Transcript Information Systems Auditing

Information Systems
Auditing
Instructor: Chris Westland, PhD, CPA
Certified Public Accountant (Texas License 17277)
ISMT300T Information Systems Auditing
Time: Wed & Fri 10:30am-12noon
Venue: Rm. 3219
Duration: 1 Sep - Dec 6
Week 2 topics
What is IS Auditing?
oWhat is the Industry Structure?
oSurvey of Information Technology
oInformation Systems impact on Accounting
oAccounting Irregularities and Financial Fraud (Video)
Today’s Topics
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Preliminaries (Syllabus / Grading / Case Studies)
IT Industry Structure
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How we got here
Where we are now
Tools of the Trade (HW / SW)
Recent Trends, and implications for other industries
The Importance of IT Strategy & Business Models
How to think about IT value and its sources
Recap:
Automated Clerks: 1963-1980
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Back Office
Computers as automated accountants
Goals were efficiency and cost control
“Legacy” systems automated manual tasks
… but had no significant effect on management’s decision making
Recap:
Empowerment: 1980-1995
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Client / server systems
enhanced the productivity of
knowledge workers
Word processing,
spreadsheets, and other tools
Fomented a “white-collar”
revolution
How did we get here?
Networking: 1995 onward
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The Virtual Office (Global
Marketplace)
Net and Web and internal
networks integrate the separate
activities of the firm
What were “islands of data”
have become “knowledge
nodes” accessible to the whole
firm
… and the global marketplace
Recap:
Embedding:2002-2010
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Computers grow cheap, small and powerful
Morphing into a commodity platform
Which substitutes for all sorts of devices
Recap:
IT Industry Leaders c. 2005
IT Venture Capital:
Where it’s going c. 2004
How much Venture Capital?
Recent Trends:
IT’s present impact on
Industry
The Revolution in Productivity:
post-2000
Applications Software Rules
40

Proportion of total
IT industry
revenues
1967-2000
Softw are
35
Communications
equipment
30
% Share

Computer Hardw are
25
20
15
Photocopying, office and accounting equipment
10
1987 1988 1989
1990 1991 1992 1993
1994 1995 1996 1997
1998 1999 2000
IT’s Contribution to US GDP Growth
IT Contribution to Real GDP Growth
1.2
1
0.8
0.6
0.4
0.2
0
1950
1960
1970
1980
Year
1990
2000
2010
Where is the growth?
The most successful industries (1999-2003)
Annual Productivty Growth (1999-2003)
0.0%
Chips
Media
Advertising
Defense & Aerospace
Metals & Machinery
Insurance
Software
Computers
Consumer Electronics
2.0%
4.0%
6.0%
8.0%
10.0% 12.0% 14.0% 16.0%
Most of the benefits go to the Consumer
Booming Sales / Flagging Stocks
Why are Technology Companies
Different?
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They have shifted
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away from the economics of scarcity
and resource allocation,
Away from the past
Towards an economics information,
attention and coordination
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Towards the future
The Evidence
The end of industry; the rise of ideas
Technology
& Work
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IT is in the process of transforming the familiar envelopes we call
“jobs.”
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The “job” packaged work before power was portable
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People were expected to show up for their “jobs” when the machines
required it.
The tasks that need to be done
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increasingly require creativity and ad hoc response to one-time
circumstances.
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The “job” seems increasingly artificial
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15% of the US workforce works without a ‘job’
Decline of ‘Sweat Equity’
90
80
70
60
Information & Services
50
Industry
40
Farming
30
20
10
0
1825
1850
1875
1900
1925
1950
1975
2000
Financial Reporting
misses the Value
Ideas, not Things, have Value
16
600
14
500
Asset Intensity
(Fixed Assets / Sales)
12
400
10
300
8
200
6
100
4
2
0
0
-100
Rank order by increasing return
5-yr Shareholder Return %
Return and fixed asset intensity
How Accounting has had to Change
Because of Business Automation
Material
Labor
Capital
30%
50%
Knowledge
Integrator
Knowledge
Integrator
20%
Knowledge
Integrator
Manufacturing
Value Added
110%
Material
Consumer
Knowledge Base (uncertain
claims, contributions and
property rights)
Labor
Capital
5%
5%
80%
10%
Knowledge
Integrator
Manufacturing
Value Added
%
ed
ish ct 20
n
i
F du
g
Pro
rin
u
t
fac tions
u
n
a
Ma ecific
Sp
Consumer
110%
Transactions
External Real
World Entities
and Events that
Create and
Destroy Value
Internal
Operations
of the Firm
The Physical World
Transactions
Substantive T
ests
Corporate Law
Audit
Program
ts
Analytical Tes
tation
Attes
Auditing
'Owned' Assets
and Liabilities
Audit Report /
Opinion
Accounting
Systems
The Parallel (Logical)
World of Accounting
Ledgers:
Databases
Journal Entries
Reports:
Statistics
Tests of Transactions
How Does this
Influence
Auditing?
Take-Aways
1.
IT Industry Structure
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2.
3.
4.
5.
How we got here
Where we are now
Tools of the Trade (HW / SW)
Recent Trends, and implications for other industries
The Importance of Business Models in the Information
Economy
How to think about IT value and its sources
Detecting Corporate Fraud
Video