one pet during
each appointment. If she is going to see one owner’s two pets, then two separate appointments
are necessary (but scheduled back-to-back). For each appointment, Dr. Roosevelt records the
pet’s weight, notes the reason for the appointment, and records her diagnosis. Depending on
the diagnosis, the doctor will possibly prescribe any number of medications to cure the pet.
Owners are charged $25 for each appointment and must pay additionally for any medications
prescribed for their pets. Dr. Roosevelt requires all pets to be brought back for another
examination prior to refilling any prescriptions. Customers must pay for services and
medication in full at the conclusion of their visits.
You also learn that Dr. Roosevelt orders drugs and medications from several different
suppliers. She places orders weekly, on Fridays. Suppliers usually make one shipment to
fill each order, but sometimes have to make additional shipments if they are currently out
of stock of one or more items. In such cases, they always ship the back-ordered item as soon
as they receive it from the manufacturer; they never combine such back orders with
subsequent orders by Dr. Roosevelt.
Suppliers bill Dr. Roosevelt monthly and expect payment in full by the 15th of the
following month. A few suppliers do permit Dr. Roosevelt to make installment payments.
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© 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch. 19: Special Topics in REA Modeling

The prices charged by suppliers for a given product may change several times during the
year, so it is important to accurately store the cost of each item each time it is purchased.
Dr. Roosevelt concludes the interview by requesting that in addition to the facts mentioned,
she wants the system to store the following attributes:
• Number of pets owned by each customer
• Total charge for the appointment
• Prescription price
• Drug name
• Length of appointment
• Diagnosis
• Date of appointment
• Service requested

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© 2009 Pearson Education, Inc. Publishing as Prentice Hall

Accounting Information Systems

REQUIRED
a. Given this brief overview, draw an integrated REA diagram for the Mesa Veterinary
Hospital and include cardinalities.

Employees

Order Drugs

Drugs

Make Appointment

Employee

Customer

Services
Vendors

Employees

Perform
Examination

Receive Drugs

Pet

Employee

Vendors

Disburse
Cash

Receive
Cash

Cash

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© 2009 Pearson Education, Inc. Publishing as Prentice Hall

Customer

Ch. 19: Special Topics in REA Modeling

b. As directed by your instructor, either draw the tables necessary to implement the
integrated REA diagram you developed for the Mesa Veterinary Hospital or build the
tables in a relational DBMS to which you have access. Be sure to include all attributes from
the narrative plus the additional ones explicitly listed by Dr. Roosevelt at the conclusion of
the interview. Create additional attributes only if necessary.
Table
Primary Key
Other Attributes (foreign keys in italics)
Services
Service number
Name, standard cost, list price, standard time to
perform
Drugs
Drug number
Drug name, standard cost, list price, beginning
quantity-on-hand
Cash
GLAccount number
Bank name, type of account, beginning balance
Make
Appointment number
Date, Reason for visit, employee number, customer
Appointment
number, pet number
Perform Exam Exam number
Date, Pet number, time started, time completed,
scheduled time, diagnosis, total charge,
receipt_number, weight, appointment number
Receive Cash
Receipt number
Date, amount, customer number, employee
number, GLAccount number
Pets
Pet number
Pet name, breed, color, birth date, customer
number
Customers
Customer number
Customer name, address, day phone, night phone,
number of pets owned
Employees
Employee number
Name, date hired, salary
AppointmentAppointment number
Services
Service number
AppointmentAppointment number
Exam
Exam number
Drugs-Exams
Drug number
Dosage, actual cost, actual price
Exam number
Vendor
Vendor number
Name, address, account balance
Order Drugs
Purchase order
Vendor number, employee number, date, amount
number
Receive Drugs Receiving report
Vendor number, employee number, purchase order
number
number, date, vendor invoice
Disburse Cash Check number
Vendor number, employee number, GL Account
number, amount, description, date
Order DrugsPurchase order
Quantity, unit cost
Drugs
number, Drug number
Receive Drugs- Receiving report
Quantity received, condition
Drugs
number, Drug number
Receive Drugs- Receiving report,
Amount applied to invoice
Disburse Cash Check Number

19-8
© 2009 Pearson Education, Inc. Publishing as Prentice Hall

Accounting Information Systems

19.3 Your university hires you to implement a database system for the library network.
You have interviewed several librarians, and the following summarizes these discussions:
• The library’s main goal is to provide students and professors with access to books and
other publications. The library, therefore, maintains an extensive collection of materials
that are available to anyone with a valid university identification card.
• The standard procedure for lending materials is that the student or faculty member
comes to one of the three campus libraries and locates the book or journal on the shelves.
• Each book is assigned three unique numbers. First, the book is assigned a number by the
publisher, called the International Standard Book Number (ISBN). This number allows the
publishers to track each title and the number changes with each new edition. The second
number is the Dewey decimal number, which is assigned to the title and written on the
outside spine of the book. This number is used to organize the library shelves and is thus
helpful to the students and faculty. It is therefore critical that this number be available to
users on the online inquiry screens. The last number is a university book ID number. A
different number is assigned to every book that is received so the library can track all
copies of each book. This number is different from the other two numbers such that if the
library has three copies of one book, each will have a unique university book ID number.
• When students or faculty check out books, the system must be able to track the specific
copy that is being borrowed. Each book has a magnetic strip inserted in its spine, which is
used as a security measure. If someone tries to take a book without checking it out, an
alarm sounds.
• In general, students and faculty have equal clout in the library. Both are able to check
out most books and to check out several books at one time. No one is allowed to remove
periodicals from any library. The length of time that the book may be borrowed varies,
however, depending on who checks it out. Students are allowed to check out a book for
several weeks; faculty may borrow books for several months.
• When patrons check out books, they take their materials to the circulation desk. At that
time, the librarian scans in each item’s university book ID number and the borrower’s ID
number. The system records a separate loan event for each book being checked out,
assigning each a separate loan number. At this time, each book’s due date is calculated and
marked on a slip located inside each book’s front cover. Simultaneously, the magnetic strip
is deactivated so the book may be removed from the library.
• After borrowers check out a book, they are expected to return it by its due date. In
reality, everyone is allowed 30 days after the due date recorded on the checkout slip before
the book is officially overdue. At that point, the book must be returned, and the borrower
is assessed a $10 fine. If the book is permanently lost, then the borrower is fined $75 for the
book’s replacement. All fines must be paid in cash, in full. Students are not allowed to
enroll for subsequent semesters until all library fines are paid; they also do not receive a
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Ch. 19: Special Topics in REA Modeling

diploma until all library fines are paid. Faculty must pay all outstanding fines by June 30
of each year.
• When a book is returned, the return must be entered into the system, and a unique return
number is used to log the transaction. At that time, the loan record is updated to show that
the book has been returned.
The following attributes have been identified as critical for the new system:
• University book ID
• Book publisher
• Due date
• Loan number
• Checkout date
• Borrower phone number
• Cash account number
• Librarian name
• Book status (on the shelf or checked out)
• Type of borrower (faculty or student)
• Librarian college degree
• Actual return date
• Borrower ID
• Borrower name
• Book title
• Fine receipt number
• Amount received
• Library name
• Amount of fine
• Default library where book is shelved
• Borrower’s fine balance owed
• ISBN number
• Book return number
• Dewey decimal number
• Borrower address
• Book copyright date
• Borrower e-mail address
• Library borrowed from
• Librarian number
• Account balance
• Total number of books in a specific library
• Loan status (still outstanding, or returned)
• Author name

19-10
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Accounting Information Systems

REQUIRED
a. Draw an REA diagram for the library system. Remember to include cardinalities.

REA diagram solution.

Cash
Employee

Receive Fine

Borrower
Library

Loan Book

Employee
Books

Employee

Book Return
Book Titles

Borrower

Authors

Library

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Ch. 19: Special Topics in REA Modeling

Explanation of cardinalities:
1. One key to the problem is understanding that the Loan Book event represents the
checking out of a single book. As stated in the problem, if a borrower checks out 5 books,
the system adds five rows to the Loan Book table. This does not affect the borrower’s
checkout experience at all.
2. Another important fact is realizing that books have multiple authors.
3. One final important fact involves recognizing the distinction between physical books and
book titles. If the library has five copies of the same book title, it wants to track the status
of each individual physical copy. But, a great deal of information about publisher,
copyright, etc. is not affected by how many copies the library owns. Therefore, it is more
efficient to create a separate entity called book title, to store this constant information.
4. The cardinality from Receive Fines to Loan Book is (1,N) because a loan has to occur
prior to a fine being paid, but one cash receipt may pay for fines associated with a
number of different loans. The cardinality from Loan Book to Receive Fines is (0,N)
because many loans never result in fines, but some loans result in multiple fines ($10 late
fee, $75 replacement fee).

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Accounting Information Systems

b. As directed by your instructor, either create the tables on paper that would be
required to implement your REA diagram or actually build those tables in a
relational DBMS to which you have access. Only use the attributes listed, unless
others are absolutely necessary.
Problem 19-3, part b. Table solution
Table

Primary Key

Library
Books

Library name *
University Book ID

Book Title

ISBN#

Author
Book TitleAuthor
Loan Book

Author number
Author number
ISBN#
Loan number

Book Return

Book return number

Cash
Receive Fine

Cash account number
Fine receipt#

Employee

Librarian#

Borrower

Borrower ID

Fine-Loan

Fine receipt#
Loan number

Other Attributes (foreign keys in
italics)
Number of books
Book status, ISBN#, default library
shelved at
Publisher, copyright date, Dewey
Decimal number
Name

Due date, University Book ID, Borrower
ID, loan status, library borrowed from,
librarian #, date checked out
University Book ID, Loan number,
library name, return date, borrower ID,
librarian #
Beginning account balance
Amount received, cash account#, library
name, librarian #, borrower ID
Name, College degree, YTD loans
processed
Name, address, email, SSN, fine balance
owed, phone number
Amount of fine

* Library name can be the primary key because it is created by the library system and, therefore,
guaranteed to be unique for each library.

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Ch. 19: Special Topics in REA Modeling

19.4 The XYZ Company sells tools and parts to automotive repair shops. Shops call in
orders; all orders received by noon are delivered the same day. Between 12:00 and 1:00,
the system prints out schedules. From 1:00 to 5:00, drivers make deliveries according to the
printed schedules. Typically, each driver makes between 25 and 30 deliveries each day.
Each delivery is signed for by a repair shop manager; the portable laptop then uses
wireless communications to transmit information about the delivery back to the XYZ
Company and the information is recorded as another row in the sales event table. The XYZ
Company uses its own trucks to make local deliveries to its customers. It wants to track
information about the use of those trucks: which employee drove which truck, to which
customers did a particular truck make deliveries, which deliveries are made on which days,
what was the starting and stopping mileage each day?
REQUIRED
a. Draw a partial REA diagram of the XYZ Company’s revenue cycle to model these
events: Taking Customer Orders, Deliveries, and the Use of Vehicles. Be sure to
include cardinalities.

Inventory

Truck

Take Order

Employee

Delivery

Customer

Use of Vehicle

Employee

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Accounting Information Systems

b. Create a set of tables (either on paper or in a relational DBMS to which you have
access) to implement the REA model you developed for the XYZ Company.

Table Name

Primary Key

Take Order

Order Number

Delivery

Delivery Number

Use of Vehicles

Vehicle Use Number

Inventory

Item Number

Truck
Employee
Customer

Truck Number
Employee Number
Customer Number

Other Fields(foreign keys in italics,
others in normal font)
Customer Number, Employee Number,
Amount
Order Number, Vehicle Use Number,
Truck Number, Employee Number,
Customer Number
Employee Number, Truck Number,
Depart Time, Return Time
Description, Quantity, List Price, Unit
Cost, Beginning Quantity On Hand,
Reorder Quantity, Reorder Point
Type, Description
Name, Address, Position, Pay Rate
Name, Address, Phone, Beginning
Account Balance, Credit Limit
Quantity

Take OrderOrder Number, Item Number
Inventory
Delivery-Inventory Delivery Number, Item Number Quantity

19.5 Assume that Stained Glass Artistry, a new shop that specializes in making stained
glass artwork, has hired you to design an integrated database that will provide the owners
with the accounting information they need to effectively manage the business. Stained
Glass Artistry makes a wide variety of stained glass windows for sale in its store.
A unique job order is assigned to each production run, which includes creating multiple
copies of the same basic design. When raw materials are issued to employees, the issuance
is documented on a prenumbered raw material issue form. The different kinds of glass
needed for the product, and other materials such as copper foil or lead, are issued at one
time, so that employees can efficiently produce the design.
Creating a piece of stained glass art involves several different steps, including cutting,
foiling, and soldering. The owners want to track how much time each employee spends
each day performing each of those various tasks.
The owners have developed raw material and direct labor standards for each design they
offer. They want their AIS to track actual costs and standard costs so that they can
generate reports that provide price and quantity variance information.
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Ch. 19: Special Topics in REA Modeling

The owners also have provided you with the following list of facts that they want
stored in the database. (Note: You must create appropriate primary keys for each table;
this is the list of other attributes.) Attributes in Standard Glass Artistry AIS:
• Date hired
• Time started task
• Time completed task
• Style of glass (name or description)
• Quantity on hand
• Color of glass
• Quantity to be produced
• Actual cost of design
• Design name
• Standard quantity of glass use in design
• Quantity issued
• Standard hours to make design
• Standard cost of design
• Date design produced
• Date of birth
• Wage rate
• Employee name
• Standard cost of glass

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Accounting Information Systems

REQUIRED
a. Draw an integrated REA diagram for Stained Glass Artistry. Include both minimum
and maximum cardinalities.
Raw Materials
Inventory

Bill of Materials

Employee
(Inventory Control)

Issue Raw
Materials

Employee
(Factory)

Work in Process

Employee
Services

Perform Job
Operations

Finished Goods
Inventory

Labor Standards

Explanation of cardinalities:
a) Each row in the Bill of Materials table represents the standards for using one specific
raw material to produce one specific finished good design. Therefore, every row in
the Bill of Materials table is linked to one and only one row in the finished goods
table. A finished good, however, may consist of numerous raw materials and,
therefore, be linked to many rows in the Bill of Materials table.
b) Each row in the Labor Standards table represents the standards for making a
particular design. Thus, each such standard is linked to one, and only one, finished
good. A finished good, however, may involve several different labor activities and,
therefore, be linked to multiple rows in the labor standards table.
c) Jobs consist of making one or more copies of a specific design. Therefore, each Work
in Process is linked to one and only one finished good. Each finished good, however,
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Ch. 19: Special Topics in REA Modeling

d)
e)

f)
g)

may be produced many different times and, therefore, can be linked to multiple rows
in the Work in Process table.
All raw materials are issued at one time; thus, the relationship between Raw Materials
Inventory and Issue Raw Materials is M:N.
Sometimes there may be a need to obtain additional raw materials, due to breakage.
Therefore, each Work in Process job may be linked to multiple Issue Raw Materials
events. Each event, however, is linked to one, and only one, specific job.
Each specific job operation is linked to one, and only one, Work in Process, but any
given Work in Process job can be linked to many different labor operations.
The Employee Services entity is an abstract entity that represents the time acquired
from various classes of employees. It will be discussed in chapter 14. For now, just
explain that each row represents all the time the company acquires from a specific
class of employees (artisans, clerks, management, etc.)

b. Create the set of relational tables required to implement your REA diagram for Stained
Glass Artistry in a relational database.

Table Name
Raw Materials
Employee
Employee Services
Bill of Materials

Issue Raw Materials

Primary Key(s)
Raw Material
number
Employee number
Category number
B.O.M. number

Work in Process

Raw Materials Issue
number
W.I.P. number

Perform Job
Operation

Job Operation
number

Finished Goods
Inventory
Labor Standards

Design number

Raw Materials –
Issue Raw Materials

Bill of Materials –
Issue Raw Materials

Labor Standard
number
Raw Material
number
Raw Materials Issue
number
B.O.M. number
Raw Materials Issue
number

Other Attributes (foreign keys in italics,
others in normal font)
Style of glass, beginning quantity on hand,
color of glass, standard cost of glass
Name, date hired, wage rate, date of birth
Raw materials number, design number,
Standard quantity of glass to use in this
design
W.I.P. number, issuing employee number,
receiving employee number
Design number, Quantity to be produced,
date design produced, actual cost of
design
Employee number, category number,
labor standard number, W.I.P. number,
Time started task, time completed task
Design name, beginning quantity on hand,
standard cost of design
Design number, Standard hours to make
design
Quantity issued

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Accounting Information Systems

19.6 Bernie’s Pet Store sells pet food, toys, and supplies. Bernie, the owner, is the only
person who places orders with suppliers. He is also the only person who writes checks.
Suppliers ship each order individually; if they are out of an item, they back order it and
ship it separately as soon as it arrives. Bernie pays each supplier monthly for all purchases
made the previous month. Suppliers do not allow him to make installment payments.
Bernie has eight employees, each of whom can check in materials received from suppliers
and sell merchandise to customers. Bernie pays his employees weekly from a separate
checking account used only for payroll purposes.
All sales are made in-store and are paid for immediately by cash, check, or credit card.
When employees are not working the cash register or checking in merchandise, they
restock shelves and clean up the premises. Bernie does not want to track each individual
restock or clean-up event, but does want to know how much time each employee spends
each day doing those tasks. He also wants to track how much time each employee spends
each day receiving inventory and how much time they spend working at the cash register.
He wants to be able to write queries that would show time spent by job task (restocking,
cleaning, receiving, or sales) for each employee. It is not practical, however, to try to
measure the time spent on individual tasks (e.g., Bernie does not want employees to track
the time they start and finished unloading a shipment from supplier X, then repeat for
supplier Y; similarly, he does not want to track how long it takes to ring up each individual
customer at the cash register). All he wants is to know how much time each day (e.g., 3.75
hours) each employee spent performing each different type of job.
REQUIRED
Draw an integrated REA diagram for Bernie’s Pet Shop. Be sure to include both payroll
processing and the ability to track how employees use their time.

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Ch. 19: Special Topics in REA Modeling

Employees
(Bernie)

Order Inventory

Inventory

Sales

Employee

Vendors

Receive Inventory

Customer

Employees

Vendors

Disburse
Cash

Cash

Receive
Cash

Get Employee
Time

Employee Time

Use Employee
Time

Employee

Employees

Employees
(Bernie)

Employees

Explanation of cardinalities in Bernie’s pet store:
a) Checks may be written to either suppliers or to employees. One table can be used for
both types of checks. The primary key of that table would be a concatenated key
consisting of two attributes: check number and account number. (The latter attribute
distinguishes operating checks from payroll checks). Since a check may go to either a
vendor or an employee, the minimum cardinalities from the disburse cash event to those
agents are zero.
b) Bernie pays employees weekly. Each day an employee works a new row is created in the
Get Employee Time table. Each row thus represents a daily time card. Therefore, each
paycheck is linked to many rows in the Get Employee Time event.
c) The Employee Time resource represents the time acquired from various classes of
employees. Since any one employee only falls into one category (i.e., full-time, parttime, management), each daily time card (row in the Get Employee Time table) can be
linked to one, and only one, row in the Employee Time resource.
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d) The Use Employee time event is used to track how employees spend their time. A row
would be created for each block of time an employee spent performing a particular type
of task. An attribute in this table would be a text field describing what an employee did
during that block of time. For example, if the employee restocked shelves from 8:00 am
to 11:00 am, there would be one row in the Use Employee Time table for that block of
time, with the description being “restock shelves.” Similarly, if an employee worked the
cash register from 1:00 pm to 5:00 pm, there would be one entry in the Use Employee
Time table with the description being “worked cash register.” Some tasks, like working
the cash register, can be linked to specific events that Bernie wants to track, such as cash
receipts and receiving inventory. During a block of time, an employee is likely to
participate in many such events. For example, during the block of time from 1:00 to
5:00, an employee working the cash register is likely to participate in many receive cash
events. Thus the cardinality each Use Employee Time event can be linked to a minimum
of 0 and a maximum of many Receive Cash events. Any specific cash receipt, however,
is linked to one and only one employee’s use of time. Therefore, each Receive Cash
event can be linked to 1, and only 1, Use Employee Time event.
e) The Employee Time resource is shown in dashed lines because it is not likely to be
implemented in a table.

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Ch. 19: Special Topics in REA Modeling

19.7 At Big Time University (BTU) students are allowed to purchase two basketball tickets
for each home game. Each ticket contains the date of the game, and the seat information,
such as section, row, and individual seat number. Students pay for each game individually;
that is, student sporting event passes are not used at BTU. BTU deposits the proceeds from
each game into its bank.
REQUIRED
a. Prepare an REA diagram with cardinalities for the revenue cycle for BTU’s basketball
games. State any assumptions you may have to make concerning BTU’s business policies
and practices.

Ticket

Ticket Sales

Student

Ticket Window
Clerk

Cash

Receive
Cash

Student

b. Implement your model in a set of relational tables. Be sure to specify primary keys,
foreign keys, and identify at least one other attribute that should be included in each table.

Table Name
Ticket Sales

Primary Key(s)
Invoice Number

Receive Cash

Remittance Number

Ticket

Ticket Number

Student
Ticket Window Clerk
Cash

Student Number
Employee Number
GLAccount Number

Other Attributes (foreign keys in
italics, others in normal font)
Student Number, Employee Number,
Date, Total Amount
Invoice Number, Employee Number,
Student Number, GLAccount Number,
Date, Total Amount
Invoice Number, Event, Date, Section,
Row, Seat
Name, Address, Phone
Name, Address, Phone, Position
Name, Beginning Balance

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19.8 Small contractors often rent special equipment for specific jobs. They need to track
the equipment that is rented, when it is returned, and payments made to the rental
company.
REQUIRED
a. Draw a partial REA diagram for the acquisition, payment, and return of rental
equipment. Be sure to include cardinalities and state any assumptions you made
when specifying those cardinalities.

Rented
Equipment

Cash

Return
Rented
Equipment

Employee

Rent
Equipment

Vendor

Disburse
Cash

Employee

This solution is based on the following assumptions:
1. Each Rent event is independent of every other Rent event. For example, each time the
contractor rents equipment, they must sign a rental agreement or contract for all the
equipment they rent at that particular time.
2. Each Return Rented Items event is tied to one and only one Rent event. In other words,
all equipment rented according to a previously signed rental agreement is returned at the
same time.
3. The contractor pays for the rental at the time of Rent event.
4. The contactor maintains a listing of all types of equipment that they rent. This listing
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Ch. 19: Special Topics in REA Modeling

allows the contractor to rent multiple items of the same type. For example, the contractor
may rent 5 jackhammers and 5 air compressors in a single Rent event. Thus, many rental
item types may appear on a single Rent event.
Note: An alternative solution would be to model the rental and return of each individual piece of
equipment separately. This would be appropriate if assumption 2 is relaxed and the contractor is
permitted to return each individual item at different times. This alternative solution would be
modeled similar to Figure 19-3.You may want to explore the effects of these two alternative
solutions on both the processing of events and the subsequent generation of queries and reports.

b. Create a set of tables (either on paper or in a relational DBMS to which you have
access) to implement the REA model you developed.
Table Name
Rented Equipment
Cash
Return Rented Items

Primary Key
Equipment number
GL Account Number
Return number

Rent Equipment

Rental number

Disburse Cash

Check number

Employee
Vendor

Employee number
Vendor number

Rented Equipment – Rent
Equipment
Rented Equipment – Return
Rented Items

Equipment number, rental
number
Equipment number, return
number

Other attributes (foreign keys)
Description,
Name, beginning balance
Date, time, vendor number,
employee number, rental
number
Date, time, vendor number,
employee number
Date, amount, GL Account
number, Employee number,
Vendor number
Name, date hired, pay rate
Name, address, beginning
balance
quantity
quantity

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SUGGESTED ANSWERS TO THE CASES
Case 19.1
This case involves creating a database from an integrated REA diagram and
then using the REA diagram to guide the writing of queries to prepare financial
statements.
Required
a. Create the tables necessary to implement Figure 19-9 in a relational database. Be sure to
include primary keys and other relevant attributes in each table.

Table Name
Customer

Primary Key(s)
Customer number

Employee

Employee number

Take Customer Order

Sales Order Number

Sales

Invoice Number

Receive Cash

Remittance Number

Finished Goods
Inventory
Work in Process

Item Number

Use Equipment

Machine Operation Number

Equipment Operations
List
Job Operations List
Use Employee Time

Machine Operation List
Number
Job Operations List Number
Job Ticket Number

Bill of Materials

Bill of Materials Number

Raw Materials

Raw Material Number

Issue Raw Materials

Raw Materials Issue
Number

W.I.P. Number

Other Attributes (foreign keys in
italics, others in normal font)
Name, address, phone, beginning
account balance, credit limit
Name, date hired, wage rate, date of
birth, position
Customer number, employee number,
date, total amount
Customer number, employee number,
sales order number, Item Number,
date
Customer number, employee number,
GLAccount number,Invoice Number
date, amount
Name, Description, beginning quantity
on hand, standard cost, list price
Item Number, Quantity to be
produced, date design produced
Equipment ID number, W.I.P. number,
Machine Operation List number, Time
Started, Time Finished, Date
Item number, standard time
Standard time, Item number
Description, Time started, Time
Finished, Date, Employee Number,
WIP Number, Job Operations List
Number
Raw materials number, item number,
Standard quantity used in this design
Description, beginning quantity on
hand, standard cost
W.I.P. number, issuing employee
number, receiving employee number,

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Ch. 19: Special Topics in REA Modeling

Suppliers

Supplier Number

Equipment

Equipment ID Number

Acquire Services

Service Acquisition number

General and
Administrative Services
Cash
Time Worked

GLAccount Number

Order Raw Materials
and Equipment
Receive Raw Materials
and Equipment
Disburse Cash

Purchase Order Number

Issue Stock

Issuance Number

Issue Debt

Loan Number

Transfer Agent
Customer Order –
Finished Goods
Sale – Receive Cash

Transfer Agent Number
Order Number, Item
Number
Invoice Number, Receipt
Number
Purchase Order Number,
Raw Materials Number

Order Raw Materials
and Equipment – Raw
Materials
Receive Raw Materials
and Equipment – Raw
Materials
Receive Raw Materials

GLAccount Number
TimeCard Number

Receiving Report Number
Check Number

Raw Material Number
Name, Address, Phone, Beginning
balance
Description, Cost, Depreciation
Method, Useful Life, Salvage Value,
Year Acquired, Purchase Order
number, Receiving report number
Description, Cost, Check number,
supplier number, employee number,
GL Account number
Description, length of contract, budget
Description, beginning balance
Employee Number, Supervisor
Number, Time in, Time Out, Date,
Check number
Date, employee number, supplier
number, equipment ID number
Date, supplier number, equipment ID
number
GLAccount Number, Date, Amount,
Purpose, Employee (payee) Number,
Supplier Number, Cashier number,
Stock issuance number, Loan number,
Transfer Agent Number
Date, Transfer Agent Number,
Employee (Treasurer) number,
GLAccount number, Number of
Shares, par value
Amount, Date, Interest rate, term,
Transfer Agent number, employee
(Treasurer) number, GLAccount
number
Name, Address, Phone
Quantity ordered, unit sales price
Amount applied
Quantity ordered, unit cost

Receipt Number, Raw
Materials Number

Quantity received, condition

Receiving Report Number,

Amount applied to invoice

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Accounting Information Systems

and Equipment – Cash
Disbursements
Order Raw Materials
and Equipment –
Receive Raw Materials
and Equipment
Issue Raw Materials –
Raw Materials
Sales - Finished Goods
Inventory
Employees – Receive Raw
Materials and Equipment

Check number
Purchase Order number,
Receiving Report number

Raw materials number,
Issue Raw Materials
Number
Invoice Number, Item
Number
Employee number,
Receiving Report Number

Quantity issued

Quantity sold

b. Write the query, or set of queries, necessary to generate as many elements of
financial statements as possible. For example, write the query or set of queries that
would be used to calculate the amount of cash on hand, the total of accounts
receivable, the total value of raw materials, inventory on hand, etc.
The actual syntax will depend on the software used. The following logic describes the
queries that can be used to provide most of the information needed to construct a simple
income statement and balance sheet:
1. To derive total sales you need to query three tables: Take Customer Order, Take
Customer Order – Finished Goods Inventory, and Sales. First, find the set of
customer order numbers that have been realized as sales (i.e., all customer order
numbers that appear in the Sales table). Then, for that set of customer orders,
query the M:N relationship table between Take Customer Orders and Finished
Goods Inventory and sum the product of quantity ordered times unit sales price.
2. To derive total actual Cost of Goods Sold requires assumptions about inventory
costing method (LIFO, FIFO, etc.). However, it is straightforward to calculate the
standard cost of goods sold as follows: query the Finished Goods Inventory, the
M:N relationship table between Finished Goods and Take Customer Order,
Customer Orders, and Sales. First, find the set of customer order numbers that
have been realized as sales (i.e., all customer order numbers that appear in the
Sales table). Then, for that set of customer orders, query the M:N relationship
table between Take Customer Orders and Finished Goods Inventory and the
Finished Goods Inventory tables and sum the product of quantity ordered times
standard cost per unit.
3. Only three expenses can be calculated from the model: wages, general
administrative expenses, and depreciation.
a. To calculate wages expense: Sum hours worked (from the Time Worked
entity) and group by employee number. Then multiply the total hours
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Ch. 19: Special Topics in REA Modeling

worked for each employee by that employee’s payrate (found in the
Employees table).
b. To calculate general administrative expenses, sum the cost column in the
Acquire Services table.
c. The Equipment table contains all the information needed to calculate
depreciation (acquisition cost, useful life, depreciation method, salvage
value, and year acquired).
4. To calculate cash balance first retrieve the sum of the beginning balance attribute
from the Cash table. Second, sum the amount column in the Receive Cash, Issue
Stock, and Issue Debt tables and add those three numbers to the beginning
balance. Then sum the amount in the Disburse Cash table and subtract that from
your previous total.
5. To calculate accounts receivable begin by computing the sum of the beginning
balance attribute from the customers table. Next, add to that the total amount of
sales (see step 1). Then, subtract the sum of the amount column in the Receive
Cash table.
6. It is straightforward to calculate the standard cost of ending inventory using the
standard unit price. Calculating the actual cost of ending inventory is complex,
requiring retrieval of information from many tables and assumptions about the
costing method (FIFO, LIFO, Weighted Average).
7. The equipment table has the cost of all equipment. Cumulative depreciation can
be calculated from the information in the table and that amount subtracted from
cost to yield book value.
8. Accounts payable can be calculated as follows.
a. Begin by retrieving the sum of the beginning balance attribute from the
suppliers table.
b. Then calculate the total of all purchases.
i. For equipment, this involves summing the cost attribute for all
rows in the equipment table linked to a Receive Raw Materials and
Equipment event this fiscal period.
ii. For raw materials, this involves several steps. Begin by finding the
set of raw materials orders that are linked to receive events this
period. Then query the Order Raw Materials and Equipment – Raw
Materials M:N table and sum the product of quantity ordered times
unit cost.
iii. For services, this equals the sum of the cost column in the Acquire
Services table for all rows in which the check number is null.
c. Then calculate payments to suppliers by summing the amount attribute in
the Disburse Cash table for all rows that are linked to suppliers.
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d. Accounts payable = step a + step b – step c
9. Long term debt can be calculated by summing the amount column in the Issue
Debt table.
10. The total par value of common stock can be calculated by summing the product of
par value times number of shares.

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CHAPTER 20
INTRODUCTION TO SYSTEMS DEVELOPMENT; SYSTEMS ANALYSIS
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
20.1 The approach to long-range AIS planning described in this chapter is important for large
organizations with extensive investments in computer facilities. Should small organizations
with far fewer information systems employees attempt to implement planning programs?
Why or why not? Be prepared to defend your position to the class.
Yes, companies with few IS employees should attempt to implement planning programs. This is
particularly true if the company or its computer usage is growing. The extent of the planning
should be commensurate with the size of the computer facility, reliance on system information, and
the potential value of the company’s system.
Planning produces benefits even if the planning effort is minimal. In the smallest facility, the plan
may consist simply of a few pages of thoughts and projects that are prepared and reviewed
periodically by the person in charge of the system. It could also consist of a bare bones cost-benefit
analysis.
A smaller company will typically have fewer funds than a large company will. Therefore,
inadequate planning can be more disastrous and financially draining for small companies.

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Accounting Information Systems

20.2 You are a consultant advising a firm on the design and implementation of a new system.
Management has decided to let several employees go after the system is implemented. Some
have many years of company service.
•

Tell employees what is going to happen to them as soon as possible.

•

Institute a hiring freeze so staff can be reduced by attrition.

•

Retrain displaced employees for other jobs.

•

Offer early retirement to older employees.

•

Offer retirement incentives.

•

Offer displaced employees comparable positions in other divisions of the company.

•

Hire a personnel-consulting firm to help displaced employees find alternative employment.

•

Train displaced employees for positions in the new system.

•

Encourage part-time work or job-sharing.

How would you advise management to communicate this decision to the affected employees?
To the entire staff?

•

The communication should be direct, so that the employees are the first to find out and are not
subject to the whims of rumors and uncertainty.

•

The communication should be prompt so the employees have sufficient time to seek other jobs.

•

Management should offer as much employee assistance as possible to help them find new jobs.
This includes recommendations from supervisors, priority consideration for other jobs in the
firm, opportunities for positions in the new system, time off to search for a new job, and
severance pay.

While these actions may be costly, they will provide benefits (cooperation, improved morale in the
remaining employees, etc.) that will likely exceed the costs.

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Accounting Information Systems

20.3 While reviewing a list of benefits from a computer vendor’s proposal, you note an item that
reads, “Improvements in management decision making—$50,000 per year.” How would you
interpret this item? What influence should it have on the economic feasibility and the
computer acquisition decision?
The item cannot be properly interpreted without further information from the computer vendor,
such as what decisions, made by which managers, are they referring to? How will the decisions be
improved by the system? Unless you get very specific answers that support the calculations, the
item should be ignored when making the computer acquisition decision.
Usually, a computer system will help management make better decisions. However, these
decisions do not always result in a direct cost savings. The economic feasibility study should only
include costs that can be directly determined. In addition to an economic feasibility study,
qualitative factors, like better decision-making, should be considered. In many instances, these
non-quantifiable benefits may be the most important or the majority of the benefits. Even though
they are subjective and are surrounded by uncertainty, they must be considered.

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Accounting Information Systems

20.4 For each of the following, discuss which data-gathering method(s) are most appropriate and
why:

Examining the adequacy of internal controls in the purchase requisition procedure Observation of procedures, interviews with employees, and documentation reviews (of
document or control flowcharts, for example) will all aid in understanding purchase
requisition procedures. Each type of procedure will identify different aspects of the internal
controls in the purchasing department.

b. Identifying the controller’s information needs - An in-depth interview with the controller
is one way to determine her information needs. However, managers often don’t know what
information they need; they say they need the information they are now getting and little else.
Therefore, the interviewer/analyst must understand the manager’s function and the role of
that function in the organization. The interviewer should also ask the controller what
information she would like to receive that she is not now receiving. Interviewing is an
efficient fact-finding technique that allows a prepared and informed interviewer to ask "why"
or probing questions to better identify the controller's needs.
Reviewing the reports that the controller currently receives is also a good way to identify her
needs.
c.

Determining how cash disbursement procedures are actually performed - If the cash
procedures are documented, a review of that documentation will help understand how it is
supposed to work. The best way to understand how cash disbursement procedures are
actually performed is to interview employees, observe them, and prepare flowcharts and
notes.

Surveying employees about the move to a total quality management program - By using
a questionnaire, the opinions of many different employees can be gathered. Questionnaires
also produce information in a standardized format. A questionnaire allows employees to
think about the questions before giving answers and it is more objective than other data
gathering methods. Anonymous questionnaires will encourage employees to give honest
answers.
Questionnaires produce a "breadth" but not a "depth" of information. To go beyond the
questions in the questionnaire, interviews should be held with selected employees. The
purpose of the interviews is to probe deeper to find out why employees feel as they do.

Investigating an increase in uncollectible accounts - Interviews with employees and
examination of documents will provide good initial sources of information to investigate the
problem. Documents will show which accounts are uncollectible and help with an
understanding of the company's collection policies. Interviews will help determine why
uncollectible accounts have increased.

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Accounting Information Systems

20.5 The following problem situations occurred in a manufacturing firm. What questions should
you ask to understand the problem?
Customer complaints about product quality have increased.
•

What is it, specifically, that customers are complaining about?

•

Has anything happened to change product quality during the past few years?

•

Is poor product quality the result of:

•

Poor quality raw materials?

•

Inadequate product specifications? If so, can they be altered to improve quality?

•

Low employee morale?

•

Changes in production procedures?

•

Other possibilities for poor quality

Does the company have a total quality management (TQM) program? Should they?

Accounting sees an increase in the number and dollar value of bad debt write-offs
•

Has the company recently changed its credit policy? If so, why?

•

Are certain customer groups more delinquent than others are?

•

What collection procedures does the company employ? Are they adequate? If not, why not?

•

Are early payment discounts and late payment penalties adequate?

•

Are current economic conditions affecting delinquency rates?

Operating margins have declined each of the past four years due to higher-than-expected
production costs from idle time, overtime, and reworking products
•

Does the production scheduling system perform satisfactorily? If not, why not?

•

Are there delays in receiving materials? If so, why? What are the current policies for
handling the receipt of raw materials?

•

What causes the overtime problem? Increasing sales, understaffed lines, inefficient workers?

•

Is product rework caused poor employee performance, poor quality materials, poor
production process, etc.?

•

What economic conditions are affecting production costs?

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Accounting Information Systems

20.6 Give some examples of systems analysis decisions that involve a trade-off between each of the
following pairs of objectives:
There are many examples of the tradeoffs between information system objectives. One example is
provided here for each pair of objectives.
a.

economy and usefulness - the decision of how much information to give a credit manager to
help in deciding whether to extend credit versus the cost of providing that information.

economy and reliability - the decision of whether to implement a new internal control
procedure.

economy and customer service - the decision of whether or not to allow sales personnel to
access data versus the cost of providing that information and the cost of the information being
used for unintended purposes.

simplicity and usefulness - any decision about the extent to which output information should
be reported in detail or in summarized form.

simplicity and reliability - any decision about whether or not to implement an internal
control procedure.

economy and capacity - the decision of whether to acquire additional storage capacity.

economy and flexibility - the decision to replace older, less flexible storage mediums with
newer, more flexible, and often more costly storage mediums.

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Accounting Information Systems

20.7 For years, Jerry Jingle’s dairy production facilities led the state in sales volume but recent
declines worry him. Customers are satisfied with his products but are troubled by the dairy’s
late deliveries and incomplete orders. Production employees (not the cows) are concerned
about bottlenecks in milk pasteurization and homogenization due to poor job scheduling, mixups in customers’ orders, and improperly labeled products. How should Jerry address the
problems? What data-gathering techniques would be helpful at this early stage?
Jerry could install an information system that coordinates job scheduling, tracks customer orders,
and controls product labeling. The system can also help reduce bottlenecks in the milk
pasteurization and homogenization process by controlling production schedules.
It appears that Jerry has conducted an initial investigation and determined that actual problems
exist. Jerry now needs to conduct a more in-depth investigation to verify the nature of the problem
and to identify customer and the user needs.
•

The person conducting the investigation should interview the employees who process, bottle,
and deliver the milk. These employees will be able to identify what is wrong with the current
process and make suggestions for improvement.

•

Customers should also be interviewed to find out their needs, since meeting customer's needs is
the ultimate goal of the company.

•

Jerry and supervisory personnel should be interviewed to get their insights about the problems
and possible solutions.

Interviewing from the bottom up can result in better problem identification and solutions than from
the top down. Lower level employees are more likely to accept a change in the system when they
were the ones who first suggested the changes.
At this stage, Jerry and those he hires to help him will find interviewing techniques most useful in
developing a problem statement. He will also probably find observation and reviewing whatever
documentation is available to be of some use. A customer questionnaire may also produce useful
information.

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Accounting Information Systems

20.8 A manufacturing firm needed a specialized software program to identify and monitor cost
overruns. After an extensive analysis, the company purchased prepackaged software and
assigned three programmers to modify it to meet its individual circumstances and processes.
After six months of work, during final testing, the company told them to stop all work until
further notice. While reading the software vendor’s sales agreement, the manufacturing
manager found a clause stating that the software could not be changed without the prior
written consent of the vendor. The firm had to pay the software vendor an additional fee so it
could use the modified software in its manufacturing process. Which aspect(s) of feasibility
did the manufacturing firm failed to consider prior to purchasing the software.
Of the five aspects of feasibility, the manufacturing firm failed to consider legal feasibility. Legal
feasibility deals with the system’s compliance with all applicable federal and state laws,
regulations, and contractual obligations. In this particular case, the company failed to consider the
contractual obligation not to alter the software without express written consent from the vendor.

20.9 Ajax Manufacturing installed a new bar code based inventory tracking system in its
warehouse. To close the books each month on a timely basis, the six people who work in the
warehouse must scan each item in a 36-hour period while still performing their normal duties.
During certain months, when inventory expands to meet seasonal demands, the scan takes as
many as 30 hours to complete. In addition, the scanners do not accurately record some
inventory items that require low operating temperatures. A recent audit brought to
management’s attention that the inventory records are not always accurate. Which aspect(s)
of feasibility did Ajax fail to consider prior to installing the inventory tracking system.
Ajax Manufacturing failed to consider operational and technical feasibility when implementing
their inventory tracking system.
Operational feasibility considers whether the organization’s personnel can and/or will use the
system. For Ajax, the 30 hours required to scan all inventory in a 36-hour period was very difficult
on personnel and most likely led to human error in the inventory count due to fatigue.
Technical feasibility deals with whether the technology is in place for the system to work. For
Ajax, although the technology was in place and worked under normal circumstances, the scanners
did not always work in the cold conditions of Ajax’s warehouse. Therefore, the technology
sometimes failed, which resulted in inventory errors.

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SUGGESTED ANSWERS TO THE PROBLEMS
20.1 How do you get a grizzled veteran police officer who is used to filling out paper forms to use
a computer to process his arrests and casework—especially when he has little or no
experience using a computer? That was the problem facing the Chicago Police Department
when it decided to implement a relational database system. The system is capable of churning
through massive amounts of data to give officers the information they need to fight crime
more effectively.
Initially, the department rolled out the case component of the CLEAR (Citizen Law
Enforcement Analysis and Reporting) system that provided criminal history and arrest
records. The officers hated it, complaining that the system was not user-friendly, that
approval from supervisors was complex and involved multiple screens, and that they did not
feel properly trained on the system. After listening to the officers’ complaints for a year, the
department clearly had to do something. (Adapted from Todd Datz, “No Small Change,” CIO
(February 15, 2004): 66–72)
a.

Identify as many system analysis and design problems as you can.
•

Apparently, the detectives were not asked what they wanted and/or needed in the new
system. If they were asked for input, it was not adequately communicated to system
designers or it was ignored.

•

The system did not provide the service or performance the detectives wanted.

•

The detectives were not trained on the new system to their satisfaction. They did not feel
comfortable using it because they did not understand how to use it.

What could the department have done differently to prevent the officers’ complaints?
•

If the department had involved the police officers early in the planning, analysis, and
design process, they could have:
o Helped systems analysts identify what they wanted in the new system, helped design
the new system, and given constructive feedback on the new system.
o Acted as conduits or liaisons to their respective departments by communicating
suggestions from their department. They also could have acted as a champion or
supporter of the new system to their colleagues.

The Chicago Police Department recognized the problems with new systems and took steps to
improve system performance and user acceptance. They:
•

Increased the competence of their information systems group. They were a good team,
but lacked the training to manage a project of this magnitude. They recruited people with
the correct skills and experience to implement successfully the system.

•

Increased training for all IS professionals, from entry-level developers to senior
managers.

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•

Sent programmers to the field for six weeks to document the user problems and issues.

•

Instituted joint application design sessions with teams comprised of management, users,
and technical staff.

•

Used police officers to train users in the field, which made a huge difference to the cop
on the street. One officer commented, “There is a certain degree of comfort with other
police officers.”

What principles of system analysis and design were violated in this case?
• Limited or no user input
• Poor training
• Users were not part of the development team.

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20.2 Mary Smith is the bookkeeper for Dave’s Distributing Company, a distributor of soft drinks
and juices. Because the company is rather small, Mary performs all daily accounting tasks
herself. Dave, the owner of the company, supervises the warehouse/delivery and front office
staff, but he also spends much of his time jogging and skiing.
For several years, profits were good, and sales grew faster than industry averages. Although
the accounting system was working well, bottlers were pressuring Dave to computerize. With
a little guidance from a CPA friend and with no mention to Mary, Dave bought a new
computer system and some accounting software. Only one day was required to set up the
hardware, install the software, and convert the files. The morning the vendor installed the
computer system, Mary’s job performance changed dramatically. Although the software
company provided two full days of training, Mary resisted learning the new system. As a
result, Dave decided she should run both the manual and computer systems for a month to
verify the new system’s accuracy.
Mary continually complained that she lacked the time and expertise to update both systems
by herself. She also complained that she did not understand how to use the new computer
system. To keep accounts up to date, Dave spent two to three hours a day running the new
system himself. Dave found that much of the time spent running the system was devoted to
identifying discrepancies between the computer and manual results. When the error was
located, it was usually in the manual system. This significantly increased Dave’s confidence in
the new system.
At the end of the month, Dave was ready to scrap the manual system, but Mary said she was
not ready. Dave went back to skiing and jogging, and Mary went on with the manual system.
When the computer system fell behind, Dave again spent time catching it up. He also worked
with Mary to try to help her understand how to operate the computer system.
Months later, Dave was very frustrated because he was still keeping the computer system up
to date and training Mary. He commented, “I’m sure Mary knows how to use the system, but
she doesn’t seem to want to. I can do all the accounting work on the computer in two or three
hours a day, but she can’t even do it in her normal eight-hour workday. What should I do?”
This is an actual case with the facts presented as accurately as possible. The objective is to
familiarize students with the behavioral issues surrounding a systems change. It is less important to
determine the "right answer" (there may not be one) that it is to discuss the issues.
a.

What do you believe is the real cause of Mary’s resistance to computers?
Employee reaction to the installation of a new information system is often diverse and
unpredictable. In many cases, employees must make significant behavioral adjustments to
ensure the future success of the new system. These adjustments go well beyond mere surface
anxieties such as fear of the unknown. Possible causes of Mary’s resistance to computers
include (phased as questions):
•

Is Mary's adverse behavior due to a perceived need to protect her ego? Is she afraid she
cannot use the computer properly and would look foolish?

•

Since Mary was excluded from the decision to automate the office, does she feel
resentment and refuse to use a system she wasn't asked to help select?

•

Is she fearful because computers sometimes cause people to overcommunicate? (i.e.,
with capabilities such as electronic mail, employees can be reached anywhere and

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anytime, making it difficult to get away from all the interruptions that are part of the daily
grind.)

•

Is she worried that the computer will impose its own structure on the organization? The
computer can considerably narrow that freedom causing people to view the computer as
structure and constraint.

•

Did she have an adverse experience with previous changes to her work environment and
as a result is suspicious of any new system?

What events may have contributed to the new system’s failure?
•

The company did not involve Mary in the systems change. They did not ask for her
ideas, thoughts, or input. Evidently, she was not informed of the change until the
computer was moved into her office and the furniture rearranged to make room for it. It
would be easy for her to get the feeling she was not a very valued employee of the
company.

•

The company did not explain why the system was being implemented, what the company
hoped to achieve with the system, and why it was so important to the company.

•

The changes to Mary's job and responsibilities were not explained.

•

Mary was not given any assurance that she would not be replaced by the system.

•

The company did not alleviate Mary's fear by reassuring her that training would be
provided to help her adapt to the new system and her duties.

•

Running two systems longer than it took to test system reliability was a mistake, as was
having Dave do the work.

In retrospect, how should Dave have handled the accounting system computerization?
•

Mary should have been informed of the change that was going to take place, the purpose
of the change, and why it was important to the company. Discussing these things with
Mary beforehand could have helped the company create an attitude of trust and
cooperation and could have set an example for what they expected of Mary.

•

The company should have allowed Mary to make suggestions concerning the system,
especially the things that would help her do her job more efficiently.

•

Mary should be reassured that she has control over the system and not the other way
around and that the system will help her perform her job more effectively.

•

Education prior to systems implementation could perhaps have helped Mary adapt to the
system more readily.

At what point in the decision-making process should Mary have been informed?
Should she have had some say in whether the computer was purchased? If so, what
should have been the nature of her input? If Mary had not agreed with Dave’s decision
to acquire the computer, what should Dave have done?
•

Mary should have at least been informed as soon as the decision was made to purchase
the system. Preferably, Mary should have been informed at the very start when the
company began thinking about the computer system. This would have allowed Mary to
give valuable input and to be involved throughout the entire process.

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•

Because Mary was only a bookkeeper and did not fully understand the necessity of the
system, she should not have been allowed to make the final decision on acquiring the
system. However, if Mary had been involved from the beginning it is possible that she
would have been in favor of the system. Even though she should not make the final
decision, if her input had been considered it would have helped her accept the decision
better.

•

An effort should have been made to persuade her of the system's viability. If that is
unsuccessful then consideration should be given to relocating her within the company. If
both previous plans fail then termination is the only alternative available.

•

Mary should have been given an opportunity for greater input. The company should have
solicited her suggestions concerning how the system would best assist her with her job
and how the system could achieve success in general terms. This participation would
have likely increased Mary's self-esteem and security with the new system and changed
her whole outlook about the system.

A hard decision must be made regarding Mary. Significant efforts have been made to
train her, but they have been unsuccessful. What would you recommend at this point?
Should she be fired? Threatened with the loss of her job? Moved somewhere else in the
business? Given additional training?
There are advantages and disadvantages to each of the following four options. Students
will come to different conclusions based on their background. It is important to bring out the
pros and cons of each approach. A few of these are shown below. This problem works well
when the instructor determines which students support which alternative and plays them off
against each other.
1. Firing can have the following advantages:
•

The company can hire a more qualified individual who can perform the job more
efficiently.

•

The company can rid itself of an uncooperative employee and replace her with
someone with a more positive attitude.

Firing can have the following disadvantages:
•

The company sends messages to other employees and perhaps the community in
general that they don't care about their employees as much as they do about profits
and operations. This may lower company morale.

•

The firm may have higher training and hiring costs.

•

The person hired may cost more and bring unknown problems to the job.

2. Transferring employees can have the following advantages:

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Accounting Information Systems
•

The company is less likely to communicate that it does not care for its employees.

•

The transferred person has experience with the company and may be of greater value
to the company in another area than a newly hired person may.

•

Training and hiring costs remain constant.

Transferring can have the following disadvantages:
•

Employees may resent being transferred and not perform well in their new duties.

•

Employees may not be qualified for the new job and perform poorly.

•

If the transferred employee is disgruntled and talks about her situation to her
coworkers, it could affect company morale.

3. Persuasion can have the following advantages:
•

A valuable employee may be retained and her time freed up to perform tasks that are
more important.

•

Hiring and training costs can be kept to a minimum.

•

The company communicates consideration for its employees.

Persuasion can have the following disadvantages:
•

The employee may never truly adapt, resulting in poor job performance and an
increase in errors.

•

Significant costs may be incurred to constantly train the employee and identify the
mistakes made by the employee.

•

The company may make poor decisions based on incorrect information given by the
employee.

•

It may only serve to increase even further the frustration level that already exists.

Mary was eventually fired and another bookkeeper hired. With the new system, there was
not enough work to keep the new employee busy full time. Consequently, the employee took
over additional tasks that Dave had originally been performing. This freed him up for more
creative tasks and to have more personal time.
Mary was interviewed several years later. She was employed at another firm and worked
extensively with computers. Mary was asked if the company could have done anything to
help her adapt to the computer and she said no. She had such a mental block against the
computer at the time that she doubted the company could have done anything else to help her.
It required several years for her to overcome her fear and learn to use computers.

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20.3 Wright Company’s information system was developed in stages over the past five years. During the
design process, department heads specified the information and reports they needed. By the time
development began, new department heads were in place, and they requested additional reports.
Reports were discontinued only when requested by a department head. Few reports were discontinued,
and a large number are generated each period.
Management, concerned about the number of reports produced, asked internal auditing to evaluate
system effectiveness. They determined that more information was generated than could be used
effectively and noted the following reactions:
•
•
•
•

Many departments did not act on reports during peak activity periods. They let them accumulate
in the hope of catching up later.
Some had so many reports they did not act at all or misused the information.
Frequently, no action was taken until another manager needed a decision made. Department heads
did not develop a priority system for acting on the information.
Department heads often developed information from alternative, independent sources. This was
easier than searching the reports for the needed data.

Explain whether each reaction is a functional or dysfunctional behavioral response.
1. Avoiding or delaying activity on reports during peak activity periods is dysfunctional if
they contain information that could improve company performance. If the reports
continue to accumulate with no action taking place (no catch up during the lulls), this is a
dysfunctional behavior called avoidance. On the other hand, they may let the reports
accumulate because they are worthless.
2. Having so many reports that no action or the wrong action is taken means that the
department heads were unable to assimilate the supplied information properly. This
dysfunctional response is a good example of information overload and indicates that the
system needs to be changed to correct the problem.
3. It is dysfunctional when a department head does not refer to report data until a fellow
employee follows up on critical information in order to make a decision. If delays
continually take place, and result in complications and/or delays in other departments,
this lack of action is dysfunctional.
4. The department head's actions are both functional and dysfunctional. Developing
information from alternative sources is dysfunctional because the formal system is not
producing useable information and developing the needed information from other sources
has a cost. However, the fact that the department head could generate the information
from other sources so action could be taken is a functional response to the problem.

Recommend procedures to eliminate dysfunctional behavior and prevent its recurrence.
The dysfunctional behavior at Wright Company was a direct result of management's failure to
recognize that information systems are dynamic. Once a system is designed and
implemented, it should be continually reviewed to discover and incorporate any needed
improvements.

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A committee composed of systems staff and users should be established to monitor the
system and to educate users as to information needs and the use of information. The
committee should gather information concerning what information each department needs to
make accurate decisions. Allowing department heads to participate in the form, content, and
volume of system output creates a corporate culture that motivates employees to help identify
ways to improve the company and its information system. In addition, participation is ego
enhancing, challenging, and intrinsically satisfying.
Users who participate in developing the system know more about the technical aspects of the
system and are better able to use and prioritize the information it produces, regardless of the
volume produced.
Once the system is ready for implementation, the system must be properly tested to minimize
initial bad impressions and the dysfunctional behavior exhibited under the old system.

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20.4 The controller of Tim’s Travel (TT) is deciding between upgrading the company’s existing
computer system or replacing it with a new one. Upgrading the four-year-old system will cost
$97,500 and extend its useful life for another seven years. The book value is $19,500, although
it would sell for $24,000. Upgrading will eliminate one employee at a salary of $19,400; the
new computer will eliminate two employees. Additional annual operating costs are estimated
at $15,950 per year. Upgrading is expected to increase profits 3.5% above last year’s level of
$553,000.
The BetaTech Company has quoted a price of $224,800 for a new computer with a useful life
of seven years. Annual operating costs are estimated to be $14,260. The average processing
speed of the new computer is 12% faster than that of other systems in its price range, which
would increase TT’s profits by 4.5%.
Tim’s present tax rate is 35%, and the cost of financing (minimum desired rate of return) is
11%. After seven years, the salvage value, net of tax, would be $12,000 for the new computer
and $7,500 for the present system. For tax purposes, computers are depreciated over five full
years (six calendar years; a half year the first and last years), and the depreciation
percentages are as follows:
Year
1
2
3
4
5
6

Percent (%)
20.00
32.00
19.20
11.52
11.52
5.76

Using a spreadsheet package, prepare an economic feasibility analysis to determine if Tim’s
Travel should rehabilitate the old system or purchase the new computer. As part of the
analysis, compute the after-tax cash flows for years 1 through 7 and the payback, NPV, and
IRR of each alternative.

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Accounting Information Systems

As shown below, Tim's Travel would be better off economically to purchase a new system rather
than updating the existing one. Tim's Travel can achieve a 13.26% return by purchasing a new
system and an 11.57% return by updating the old system.
Note: For illustrative purposes, all calculations other than NPV and IRR have been rounded to zero
decimal places. All costs and savings amounts are show net of tax effects.

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20-19

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Accounting Information Systems

20.5. Rossco is considering the purchase of a new computer with the following estimated costs:
initial systems design, $54,000; hardware, $74,000; software, $35,000, one-time initial
training, $11,000; system installation, $20,000; and file conversion, $12,000. A net reduction of
three employees is expected, with average yearly salaries of $40,000. The system will decrease
average yearly inventory by $150,000. Annual operating costs will be $30,000 per year.
The expected life of the machine is four years, with an estimated salvage value of zero. The
effective tax rate is 40%. All computer purchase costs will be depreciated using the straightline method over its four-year life. Rossco can invest money made available from the
reduction in inventory at its cost of capital of 11%. All cash flows, except for the initial
investment and start-up costs, are at the end of the year. Assume 365 days in a year.
Use a spreadsheet to perform a feasibility analysis to determine if Rossco should purchase the
computer. Compute the following as part of the analysis: initial investment, after-tax cash
flows for years 1 through 4, payback period, net present value, and internal rate of return.
Rossco should proceed with the purchase. The internal rate of return of 23.23% is higher than the
hurdle rate of 11%. There is a positive NPV of $56,157. Payback is in 2.44 years.

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Accounting Information Systems

20.6 A recently completed feasibility study to upgrade XYZ’s computer system shows the
following benefits. Compensation figures in parentheses include wages, benefits, and payroll
taxes.
1. Production
a. Market forecasts, which take two $400 person-days a month, will be more accurate
with software making the calculations.
b. Effective inventory control will prevent part stockouts and reduce inventory by
$1,000,000. XYZ’s cost of capital is 20%.
c. Detailed evaluations of plan changes will increase production flexibility, reduce sales
losses, and eliminate two clerks ($75,000 each).
2. Engineering
a. Computerized updating of bills of material and operations lists will save 40% of an
engineer’s ($100,000) and 25% of a clerk’s ($60,000) time.
b. Computerized calculations of labor allocations, rates, and bonus details will save
40% of a clerk’s ($80,000) time.
3. Sales. Improved reporting will enable the five-person sales staff to react more quickly to
the market, producing a $10,000 per person sales increase.
4. Marketing. Revised reports and an improved forecasting system will increase net income
by $50,000.
5. Accounting
a. Quickly determining new product costs will save 30% of the accountant’s ($100,000)
time.
b. An incentive earnings system will save 40% of the payroll clerk’s ($60,000) time.
As a board member, which of the benefits can you defend as relevant to the system’s cost
justification? Calculate how much XYZ will save with the new system.
Adapted from the SMAC Exam

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Acceptable Items:
1 (a) More accurate market forecasts with software
making the calculations reduces costs
1 (b) Effective inventory control reduces inventory
by $1,000,000, allowing company to reduce
carrying costs and earn money on freed up
capital
1 (c) Eliminating 2 clerks saves money
Improved flexibility and reduced sales losses
hard to incorporate into cost justification.
2 (a) Computerized updating of bills of materials
and operations lists saves money
2 ( b) Computerized calculations of labor
allocations, rates, and bonus details saves
money
5 (a) Quickly determining new product costs will
save money
5 (b) An incentive earnings system will save money.
Rejected Items:
3
Sales increases hard to incorporate into cost
justification due to lack of support for vague
estimates.
4
Benefits of revised reports and improved
forecasting system hard to incorporate into cost
justification due to lack of support for vague
estimates.
TOTAL SAVINGS

20-25

Cost Savings
$ 9,600 ($400/day * 2 days/month * 12 months
$200,000 (20% * $1,000,000)

$150,000 (2 * $75,000)

$ 40,000 (40% of $100,000)
$ 15,000 (25% of $60,000)
$ 20,000 (40% of $80,000)

$ 30,000 (30% of $100,000)
$ 24,000 (40% of $60,000)

$488,600

Accounting Information Systems

20.7 The following list presents specific project activities and their scheduled starting and completion
times:
Activity
Starting Date Ending Date
A
Jan. 5
Feb. 9
B
Jan. 5
Jan. 19
C
Jan. 26
Feb. 23
D
Mar. 2
Mar. 23
E
Mar. 2
Mar. 16
F
Feb. 2
Mar. 16
G
Mar. 30
Apr. 20
H
Mar. 23
Apr. 27
a.

Using a format similar to that in Figure 18-3, prepare a Gantt chart for this project. Assume
that each activity starts on a Monday and ends on a Friday.
Project Planning Chart

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Accounting Information Systems

Assume today is February 16 and activities A and B have been completed, C is half
completed, F is a quarter completed, and the other activities have not yet commenced.
Record this information on your Gantt chart. Is the project behind schedule, on
schedule, or ahead of schedule? Explain.
Partially Completed Gantt chart

Once the activity bars have been filled in to reflect the activities that have been fully or partially
completed, it is a simple matter to evaluate whether the project is on schedule by looking down the
column corresponding to the current week. In this case, Activity C is one-half week shy of the
current date (Feb. 16), and Activity F is one-fourth week short. Therefore, the project is behind
schedule.

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c. Discuss the relative merits of the Gantt chart and PERT as project planning and control
tools.
Advantages of PERT:
•

Indicates which activities are critical as well as how much slack is available in the
noncritical activities. This provides a basis for allocating resources to activities.

•

Provides a measure of the uncertainty associated with project time and cost estimates.

•

Indicates how to complete the project faster by speeding up certain activities.

•

Shows the order in which activities must be completed. (For example, activity A must be
completed before activity B can start.)

Advantages of GANTT Charts:
•

It is easier to prepare than a PERT chart.

•

Does not involve complex calculations and is thus less susceptible to error.

•

The calendar format is easier to interpret visually.

•

Is easier to update for completed activities.

•

Makes it easier to determine whether a project is on schedule.

•

Graphically shows the entire schedule for a project.

•

Shows progress to date and the current project status.

•

Shows a schedule of when each project should start and end.

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20.8 Recent years have brought an explosive growth in electronic communication. Laptops,
netbooks, e-readers, personal digital assistants, sophisticated cell phones, fax machines, email, teleconferencing, office productivity software, and sophisticated management
information systems have changed the way information is received, processed, and
transmitted. With the decreasing costs of computer equipment and the increasing power of
automation, the full impact of computerization has yet to be felt. Although the development of
computer applications is directed at being user friendly or user oriented, the integration of
computers into the organization has had both positive and negative effects on employees.
Adapted from the CMA Examination
a.

Describe the benefits companies and employees receive from electronic
communications.
• Greater optimization of organizational resources, increasing productivity and profitability.
• More timely information for management decision making.
• Easier and quicker access to corporate data.
• More technological advancements, which sustains or increases the organization's
competitive status and ensures employees of marketable technological skills.
• Standardized procedures and operations. Once a procedure or operation is standardized,
computers will repeat the same logical procedures.
Discuss the organizational impact of introducing new electronic communication
systems.
The initial cost of some electronic communication systems is a major capital purchase,
requiring special procedures for capital acquisitions. With the increase in technology, the
organization will increase its comparative advantage. Small companies who cannot afford
the technology may be squeezed out of the market.
Employees may experience a loss of confidence and fear change and/or the loss of their jobs.
Explain
1. Why an employee might resist the introduction of electronic communication systems
• They may fear and resist change. This may include the fear that they will be replaced
by automation and lose their employment.
• They do not know what the system is and how it will help them on the job.
• Embarrassment of not knowing how to use the system.
2. The steps an organization can take to alleviate this resistance.
• Communication of information as to why the system is being implemented and how
it will affect each employee's job. The intent should be to reinforce job security.
• Education and training of employees on how to use the system by providing system
manuals and designated user support.
• Giving employees the opportunity to make suggestions for improving the system.

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20.9 PWR manufactures precision nozzles for fire hoses. Ronald Paige, an engineer, started the
corporation and it has experienced steady growth. Reporting to Ronald are six vice presidents
representing marketing, production, research and development, information services, finance,
and human resources. The information services department was established last year when
PWR began developing a new information system consisting of a server connected to each
employee’s personal computer. The PCs can download and upload data to the server. PWR is
still designing and developing applications for its new system. Ronald received a letter from
the external auditor and called a meeting with his vice presidents to review the
recommendation that PWR form an information systems steering committee.
Adapted from the CMA Examination
a.

Explain why the auditors would recommend an information systems steering committee
and discuss its specific responsibilities. What advantages can the committee offer
PWR? What advantages can such a steering committee offer PWR?
1.

Because information systems span functional and divisional boundaries, organizations
establish an executive level steering committee so that the company, from an overall
organizational perspective, focuses on:

Planning and overseeing the information systems function.

•

Setting priorities to ensure that the highest priority items are considered first.

Specific steering committee responsibilities include:

•

Developing a master plan to strategically develop and maintain the company's
information system, incorporating short-term and long-term goals.

•

Approving or rejecting systems project proposals.

•

Assuring internal control considerations.

•

Establishing the company's information system policies and procedures.

•

Coordinating and approving hardware and software acquisitions.

•

Coordinating development projects and monitoring their progress without getting
overly involved in technical details or specific project administration.

•

Reviewing the performance of the information systems function.

The advantages of an information systems steering committee include:
•

Ensuring top management participation, guidance, and control of the IS function

•

Facilitating coordination and integration of IS activities among departments and
functions, increasing goal congruence and reducing goal conflict.

•

Improving interdepartmental communications.

•

More effective management control over systems resources allocations.

Identify the PWR managers most likely to serve on the committee.
•

The six vice-presidents or their representatives.

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Accounting Information Systems
•

One or more members of the Information Systems Department.

•

The controller.

•

A member of the Financial and/or Internal Audit Departments.

•

Other areas, if any, which are affected by the information systems function.

The chairperson is usually the chair of the IS department or another influential vice-president with
strong IS skills and an active interest in the IS function. The IS steering committee should meet
only when necessary to carry out its functions.

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Accounting Information Systems

20.10

Businesses often modify or replace their financial information system to keep pace with
their growth and take advantage of improved IT. This requires a substantial time and
resource commitment. When an organization changes its AIS, a systems analysis takes
place. Adapted from the CMA exam
a. Explain the purpose and reasons for surveying an organization’s existing system.
•

To gain an understanding of the existing system and how it functions.

•

To determine the constraints of the current system.

•

To assess the strengths and weaknesses of the existing system and to identify problems
that need to be resolved.

•

To provide design ideas for the new system and to identify available resources.

•

To provide information about users’ information needs.

b. Explain the activities commonly performed during systems analysis.
Initial Investigation
•

Verify the nature of the problem and the needs of the users.

•

Gather the information needed to evaluate the feasibility of the request.

Systems Survey
•

Study and review the existing organizational structure to determine how it functions.

•

Collect and review internal documents and reports to determine design, content, use,
frequency of preparation, etc.

•

Develop and use questionnaire forms to determine processing frequencies, input/output
volumes, and other information.

•

Conduct personal interviews to confirm and expand upon data gathered from the
questionnaire.

•

Develop flowcharts, models, and diagrams to document the existing system.

•

Study external data sources, including companies who develop or who similar systems,
consultants specializing in such systems, customers, industry trade associations, and
government agencies.

•

Observe activities to determine how the system actually works, rather than what people
or the documentation say should be done.

Feasibility Study
•

Conduct a study to determine whether to continue with the project.

Information Needs and System Requirements
•

Define and document the information needs of the users.

•

Define and document the requirements of the new system.

Systems Analysis Report
•

Summarize and document analysis activity findings.

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Accounting Information Systems

c. Systems analysis is often performed by a project team composed of a systems analyst, a
management accountant, and other knowledgeable and helpful people. What is the
management accountant’s role in systems analysis?
Most systems analysis work is performed by systems people. However, the management
accountant is an important part of the development team and would be of assistance in
providing information about various aspects of the system, including:
•

Management's needs for required reports and their format.

•

System requirements.

•

Source documents in use.

•

The relevance, reliability, and timeliness of input/output data.

•

The internal controls which exist and which should be incorporated into any new or
redesigned system.

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Accounting Information Systems

20.11 Don Richardson, JEM Corporation’s vice president of marketing, is part of a management
team that for several months has been discussing plans to develop a new line of business.
Rumors about the major organizational changes that may be required to implement the
strategic plan have been circulating for months.
Several employees who are anxious about the expected changes confronted Don. The sales
manager said, “It is imperative that we speak to you right away. The employees are very
apprehensive about the proposed changes, and their job performance has slacked off.” The
accounting manager added, “That’s right. My staff are asking me all sorts of questions about
this new line of business, and I don’t have any answers for them. They’re not buying the ‘We
will make an official announcement soon’ line any longer. I suspect that some of them are
already looking for jobs in case the department changes phase out their positions.”
Implementing organizational change is one of the most demanding assignments an executive
faces. It has been suggested that every change requires three steps: unfreezing the current
situation, implementing the change, and refreezing the effected change. This view, however,
lacks the specific details needed by an operating manager who must initiate the change.
Adapted from the CMA Examination
a.

Explain why employees resist organizational change.
• Uncertainty and fear. Employees become anxious and nervous when they fear the
unknown. They worry about losing their jobs and their ability to meet new job
requirements. If they do not understand the change or its implications or mistrust those
initiating the change, there is even more uncertainty and fear of the unknown.
• No perceived need. Employees may not perceive the need for change, preferring to
maintain the status quo. Many people believe that what has proven successful in the past
will be satisfactory for the future.
• Lack of time. Employees may not have or may be unwilling to expend the time and effort
required to learn how to use the new system with its attendant new procedures.
• Interpersonal relationships threatened. Changes may disrupt existing social networks,
which threatens the social stability of the organization. People often have emotional
attachments to their duties or to the people they work with and don't want to change.
• Personal characteristics and background. Generally speaking, the younger people are, the
fewer years they've been with the company, and the more highly educated they are, the
more likely they are to accept change.
• Manner in which change is introduced. Resistance is often a reaction to the methods of
instituting change rather than to change itself. Employees may not feel the change is
beneficial if the employee was not consulted or did not participate in the decisionmaking.
• Amount of trust. If previous dealings with management have not created a feeling of trust,
confidence, and cooperation, users may feel they are trying to "put something over on
me."
• Experience with prior changes. If employees have had a bad experience with prior
changes, they will be more reluctant to cooperate with planned changes.
• Top management support. Employees sense top management attitudes toward a proposed

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Accounting Information Systems

system and the extent of top-level support. When there is a lack of support, lower-level
employees may think, "If top management doesn't support it, why should I?"
• Communication. Employees often do not know why changes are made. Unless it is clear
that a change is not an indication of poor performance, they may react negatively to it.
• Disruptive nature of the change process. Requests for information and interviews are
disruptive of the normal routine and place additional burdens on people.
b.

Discuss ways JEM Corporation can alleviate employee resistance to change.
•

Employee participation. Encourage employees to participate in the change planning and
implementation. Employees who express their opinions, suggest ways to improve the
system, and hear the positions of others are more likely to accept change.

•

Keep the lines of communication open. Inform managers and users of systems changes
as soon as possible. Clear and frequent communication about the need for change and the
expected results of the change will alleviate employee fears. The company should listen
to employee grievances and help to resolve problems.

•

Provide feedback on employee suggestions. If they are not told why their suggestions
were not implemented, they may foster bad feelings toward the new system.

•

Train. Teach the employees how to use the system. Effective use or support cannot be
obtained if users do not understand the system. Acceptance of the system is not likely if
an individual believes that the computer is controlling him or has usurped her position

•

Satisfy user needs. Design the form, content, and volume of system output to satisfy user
needs and they are more likely to welcome the changes.

•

Build trust. If employees perceive management as fair and honest and have confidence in
management's abilities, they are more likely to cooperate and less likely to resist change.

•

Get management support. Top management should make it clear that they fully support
the system and everyone else to do so. When management is supportive of the changes,
employees are more willing to accept the change.

•

Allay fears. To the degree possible, management should provide assurances that there
will be no major loss of jobs or changes in job responsibilities.

•

Sell the system but control user expectations. Emphasize that the system may provide
greater job satisfaction, more important and challenging tasks, and increased
advancement opportunities. Do not oversell the system and create unrealistic
expectations. When employee expectations are not met, the “seller” and the system will
be blamed.

•

Properly test the system prior to implementation to minimize initial bad impressions.

•

Avoid emotionalism and threats. When logic vies with emotion, logic loses. Threatening
behavior or employee intimidation often strengthens resistance to change

•

Keep the system simple. Avoid complex systems that cause radical changes.

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Accounting Information Systems

20.12

Remnants, Inc., with headquarters in St. Louis, manufactures designer clothing. The company
markets and services its products by region, with each functioning as a profit center. Each region has
a manager, an accounting department, a human resources department, and several area offices to
market and service the products. Each area office has sales, service, and administrative departments
whose managers report to an area manager.
The New York area office departed from the standard organizational structure by establishing a
branch office to market and service the firm’s products in Boston. A branch manager who reports
directly to the New York area manager heads the local office.
The Boston branch manager is encouraging the New York area manager to consider a new
information system to handle the local branch’s growing information needs. The NewYork area
manager and the eastern region manager want to establish a project team with employees from the
region, area, and branch office. The team will assess the information needs at the Boston branch
office and develop system recommendations. The following employees have been appointed to the
project team, with Keith Nash as chairperson:
Eastern Region Office
Kurt Johnson, Budget Supervisor
Sally Brown, Training Director
New York Area Office
Keith Nash, Administrative Director
Boston Branch
Heidi Meyer, Branch and Sales Manager
Bobby Roos, Assistant Branch and Service Manager
Joe Gonzalez, Salesperson
Juana Martinez, Serviceperson

Project team members contribute their skills to help accomplish a given objective.
Characteristics of group members can influence the functioning and effectiveness of a
project team. Identify some of these characteristics.
•

Personality. Aggressive employees often influence a task force by their nature, directing
resources to meet their needs first at the expense of the needs of the company.

•

Position and influence. A project team with different levels of management may find
members using their leadership positions to influence group actions. Other employees
can feel less inclined to contribute if their viewpoint conflicts directly with that of their
supervisor.

•

Skills. Group members who possess IS skills often use their knowledge to influence
decisions to meet their own needs without considering the entire company’s needs.

b. Due to the team’s composition, what sources of conflict can you see arising among its
members? Do you think the group will succeed in its objective to develop an
information system for the Boston branch office? Why or why not?
•

Conflicts among offices. Regional officers may be at odds with local managers
concerning Boston office needs and company resources available to meet these needs.

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Accounting Information Systems
•

Conflicts among positions. Conflicts may arise between the needs assessments offered
by managers and those offered by users. In addition, conflicts may arise concerning the
IS needed and the finances available to fund it.

•

Conflicts along divisional lines. Such conflicts result as local offices battle for a fair
share of a company's limited resources. With the number of people on the team from the
Boston Branch, decisions made may favor that branch over the other offices.

•

Conflicts along functional lines. When assessing a company's needs, priority is often
given to a local or influential group. This particular task force is weighted heavily with
accounting and finance types. No representation exists for manufacturing, operations,
marketing, research, or services.

•

Conflicts among user groups. Conflicts between the needs of the sales staff and the
service employees may arise over the use of resources.

Each student will have a different opinion about whether or not the group will succeed. The
student's answer should be based on the conflicts listed and how important each conflict is.
c. What contribution would a person who holds a position as budget supervisor make in a
project team such as this one?
The budget supervisor can contribute insight concerning the amount of funds available for the
Boston branch to finance the IS project. As the budget supervisor has access to future
financial projections, he can assess the economic feasibility of any potential project.

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Accounting Information Systems

20.13

Managers at some companies face an ongoing systems development crisis: IS departments
develop systems that businesses cannot or will not use. At the heart of the problem is a
“great divide” that separates the world of business and the world of IS. Few departments
seem able or ready to cross this gap.
One reason for the crisis is that many companies are looking for ways to improve existing,
out-of-date systems or to build new ones. Another is the widespread use of PC-based
systems that have spawned high user expectations that IS departments are not meeting.
Users seek more powerful applications than are available on many older systems.
The costs of the great divide can be devastating. An East Coast chemical company spent
over $1 million on a budgeting and control system that was never used. The systems
department’s expertise was technical excellence, not budgets. As a result, the new system
completely missed the mark when it came to meeting business needs. A Midwestern bank
used an expensive computer-aided software engineering (CASE) tool to develop a system
that users ignored because there had been no design planning. A senior analyst for the bank
said, “They built the system right; but unfortunately they didn’t build the right system.”

What is the great divide in the systems development process? What causes the gap?
The "great divide" is the gap between the information needs of business managers and the
information produced by IS. The great divide occurs because of the following:
•

Many systems are seriously outdated and do not produce the needed information.

•

Better-educated end users are demanding more powerful information systems and better
results from information systems that aren’t performing.

•

Poor communications among system designers, end users, and business managers results
in the development of ineffective information systems.

•

IS people who do not understand operations and the management of the business.

b. What would you suggest to solve this great divide information crisis?
•

A first step in effective systems design is a thorough business analysis to understand how
a business operates and how its business functions relate. This helps systems
professionals and business managers to communicate effectively when developing an
integrated system.

•

Businesses could hire managers with a systems background so they can be a liaison
between the systems department and the finance and accounting departments, helping
business managers to communicate their needs clearly. These managers should be
willing and able to get involved in the IS development process.

•

More involvement and interaction between the systems staff and end users. End users
should take an active role in the development process. In particular, designers should
work closely with end users to assess needs and to develop specific working solutions.

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Accounting Information Systems

•

A more integrated approach to systems development involving all the necessary parties:
designers, programmers, business managers, and end users.

•

Management should provide employees with the training needed to make the system
work right.

c. Discuss the role a systems designer, business manager, and end user can take to narrow
the great divide.
Systems designers can involve end users and managers in the design and development
process. This reduces the behavioral problems associated with a new system and improves
the probability that the system will meet the desired business objectives. They should also
make a concerted effort to understand the business processes of the company.
Business managers can support the design team’s efforts to encourage end-user involvement
in the development process. In addition, business managers can communicate regularly with
systems developers to insure that the system is meeting business objectives.
The end user can help bridge the great divide by taking a cooperative, interactive role in the
development process.
d. Who plays the most vital role in the effective development of the system?
All players play important roles in the systems development process. The "information
crisis" is in large part the result of an overreliance upon the systems analyst to meet the needs
of managers and end users without their cooperation and input. It is also a result of analysts
not taking the time to understand the business processes at their company.

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Accounting Information Systems

20.14

Joanne Grey, a senior consultant, and David Young, a junior consultant, are conducting a
systems analysis for a client to determine the feasibility of integrating and automating
clerical functions. Joanne had previously worked for the client, but David was a recent hire.
The first morning on the job, Joanne directed David to interview a departmental supervisor
and learn as much as possible about department operations. David introduced himself and
said, “Your company has hired us to study how your department works so we can make
recommendations on how to improve its efficiency and lower its cost. I would like to
interview you to determine what goes on in your department.”
David questioned the supervisor for 30 minutes but found him to be uncooperative. David
gave Joanne an oral report on how the interview went and what he learned about the
department.
Describe several flaws in David’s approach to obtaining information. How should this task
have been performed?
•

Ms. Grey did not give Mr. Young adequate instructions about how to conduct the interview
and what information to obtain. A senior consultant must exercise closer supervision and
provide better guidance to junior employees. Perhaps Ms. Grey should have performed the
interview while Mr. Young observed.

•

The consultants did not prepare for the interview. They should have studied available
documentation to learn what the department does and what the supervisor's job
responsibilities are. Then they should have prepared an interview guide listing the topics to
be discussed and the questions to be asked.

•

Mr. Young provided an oral report rather than a written report of his findings. An
interviewer should take notes during the interview, and polish them immediately afterward, in
order to provide documentation for future analysis and reference.

•

Mr. Young's opening statements to the supervisor were negative in tone. He should attempt
to establish rapport with the interviewee, avoid making negative or threatening statements,
and be positive about the goals of the study.

•

Mr. Young should have asked the supervisor to explain how the department works. Most of
the talking should have been done by the supervisor while Mr. Young listened and took
notes.

•

The interview should have been scheduled ahead of time and the department supervisor
should have had time to prepare for the interview.

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Accounting Information Systems

SUGGESTED ANSWERS TO THE CASES
20-1 Audio Visual Corporation (AVC) manufactures and sells visual display equipment.
Headquartered in Boston, it has seven sales offices with nearby warehouses that carry its
inventory of new equipment and replacement parts. AVC has a departmentalized
manufacturing plant with assembly, maintenance, engineering, scheduling, and cost
accounting departments as well as several component parts departments.
When management decided to upgrade its AIS, they installed a mainframe at headquarters
and local area networks at each sales office. The IS manager and four systems analysts were
hired shortly before they integrated the new computer and the existing AIS. The other IS
employees have been with the company for years.
During its early years, AVC had a centralized decision-making organization. Top
management formulated all plans and directed all operations. As the company expanded,
decision making was decentralized, although data processing was highly centralized.
Departments coordinated their plans with the corporate office but had the freedom to develop
their own sales programs. However, information problems developed, and the IS department
was asked to improve the company’s information processing system once the new equipment
was installed.
Before acquiring the new computer, the systems analysts studied the existing AIS, identified
its weaknesses, and designed applications to solve them. In the 18 months since the new
equipment was acquired, the following applications were redesigned or developed: payroll,
production scheduling, financial statement preparation, customer billing, raw materials
usage, and finished goods inventory. The departments affected by the changes were rarely
consulted until the system was operational.
Recently the president stated, “The systems people are doing a good job, and I have complete
confidence in their work. I talk to them frequently, and they have encountered no difficulties
in doing their work. We paid a lot of money for the new equipment, and the systems people
certainly cost enough, but the new equipment and new IS staff should solve all our problems.”
Two additional conversations regarding the new AIS took place.
BILL TAYLOR, IS MANAGER AND JERRY ADAMS, PLANT MANAGER
JERRY: Bill, you’re trying to run my plant for me. I’m the manager, and you keep
interfering. I wish you would mind your own business.
BILL: You’ve got a job to do, and so do I. As we analyzed theinformation needed for
production scheduling and by top management, we saw where we could improve the
workflow. Now that the system is operational, you can’t reroute work and change procedures,
because that would destroy the value of the information we’re processing. And while I’m on
that subject, we can’t trust the information we’re getting from production. The documents we
receive from production contain a lot of errors.

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Accounting Information Systems

JERRY: I’m responsible for the efficient operation of production. I’m the best judge of
production efficiency. The system you installed reduced my workforce and increased the
workload of the remaining employees, but it hasn’t improved anything. In fact, it might
explain the high error rate in the documents.
BILL: This new computer cost a lot of money, and I’m trying to make sure the company gets
its money’s worth.
JERRY ADAMS, PLANT MANAGER AND TERRY WILLIAMS, HUMAN RESOURCES
MANAGER
JERRY: My best production assistant, the one I’m grooming to be a supervisor, told me he
was thinking of quitting. When I asked why, he said he didn’t enjoy the work anymore. He’s
not the only one who is unhappy. The supervisors and department heads no longer have a
voice in establishing production schedules. This new computer system took away the
contribution we made to company planning and direction. We’re going back to when top
management made all the decisions. I have more production problems now than I ever had. It
boils down to my management team’s lack of interest. I know the problem is in my area, but I
thought you could help me.
TERRY: I have no recommendations, but I’ve had similar complaints from purchasing and
shipping. We should explore your concerns during tomorrow’s plant management meeting.
Adapted from the CMA Examination
Evaluate the preceding information, and answer the following questions:
1.

Identify the problems the new computer system created and discuss what caused them.
The problems stem from a total lack of communication at AVC. The failure to communicate
has existed for years and exists between all levels of management.
Top management did not adequately plan for the IS upgrade and did not involve non-IS
employees in the process. In addition, through lack of direction or control, top management
has allowed the IS group to change not only information systems but also operating systems
and procedures without operating management approval. Further, there appears to be a lack
of concern by IS over the problems the new systems have created for operating management.
A new computer system was purchased and a new IS team was hired; however, top
management failed to win the confidence of current operating management who are
accustomed to a more decentralized approach.
Communication problems continued during the systems design phase. The IS group failed to
involve operating management in systems changes and apparently operating management
failed to communicate their interest in being involved. As managers in a decentralized
atmosphere they could have forced IS to communicate but they chose to ignore the problem.
Therefore, the failure to communicate properly can be traced to both the IS and user groups.
This problem was worsened by top management not adequately planning the conversion
process and their failure to perceive the potential problems between IS and operating
management.

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Accounting Information Systems

The new systems are now complete. Operating management realizes that there has been a
centralization of decision-making and a loss of operating flexibility resulting in employee
morale problems. Yet, they are still unable or unwilling to communicate with top
management, who continue to be unaware of operating problems with the new IS system.
2.

How could AVC have avoided the problems? How can they prevent them in the future?
The problems could have been avoided by top management doing a better job of planning and
communication, holding meetings between the IS staff and user groups throughout the
systems design and implementation process, and by top management soliciting input from
both user groups and IS staff in order to more closely monitor the project’s progress.
To avoid future problems, AVC management needs to review organizational relationships to
ensure proper organization and to insist on better cooperation and communication. In
addition, top management should evaluate management personnel to determine if
interpersonal problems are a roadblock to good internal communication.

20-43

CHAPTER 21
AIS DEVELOPMENT STRATEGIES
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
21.1 What is the accountant’s role in the computer acquisition process? Should the accountant
play an active role, or should all the work be left to computer experts? In what aspects of
computer acquisition might an accountant provide a useful contribution?
The accountant is likely to be:
•
A major user of the computer output
•
Responsible for internal controls over data processing in the organization
•
An expert in cost estimation and analysis
•
A designer of many of the systems that the computer is intended to supplant.
With these responsibilities, the accountant must be actively involved in the computer acquisition
process. The accountant's role is probably best carried out by participating on a team or committee
together with computer experts, systems analysts, production personnel, engineers, managers, and
others whose functions are closely related to the information systems activity.

21-1

Ch. 21: AIS Development Strategies

21.2 In a Midwest city of 45,000, a computer was purchased and in-house programmers began
developing programs. Four years later, only one incomplete and poorly functioning
application had been developed, none of software met users’ minimum requirements, and the
hardware and the software frequently failed. Why do you think the city was unable to
produce quality, workable software? Would the city have been better off purchasing
software? Could the city have found software that met its needs? Why or why not?
Certainly not all instances of use or failure to use packaged software are as dramatic or as clear-cut
as this. Nor in all cases will packaged software meet the functional requirements at a reasonable
cost in an acceptable time frame. A careful evaluation of packaged software, however, can result in
a system that performs admirably and cost effectively for data processing users.
a.

Some possible reasons why the city was unable to produce a quality, workable system are:
•
•
•
•
•
•
•
•

Poor management.
Inexperienced systems analysts and programmers.
Inadequate needs analysis and requirements definition.
Management does not understand development well enough to direct and manage it.
Failure of users and development personnel to communicate.
Failure to establish checkpoints for monitoring the project.
Lack of continuity among the people working on the system.
Failure to plan the development project adequately.

The city would have been better off purchasing canned software for the following reasons:
•
They could have saved themselves a great deal of money.
•
They could have implemented the system much faster.
•
They would not have needed as many in-house programmers.
•
They could have avoided a lot of hassles, headaches, etc.
•
They could have "test-driven" the program to know exactly what they were getting.
•
They could also have talked to other users to measure satisfaction with the software.
•
Custom packages are much more likely to be bug free.
•
The developer can keep the package up-to-date easier and less expensively.
•
They probably would have gotten a much better system.
There are certainly enough cities, and hence a large enough market, for there to be quality
software available. A city of 45,000 shouldn't have an overly complex system, such that none
of the available canned packages would have been acceptable. The package might not have
been able to meet all of the city's detailed needs and desires, but a package that came close to
their needs certainly could have been found without all the problems mentioned above.

An adequate turnkey system was available and it would have saved the city nearly $500,000. In
fact, the city’s annual data processing costs exceeded the annual costs of the new turnkey system.

21-2

Accounting Information Systems

21.3 You are a systems consultant for Ernst, Price, and Deloitte, CPAs. At your country club’s
annual golf tournament, Frank Fender, an automobile dealer, describes a proposal from
Turnkey Systems and asks for your opinion. The system will handle inventories, receivables,
payroll, accounts payable, and general ledger accounting. Turnkey personnel would install
the $40,000 system and train Fender’s employees. Identify the major themes you would touch
on in responding to Fender. Identify the advantages and disadvantages of using a turnkey
system to operate the organization’s accounting system.
Major themes that should be touched upon in responding to Fender's inquiry include:
•

The need for a feasibility study to determine whether a new system is technically,
economically, and operationally feasible for Fender's dealership.
• The need to identify the dealership’s needs and prepare specifications based on those needs.
• The importance of requesting proposals from competing vendors and systematically
comparing them.
• The possibility of using EDP consultants to help and of outsourcing the system.
If students only suggest they obtain more information on this vendor and its hardware and
software, then they are missing the point of the case. It is important to take a more general and
systematic approach to the system acquisition decision, rather than making a "yes-no" decision on
only this one system.
Advantages of a turnkey system
•
•
•
•
•
•
•

Less expensive than internally built systems and the total package may be better priced.
Takes less time and human resources to develop and run.
Experts are available for both the application software and hardware.
One-source support for the entire system. The vendor cannot pass the responsibility for a
problem off on someone else. A single vendor may also facilitate system start-up and
conversion as well as training on how to use the system.
Warranties are usually available.
Simplified selection process
Costs are reduced since it is not necessary to match software with hardware meaning that it is
less likely that various items of hardware and software will be incompatible.

Disadvantages of a turnkey system:
•
•
•
•

Software or hardware may not be completely suited to company's needs.
Software modification may not be available or covered.
Increased vulnerability to continuity of the vendor's business.
Lack of control over design.

21-3

Ch. 21: AIS Development Strategies

21.4 Sara Jones owns a rapidly growing retail store that faces stiff competition due to poor
customer service, late and error-prone billing, and inefficient inventory control. To continue
its growth, its AIS must be upgraded but Sara is not sure what it wants the AIS to
accomplish. Sara has heard about prototyping, but does not know what it is or whether it
would help. How would you explain prototyping to Sara? Include an explanation of its
advantages and disadvantages as well as when its use is appropriate.
Prototyping is an approach to systems design in which a simplified working model of an
information system is developed. In essence, a prototype is a scaled-down, experimental version of
the system requested by the users.
The first step is to identify the basic requirements of the system. The emphasis is on what output
should be produced rather than how it should be produced. A "first draft" model is quickly (days or
weeks) and inexpensively built and given to users so they can experiment with it. This allows users
to determine what they want the system to accomplish and what they like and don't like about it.
Based upon their reactions and feedback, the developers modify the system and again present it to
the users. This iterative process of trial usage and modification continues until the users are
satisfied that the system adequately meets their needs.
The last step is making the system operational. The two choices are to use the already developed
prototype or to use the prototype as a model for developing a new system.
Some of the advantages of prototyping include:
•

Better definition of user needs

•

Higher user involvement and satisfaction

•

Faster development time

•

Fewer errors in the implemented system

•

More opportunity to make changes

•

Less costly than other development alternatives

Some of the disadvantages of prototyping include:
•

Requires a significant amount of users’ time

•

Less efficient use of system resources

•

Incomplete systems development

•

Inadequately tested and documented systems

•

Cost of learning the different versions of the software

•

Never-ending development

Prototyping is appropriate when
•

there is a high level of uncertainty about what is needed

•

it is unclear what questions to ask

•

the final system cannot be clearly visualized because the decision process is still unclear

•

Speed is an issue

•

The system must meet just one or two major critical needs

•

There is a high likelihood of failure.
21-4

Accounting Information Systems

21.5 Clint Grace has been business over 30 years and has definite ideas about how his ten retail
stores should be run. He is financially conservative and is reluctant to make expenditures
that do not have a clear financial payoff. Store profitability has declined sharply and
customer dissatisfaction is high. Store managers never know how much inventory is on hand
and when purchases are needed until a shelf is empty. Clint asks you to determine why
profitability has declined and to recommend a solution. You determine that the current AIS
is inefficient and unreliable and that company processes and procedures are out of date. You
believe the solution is to redesign the systems and business processes using BPM. What are
some challenges you might face in redesigning the system? How will you present your
recommendations Clint?
Business process management (BPM) is a systematic approach to continuously improving and
optimizing an organization's business processes. Grace may be resistant to BPM and its attendant
changes and new technology because:
•
•
•
•
•
•

Tradition: Grace has been at the business for 30 years and the old way of doing things has
been a part of his life. Changing a lifestyle is very difficult.
Resistance: It is human nature to resist radical change and step out of one's "comfort zone."
Grace may be so set in his ways that resistance seems inevitable.
Time requirements: BPM is not a "quick-fix.” Redesigning business processes at a chain of
regional stores is likely to a lengthy process.
Cost: Resistance is likely because Grace's financially conservative attitude may not mesh with
a costly business process redesign.
Lack of management support: Grace has been calling the shots for many years. It may be
difficult for him to give full support to the project even if the need for redesign is obvious.
Retraining: After the BPM project is completed, Grace will be faced with the cost of
retraining his employees. Retraining is also costly and time consuming.

Student answers as to how to present the recommendations to Clint Grace will vary depending on
the perception of the student. However, some general guidelines are:
•
•
•
•
•

•
•

Recognize that it may be hard to convince Grace. Therefore, you must plan your strategy well.
You must be able to sell Grace on the benefits of BPM for his ten stores.
Be aware of potential problems and seek to avoid them.
Be sensitive to the feelings and reactions of persons affected by the change. Inform Mr. Grace
that the reason for BPM is not to come in and without feeling destroy people's jobs.
Having Grace very involved in the project will help him feel like the ideas that are instituted are
his ideas also. Participation is ego enhancing, challenging, and intrinsically satisfying, and it
builds self-esteem and security.
You must provide honest feedback to Grace on all suggestions. Tell him which of his and his
employee’s suggestions are being used and how they are being implemented, which
suggestions are not being used and why, and which suggestions will be incorporated at a later
date and why they are not being incorporated now.
Show how Grace's competitors are using newer business processes to gain a competitive
advantage over his department stores.
Remember that it is better to take things slow, than to have Grace reject BPM. It is usually
better to spend the extra time and money to ensure that a system is well accepted and well
designed

21-5

Ch. 21: AIS Development Strategies

SUGGESTED ANSWERS TO THE PROBLEMS
21.1 Don Otno has been researching software options but cannot decide among three alternatives.
Don started his search at Computers Made Easy (CME) and almost wished he had looked no
further. Steve Young, the manager of CME, appeared knowledgeable and listened attentively
to Don’s problems, needs, and concerns. Steve had software and hardware that would, with a
few exceptions, meet Don’s needs. Don could start using the system almost immediately. The
system’s price was unexpectedly reasonable.
After three hours at Custom Designed Software (CDS), Don left convinced that they could
produce exactly what he needed. Cost and time estimates were not established, but CDS
assured him that the cost would be reasonable and that the software would be complete in a
few months.
At Modified Software Unlimited (MSU), the owner said that customized software was very
good but expensive and that canned software was inexpensive but rarely met more than a few
needs. The best of both worlds could be achieved by having MSU modify the package that
came closest to meeting Don’s needs.
Don returned to CME and asked Steve about customized and modified software. Steve
expressed enough concerns about both that Don came full circle—to thinking canned
software was best. That night, Don realized he could not make an objective decision. He was
swayed by whichever vendor he was talking with at the time. The next morning he called you
for help.
In practice, a system study must be conducted to determine what Don Otno needs before a credible
decision can be made about these alternatives.
a.

List the advantages and disadvantages of each vendor’s approach.
Advantages of canned (packaged software)
•

Lower cost of development. Some estimates indicate a software package may cost
between 1/20 and 1/5 of the estimated cost of in-house development.

•

Software is more reliable. Other users have used the system, providing more "testing" in
a live environment.

•

Lower cost of maintenance as the software supplier performs the maintenance.

•

Faster implementation - hence the organization can begin receiving the benefits sooner.

•

Staff is freed up to do other work.

•

Better documentation, as it must meet the needs of multiple users.

•

Software can be "test driven" and evaluated before it is purchased.

•

It may offer unique capabilities that are difficult to duplicate.

Disadvantages of canned (packaged software)
•

It may not be possible to find a package that meets the users' unique and specific needs.

•

Operating procedures and practices constraints may require business process changes.

•

If the software is to be part of a larger system, it may put constraints on the overall
system.
21-6

Accounting Information Systems
•

Inflexibility, as it may not be possible to suppress unneeded files, processing, or outputs.

•

Possible inefficiency. Generalized systems (are not written for particular circumstances
or requirements) may be inefficient.

•

It takes time to evaluate all the available software.

•

There may not be anyone in-house sufficiently knowledgeable to fix the software if it
fails.

Advantages of Custom Software
•

Software that exactly meets (at least theoretically) the user's needs.

•

Easier to modify than canned software.

•

Often more efficient than canned software.

Disadvantages of Custom Software
•

Most costly software development approach.

•

Quality programmers may be expensive, hard to find, etc.

•

Program development is time consuming; users have to wait for the software to be
written.

•

There may not be any guarantee of product quality.

•

Involves significant supervision and control.

•

It is more likely to contain errors or "bugs" than packaged software.

•

If developed in-house, the user may have to wait an extended period for the software.

•

If developed externally, there is a risk of selecting an inexperienced or poor quality
developer. The developer may "low ball" the price and take improper short cuts or try
and increase the price later.

Advantages of Modified Software
•

Software that is more likely to meet user's needs than canned software.

•

Usually less expensive than custom software.

•

Can be implemented faster than custom software.

Disadvantages of Modified Software
•

May be hard to find programmers willing to modify code.

•

May be illegal to modify the software.

•

Modifying the software may invalidate the manufacturer’s warranty and support.

•

Changes may not be properly documented, resulting in out-of-date documentation.

•

May cause control problems and introduce errors into the program.

•

May make program less efficient, more costly to maintain.

•

May be more costly than a custom program, especially if modifications are significant.
21-7

Ch. 21: AIS Development Strategies

Recommend a course of action for Don and support your decision.
There isn't enough information to reach a definitive answer. It is probable that supporters for
all three approaches can be found when discussing this in class. Letting the students support
each of the three approaches helps solidify the answer to part a in their minds. The important
thing in the discussion is not to get a "right" answer but for the student to recognize that they
need more information before they can reach a definitive conclusion.
By way of summary: Generally, packaged software is best if it is available and of acceptable
quality, versatility, etc. If the software is acceptable to Otno (that is, it is sufficiently close to
what he needs), the low cost and immediate implementation make packaged software an
attractive approach.

21-8

Accounting Information Systems

21.2 A federal agency signed a 15-month contract for $445,158 for a human resources/payroll
system. After 28 months and no usable software, the agency canceled the contract and
withheld payment for poor performance. A negotiated settlement price of $970,000 was
agreed on. The project experienced the following problems:
•

The contractor did not understand what software was desired. The RFP did not have fully
developed user requirements or system specifications, and user requirements were never
adequately defined and frozen. Changes delayed completion schedules and caused
disagreements about whether new requirements were included in the original scope of
work.

•

The contract did not specify systems requirements or performance criteria, and the
terminology was vague. The contract was amended 13 times to add or delete requirements
and to reimburse the contractor for the extra costs resulting from agency caused delays.
The amendments increased the cost of the contract to $1,037,448.

•

The contractor complained of inexcusable agency delays, such as taking too much time to
review items submitted for approval. The agency blamed the delays on the poor quality of
the documentation under review.

•

The agency did not require each separate development phase to be approved before work
continued. When the agency rejected the general system design, the contractor had to
scrap work already completed.
a.

•
•
•
•
•
•
•
•

What caused the problems?
The contractor did not fully understand what was required because the agency had not
fully developed user requirements or system specifications when it issued the RPF.
Project phases were not approved before the next phase began. When the conceptual
systems design was rejected, the physical systems design work had to be scrapped.
The contract did not contain acceptance-testing procedures and criteria.
Documentation standards were never developed and documentation was poor, causing
delays in agency approvals.
Extensive changes were made by the agency. The contract was amended 13 times to
provide for additional work or to delete requirements.
Some changes were not in the contract and some changes altered the scope of the project.
These led to disagreements as well as work delays and stoppages.
Agency red tape and slow approval procedures caused extensive delays in the project.
The system development contract was vague.

In summary, the problems were caused by poor planning, poor problem definition, inadequate
system specifications, poor project management, and poor communication.
How could the agency have better managed the systems development project?
•
•
•
•

Done a better job of defining what the system was to accomplish.
Designed a complete set of specifications before asking for bids.
Frozen systems design at an appropriate time so that continual changes weren't made.
Created a comprehensive, specific, and clearly written contract.
21-9

Ch. 21: AIS Development Strategies
•
•
•
•

Required prompt approval of each phase before allowing the contractor to proceed.
Specified documentation standards and procedures for the contractor to follow.
Managed the project better.
Negotiated a better price upfront

What could the contractor have done differently?
•
•
•

Refused to begin until an adequate problem definition and system requirements were
developed.
Insisted that system development be frozen at an appropriate time.
Insisted on a clear, comprehensive, and specific contract detailing what was expected of
them.

Can we conclude from this case that organizations should not have custom software
written for them? Explain your answer.
No, we cannot generalize that companies should not have custom software developed for
them. If the agency and contractor had followed good systems design and project
management procedures, and had a clear and concise contract, problems with the engagement
should have been minor and more easily resolvable.

21-10

Accounting Information Systems

21.3 Wong Engineering Corp (WEC) operates in 25 states and three countries. WEC faced a
crucial decision: choosing network software that would maximize functionality,
manageability, and end-user acceptance of the system. WEC developed and followed a fourstep approach:
Step 1. Develop evaluation criteria. WEC organized a committee that interviewed users and
developed the following evaluation criteria:
•
Ease of use
•
Scope of vendor support
•
Ease of network management and administration
•
Cost, speed, and performance
•
Ability to access other computing platforms
•
Security and control
•
Fault tolerance and recovery abilities
•
Ability to connect workstations to the network
•
Global naming services
•
Upgrade and enhancement options
•
Vendor stability
WEC organized the criteria into the following four categories and prioritized them.
Criteria vital to short-term and long-term business goals were given a 5. “Wish list”
criteria were weighted a 3. Inapplicable criteria were given a 1.
1.
Business criteria: overall business, economic, and competitive issues
2.
Operational criteria: tactical issues and operating characteristics
3.
Organizational criteria: networks’ impact on the information systems structure
4.
Technical criteria: hardware, software, and communications issues
Step 2. Define the operating environment. Several data-gathering techniques were used to
collect information from which an information systems model was developed. The
model revealed the need to share accounting, sales, marketing, and engineering data
at three organizational levels: district, division, and home office. District offices
needed access to centralized financial information to handle payroll. WEC needed a
distributed network that allowed users throughout the organization to access
company data.
Step 3. Identify operating alternatives. Using the criteria from step 1, committee members
evaluated each package and then compared notes during a roundtable discussion.
Step 4. Test the software. The highest-scoring products were tested, and the product that fit
the organization’s needs the best was selected.
a.

Discuss the committee’s role in the selection process. How should committee members
be selected? What are the pros and cons of using a committee to make the selection?
The evaluation committee selected a network operating system and other software to support
the organization’s distributed structure. They developed and followed a four-step approach:
1. Develop evaluation criteria.
2. Define the current and future operating environment at the company.
3

Identify and evaluate the network operating system alternatives.

Test the products that appear to meet their needs and select the best package.
21-11

Ch. 21: AIS Development Strategies

A committee with qualified people from all affected areas has the following advantages:
•

Encourages planning. An effective team effort requires planning to ensure the
system meets the needs of the business. The result: compromise in the planning stage
and not during implementation.

•

Produces better results. Organizing a cross-functional team to select an operating
system insures that the selection process considers the needs of all parties. The
result: fewer out-of-control projects.

•

Facilitates acceptance of the results. Behavioral problems are minimized using a
cross-functional selection team that supports user participation. The result: smoother
system implementation.

Problems that may arise from using a committee include a longer development time,
interdepartmental competition for resources, and irresolvable selection process conflicts.
b.

What data-gathering techniques could WEC use to assess user needs? To select a
vendor?
•

Interviews with users

•

Surveys or questionnaires

•

Observations of business activities.

What data-gathering techniques could WEC use to select a vendor?

•

Library research

•

Discussions with current and former customers

•

Word-of-mouth recommendations.

•

Meetings with vendor candidates to discuss the evaluation criteria selected.

•

Asking vendors to develop a demonstration to verify their claims.

What is the benefit of analyzing the operating environment before selecting the
software?
It is difficult to select the proper software if you do not know how it is to be used and what
needs it has to satisfy. An analysis of the operating environment provides the information
needed to model the desired information system and to make the proper selection. The
committee's analysis shows the need to share data at the district, division, and home office
levels. In addition, the lower levels needed access to centralized data. The model that
emerged made it clear that the company needed a distributed network that allows users
throughout the organization access to company data.
What data-gathering techniques help a company understand the operating
environment?
•

Interviews

•

Surveys at various management and operational levels

•

Observations.

21-12

Accounting Information Systems

In selecting a system using the point-scoring method, how should the committee resolve
scoring disputes? List at least two methods.
Disputes often arise when using committees. To resolve point scoring disputes, the
committee could seek a unanimous consent on disputed issues by compromise and further
discussion. If that fails, they could simply average the scores given by each committee
member. The committee could also consider throwing out the highest and lowest scores.

Should a purchase decision be made on the point-scoring process alone? What other
procedure(s) should the committee employ in making the final selection?
Seldom is a system selected based on point scoring alone. The scores are used to select the
most promising candidates. The committee should test the most promising candidates to
determine which product best meets the company's needs in the most cost-effective manner.
The committee should also verify with existing customers that the system works as promised.

21-13

Ch. 21: AIS Development Strategies

21.4 Mark Mitton, the liaison to the IS department, has eliminated all but the best three systems.
Mark developed a list of required features, carefully reviewed each system, talked to other
users, and interviewed appropriate systems representatives. Mark used a point-scoring
system to assign weights to each requirement. Mark developed Table 21-4 to help him select
the best system.
a.

Use a spreadsheet to develop a point-scoring matrix and determine which system Mark
should select.
Based on the point-scoring evaluation, project number one should be selected. Project #1
scored 6645 points, project #2 scored 6370 points, and project #3 scored 6530 points.

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Accounting Information Systems

Susan Shelton did not agree with Mark’s weightings and suggested the following
changes:
Flexibility
Reputation and reliability
Quality of support utilities
Graphics capability

60
50
10
10

When the changes are made, which vendor should Mark recommend?
Based on Susan’s changes, Mark should now select project #3. Project #1 scored 6285 points,
project #2 scored 6330 points, and project #3 scored 6610 points.

21-15

Ch. 21: AIS Development Strategies

Mark’s manager suggested the following changes to Susan’s weightings:
Reputation and reliability
Installation assistance
Experience with similar systems
Training assistance
Internal memory size

90
40
40
65
10

Will the manager’s changes affect the decision about which system to buy?
Based on further revisions by his manager, Mark should now select project #2. Project 1
scored 6055 points, project #2 scored 6550 points, and project #3 scored 6490 points.

21-16

Accounting Information Systems

What can you conclude about point scoring from the changes made by Susan and
Mark’s manager? Develop your own weighting scale to evaluate the software packages.
What other selection criteria would you use? Be prepared to discuss your results with
the class.
The most significant conclusion is that the results of the point-scoring methods are highly
subjective. Slight variations in the weightings or in the points assessed can alter the results
dramatically. A point-scoring matrix is a useful tool but the results are not always
conclusive.

What are the weaknesses of the point-scoring method?
Care must be taken when to avoid placing too much emphasis on a point-scoring outcome.
This approach does not recognize that the factors being evaluated may interact in ways that
are not taken into account. Nor does it evaluate the effects of a particular weakness on other
factors or assess compensating strengths. In addition, since both the weights and the points
are assigned subjectively, the margin for error is sizable.
Students should recognize that the best conclusion may be tentative at best and that Mark
should conduct additional research to determine the most effective system to meet his
business's needs.

21-17

Ch. 21: AIS Development Strategies

21.5 Nielsen Marketing Research (NMR), with operations in 29 countries, produces and
disseminates marketing information. Nielsen has been the primary supplier of decision
support information for more than 70 years. NMR’s most recognizable product is the Nielsen
television ratings. Nielsen is one of the largest users of computer capacity in the UnitedStates.
Its information system consistently ranks above average in efficiency for its industry. NMR
hired IBM to evaluate outsourcing its information processing. NMR wanted to know whether
outsourcing would allow it to concentrate on giving its customers value-added services and
insights, increase its flexibility, promote rapid growth, and provide it with more real-time
information.
What are the benefits and risks of outsourcing for NMR?
THE BENEFITS OF OUTSOURCING:
•

IT is changing so rapidly that companies spend a lot of their information system money on
new technology. Outsourcing is a way to alleviate this cash drain. NMR could use the cash
savings to provide a better product to its customers.

•

It is difficult to find well-trained people to maintain and develop these complex information
systems. It is also very costly to have an in-house group of information systems experts.
NMR may be concerned about the cost of maintaining an in-house information systems staff
and their ability to remain current in the ever-changing technological environment.

•

When a company improves its information system or introduces new technology, the
employees who operate and manage the system (and sometimes the users) must be retrained.
Outsourcing would eliminate much of the time and costs required for training.

•

Outsourcing may make it easier for Nielsen to concentrate on the things it does best (its "core
competencies") and leave the data processing business to computer companies who are more
qualified. Companies who adopt outsourcing for this reason believe that their information
systems are essential, but not that it is essential for them to operate the systems.

•

Outsourcers offer special expertise for anything from assisting with development and design
to handling the complete design and installation of a new system. This could help NMR's
information processing stay abreast of the most up-to-date changes in systems technology.

•

Outsourcing can help solve cost pressures and economic difficulties that force companies to
consider head-count reductions, cutbacks on employee training, data center consolidations,
budget and resource cutbacks, and other costs.

•

Companies can benefit from the economies of scale the outsourcers achieve from
standardizing users' applications, buying hardware at bulk prices, splitting development and
maintenance costs between projects, and operating at higher volumes.

•

Outsourcing development projects can help a company benefit from the skills of trained
industry specialists who have installed hundreds of systems.

•

When companies downsize they can be left with an information system that is too large for
their needs. Outsourcing can help solve this problem.

•

Outsourcing can help decrease the fixed costs associated with seasonal businesses that require
heavy computer usage for part of the year and very light usage the rest of the year.

21-18

Accounting Information Systems
AMONG THE RISKS OF OUTSOURCING ARE THE FOLLOWING:
•

A major risk is entering an inflexible agreement that does not provide the company an "out"
for future unanticipated circumstances.

•

Another risk is losing too much control over your information system by outsourcing. NMR
will want to make sure that it works closely with the outsourcer to oversee the development
and operation of the information system.

•

It is possible to lose a fundamental understanding of information system needs and how the
system can provide competitive advantages. If NMR decides to outsource it will be very
important to maintain a close partnership with the outsourcer, helping NMR stay current and
apprised of information system needs and strategies. NMR could lose its reputation and
ability to provide a quality product if this risk is not completely controlled.

•

Once a company decides to outsource, the company is usually locked into outsourcing. If
NMR decides to abandon outsourcing and begin processing its own data again they may have
to buy or rent new buildings and equipment along with hiring a new data processing staff.
The costs and effort involved in doing this are considerable.

•

NMR may not realize all of the projected outsourcing benefits. Critics contend that in many
cases the goals of outsourcing never come to pass.

•

NMR may not receive the quality of service they desire. Some companies complain that
outsource providers are slow to adopt new technologies and are slow to respond to changing
business conditions.

Do the benefits outweigh the risks? Explain your answer.
Without knowing the results of the evaluation that NMR commissioned, there is no "right" answer
as to whether the benefits would outweigh the risks. Even when the results are known, there may
not be a "right" answer. The purpose of the question is to get the students to pick a side of the
debate and support it. Class discussion should bring out the pros and cons of outsourcing.

21-19

Ch. 21: AIS Development Strategies

21.6 A large organization had 18 months to replace its old customer information system with a
new one that could differentiate among customer levels and provide appropriate products
and services on demand. The new system, which cost $1 million and was installed by the IS
staff on time, did not work properly. Complex transactions were error-prone, some
transactions were canceled and others were put on hold, and the system could not
differentiate among customers. The system was finally shut down, and transactions were
processed manually. New IS management was hired to build a new system and mend the
strained relationship between operations and IS.
So what went wrong? IS couldn’t—or wouldn’t—say no to all the requests for systems
enhancements. Eager to please top management, IS management ignored the facts and
assured them they could build a scalable system that was on time and on budget. Another big
mistake was a strict project schedule with little flexibility to deal with problems and
unforeseen challenges. Developers never spoke up about any glitches they encountered along
the way. More than a dozen people (including the CIO) lost their jobs because of their roles in
this disaster.
a.

What could IS management have done differently to make this project successful?
•

Negotiated more time to complete the project.

•

Provided monthly progress reports to management

•

Informed top management of unforeseen problems and challenges that caused delays or
put the project significantly behind schedule.

•

Been more open with management in communicating costs and potential problems.

•

Frozen requirements so that development could proceed unhindered by new requests.

What in-house development issues are demonstrated in this case?
•

Custom software development is difficult, time consuming, and error prone.

•

Time schedules can be tight and projects are often not finished on time.

•

Requirements and systems planning are often lacking.

•

There can be inadequate communication and cooperation between users and developers.

How could the in-house issues have been addressed to prevent the system’s failure?
•

It should have been made clear to management that in-house development is difficult,
time consuming, and error prone. This could have been facilitated by citing examples of
in-house development projects, preferably from within their own industry, so that
management could have gotten a clearer picture of the risks and benefits of in-house
development.

•

A carefully thought-out and documented project plan should have been prepared.

•

A backup plan with worst-case scenarios and project completion times should have been
prepared.
21-20

Accounting Information Systems
•

Key personnel should have been designated as liaisons between management and the
project team so that credible and timely information could have been communicated back
and forth.

In the end, the company scrapped the software and hired two vendors to help them with the
project. One vendor designed and built the system and the other vendor supervised the work
of the first vendor.

21-21

Ch. 21: AIS Development Strategies

21.7 Meredith Corporation publishes books and magazines, owns and operates television stations,
and has a real estate marketing and franchising service. Meredith has 11 different systems
that do not communicate with each other. Management wants an executive information
system that provides them with the correct and timely information they need to make good
business decisions. Meredith has decided to use prototyping to develop the system.
a.

Identify three questions you would ask Meredith personnel to determine systems
requirements. What information are you attempting to elicit from each question?
•

What is Meredith's background and what are its goals and objectives? It is difficult to
help a company without knowing where it is coming from and where it hopes to go.

•

What is the nature of the problem and what are its causes? Oftentimes company
employees have a good idea as to the cause of the company's problems and have good
suggestions for resolving them.

•

What is the timetable for the project? How soon is the system needed? If the company
must have a solution in a short amount of time, prototyping should be considered. The
answer may also affect the decision as to whether the prototype should be operational or
nonoperational.

•

What processes are involved? Identifying the business processes will allow the
consultant to identify the basic system requirements.

•

What does Meredith expect from their new executive information system? What
information does Meredith need to make effective decisions? When developing an
information system, the question of what information is needed is more important than
how the information should be processed.

•

What input data does Meredith need to capture and process in order to produce the
desired information? Where does the data originate and how does it enter the system?
How and where is it stored?

Explain how prototyping works. What would the system developer do during the
iterative process step? Why would you want the fewest iterations possible?
1. At Meredith, the prototype process would begin by interviewing personnel in order to
identify system requirements for the prototype. The focus should be on what output
should be produced and not how the output should be produced. Some of the questions
to ask Meredith personnel are shown in the answer to part a.
2. After identifying system requirements, an initial prototype would be developed that meets
the agreed-upon requirements. The goal would be to develop the prototype quickly and
turn it over to the users.
3. The users experiment with the prototype and determine what is good and what is bad
about it. Their feedback is used to modify the prototype. Within reason, there should be
as many iterations as needed to capture accurately user requirements. The more
efficiently this can be done; that is, the fewer iterations needed, the less the system will
cost, the faster it can be developed and implemented, and the happier the company and
the users will be.
4. When the prototype is completed, it is either made operational or used as the
specifications for developing a more functional system.
21-22

Accounting Information Systems
Prototyping tools are efficient, easy to use, and can create files, screens, reports, and program
code much faster and with much less effort than conventional programming languages.

Would you want the prototype to be operational or nonoperational? Why? If it were
an operational prototype, what would have to happen? If it were a nonoperational
prototype, how would the prototype be used?
The answer to these questions will vary depending on the student's view of the situation.
Some of the points the student should bring up are:
Operational Prototype. Because Meredith needs the system so quickly, an operational
prototype would be advantageous. To make the prototype operational, the developer must
make any changes in the system that are required to incorporate needed controls, improve
operational efficiency, provide backup and recovery, and to integrate the prototype with the
systems with which it interfaces. Changes must also be made, if necessary, so that the system
will accept real input, access real data files, process data, make the necessary computations
and calculations, and produce real output.
Nonoperational Prototype. In many instances, it is not practical to modify the prototype to
make it a fully functional system. The process of making a prototype operational may take as
long as recreating the system in a basic programming language and may not be as efficient.
In such cases, the prototype is discarded and the system requirements identified during the
prototyping process are used to develop a new system. The systems development life cycle is
followed to develop the system, with the prototype as the model for development.

Suppose the company decides the prototype system is not practical, abandons it, and
takes some other approach to solving its information problem. Does that mean
prototyping is not a valid systems development approach? Explain your answer.
Just because the prototype system is not used does not mean prototyping is not a useful
development technique. On the contrary, prototyping has saved the company thousands of
dollars and a great deal of time by finding out quickly that the system is not functional. That
is much more cost effective than going through the much more costly traditional SDLC
process.

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Ch. 21: AIS Development Strategies

21.8 Norcom, a division of a large manufacturer, needed a new distribution and customer service
system. The project was estimated to take 18 months and cost $5 million. The project team
consisted of 20 business and IT staff members. After two years, the CIO was fired, and the
company hired a CIO with expertise in saving troubled projects. The new CIO said three
grave errors were committed.
1. IT picked the wrong software using a very naïve request for proposal process.
2. IT did not formulate a project plan.
3. No one “owned” the project. The IT staff assumed the users owned the project, the users
believed the IT staff owned it, and management believed the vendor owned it.
The CIO developed a 2,000-line plan to rescue the project. Three months later, the system
failed, even with IT staff and consultants working on it day and night. The failed system was
to have been the company’s preeminent system, but it could not even process customer orders
correctly, resulting in complaints about late shipments and receiving the wrong goods.
After three years and $4 million, the new CIO polled the staff anonymously. Only two said the
project could be saved, and they had staked their careers on the project. The message that the
project was not worth saving was very hard for the CIO to give. It was likewise hard for the
division president to receive it; he could not accept the idea of killing a project that cost so
much money. He finally accepted the decision and all the ramifications involved, including
corporate IT taking control of all IT operations at his division.
a.

List the primary components of an RFP.
•

Detailed system specifications, with a clear distinction between mandatory and desired
requirements.

•

Applications required and desired.

•

Inputs and outputs required and desired

•

Files and databases required and desired

•

Frequency and methods of file updating and inquiry.

•

Unique characteristics or requirements.

Identify possible components or deficiencies in Norcom’s RFP that could have led the
new CIO to claim that it was naïve or insufficient.
•

The RFP lacked the software specifications needed to prepare a good RFP response.

•

Norcom did not have a project plan, which should have guided the RFP development.
The formulation of a good RFP would have required the creation of a project plan.

Identify possible approaches Norcom could have used to evaluate RFP responses.
•

Norcom could have requested help with the RFP process and the necessary documents
from someone with extensive RFP experience, such as a systems consultant.

•

Norcom could have brought in a more effective and experienced CIO earlier.

•

Norcom management could have created clear lines of authority and ownership of the
project.

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Accounting Information Systems
21.9 Quickfix is rapidly losing business, and management wants to redesign its computer repair
processes and procedures to decrease costs and increase customer service. Currently, a
customer needing help calls one of five regional service centers. A customer service
representative records the relevant customer information, finds the closest qualified
technician, and calls the technician’s cell phone to see whether the repair fits into his or her
schedule. If not, the representative finds the next closest technician. When a technician is
located, customer repair information is provided over the phone. The technician calls the
customer and arranges to pick up the computer and replace it with a loaner. Making these
arrangements takes one to two days and sometimes more if technicians are not available or do
not promptly return calls.
If a broken computer cannot be quickly repaired, it is sent to a repair depot. These repairs
take another four to seven days. If problems arise, it can take up to two weeks for an item to
be repaired. When a customer calls to see whether the computer is ready, the service
representative calls the technician to find out the status and calls the customer back. The
repair process usually takes five phone calls between the customer, the service representative,
and the technician.
There are several problems with this process that have led to a significant drop in business:
(1) it is time-consuming; (2) it is inconvenient for a customer to have a computer removed, a
new one installed, and then the old one reinstalled; and (3) service representatives do not have
immediate access to information about items being repaired. Quickfix decides to use BPM
principles to redesign its business processes.
a.

Identify the repair processes that occur and decide which should be redesigned.
1. Customer calls Quickfix requesting service.
2. Customer service representatives record customer information and repair needs.
3. Technicians are scheduled to make the repair.
4. Computer is repaired.
All four processes should be redesigned

Describe how the repair process can be redesigned to solve the three problems
identified.
Design a new information system with the following features.
•

A single, centralized database that stores all the data about customers, technicians, and
the items being serviced.

•

Software is available that automates the customer service process. The principles in the
chapter about buying software should be followed to select the system that best meets
Quickfix’s needs

•

The hardware needed to run the software and access the database mentioned above.

•

Quickfix could minimize its hardware and building costs and maximize efficiency by
creating one centralized customer service center instead of the five regional centers.

•

Alternatively, it could opt for keeping two to five service centers, each with its own
equipment. With multiple sites, each could serve as backups to the other sites. Service
centers closer to the customers might provide better customer service.

The repair process could be redesigned in many different ways. Some ideas are:
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Ch. 21: AIS Development Strategies
•

In addition to phone requests for service, Quickfix could design their new system to
accept requests via fax, emails, texts, entries on the customer service section of its web
site, etc.

•

When a repair request is received, a customer service representative enters the necessary
data into a customer order maintained in the information system. The design should
minimize the amount of data the service representative enters, while still giving
customers the flexibility of notifying Quickfix in the way that is most convenient to them.

•

The system uses the customer's address to search the list of authorized technicians
maintained in the company's database. The system produces a list of the four closest
technicians and their schedule for the next week. The system lists the technicians in
order of priority, based on location and availability. The customer service representative
selects one of the technicians to perform the repair service and the system sends them an
electronic notification and an electronic copy of the customer order.

•

If the technician is unable to perform the work on a timely basis, he responds
electronically and another technician is scheduled.

•

To repair computers faster, technicians could use specially equipped trucks equipped with
the necessary spare parts. This would allow them to do most repairs at the customer's
business instead of sending the computer to a repair center.

•

Each repair truck could be equipped with a global positioning systems (GPS) technology
that helps the technician locate the customer.

•

The GPS could also be used to facilitate emergency orders. The system could locate the
technician closest to the customer with the emergency and dispatching her to handle the
emergency as soon as she is available.

•

Technicians carry notebook computers with built-in radio frequency and cellular phone
technology modems that give them a direct, high-speed access to the company's
information systems via the internet. Using these modems, the technicians can
communicate with the central office from almost anywhere using a virtual private
network (VPN) ensuring a secure transmission of data.

•

Each morning the technicians logon to the Customer Service Center and retrieve their
schedule for the day. Their schedule is organized and prepared by the computer at the
Customer Service Center to minimize travel time. As each repair job is completed, the
technicians enter the data on the customer order and send it into the Customer Service
Center over the VPN.

•

If the computer cannot be repaired at the customer's site by the technician, the customer
service representative enters this into the system and picks up the computer. The
technician arranges for the repair center to pick up the broken computer and deliver a
loaner computer. The repair locations are also connected to the centralized system and as
computers are scheduled for repairs based on estimated arrival time. As the repairs are
made, the technicians update the customer order.

•

Since repair time will be greatly decreased, there will be many fewer phone calls asking
about the status of the repair. For those who do call, the centralized information system
provides the customer service representative with much more information. She can tell
the customer when the repair is scheduled, who will do it, and how to get hold of him
including his cell phone number and email address. If the computer has been sent away
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Accounting Information Systems
for repair, the representative can tell the customer when it is scheduled for repair and
when it will be returned.
In a world with no costs, Quickfix would do all of the above. However, we live in a world
where we must always weigh costs versus benefits and only implement the things the above
items that make financial sense.
c. What benefits can be achieved by redesigning the repair process?
•

Increased customer service and satisfaction because most computers are repaired
immediately at the customer's business. This should also save money because the
amount of time it takes to repair computers is reduced

•

A significant improvement in communication speed due to the centralized system and the
use of the latest advancements in technology. Customer service representatives will
know the exact status of any customer repair order.

•

Reduced costs from closing regional centers, service representatives having to do less
data entry and significantly less scheduling work, lower shipping and handling costs, and
handling few calls.

•

Increased revenues from technicians being able make more service calls in any given day
and the ability to handle higher margin emergency calls,

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Ch. 21: AIS Development Strategies

21.10

Conduct a search (using written materials, the Internet, electronic databases, etc.) for
successful and failed implementations of information systems. Per your professor’s
instructions, prepare an oral or written summary of a successful and a failed
implementation. Include in your summary the approach used to acquire or develop the
system (purchase software, develop it, modify it, outsource it).
Student answers will vary depending upon what they find.

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Accounting Information Systems
SUGGESTED ANSWERS TO THE CASES
21-1 Steve Cowan owns Professional Salon Concepts (PSC), a hair salon products distribution
company. After working for his father, a barber and beauty salon products distributor, he
started his own business selling Paul Mitchell products. Business was poor until Steve
conducted a free seminar demonstrating how to successfully use his products. He left with a
$1,000 order and a decision to sell to salons that allowed him to demonstrate his products.
Steve’s strategy paid off as PSC grew to 45 employees, 3,000 customers, and sales of $7
million. PSC carries 1,000 products, compared with 10,000 for most distributors. The smaller
product line allows PSC to achieve a 24-hour order turnaround, compared to over two days
for the competition. Steve occasionally has to work late packing orders and driving them to
the UPS hub a few towns away so he can meet the 2:00 A.M. deadline.
After buying a computer and installing a $3,000 accounting package, Steve thought
everything was going great until Terri Klimko, a consultant from a PSC supplier, stopped by.
Terri asked the following questions to find out how well he knew his business:
•

Do you know exactly how much you ship each month and to whom?

•

Do you know how much each customer bought, by supplier?

•

Can you rank your customer sales?

•

Can you break your sales down by product?

•

Do you know how the profit per client breaks down into product lines?

•

Do you know how revenues per salesperson vary over the days of the week?

When Steve answered no to each question, Terri told him that people who cannot answer the
questions were losing money. Upset, Steve terminated the session by politely dismissing Terri.
Although unimpressed with Terri’s advice, Steve was impressed with her and they were soon
married. Shortly afterwards she joined the company.
Steve asked Terri to help the salons become more profitable. She developed a template to help
salon owners determine how much each hairstylist brings in per client, how many clients
receive extra services, and which clients buy hair products. The Cowans soon became more
like partners to their customers than trainers. If a salon had employee problems, the Cowans
would help settle it. If a salon needed help with a grand opening, they lent a hand. The more
PSC products the salons bought, the more time the Cowans gave.
PSC sold turnkey systems and support services at cost to help salons answer Terri’s
questions. Unfortunately, PSC’s computer could not answer those same questions. Steve
asked consultant Mike Fenske for help. Mike entered all of PSC’s raw data into a database
and wrote a program to produce the desired information. The system worked but had
problems. It was so slow that accounts payable and purchasing information was handled
manually, it did not answer Terri’s growing list of questions, and only a few months of
detailed information were available at a time. To alleviate these problems, Steve hired Mike
as the company controller.
After reading an industry report, Steve realized it was time to purchase a new system. Steve
and Mike decided to evaluate and select the software themselves and rely on the vendor for
installation help. They spent months researching software and attending demonstrations
before settling on a $20,000 system. The vendor began installing the system and training PSC
personnel.
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Ch. 21: AIS Development Strategies

Three days prior to conversion, Steve met a distributor who described how his system met his
detailed accounting and customer reporting needs as well as his inventory management and
order fulfillment needs. Steve was so impressed that they stopped the conversion, went to
North Dakota to check out the distributor’s system, and flew to Minneapolis to visit DSM, the
software developer.
DSM did a great job of demonstrating the software and provided Steve and Mike with great
references. The only hitch was DSM’s inability to demonstrate two features that were
particularly important: adjusting orders automatically to reflect outstanding customer credits
and back orders, and determining the least expensive way to pack and ship each order.
DSM’s salespeople assured them that those features would be up and running by the time the
package was delivered to PSC.
Their economic feasibility analysis showed $234,000 in yearly savings:
$144,000 Most PSC orders consist of several boxes, 95% of which are sent COD. The old
PSC system had no way to prepare orders for multiple-box shipments; a fivebox order required five sales invoices and five COD tickets. The new system
allowed PSC to generate one sales order and ship one box COD and the other
four by regular delivery. Not having to ship every box COD would save $144,000
a year.
$50,000

PSC paid a CPA firm $50,000 a year to prepare its financial statements. The
new software would prepare the statements automatically.

$40,000

Because the old system did not have credit-managing capabilities, it was hard to
detect past-due accounts. Earlier detection of past-due accounts would result in
faster collections, fewer lost customers, and fewer write-offs.

Unknown The major reason for acquiring the system was to improve customer service by
making more detailed customer information available.
After estimated annual maintenance costs of $10,000, there was an annual return on
investment of $224,000. Because the system would pay for itself in less than a year, Steve
bought it and wrote off his $20,000 investment in the other system.
When DSM installed the software, Steve found out that the promised features were not
available and that there was no immediate plan to add them. Although Steve and Mike were
upset, they had to shoulder some of the blame for not insisting on the two features before
signing the deal. They found a program that automatically determined the cheapest way to
pack and ship an order. DSM agreed to pay half of the $10,000 cost to integrate it into the
program. DSM offered to create the module to reflect customer credits and back orders for
another $20,000, but Steve declined. These problems pushed the conversion date back several
months.
PSC spent three months preparing to implement the new system. Training PSC employees to
use the new system was particularly important. Adding a customer to the database required
only one screen with the old system, the new software required six screens. Employees were
taught to shout “Fire!” when they had a problem they could not handle. Mike or a DSM
programmer explained the error and how to correct it. During implementation, the new
system was tested for glitches by processing real data. Looking back, Mike admits three

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Accounting Information Systems
months were not nearly enough for the training and testing. They should have used twice as
much time to identify and eliminate glitches.
When PSC converted to the new system, telephone operators were confronted with situations
they had not been trained to handle. Soon everyone was yelling “Fire!” at the same time. In
less than one hour, so many operators were waiting for help that the programmers stopped
explaining the correct procedures and simply ran from operator to operator correcting
problems. Mistakes were repeated numerous times, and the situation intensified. Some
employees, frustrated by their inability to work the new system, broke down and cried openly.
In the warehouse, Steve was not having much fun either. On a normal day, PSC has 200 to
300 boxes ready for 3:30 P.M. shipment. On conversion day, a lone box sat ready to go.
Facing the first default on his 24-hour turnaround promise, Steve, Terri, Mike, and a few
others stayed past midnight packing and loading boxes on trucks. They barely made it to the
UPS hub on time.
The next day, order entry and shipping proceeded more smoothly, but Steve could not
retrieve data to monitor sales. That did not make him feel too kindly about his $200,000
system or DSM. It took Steve weeks to figure out how to get data to monitor sales. When he
did, he was horrified that sales had dropped 15%. They had focused so hard on getting the
system up and running that they took their eyes off the customers. To make matters worse,
Steve could not get information on sales by customer, salesperson, or product, nor could he
figure out why or where sales were falling. Things quickly improved after “Hell Week.”
Orders were entered just as quickly, and warehouse operations improved thanks to the
integrated add-in program. The new system provided pickers with the most efficient path to
follow and told them which items to pack in which boxes based on destination and weight.
The system selected a carrier and printed labels for the boxes. Order turnaround time was
shaved to 20 minutes from five hours.
Months after the system was installed, it still did not do everything Steve needed, including
some things the old system did. Nor did it answer all of Terri’s questions. Steve is confident,
however, that the system will eventually provide PSC with a distinct competitive advantage.
He is negotiating with DSM to write the credit and back-order module.
Steve believes the step up to the new system was the right move for his growing company.
With the exceptions of taking the DSM salesperson’s word and not taking enough time to
practice with the system, Steve feels PSC did as good a job as it could have in selecting,
installing, and implementing a new system.

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Ch. 21: AIS Development Strategies

Do you agree that PSC did a good job selecting, installing, and implementing the new
system? If so, why? Or do you feel PSC could have done a better job? If so, what did it
do wrong, and what should it have done differently?
PSC could have done a better job by doing the following:

•

Steve knows Terri is outstanding and he could have used her to manage better the
computerization process.

•

People who buy based on a demonstration or recommendations risk buying a demo
expert's personality rather than a system.

•

PSC shouldn't have paid for the software in full until it was satisfied with the
implementation. Vendor guarantees about performance and features should have been
written into the initial contract.

•

PSC employees that would use the system should have been involved in system selection.

•

PSC should have developed a written project plan for tracking all tasks, from the
software-selection process to implementation. Such a plan can highlight weaknesses in
the process and reveal timing problems.

•

Pain is inevitable in this sort of process. However, up-front pain isn't as bad as back-end
pain. PSC didn't have a strong enough implementation plan.

•

Instead of gambling on a "D-day" switchover to the new system, the company should
have done more extensive pilot testing and had a backup plan in case of problems.

•

Spending $200,000 for the system described in the case may be overkill. PSC might
have gotten most of the key benefits from a $20,000 system; the extra benefits may not
have been worth the extra cost.

How could PSC have avoided the missing features problem?
•

Steve should have prepared a specification document that defined all the features he
wanted in the new system and had each vendor bid to those specifications. The
specifications could then become part of the contract, and nasty surprises such as missing
features can be avoided.

•

Never buy "vaporware" - features that are promised but aren't quite ready.

How could PSC have avoided conversion and reporting problems?
•

PSC should have developed and documented a plan for testing the system. The plan
should include tests for all the features specified as well as the various real operation
problems people and the system will face. PSC should not have gone on-line until the
system could pass all the tests. It is important not to forget that people and processes are
as much a part of the system as the computer and the software.

•

Steve should have made sure, via testing, that he could get all the reports and information
he wanted before going on-line. Steve should have looked at the information needed on a
daily, weekly, and monthly basis, and established procedures tied to those frequencies.

•

More time should have been allocated for user training.

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Accounting Information Systems
4.

Evaluate Steve’s economic feasibility analysis. Do you agree with his numbers and his
conclusions?
•

Not all accountants’ fees can be saved. Even if the system prepares the statements, PSC
will probably still need tax help as well as an independent audit or review of the
statements.

•

Can PSC save $40,000 a year on faster collections, and fewer lost customers and
customer write-offs when 95% of $7 million in sales are COD?

•

Are there more costs involved than maintenance, such as improvements to the system,
higher personnel costs, etc.

How could PSC's customers use the new multi-box shipping approach to defraud PSC?
•

Customers could order a very large shipment, refuse the one COD package, and keep the
rest of the products and not pay for them.

How would you rate the service PSC received from DSM? What did it do well and what
did it do poorly?
The developer gets a bad grade for:
•

Their salespeople selling features that they had no intention of providing.

•

The conversion problems. The developer should have anticipated the problems and made
sure PSC prepared their people better.

The developer gets a good grade for:
•

Resolving one of the disputes over missing features by paying half of the cost and
integrating the purchased program with their software.

•

Helping solve the conversion and first day system operations problems. In all fairness to
the vendor, the conversion problems were not all their fault. PSC purchased the system
and has the ultimate responsibility for the system.

21-33

CHAPTER 22
SYSTEMS DESIGN, IMPLEMENTATION, AND OPERATION
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
22.1

Prism Glass is converting to a new information system. To expedite and speed up
implementation, the CEO asked your consulting team to postpone establishing standards
and controls until after the system is fully operational. How should you respond to the
CEO’s request?
The consulting team should strongly advise the CEO that postponing standards and controls
is not advisable. Rather than save time and money, the company will probably lose time in the
future when unanticipated problems and weaknesses arise due to the lack of standards and
controls. The following are reasons why performance standards and control procedures should be
established before the system becomes operational:
•

Internal control considerations must be taken into account when assigning job
responsibilities.

•

Job descriptions and work schedules must include the various control procedures.

•

Performance standards associated with each position must be considered when selecting
personnel to operate the system.

•

Documentation standards and data security provisions must be formulated before the system
can be operational.

•

Error checks must be built into all computer software systems.

•

Procedures for guiding users and operators through the system and the various error
conditions must be established before the users and operators begin working with the new
system.

•

If the information system is not properly controlled, the information it produces will be of
little value. Controls must be built into the system to ensure its effectiveness, efficiency, and
accuracy.

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Accounting Information Systems

22.2

When a company converts from one system to another, many areas within the organization
are affected. Explain how conversion to a new system will affect the following groups, both
individually and collectively.
The following are possible responses to each of the five areas:
a. Personnel: Employees will be affected in at least two important ways.
1. They may be reluctant to accept the new system. They may fear for their jobs, feel as if
they are no longer vital components of the organization, or they may completely reject
the new system, and refuse to utilize it.
2. They will have to learn new policies and procedures to work with the new system.
Initially, this may cause a slight reduction of overall productivity until they learn the
system.
b. Data Storage: One of the primary logistical concerns of implementing a new system is
making the required data accessible to the new system. This often requires that files be
converted to new formats and that the company's databases are restructured to accommodate
the new system's information requirements. In addition, new sources of input may be
required which will increase the need for employee instruction and training.
c. Operations: New personnel may have to be hired or current employees may need to be
trained to run the new system. Users will have to adjust to new system inputs and outputs.
The company as a whole will be affected by changes in employee morale and productivity
until the personnel are accustomed to and proficient with the system.
d. Policies and Procedures: A new information system usually requires new operating policies
and procedures, including those for data security and control, error checking, documentation,
backup and recovery procedures, and file maintenance. These new policies and procedures
should be disseminated to the employees before the actual conversion takes place to ensure
that the employees are aware of the new requirements and to facilitate the system conversion.
e. Physical Facilities: The effect on the physical facilities will be largely determined by the
size and nature of the system being installed. For example, a server will only require a corner
or perhaps a small room, whereas a mainframe may require a large facility. In any event, the
company will need to be concerned about physical access to the system; off-site backup and
recovery procedures; protection from fire, flooding, and other disasters; office space for
programmers and operators; lighting, air conditioning, and humidity control; and data
communications facilities.

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Accounting Information Systems
22.3

The following notice was posted in the employee cafeteria on Monday morning:
To:
All Accounting and Clerical Employees
From:
I.M. Krewel, President
Subject:
Termination of Employee Positions
Effective this Friday, all accounting and clerical employees not otherwise contacted will be
terminated. Our new computer system eliminates the need for most of these jobs. We’re
grateful for the loyal service you’ve rendered as employees and wish you success. You may
wish to pick up your final checks on Friday before you go.
Discuss the president’s approach to human resource management.
This approach is clearly unproductive and it would not work.
What are the possible repercussions of this episode?
•

Sabotage of the new system by disgruntled employees.

•

Employees not released will probably harbor ill feelings towards the company.
Employees may reflect these feelings through poor work performance, lower
productivity, higher absentee rates, and resentment towards the new system.

Assuming that job termination is the best alternative available, how should management
approach the situation?
•
•
•
•
•
•
•

Management should discuss the situation in person with each employee.
The changes that are being made should be clearly communicated to each employee.
Every effort should be made to relocate employees within the company and offer early
retirement incentives where possible.
Terminated employees should be told in person.
Giving employees a week's notice that they are "being replaced by a computer" may well
result in the system being sabotaged.
Employees should be terminated on Friday afternoon and given the appropriate severance
pay.
The termination should not come as a complete surprise to the employees. The
employees should have already known that every effort was made to relocate them within
the company and that termination was a last resort.

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Accounting Information Systems

22.4

In which phase of the systems development life cycle would each of the following positions
be most actively involved? Justify your answers.
a. Managerial accountant - The managerial accountant is usually involved in the analysis
phase as designers assess their needs as users. The project development team may also ask
the accountant to help with an economic feasibility analysis. In addition, the accountant may
also assist in the design phases, helping design reports.
b. Programmer - Most of the programmer's involvement comes during the physical design and
the implementation and conversion phases - coding, testing, and debugging computer
programs. The programmer is also involved with the maintenance phase, making
modifications to the system and fixing bugs.
c. Systems analyst - The analyst is usually involved in all phases of the SDLC.
d. Financial vice president - The financial vice-president is usually involved in the systems
analysis phase. However, as a member of the steering committee the financial VP will
oversee all phases of the SDLC.
e. Information systems manager – The IS manager is responsible for overseeing all
information systems activities; she will be involved in all phases of the SDLC.
f.

Internal auditor - The auditor is often consulted during the systems analysis phase when
security requirements for the new system are determined. During the design phase, the
auditor will often test controls to insure their adequacy. The operation and maintenance
phase lasts indefinitely and it is during this phase that the auditor conducts his routine audit
tests.

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Accounting Information Systems

22.5

During which of the five SDLC stages is each task, labeled (a) through (m), performed?
More than one answer may apply for each activity.
a. Writing operating procedures manuals - Physical (detailed) systems design phase and
Implementation and conversion phase
b. Developing program and process controls - Physical (detailed) systems design phase and
Implementation and conversion phase
c. Identifying alternative systems designs - Conceptual (general) systems design phase
d. Developing a logical model of the system - Conceptual (general) systems design phase
e. Identifying external and administrative controls - Conceptual (general) systems design
phase
f.

Testing the system - Implementation and conversion phase

g. Training personnel - Implementation and conversion phase and Operation and maintenance
phase
h. Evaluating the existing system - Systems analysis
i.

Analyzing the achievement of systems benefits - Operation and maintenance

Modifying and altering programs - Operation and maintenance

k. Analyzing total quality management (TQM) performance measures - This can be done in
all phases, but is most likely in the first (systems analysis) and last (Operation and
maintenance).
l.

Conducting a feasibility analysis - Feasibility tests are conducted at all phases of the SDLC.

m. Aligning AIS development plans with business objectives - Systems analysis phase

22-5

Accounting Information Systems

SUGGESTED ANSWERS TO THE PROBLEMS
22.1 You were hired to manage the accounting and control functions at the Glass Jewelry
Company. During your introductory meeting, the president asked you to design and
implement a new AIS within six months. Company sales for the past year were $10 million,
and they are expected to double in the next 18 months.
Outline the procedures you would follow to complete the assigned project.
a. You would perform the following steps to design and implement a new AIS:
•

systems analysis (initial investigation, systems survey, feasibility study, and determining
information needs and system requirements)

•

conceptual design (evaluate design alternatives, prepare design specifications, prepare
conceptual systems design report)

•

physical design (output, file and database, input, program, procedures, and control
design)

•

implementation of the system (implementation planning, prepare site, select and train
personnel, complete documentation, test system, and convert to the new system)

•

operate and maintain the system

Include a description of the following:
1. Sources of Information
o

company documents (organization charts, job descriptions, and procedure manuals)

current system outputs, reports, and documentation

interview users and management

observation of the current procedures

2. Methods of Recording Information
o

prepare narrative descriptions and organization charts

prepare data models

prepare document, systems, and program flowcharts

prepare data flow diagrams

complete questionnaires

3. Methods of Verifying the System Description
o

discussion with users

transaction testing

observation

22-6

Accounting Information Systems

b. The accounts payable system will contain a number of programs, including Enter
Invoices and Print Payable Checks. For each program, describe its purpose and outline
application control considerations.
1. Enter Invoices
This program permits operators to enter unpaid vendor invoices into the Accounts
Payable system. The program should enable the distribution of the invoice to specific
general ledger accounts. Controls include:
o

check to ensure that the vendor number is on file, i.e., valid vendor number

ensures that the invoice has not been previously entered, i.e., duplicate entry

ensures that the invoice has been fully allocated to general ledger accounts

ensures that the general ledger account numbers are valid

ensures that items were ordered and received and that prices and other charges are ok

2. Print Payable Checks
This program generates supplier checks to pay outstanding invoices. Controls include:
o

ensures that the vendor number on the invoice is valid (i.e., vendor is still on file)

ensures that checks are used in sequential order

ensures that only the outstanding invoice amount is paid

lists the invoices and the amount paid by the check (i.e., the remittance list)

ensures that negative checks are not printed

ensures that checks do not exceed a predetermined amount

ensures that there is an approved, unpaid invoice in the Accounts Payable file before
making a payment

22-7

Accounting Information Systems

22.2

Wang Lab’s tremendous growth left the company with a serious problem. Customers would
often wait months for Wang to fill orders and process invoices. Repeated attempts by
Wang’s understaffed IS department to solve these problems met with failure. Finally, Wang
hired a consulting firm to solve its revenue tracking problems and expedite prompt receipt
of payments. The 18-month project turned into a doubly long nightmare. After three years
and $10 million, the consultants were dismissed from the unfinished project.
The project failed for many reasons. The systems development process was so dynamic that
the failure to complete the project quickly became self-defeating as modifications took over
the original design. Second, management did not have a clear vision of the new AIS and
lacked a strong support staff. As a result, a number of incompatible tracking systems
sprang from the company’s distributed computer system. Third, the project was too large
and complex for the consulting firm, who had little experience with the complex database at
the heart of the new system. Finally, the project had too many applications.
Interdependencies among subprograms left consultants with few completed programs.
Every program was linked to several subprograms, which in turn were linked to several
other programs. Programmers eventually found themselves lost in a morass of subroutines
with no completed program.
The IS department finally developed a system to solve the problem, but their revenue
tracking system suffered quality problems for years.
Wang Labs asked you, a member of the IS staff, to write a memo explaining the failure of
the systems development project.
a. Why did the development project fail? What role did the consultants play in the
failure?
•

Dynamic requirements. The development process was so dynamic that the failure to
complete the project quickly was self-defeating as modifications took over the original
design. System requirements were never “frozen” so the project could be completed.

•

Management did not have a clear vision of the new system. As a result, incompatible
tracking systems sprung up throughout the company's distributed processing system.

•

Management lacked a strong IS staff. A qualified IS staff could have planned and
managed the development project better, improving the chances for success.

•

The project was too large and too complex and the consulting firm had little
experience. The firm had little understanding of the desired technology: a complex
database that represented the heart of the new system.

•

The project had too many applications. Interdependencies among subprograms and
subroutines left consultants with few completed programs.

b. Identify the organizational issues that management must address in the future.
•

Management should develop a unified strategic information plan. Organizations
should reinforce their business strategy with a complementary information strategy.

•

Wang should establish an IS steering committee to govern the development process
and support the strategic plan. A steering committee monitors systems development
activities and could have provided management oversight to the consulting team.

•

Wang should support the strategy with an expanded, qualified IS staff. A company's
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Accounting Information Systems
reputation is tarnished when it develops an inadequate and unreliable system.
Management should hire a larger IS staff, adding more qualified employees – ones that
have the necessary skills to support the information strategy.
•

Wang should set policies governing systems development. Well-established
procedures governing the planning, scheduling, design, implementation, and
documentation of a new information system can minimize the risk of runaway projects.
Management must also set standards governing the selection of consultants, if necessary.

c. Recommend steps the company could take to guarantee consulting service quality.
•

Wang should improve existing development policies. Wang must first establish its
internal development policies that govern the systems development process. For
example, a more effective internal MIS staff can provide the consultants with necessary
support.

•

Wang should establish consulting services evaluation criteria. Management must
view consultants as vendors and evaluate which consulting firm provides the best service
at a fair price. This may include closed bidding, background checks, credential checks,
and probing meetings to determine if the firm has the skills to complete the project.

•

Wang should use an IS steering committee and project development teams to
monitor consultants. An oversight body can reinforce the information strategy and hold
the consulting team accountable for the development process.

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Accounting Information Systems

22.3

Tiny Toddlers, a manufacturer of children’s toys and furniture, is designing and
implementing a distributed system to assist its sales force. Each of the 10 sales offices in
Canada and 20 in the United States maintains its own customers and is responsible for
granting credit and collecting receivables. Reports used by each sales office to maintain the
customer master file and to enter the daily sales orders are shown in Figures 22-4 and 22-5.
Evaluate the reports shown in Figures 22-4 and 22-5 using the following format:
Weakness
Explanation
Recommendation(s)
Customer Maintenance Form

Weakness

Explanation

Recommendation(s)

No fields for recording a
new customer’s phone
number, email address,
or website.

Tiny Toddlers cannot call or
email the customer or visit their
website without this data.

The form should have fields for this
information after the address
information.

The form is not prenumbered.

There is no way to ensure that all
maintenance forms are processed
and accounted for.

The form should have a preprinted
number in the upper right or left
corner.

No indication that
information has been
entered into the
computer system.

The person entering the data does
not initial the form after the data
is entered into the system. A
form may be missed or entered
twice.

The report should have a space to
record the initials of the person
entering the data and the date it is
entered.

There is no space
provided for recording
date the form is created
(or the effective date of
the change).

The company would not know the
effective date of the change nor
when the form was created.

An effective change date should be
added to this report. If the effective
change date can be different from
the date the form is created, a field
for that date should also be
included.

The form does not have
a place where the person
who fills out the form
can sign or initial.

If the data entry clerk could not
read or understand the
information on the form, she
would not know who filled out
the form.

A place should be provided for the
person who fills out the form to sign
or initial it.

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Accounting Information Systems

22.3 (continued)
Sales Order Form
Weakness

Explanation

Recommendation(s)

There is no indication
that the customer
approves of the order.

Where possible, all orders should be
signed by the customer to ensure that
the customer is responsible for
requesting the order.

Provision should be provided on
the form for the customer's order
approval.

The form is not prenumbered.

There is no way to ensure that all sales
orders are processed and accounted for.

There is no space to
enter a ship to address
or shipping
instructions

The goods cannot be shipped to a
different address than the customer’s
office address, as there is no ship to
address. Nor is there any want to know
a customer’s special shipping
instructions.

The form should have a
preprinted number in the upper
right corner.
Add a ship to address to the sales
order form as well as a space to
record special shipping
instructions.

There is no space for
the customer’s
purchase order number
There is no room for
the unit price or
extended amounts on
the sales order form

There is no way for the company to
reference back to purchase order from
the customer
There is no way to know if the
customer was given a special price, a
sale price, or a standard price.

Add as space on the form for the
customer purchase order number
Include columns for Unit Price
and Extended Amount.

Some students may refer to the sales order form shown in the Revenue Cycle chapter.

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Accounting Information Systems

22.4 Mickie Louderman is the new assistant controller of Pickens Publishers. She was the
controller of a company in a similar industry, where she was in charge of accounting and had
considerable influence over computer center operations. Pickens wants to revamp its
information system, placing increased emphasis on decentralized data access and online
systems. John Richards, the controller, is near retirement. He has put Mickie in charge of
developing a new system that integrates the company’s accounting-related functions. Her
promotion to controller will depend on the success of the new AIS.
Mickie uses the same design characteristics and reporting format she used at her former
company. She sends details of the new AIS to the departments that interface with accounting,
including inventory control, purchasing, human resources, production control, and
marketing. If they do not respond with suggestions by a prescribed date, she will continue the
development process. Mickie and John have established a new schedule for many of the
reports, changing the frequency from weekly to monthly. After a meeting with the director of
IS, Mickie selects a programmer to help her with the details of the new reporting formats.
Most control features of the old system are maintained to decrease the installation time, with
a few new ones added for unusual situations. The procedures for maintaining the controls are
substantially changed. Mickie makes all the AIS control change and program-testing
decisions, including screening the control features related to payroll, inventory control,
accounts receivable, cash deposits, and accounts payable.
As each module is completed, Mickie has the corresponding department implement the
change immediately to take advantage of the labor savings. Incomplete instructions
accompany these changes, and specific implementation responsibility is not assigned to
departmental personnel. Mickie believes operations people should learn as they go, reporting
errors as they occur.
Accounts payable and inventory control are implemented first, and several problems arise.
The semimonthly payroll runs, which had been weekly under the old system, have abundant
errors, requiring numerous manual paychecks. Payroll run control totals take hours to
reconcile with the computer printout. To expedite matters, Mickie authorizes the payroll
clerk to prepare payroll journal entries.
The new inventory control system fails to improve the carrying level of many stock items.
This causes critical stock outs of raw material that result in expensive rush orders. The new
system’s primary control procedure is the availability of ordering and user information. The
information is available to both inventory control and purchasing personnel so that both
departments can issue timely purchase orders. Because the inventory levels are updated daily,
Mickie discontinues the previous weekly report.
Because of these problems, system documentation is behind schedule, and proper backup
procedures have not been implemented. Mickie has requested budget approval to hire two
systems analysts, an accountant, and an administrative assistant to help her implement the
new system. John is disturbed by her request because her predecessor had only one part-time
assistant.
Adapted from the CMA Exam.
a.

List the steps Mickie should have taken during while designing the AIS to ensure that
end-user needs were satisfied.
•

Interviews should have been conducted with users affected by the changes to understand
existing system and business processes, what organizational units are affected by the
changes, procedures used to provide information, decision users make and the
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Accounting Information Systems
information needed to make them, current problems users face, needed improvements,
and future information needs

•

The capabilities of the new system should have been explained so users can determine
how the capabilities can be used to improve the system – ways the developers may not
have thought of. In other words, employees in the individual departments should have
been encouraged to make suggestions for changes and improvements.

•

Mickie should not have automatically assumed that the things that worked for her
previous employer would work at Pickens. While they can be used as a starting point,
Mickie needs to make sure that the human aspect of systems development is not ignored.
That is, Pickens employees have to buy into the new system.

•

As the different parts of the system are developed, the changes should be reviewed with
the affected users to ensure that their needs are met. Mickie should have been more
proactive in this process. It is not acceptable to give them a date to respond and then
proceed with development if she does not hear from them. The users should have been
actively involved in the development process all during development. This would endure
that all affected users approve of the changes and buy into the change.

•

Mickie and John should not take upon themselves the responsibility of determining what
information users need or when they need it. They should not have established a new
schedule for many of the reports, changing the frequency from weekly to monthly.

•

Mickie should not have assumed that the control features of the old system were
sufficient in the new system. While this may save time, it does not ensure adequate
controls. Mickie should not change the procedures for maintaining the controls without
user input and approval. In fact, all controls issues should be approved by the users.

•

Mickie cannot possibly understand the system and user needs well enough to made all the
control change and program testing decisions. The departments affected by the changes
should have been consulted.

•

While having departments implement changes immediately might produce labor savings,
there are more important things to consider when deciding when to implement the
system. These include whether it has been completely tested and how it interfaces with
the rest of the changes. This is evidenced by the problems that surfaced when the
changes were introduced too soon.

•

Incomplete instructions accompanied the changes, and specific implementation
responsibility was not assigned to departmental personnel. That, and Mickie’s belief that
operations people should learn as they go and report errors as they occur, is very bad
development policy.

•

Documentation should be complete and back up procedures should be in place before a
systems conversion takes place.

Identify and describe three ways Mickie violated internal control principles during the
AIS implementation.
•

Most of the control features of the "old" system were retained in the "new" system;
however, the procedures for maintaining controls were substantially changed. The
procedures and controls were not coordinated. More importantly, controls appropriate
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Accounting Information Systems
for the "new" systems were not properly developed and evaluated.

•

Proper backup procedures were not implemented in many areas. This put the system and
overall operations in a vulnerable position.

•

Systems, programming, and operating documentation were behind schedule.
Documentation should be complete before a systems conversion takes place.

•

Separation of duties was violated by allowing
o

both inventory control and purchasing personnel to issue purchase orders

payroll clerks to prepare journal entries for payroll processing

Identify and describe the weaknesses in Mickie’s approach to implementing the new
AIS. How could you improve the development process for the remaining parts of the
AIS?

Weaknesses
No systems analysis or feasibility
study.
Poor planning

Systems testing and reviews were not
conducted prior to implementation.
Little or no user involvement

System modules implemented without
adequate training, documentation, or
instructions.

Recommendations
Perform a thorough systems analysis that includes a
feasibility study.
Prepare a development plan, a budget, and a schedule for
project completion. An accepted implementation plan for
each module must be formalized and followed
All modules should be properly tested for processing,
informational, and control effectiveness. .
Users must participate in the development of the systems
plan, the tests of information content and controls, and final
implementation acceptance.
New modules should not be implemented until adequate
documentation is prepared and all affected organizations and
personnel have been appropriately trained.

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Accounting Information Systems

22.5

Ryon Pulsipher, manager of Columbia’s property accounting division, has had difficulty
responding to the following departmental requests for information about fixed assets.
1. The controller has requested individual fixed assets schedules to support the general
ledger balance. Although Ryon has furnished the information, it is late. The way the
records are organized makes it difficult to obtain information easily.
2. The maintenance manager wants to verify the existence of a punch press that he
thinks was repaired twice. He has asked Ryon to confirm the asset number and the
location of the press.
3. The insurance department wants data on the cost and book values of assets to include
in its review of current insurance coverage.
4. The tax department has requested data to determine whether Columbia should switch
depreciation methods for tax purposes.
5. The internal auditors have spent significant time in the property accounting division
to confirm the annual depreciation expense.
Ryon’s property account records, kept in an Excel spreadsheet, show the asset acquisition
date, its account number, the dollar amount capitalized, and its estimated useful life for
depreciation purposes. After many frustrations, Ryon realizes his records are inadequate
and that he cannot supply data easily when requested. He discusses his problems with the
controller, Gig Griffith.
RYON: Gig, something has to give. My people are working overtime and can’t keep
up. You worked in property accounting before you became controller. You know I
can’t tell the tax, insurance, and maintenance people everything they need to know
from my records. Internal auditing is living in my area, and that slows down the
work. The requests of these people are reasonable, and we should be able to answer
their questions and provide the needed data. I think we need an automated property
accounting system. I want to talk with the AIS people to see if they can help me.
GIG: I think that’s a great idea. Just be sure you are personally involved in the
design of any system so you get all the info you need. Keep me posted on the
project’s progress.
Adapted from the CMA Exam.
a. Identify and justify four major objectives Columbia’s automated property accounting
system should possess to respond to departmental requests for information.
Chapter 1 lists the following seven characteristics of useful information
•

Relevant. Information is relevant if it reduces uncertainty, improves decision-making, or
confirms or corrects prior expectations.

•

Reliable. Information is reliable if it is free from error or bias and accurately represents
organization events or activities.

•

Complete. Information is complete if it does not omit important aspects of the events or
activities it measures.

•

Timely. Information is timely if it is provided in time for decision makers to make
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Accounting Information Systems
decisions.
•

Understandable. Information is understandable if it is presented in a useful and
intelligible format.

•

Verifiable. Information is verifiable if two independent, knowledgeable people produce
the same information.

•

Accessible. Information is accessible if it is available to users when they need it and in a
format, they can use.

The CMA exam answer included a characteristic not on the above list:
•

Flexibility. Flexibility ensures that the computer will adapt to changing business needs
without a complete redesign.

b. Identify the data that should be included in the database for each asset.
• Asset name
• Manufacturer
• Model
• Serial number
• Asset class code
• Company assigned asset number
• General ledger account number
• Location data (plant, department, building)
• Acquisition date
• Original cost
• Data for book depreciation and tax depreciation
• Maintenance record: cycle, date, amount
• Estimated salvage value

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Accounting Information Systems

22.6

A credit union is developing a new AIS. The internal auditors suggest planning the systems
development process in accordance with the SDLC concept. The following nine items are
identified as major systems development activities that will have to be completed.
1. System test
2. User specifications
3. Conversion
4. Systems survey
5. Technical specifications
6. Post-implementation planning
7. Implementation planning
8. User procedures and training
9. Programming
Adapted from the CIA Exam.

a. Arrange the nine items in the sequence in which they should logically occur.
The logical sequence of occurrence is as follows:
1. Systems Survey
2. User Specifications
3. Technical Specifications
4. Implementation Planning
5. Programming
6. User Procedures and Training
7. System Test
8. Conversion
9. Postimplementation Planning
b. One major activity is converting data files from the old system to the new one. List
three types of file conversion documentation that would be of particular interest to an
auditor.
1. Conversion completion documentation indicating that all previously existing files have
been converted at a satisfactory level of quality.
2. Operating test documentation indicating that the converted files are able to support the
volume of work in the application.
3. Application approval documentation indicating that the implemented system had proper
user and EDP management approval.

22-17

Accounting Information Systems

22.7 MetLife, an insurance company, spent $11 billion to acquire Travelers Life and Annuity from
Citicorp in one of the largest insurance company acquisitions of all time. The Metlife CIO
estimated it would take three years to integrate the two systems. Because the integration
project was especially critical, he figured he could accomplish the integration in 18 months if
he pulled out all the stops. The MetLife CEO gave him nine months to complete the task. To
pull off the integration in nine months, he had to:
•

Integrate over 600 IS applications, all with their own infrastructure and business
processes. The new systems had to comply with “One MetLife,” a company policy that all
information systems had to have a common look and feel companywide and be able to
function seamlessly with other MetLife systems.

•

Work with over 4,000 employees located in 88 offices scattered all over the globe.

•

Supervise an oversight team and 50 integration teams in seven project management
offices.

•

Work with hostile, uncooperative Travelers employees for the six months it took to get
regulatory approval and close the deal. The systems had to be integrated three months
after the deal closed.

•

Identify integration deliverables (144 in total) and manage the process to deliver them.

•

Negotiate with Citicorp for hundreds of transition services that would not be immediately
converted to MetLife’s systems.

a. What tasks do you think MetLife would have to perform to successfully integrate the
Traveler systems into MetLife’s?
• Separate Travelers’ IS operations and assets from Citicorp’s so MetLife could begin the
systems integration process.
• Determine what systems had to be integrated before the deadline and which could be
outsourced to Citicorp until they could be integrated into MetLife’s system.
• Develop a critical path for the integration process so delays in critical path activities did not
delay the whole process.
• Train large numbers of employees in project planning activities and tools.
• Identify and freeze systems requirements as soon as possible. The project management
team should establish early deadlines for systems requirements and hold users to them.
• Increase system capacity to handle all of the new data from the Travelers’ systems.
• Develop/modify transaction-processing systems to handle all of Travelers’ transaction data.
• Perform a security and privacy analysis of all of Travelers’ systems and determine needed
upgrades to comply with MetLife’s security policies.
• Change Travelers’ laptop and desktop infrastructure so that it matched that of MetLife.
• Enlarge MetLife’s distribution system by integrating over 150 annuity and life insurance
wholesalers and giving them appropriate access to MetLife’s systems.
• Add all 4000 plus Travelers’ employees to MetLife’s Human Resources and Payroll
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Accounting Information Systems

•

•
•
•

systems and to their email system.
Move Travelers’ 6 life insurance and 2 annuity product lines to MetLife’s systems.
Travelers’ investment portfolio had to be made accessible to MetLife managers before the
deal closed. Both projects required MetLife and Travelers employees to analyze the
differences between the ways data were stored in the two companies. They then had to
map all data elements in each system so they could convert Travelers data to the MetLife
data storage format. This was one of the most difficult acquisition tasks.
Integrate the two company’s data centers. This required some data centers to be combined
and others to be expanded.
Determine system test capacities, build test environments, and lock down testing
procedures and capabilities. Stress and user acceptance testing had to be performed at least
3 months prior to the integration date.
Travel to every country and every major Travelers office to train former Travelers
employees on the MetLife systems.
Search the Internet for articles that describe the integration process. Write a two-page
summary of the problems and successes that MetLife experienced while integrating the
two systems.
A number of articles describe MetLife’s experience. A particularly good article is “Nine
Months to Merge” found in the February 20, 2006 issue of Information Week.

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Accounting Information Systems

22.8 During final testing, just before launching a new payroll system, the project manager at
Reutzel Legal Services found that the purchased payroll system was doing the following:
•

Writing checks for negative amounts

•

Printing checks with names and employee numbers that did not match

•

Making errors; for example, $8 per hour became $800 per hour if a decimal point was
not entered

•

Writing checks for amounts greater than a full year’s salary

Fortunately, payroll was still installed on time, and only 1.5% of the checks had to be
manually reissued every payday until the problem was solved.
Other problems were that no one had made sure the new system was compatible with the
existing payroll database, and there appeared to be no formal transition between the
development of the project and the implementation of the project. The system was never run
in parallel.
Although the programming manager lost his job, the payroll problems helped raise awareness
of the company’s growing dependence on IT. Lacking a major problem, there was a
perception that the information system did not affect operations.
a.

What does “the system was never run in parallel” mean?
Running in parallel refers to operating the old and new systems simultaneously for a period.
A company processes all transactions with both systems, compares the output, reconciles the
differences, and corrects problems. The old and new systems are run in parallel until the new
system proves itself and the organization is certain that the new system is functioning
properly.

If the company had run the system in parallel, what should have occurred?
Parallel processing protects companies from errors, but it is costly and stressful because the
same set of transactions and activities must be processed twice. This places a significant
burden on the company, a burden many companies are not willing to undertake. However,
because companies often experience problems during conversion, parallel processing has
gained widespread popularity.
If the company had operated the new and old systems in parallel, they should have been able
to use the paychecks produced by the old system until all errors were detected and corrected.

What other testing methodologies could have been used by the firm?
The company could have implemented a pilot conversion where one office or branch of the
company could have implemented, tested, and corrected any errors before releasing the
system to the rest of the organization.
Alternatively, the company could have performed a phased conversion where a new system is
implemented, tested, and modified one phase or module at a time.

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Accounting Information Systems

What other types of problems are evident from reading the case?
There does not appear to be proper management or leadership of the system development,
implementation, or testing processes involved in this system. For example
•

Final testing should have been attempted prior to just before launching the payroll
system.

•

Management should have made sure the new system was compatible with the existing
payroll database and the new system should have been tested using the existing database.

•

There should have been a formal transition between the development of the project and
the implementation of the project.

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Accounting Information Systems

22.9 A new program at Jones and Carter Corporation (JCC) was supposed to track customer
calls. Unfortunately, the program took 20 minutes to load on a PC, and it crashed frequently.
The project did not have a traditional reporting structure, and it appeared that no one was
actually in charge. The lead project manager quit halfway through the project, the in-house
programmers were reassigned to other projects or let go, and two layers of management
loosely supervised the systems analyst.
Management hired consultants to fix the application, but after three months and $200,000,
the project was discontinued. JCC did not check the references of the consulting firm it hired
to create the new system. The consultants, who were located two states away, made many
programming errors. Although the systems analyst caught some of the consultant’s mistakes,
they grew increasingly distant and difficult to work with. They would not even furnish the
source code to the project managers, most likely because they were afraid of revealing their
incompetence.
a.

Identify potential causes for the system implementation failure.

•

Leadership and managerial oversight is clearly lacking at Jones and Carter Corp (JCC).
When the project was managed internally, the following problems existed:
o

There was no evident reporting structure to support and manage the project. It
appeared that no one was actually in charge

The lead project manager quit halfway through the project

The in-house programmers who were familiar with the project were reassigned to
other projects or let go.

Two layers of management loosely supervised the systems analyst.

•

Management falsely assumed that the problems could be solved by hiring a consultant.
In truth, the problem with the project was internal and caused by poor management,
supervision, and project management.

•

When a consulting firm was hired, it does not appear that anyone checked out their
competence, obtained referrals, or did any other due diligence with regard to the
consulting firm.

What steps should JCC have taken to successfully design and implement the call
tracking system?
•

Start and end the process with a clearly designated manager over the project and with
clearly defined lines of authority.

•

Institute a formal review process for hiring consultants.

•

Require change control documentation so managers can see what changes were made
during development.

•

Assign a central manager for the project team who is the conduit for communication and
decisions.

In summary, JCC should have followed the systems development processes explained in
chapters 20-22.
22-22

Accounting Information Systems

SUGGESTED ANSWERS TO THE CASES
22.1 Citizen’s Gas Company (CGC) provides natural gas service to 200,000 customers. The
customer base is divided into the following three revenue classes:
Class
Residential
Commercial
Industrial
Totals

Customers
160,000
38,000
2,000

Sales in Cubic Feet
80 billion
15 billion
50 billion
145 billion

Revenues
$160 million
$ 25 million
$ 65 million
$250 million

Residential customer gas usage is highly correlated with the weather. Commercial customer
usage is partially weather dependent. Industrial customer usage is governed almost entirely
by business factors.
The company buys natural gas from 10 pipeline companies in the amounts specified in
contracts that run for 5 to 15 years. For some contracts, the supply is in equal monthly
increments; for other contracts, the supply varies according to the heating season. Supply
over the contract amounts is not available, and some contracts contain take-or-pay clauses.
That is, the company must pay for the gas volume specified in the contract, regardless of the
amount used.
To match customer demand with supply, gas is pumped into a storage field when supply
exceeds customer demand. Gas is withdrawn when demand exceeds supply. There are no
restrictions on the gas storage field except that the field must be full at the beginning of each
gas year (September 1). Consequently, when the contractual supply for the remain- der of the
gas year is less than that required to satisfy projected demand and fill the storage field, CGC
curtails service to industrial customers (except for heating quantities). The curtailments must
be carefully controlled to prevent either an oversupply at year-end or a curtailing of
commercial or residential customers so the storage field can be filled at year-end.
In recent years, CGC’s planning efforts have not been able to control the supply during the
gas year or provide the information needed to establish long-term contracts. Customer
demand has been projected only as a function of the total number of customers. Commercial
and industrial customers’ demand for gas has been curtailed. This has resulted in lost sales
and caused an excess of supply at the end of the gas year.
To correct the problems, CGC has hired a director of corporate planning. She is presented
with a conceptual design for an information system that will help analyze gas supply and
demand. The system will provide a monthly gas plan for the next five years, with particular
emphasis on the first year. The plan will provide detailed reports that assist in the decisionmaking process. The system will use actual data during the year to project demand for the
year. The president has indicated that she will base her decisions on the effect alternative
plans have on operating income.
Adapted from the CMA Exam.

1. Discuss the criteria to consider in specifying the structure and features of CGC’s new
system.
•

Need for market information The factors that affect the demand and supply for gas must
be isolated, their relative importance determined, and their effect quantified.
22-23

Accounting Information Systems
•

Need for accuracy The level of accuracy required of the system determines the required
level of detail, quality of the input data, and sophistication of the system logic. While the
system must be designed to provide the accuracy that matches the need, care must be
taken to ensure that excessive effort is not spent in being overly accurate in specific areas
when the overall accuracy is inherently less due to the planning environment.

•

Frequency of use The frequency of system use provides direction as to the level of
automation and sophistication needed. If the system will be used only once each month
to project the effect of the most recent actual data, it may be sufficient to develop a less
sophisticated system. If it is likely that a variety of alternatives will be evaluated each
month, a sophisticated, on-line system will be more desirable.

•

Turnaround required The need for timely reporting at month end provides guidance as to
the degree of automation and the level of complexity that will be appropriate. Because
the system is to be used for both multi-year planning and monthly tactical planning, the
system should be designed to provide for quick turnaround of results at month end.
Accordingly, consideration must be given to minimizing data input requirements.

•

Cost/benefit analysis The new system must be justified on a cost/benefit basis.

•

Data processing environment Typically, planning systems require a significant amount
of computer resources, both in terms of processing time and data storage.

•

Supportability Company personnel must be able to support the system on an ongoing
basis. This includes collecting and entering data as well as updating the system. If the
support burden is excessive, the system will suffer from lack of timely reporting or will
be run using simplifying assumptions that affect the degree of accuracy and credibility of
the system. If the system cannot be readily modified and maintained, it will quickly fall
into a state of disrepair and will no longer be used.

2. Identify the data that should be incorporated into CGC’s new system to provide adequate
planning capability. Explain why each data item it is important and the level of detail
needed for the data to be useful.
•

Number of customers The customer count should be projected by month, unless
customer growth is regular, in which case a base customer count can be used in
conjunction with a growth factor. The customer count should be broken into categories
based upon use which will facilitate estimating demand, [i.e., residential, commercial
heating, commercial nonheating, industrial heating, industrial non-heating].

•

Weather data The weather data needed to project heating requirements should be entered
as needed. For the first year, meteorological trends may indicate an unusually warm or
cold year. For the following years, average monthly weather data may be used. As the
year progresses, more accurate short-term forecasts should be entered to improve the
predictive ability of the panning system

•

Heating factors Heating factors are data that convert weather data to customers' demand.
They should be provided for each type of customer which uses heating, i.e., residential,
commercial heating, and industrial heating. The heating factors need not vary by month
unless it is determined that a seasonal relationship exists or that trends such as
conservation are likely.
22-24

Accounting Information Systems
•

Customer unit demand The average monthly consumption for each commercial and
industrial nonheating customer must be provided, either as a constant or as varying over
time, to reflect both seasonal fluctuations and longer term trends. This data would also
be used to project the nonheating portion of commercial and industrial customer demand.

•

Sales forecasts The sales to the top industrial accounts should be forecast individually by
month for the first year of the five-year plan; future years may make use of annual growth
rates. Heating and non-heating sales for all other customers will be projected by revenue
class.

•

Customer rate structure The customer rate structure should provide monthly rate
information at the revenue class level, i.e., residential, commercial, and industrial. Data
must be monthly to provide for periodic rate changes by revenue class.

•

Supplier contract terms For each supply contract, the contract term (beginning and end
dates), monthly volumes, unit costs, and take-or-pay conditions must be maintained.

•

Storage field capacity The capacity of the gas storage field is required in order to
determine if gas remains in storage that can be withdrawn to supplement pipeline supply.

•

Priority system A priority system needs to be established in case the company needs to
curtail service to its customers due to an inadequate supply of gas.

The first six factors are necessary in order to determine the demand for gas. The next two
items are necessary to determine supply. The last item is necessary to give direction
whenever the supply is not adequate to meet demand. Data must be considered on a monthly
basis because of the implied monthly variations of demand and supply.

22-25

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