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Chapter 4: Systems Development

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Title: CIS-496 / I.S. Auditing Author: Tommie Singleton Last modified by: Faculty, staff, student or affiliate. Created Date: 2/15/2000 3:03:20 PM – PowerPoint PPT presentation

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Title: Chapter 4: Systems Development


1
Chapter 4Systems Development Maintenance
Activities
2
PROJECT PARTICIPANTS
  • Systems professionals
  • End users
  • Stakeholders
  • ACCOUNTANTS
  • Internal
  • External
  • Limitations of involvement

3
ACCOUNTANTS/AUDITORS
  • Why are accountants/auditors involved?
  • Experts in financial transaction processes
  • Quality of AIS is determined in SDLC
  • How are accountants involved?
  • Users (e.g., user views and accounting
    techniques)
  • Members of SDLC development team(e.g., Control
    Risk being minimized)
  • Auditors (e.g., auditable systems)

4
IS Development
  • In-house development
  • Purchase commercial systems
  • General Rule Never build if you can acquire a
    system that will provide 80 of your needs.
  • Qstn When would you want to build your own
    system?

5
TRENDS IN COMMERCIAL SOFTWARE
  • Trends in commercial software
  • Relatively low cost for general purpose software
  • Industry-specific vendors
  • Businesses too small to have in-house IS staff
  • Downsizing DDP

6
TYPES OF COMMERCIAL SYSTEMS
  • Turnkey systems
  • General accounting systems
  • Typically in modules
  • Special-purpose systems
  • Example banking
  • Office automation systems
  • Purpose is to improve productivity
  • Enterprise systems (ERP)
  • SAP, Peoplesoft, Baan, Oracle, IBM

7
COMMERCIAL SYSTEMS
  • Advantages
  • Implementation time
  • Cost
  • Reliability
  • Disadvantages
  • Independence
  • Customization needs
  • Cost
  • Maintenance

8
SYSTEMS DEVELOPMENT LIFE CYCLE (SDLC)
  • New systems
  • Systems planning
  • Systems analysis
  • Conceptual systems design
  • System evaluation and selection
  • Detailed design
  • System programming and testing
  • System implementation
  • System maintenance

9
SYSTEMS PLANNING PHASE I
  • PURPOSE To link individual systems projects to
    the strategic objectives of the firm.
  • Link individual projects to strategic objectives
    of the firm -
  • Who does it?
  • Steering committee
  • CEO, CFO, CIO, senior mgmt., auditors, external
    parties
  • Ethics and auditing standards limit when auditors
    can serve on this committee
  • Long-range planning 3-5 years
  • Allocation of resources - broad

10
SYSTEMS PLANNING-PHASE I
  • Level 1 Strategic systems planning
  • Why?
  • A changing plan is better than no plan
  • Reduces crises in systems development
  • Provides authorization control for SDLC
  • It works!
  • Level 2 Project planning
  • Project proposal
  • Project schedule

11
SYSTEMS PLANNING-PHASE I
  • Auditors role in systems planning
  • Auditability
  • Security
  • Controls

12
SYSTEMS PLANNING-PHASE I
SUMMARY
  • Identify users needs
  • Preparing proposals
  • Evaluating proposals
  • Prioritizing individual projects
  • Scheduling work
  • Project Plan allocates resources to specific
    project
  • Project Proposal Go or not
  • Project Schedule represents mgmts commitment

13
SYSTEMS ANALYSIS-PHASE II
  • PURPOSE Effectively identify and analyze the
    needs of the users for the new system.
  • Survey step
  • Disadvantages
  • Tar pit syndrome
  • Thinking inside the box
  • Advantages
  • Identify aspects to keep
  • Forcing analysts to understand the system
  • Isolating the root of problem symptoms

14
SYSTEMS ANALYSIS-PHASE II
Gathering facts
  • Data sources
  • Users
  • Data stores
  • Processes
  • Data flows
  • Controls
  • Transaction volumes
  • Error rates
  • Resource costs
  • Bottlenecks
  • Redundant operations

15
SYSTEM EVALUATION SELECTION PHASE IV
  • PURPOSE Process that seeks to identify the
    optimal solution from the alternatives
  • Perform detailed feasibility study
  • Technical feasibility existing IT or new IT?
  • Legal feasibility
  • Operational feasibilityDegree of compatibility
    between the firms existing procedures and
    personnel skills, and requirements of the new
    system
  • Schedule feasibility implementation
  • Perform a cost-benefit analysis
  • Identify costs
  • Identify benefits
  • Compare the two

16
SYSTEM EVALUATION SELECTION-PHASE IV
Cost-Benefit Analysis Costs
  • ONE-TIME COSTS
  • Hardware acquisition
  • Site preparation
  • Software acquisition
  • Systems design
  • Programming
  • Testing
  • Data conversion
  • Training
  • RECURRING COSTS
  • Hardware maintenance
  • Software maintenance
  • Insurance
  • Supplies
  • Personnel
  • Allocated existing IS

17
SYSTEM EVALUATON SELECTIONPHASE IV
Cost-Benefit Analysis Benefits
  • INTANGIBLE 2
  • Increased customer satisfaction
  • Improved employee satisfaction
  • More current information
  • Improved decision making
  • Faster response to competitors actions
  • More effective operations
  • Better internal and external communications
  • Improved control environment
  • TANGIBLE
  • Increased revenues
  • Increased sales in existing markets
  • Expansion into new markets
  • Cost Reduction 1
  • Labor reduction
  • Operating cost reduction
  • Supplies
  • overhead
  • Reduced inventories
  • Less expensive eqpt.
  • Reduced eqpt. maint.

18
Cost-Benefit Analysis Comparison
  • NPV 1 Table 4-4
  • Payback 2 Figures 4-7a, 7b
  • BE
  • Auditors role
  • Managerial accounting techniques 3
  • Escapable costs
  • Reasonable interest rates
  • Identify one-time and recurring costs
  • Realistic useful lives for competing projects
  • Determining financial values for intangible
    benefits

19
SYSTEM PROGRAMMING TESTING PHASE VI
Program the Application
  • Procedural languages
  • Event-driven languages
  • OO languages
  • Programming the system
  • Test the application Figure 4-8
  • Testing methodology
  • Testing offline before deploying online
  • Test data
  • Why?
  • Can provide valuable future benefits

20
SYSTEMS IMPLEMENTATION PHASE VII
  • PURPOSE Database structures are created and
    populated with data, applications are coded and
    tested, equipment is purchased and installed,
    employees are trained, the system is documented,
    and the new system is installed.
  • Testing the entire system
  • Documenting the system
  • Designer and programmer documentation
  • Operator documentation
  • User documentation

21
SYSTEMS IMPLEMENTATIONPHASE VII
Conversion
  • Converting the databases
  • Validation
  • Reconciliation
  • Backup
  • Converting the new systemAuditor involvement
    virtually stops!
  • Cold turkey cutover
  • Phased cutover
  • Parallel operation cutover

22
SYSTEMS IMPLEMENTATION PHASE VII
Post-Implementation Review
  • Reviewed by independent team to measure the
    success of the system
  • Systems design adequacy
  • Accuracy of time, cost, and benefit estimates
  • Auditors role
  • Provide technical expertise
  • Specify documentation standards
  • Verify control adequacy
  • External auditors

23
SYSTEMS IMPLEMENTATIONPHASE VII
Auditors Role
  • Provide technical expertise
  • AIS GAAP, GAAS, SEC, IRS
  • Legal
  • Social / behavioral
  • IS/IT (if capable)
  • Effective and efficient ways to limit application
    testing
  • Specify documentation standards
  • Verify control adequacy
  • COSO SAS No. 78 PCAOB Standards
  • Impact on scope of external auditors

24
SYSTEMS MAINTENANCEPHASE VIII
  • PURPOSE Changing systems to accommodate changes
    in user needs
  • 80/20 rule
  • Importance of documentation?
  • Facilitate efficient changes
  • Facilitate effective changes (at all!)

25
Project Authorization
Preliminary Feasibility
SystemsPlanning
Project Proposal
Project Schedule
SystemsAnalysis
System Analysis Rpt
ConceptualDesign
DFD (general)
SystemsSelection
System Selection Rpt
FeasibilityStudy
Cost-BenefitAnalysis
DetailedDesign
ER Diagram
Detailed Design Rpt
DFD (Detail)
Relational Model
Normalized Data
System Implementation
Program Flowcharts
Post-Impl. Review
Documentation
User Acceptance Rpt
26
  • A materially flawed financial application will
    eventually corrupt financial data, which will
    then be incorrectly reported in the financial
    statements. Therefore, the accuracy and
    integrity of the IS directly affects the accuracy
    of the clients financial data.

27
CONTROLLING AUDITING THE SDLC
Audit Objectives Procedures
  • Audit objectives
  • Verify SDLC activities are applied consistently
    and in accordance with managements policies
  • Verify original system is free from material
    errors and fraud
  • Verify system necessary and justified
  • Verify documentation adequate and complete
  • Audit procedures
  • How verify SDLC activities applied consistently?
  • How verify system is free from material errors
    and fraud?
  • How verify system is necessary?
  • How verify system is justified?
  • How verify documentation is adequate and complete?

28
End Chapter 4Systems Development
Maintenance Activities
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