CHAPTER 5: SYSTEMS users.

These include
DEVELOPMENT AND PROGRAM accountants, internal and
CHANGE ACTIVITIES external auditors, and the
internal steering committee
SDLC (Systems Development that oversees systems
Life Cycle) is a multistage development.
process used to guide systems 4. Accountants/Auditors are
development in many those professionals who
organizations. address the controls,
accounting and auditing
Key Activities: issues for system
Systems planning development.
Systems analysis Why Are Accountants and
Conceptual design Auditors Involved with
Systems selection SDLC?
First, the creation of
Detailed design
an information
Systems implementation;
system entails
and significant financial
Program change procedures transactions.
Accountants and
Participants in Systems auditors are experts in
Development (SESA) financial transactions
1. Systems Professionals - and thus can provide
are systems analysts, critical input into the
systems engineers, and system regarding
programmers. These controls, integrity,
individuals actually build the timeliness, and a
system. They gather facts number of other
about problems with the important aspects of
current system, analyze financial transactions.
these facts and formulate a Second and more
solution to solve the pressing concern for
problems. The product of accountants and
their efforts is a new system. auditors is with the
2. End users are those for nature of products
whom the system is built. that emerge from
These include managers, the SDLC. The quality
operations personnel, of accounting
accountants and internal information rests
auditors. directly on the SDLC
3. Stakeholders are activities that produce
individuals either within or AIS. The accountants
outside the organization who responsibility is to
have an interest in the ensure that the
system but are not end systems employ proper
 accounting conventions Organizations usually acquire
and rules, and possess information system in two ways:
adequate controls. 1. They develop customized
Therefore, accountants systems in-house through
are greatly concerned formal systems development
with the quality of the activities.
process that produces 2. They purchase commercial
AIS. systems from software
vendors.
How Accountants are involved
with the SDLC? In-House Development
Accountants are involved in Systems that are highly
systems development in three tuned to the unique
ways: operations of many
First, accountants are organizations.
users. These firms design their own
Accountants must information systems through
specify accounting in-house systems
techniques to be used, development activities.
internal control In-house development
requirements (such as requires maintaining a full-
audit trails), and time systems staff of analysts
special algorithms and programmers who
(such as depreciation identify user information
models). needs and satisfy their needs
Second, accountants with custom systems.
participate in systems
development as members Commercial Systems
of the development team. A growing number of systems
- Their involvement often are purchased from software
extends beyond the the vendors.
development of strictly Management must choose
AIS applications. the system and the vendor
- In all cases, the level of that best serve the needs of
auditor participation is the organization.
limited by independence
issues in professional Trends in Commercial
standards and ethics. Software: (REGT)
Third, accountants are 1. The relatively low cost of
involved in system general commercial
development as auditors. software as compared to
- AIS must be auditable customized software.
2. The emergence of
INFORMATION SYSTEMS industry-specific vendors
ACQUISITION who target their software
 to the needs of particular 2. Backbone Systems
types of businesses. provide a basic system
3. A growing demand from structure on which to build. It
businesses that are too comes with all the primary
small to afford in-house processing modules
systems development programmed.
staff; and 3. Vendor-Supported
4. The trend toward Systems are hybrids of
downsizing of custom systems and
organizational units and commercial software. Under
the resulting move toward this approach, the vendor
the DDP environment, develops (and maintains)
which has made the custom systems for its
commercial software clients.
option more appealing to
larger organizations. Advantages of Commercial
Software
Types of Commercial Systems Implementation Time
Cost
1. Turnkey System are Reliability
completely finished and
tested systems that are Disadvantages of Commercial
ready for implementation. Software
- Are usually sold only as Independence
compiled program
The need of customized
modules, and users have
limited ability to systems
customize them to their Maintenance
specific needs.
Types: SDLC
General Accounting The objectives and the
Systems are sequence of SDLC activities
designed (in modules) are logical and generally
to serve a wide variety accepted by experts in
of user needs. systems community, and are
Special-Purpose generally treated as best
Systems target practices for systems
selected segments of development.
the economy.
Office Automation New Systems Development
Systems are Involves conceptual steps
computer systems that that can apply to any
improve the problem-solving process:
productivity of office identify the problem,
workers . understand what needs to be
done, consider alternative
 solutions, select the best with the project or
solution and implement the terminate it
solution. Two levels:
1. Strategic systems
Systems Maintenance planning:
Constitutes the organizations - involves the allocation of
program change procedures. systems resource at the
It begins once the seven macro level. It usually
phases are complete and the deals with a time frame of
system is fully implemented. 3 to 5 years.
- This process is similar to
Systems Planning Phase I budgeting resources for
Objective: To link individual other strategic activities,
system projects or such as product
applications to the strategic development, plant
objectives of the firm. expansions, market
Basis: organizations research, and
business plan, which manufacturing technology.
specifies where the firm - Technically not part of
plans to go and how it will SDLC because the SDLC
get there. pertains to specific
allocations.
Who should do systems
- Concerned with the
planning? Systems
allocation of such systems
steering committee (CEO,
resources as: employees,
CFO, CIO, Senior Mgmt. from
hardware, software and
user areas, Internal auditor
telecommunications.
and Senior Mgmt. from
computer services) Why perform strategic
- Responsibilities: systems planning?
Resolving conflicts a. A plan that changes
that arise from new constantly is better than no
systems plan at all.
Reviewing projects b. Strategic planning reduces
the crisis component in
and assigning
systems development.
priorities
- Formal plan is a model
Budgeting funds for
for identifying and
systems
prioritizing user needs.
development
c. Strategic systems planning
Reviewing the status
provides authorization control
of individual projects for the SDLC.
under development d. Cost management.
Determine at
various checkpoints 2. Project Planning:
throughout the SDLC - Purpose: To allocate resources to
whether to continue individual applications within the
framework of strategic plan. To Disadvantages of Surveying
allocate scarce resource to specific the Current System:
projects. Current physical tar pit. This
- Products: terms is used to describe the
Project proposal: tendency on the part of the
- Provides management analyst to be sucked in and
with a basis for deciding then bogged down by the
whether to proceed with task of surveying the current
the project. dinosaur system.
Project schedule: Thinking inside the box.
- Represents managements
commitment to the Gathering Facts (DUD-PDC-
project. It is also a budget TERB)
of the time and costs for System facts fall into the following
all phases of the SDLC. broad classes.
Data sources these
Systems Analysis Phase II include external entities,
Is actually a two steps such as customers or vendors
process involving: survey of as well as internal sources
the current system and then from other departments.
an analysis of the users Users these include both
needs. managers and operations
Is the foundation for the rest users.
of the SDLC. Data stores are the files,
The deliverable from this databases, accounts, and
phase is a systems analysis source documents.
report, which presents the Processes either manual
findings of the analysis and or computer operations that
recommendations for the represent a decision or an
new system. action triggered by
System survey: facts information.
pertaining to preliminary Data flows are
questions about the system represented by the
are gathered and analyzed. movement of documents and
reports between data
Advantages of Surveying the sources, data stores,
Current System processing tasks and users. It
Identifying what aspects of can also be represented in
the old system should be UML diagrams.
kept. Controls these include
Forcing systems analysts to both accounting and
fully understand the system. operational controls and may
Isolating the root of problem be manual procedures or
symptoms. computer controls.
 Transaction volumes system. The instruments
Understanding the used to gather these facts
characteristics of a systems may be:
transaction volume and its - Open-ended questions:
rate of growth are important allow users to elaborate
elements in assessing on the problem as they
capacity requirements for the see it and offer
new system. suggestions and
Error rates As a system recommendations. (WH
reaches capacity, error rates questions)
increase to an intolerable - Questionnaires: are used
level. to ask more specific,
Resource costs these detailed questions and to
include the costs of the labor, restrict the users
computer times, materials responses.
(such as invoices) and direct Reviewing Key
overhead. Documents. Examples:
- Escapable costs any - Organizational charts
resource cost that - Job descriptions
disappear when the - Accounting records
current system is - Chart of Accounts
eliminated. - Policy statements
Bottlenecks and - Descriptions of procedures
redundant operations - Financial Statements
- Performance reports
Fact- Gathering Techniques - System flowcharts
- Source documents
Observation involves
- Transaction listings
passively watching the
- Budgets
physical procedures of the
- Forecasts
system.
- Mission statements
Task Participation is an
extension of observation, The Analysis Step
whereby the analyst takes an
Systems analysis is an
active role in performing the
intellectual process that is
users work. This allows the
commingled with fact
analyst to experience first-
gathering.
hand the problems involved
in the operation of the
Systems Analysis Report
current system.
This report presents to
Personal Interviews.
management or the steering
Interviewing is a method of
committee the survey
extracting facts about the
findings, the problems
current system and user
identified with the current
perceptions about the
system, the users needs,
requirements for the new
 and the requirements of the
new system The Object-Oriented Design
(OOD) Approach
It is often most associated
with the iterative approach
Conceptual Systems Design to SDLC where small
Phase III chunks or modules cycle
Purpose: To produce several through all of the SDLC
alternative conceptual phases rather rapidly, with a
systems that satisfy the short time frame from
system requirements beginning to end.
identified during systems The purpose is to build
analysis. information systems from
Two approaches to reusable standard
conceptual design: the components or objects.
structured approach and the This approach may be
object-oriented approach. equated to the process of
building an automobile.
The Structured Design The concept of reusability is
Approach central to the object-oriented
It is a disciplined way of approach to systems design.
designing systems from the Benefits:
top down. It consists of - Reduced time and cost for
starting with the big picture development,
of the proposed system that maintenance and testing
is gradually decomposed into - Improved user support
more and more detail until it - Flexibility in the
is fully understood. development process
Under this approach, the
business process under System Evaluation and
design is usually documented Selection Phase IV
by data flow and structured It is an optimization process
diagrams. that seeks to identify the
Necessary components not best system.
included in the conceptual The procedure for selecting
design: the one system from the set
o Database record of alternative conceptual
structures designs that will go to the
o Processing details detailed design phase.
o Specific control Purpose: to structure this
techniques decision-making process and
o Formats for input thereby reduce both
screens and source uncertainty and the risk of
documents making a poor decision.
o Output report formats Two steps involved:
 Performed a detailed - One-time costs include
feasibility study (TELOS) the initial investment to
- Technical Feasibility: develop and implement
concerned with whether the system
the system can be o Hardware
developed under existing acquisition
technology or if new includes the cost of
technology is needed. mainframe,
- Economic Feasibility: minicomputers,
pertains to the availability microcomputers,
of funds to complete the and peripheral
project. equipment, such as
- Legal Feasibility: identifies tape drives and disk
any conflicts between the packs. The cost
conceptual system and figures can be
the companys ability to obtained from the
discharge its legal vendor.
responsibilities. o Site preparation
- Operational Feasibility: this cost involved
shows the degree of such frequently
compatibility between the overlooked costs as
firms existing procedures building
and personnel skills and modifications,
the operational equipment
requirements of the new installation, and
system. freight charges.
- Schedule Feasibility: o Software
relates to the firms ability acquisition these
to implement the project cost apply to all
within an acceptable time. software purchased
Perform a Cost-Benefit for the proposed
Analysis system, inc.
- Helps management operating system
determine whether (and software, network
by how much) the benefits control software,
received from a proposed and commercial
system will outweigh its applications.
costs. o Systems design
- This technique is these costs are
frequently used for incurred by systems
estimating the expected professionals
financial value of business performing the
investments. planning, analysis,
- Three steps in the and design
application of COBA: functions.
- Identify costs:
 o Programming and destruction by
testing disgruntled
programming costs employees.
and system testing o Supplies these
costs. costs are incurred
o Data conversion through routine
these costs arise in consumption of such
the transfer of data items as paper,
from one storage magnetic disks, CDs,
medium to another. and general office
o Training the costs supplies.
involve educating o Personnel costs
users to operate the these are salaries of
new system. individuals who are
- Recurring costs part of the
include operating and information system.
maintenance costs the - Identify benefits:
recur over the life of the - Tangible benefits fall
system into two categories: those
o Hardware that increase revenue and
maintenance this those that reduce costs.
costs involves the o Increased
upgrading of the revenues:
computer, as well as Increased
preventive sales within
maintenance and existing
repairs to the markets
computer and Expansion into
peripheral other markets
equipment. o Cost reduction:
o Software Labor
maintenance reduction
these costs include Operating cost
upgrading and reduction
debugging operating Reduced
systems, purchased inventories
applications, and in- Less
house developed expensive
applications. equipment
o Insurance the Reduced
cost covers such equipment
hazards and maintenance
disasters as fire, - Intangible benefits
hardware failure, those that can be easily
vandalism, and measured and quantified.
 o Increased customer benefits for each alternative
satisfaction design.
o Improved employee
satisfaction Detailed Design Phase V
o More current Purpose: To produce a
information detailed description of the
o Improved decision proposed system that both
making satisfies the system
o Faster response to requirements identified
competitor actions during systems analysis and
o More efficient is in accordance with the
operations conceptual design.
o Better internal and
external Perform a System Design
communications Walkthrough
o Improved planning Walkthrough to ensure
o Operational that the design is free from
flexibility conceptual errors the could
o Improved control become programmed into the
environment final system.
- Compare cost and Many firms have formal,
benefits: structured walkthroughs
- Net present value conducted by a quality
method the PV of the assurance group.
costs is deducted from the Quality assurance group
PV of the benefits over the this group is an independent
life of the system. one made up of
- Payback method is a programmers, analysts, users
variation of break-even and internal auditors. The job
analysis. The break-even of this group is to simulate
point is reached when the operation of the system
total costs equal total to uncover errors, omissions,
benefits. and ambiguities in the
design.
Prepare Systems Selection
Report Review System Documentation
Systems selection report Detailed design report
the deliverable product of the documents and describes the
systems selection process system to this point.
This formal document This report includes the ff:
consists of a revised - Designs for all screen
feasibility study, a cost- inputs and source
benefit analysis, and a list documents for the system
and explanation of intangible
 - Designs of all screen executed in a predefined
outputs, reports, and sequence.
operational documents. - Microsofts Visual Basic is
- Normalized data for the most popular example
database tables, of an event-driven
specifying all data language.
elements. Object-Oriented
- Database structure and Languages: the most
designs popular true OOP languages
- An updated data are Java and Smalltalk.
dictionary describing each
data element in the Programming the System
database. Modular approach: this
- Processing logic (flow technique produces small
charts) programs that perform
narrowly defined tasks.
Application Programming and - Benefits:
Testing Phase VI o Programming
Program the Application efficiency
Software: these include o Maintenance
procedural languages like efficiency
COBOL, event-driven o Control
languages like Visual Basic or
object-oriented programming Test the Application Software
(OOP) languages like Java or (3Ts)
C++ Testing Methodology the
Procedural Languages: process itself has structured
require the programmer to steps to follow.
specify the precise order in Testing Offline Before
which the program logic is Deploying Online the first
executed. They are often point that is critical in testing.
called third-generation
Test Data creating
languages (3GLs).
meaningful test data is an
- Examples include: COBOL,
extremely time-consuming
FORTRAN, C and PL1.
aspect of program testing.
- COBOL: was the dominant
language for years. It is an
Systems Implementation
extremely wordy
Phase VII
language that makes
programming a time- Database structures are
consuming task created and populated with
data, equipment is purchased
Event-driven Languages:
and installed, employees are
are no longer procedural.
trained, the system is
Under this model, the
documented, and the new
programs code is not
system is installed.
 files, and output files used
Testing the Entire System in the system
User personnel should direct - Run-time instructions
system-wide testing as a describing the error
prelude to the formal system messages that may
implementation. The appear, actions to be
procedure involves taken, and the name of
processing hypothetical data the telephone
through the system. programmer on call,
should the system fail
Documenting the System - A list of users who receive
The systems the output from the run
documentation provides User Documentation
the auditor with essential users need documentation
information about how the describing how to use the
system works. system.
Designer and Programmer - One possible classification
Documentation some of scheme:
this is provided through data - Novices have little or no
flow diagrams, entity relation experience with
(ER) diagrams, and structure computers and are
diagrams. embarrassed to ask
- System flowchart questions.
shows the relationship of - Occasional users once
input files, programs, and understood the system
output files. but have forgotten some
- Program flowchart essential commands and
provides a detailed procedures
description of the - Frequent light users
sequential and logical are familiar with limited
operation of the program. aspects of the system.
Operator Documentation - Frequent power users
computer operators use understand the existing
documentation called a run system and will readily
manual, which describes adapt to new systems.
how to run the system. User Handbook user
- Typical content of a run documentation often takes
manual: the form of a user handbook,
- The name of the system as well as online
- The run schedule documentation.
- Required hardware - Contents:
devices - An overview of the system
- File requirements and its major functions
specifying all the - Instructions for getting
transactions files, master started
 - Descriptions of procedures
with step-by-step visual
references
- Examples of input screens
and instructions for
entering data
- A complete list of error
message codes and
descriptions
- A reference manual of
commands to run the
system
- A glossary of key terms
- Service and support
information
Some online features:
Tutorials can be used to
train the novice or occasional
user.
Help features range from
simple to sophisticated.
Converting the Databases
Database conversion a
critical step in the
implementation phase. This
is the transfer of data from
its current form to the format
or medium required by the
new system.
Following precautions should
be taken: (VRB)
- Validation this requires
analyzing each class of
data to determine whether
it should be reproduced in
the new database.
- Reconciliation
sometimes done
manually, record by record
and field by field.
- Backup
Converting to the New System
(CPP)
Cutover the process of
converting from the old
system to the new one.
Three approach:
Cold Turkey Cutover (also
called the Big Bang
approach) the firm switches
to the new system and
simultaneously terminates
the old system. Is akin to
skydiving without a reserve
parachute.
Phased Cutover begins
operating the new system in
modules.
Parallel Operation Cutover
involves running the old
system and the new system
simultaneously for a period of
time. The most time
consuming and costly of the
three.
The Auditors Role in System
Implementation:
Provide technical expertise
Specify documentation
standards
Verify control adequacy and
compliance with SOX
Post Implementation Review
One of the most important
steps in the implementation
stage actually takes place
some months later.
Examples of valuable post-
implementation evidence:
- Systems Design Adequacy
- Accuracy of Time, Cost
and Benefit Estimates
Systems Maintenance Phase accommodate changes in
VIII user needs.
Systems Maintenance is a
formal process by which
application programs
undergo changes to