Information system and control audit – lecture i

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Information Systems Control and Audit – Lecture # 1

CA Vikram S. MathurBA (Eco) Hons, FCA, DISA (ICAI)

Cell: +91-9998090111Email: [email protected]

Website: http://www.vsmathur.co.in

ISCA Lectures (Number 1) CA Vikram S. Mathur (+91-9998090111) ([email protected])

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Introduction & Definition

• The term system is defined as an orderly arrangement of a set of interrelated and interdependant elements that operate collectively to accomplish some common purpose or goal. Eg. Human Body – head, heart, hands, legs, etc.

• System can be described by specifying it’s parts, the way in which they are related and the goals which they are expected to achieve


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Types of System

Conceptual System or ModelE.g. Theology : Ideas of God

and Relationship with humans

Tangible elements operate together to accomplish an objective. E.G. Circulatory System, Computer System

Interacts freely with its environment by taking input

and returning output E.g. Business Organisations

No interaction with environment and no changes due to change in invironment.

E.g. Digital Watch System

Data collection, manipulation, maintenance and final

reporting are absolutely by human efforts

Computers or microprocessors carry out all above tasks. No business is ever 100% automated, some parts are necessarily manual.

Operates in a predicable manner and intereaction

between parts is lnown with certainlity. E.g. A correct

computer program.

Operates in probabilistic manner and degree of error is always attached to prediction of what “the system will do”


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Closed System vs Open System


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Closed System vs Open SystemExample


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Entropy

Presenting or offsetting an increase in entropy requires inputs of matter and energy to repair,

replenish and maintain the system : Negative Entropy


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Manual & Automated Systems

• Manual Systems: Data Collection, manipulation, maintenance and final reporting done by human efforts.

• Automated Systems: Computers or microprocessors carry out all the tasks mentioned above.

• Why use computers?– Handling huge volumes– Storing enormous data– Quick and Accurate processing– Quick retrieval of information– Quick transportation of info to distant places– Availability of software tools for quick decision making


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Deterministic & Probabilistic Systems

• Deterministic: Operates in predictable manner – interaction among parts known with certainity. E.g. Correct computer program performing exactly according to instructions.

• Probabilistic: Probable behaviour – degree of error always attached to prediction of what system will do.


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Example of Deterministic & Probabilistic


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General model of a System

• Input is the data flowing into the system from outside.• Processing is the action of manipulating the input into a more

useful form.• Output is the information flowing out of a system.• Storage is the means of holding the information.• Feedback occurs when the outcome has an influence on the input.


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System Environment


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Subsystem

• Subsystem is a part of a larger system – delineated by it’s boundaries.


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Characteristics of Subsystems

• Decomposition Complex system is easier to understand when broken into subsystems.

• Simplification Organizing subsystems to reduce number of interconnections.

• Decoupling Close coordination between tightly connected subsystems, e.g. inventory and production.– Inventories, buffer or waiting lines– Slack and flexible resources– Standards


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Supra-System


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System Stress & Change

• Living or artificial systems like organizational systems, information systems change because they undergo stress.

• Supra-System exerts stress on system which changes to accommodate, else it becomes pathological – it will decay and terminate.

• Supra-System enforces compliances through control over supply of resources and information input to system


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Information Life-Cycle Example


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What is Information?

• Information David and Olson: “Information is data that has been processed into a form that is meaningful to the recipient and is of real or perceived value in current or progressive decision.”

• Attributes:– Availability– Purpose– Mode and Format– Decay– Rate– Frequency– Completeness– Reliability– Cost benefit analysis– Validity– Quality– Transparency– Value of Information– Adequacy


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Types of Information

• Internal Information: Generated from the operations of the organization at various functional areas. Always pertains to various operational units within organization, e.g. Production figures, Sales figures.

• External Information: Collected from external environment of business organization e.g Government policies, competition, economic status, market share.


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Factors on which Information depends

• Operational Function: grouping or clustering of several functional units on the basis of related activities into sub-systems.

• Types of Decision-making: – Programmed Decisions: decisions made on problems and situations

by reference to predetermined set of precedents, techniques and rules.– Non-Programmed Decisions: decisions made on situations and

problems which are novel and non-repititive about which there is not much knowledge and information is available.

• Level of management Activity– Strategic or Top level: Concerned with developing of organizational mission,

objectives and strategies – Strategic Decisions– Tactical or Middle level: Managers plan, organize, lead and control activities of

other managers. Tactical Decisions– Operational or Supervisory level: Lowest level where managers coordinate the

work of others who are not themselves managers. Operational Decisions


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Components of Computer Based Information Systems (CBIS)

• Hardware: Machinery including the computer itself and all it’s support devices.

• Software: Computer programs and the manuals (if any).

• Data: Facts used by programs to produce useful information

• Procedures: Policies that govern the operation of a computer system.

• People:People are probably the main components that influence the success or failure of information systems the most.


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CBIS - Hardware


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CBIS - Areas of Applications

• Finance and Accounting: Ensure financial viability of the organization, enforce financial discipline and plan and monitor the financial budget.

• Marketing and Sales: To maximize sales and ensure customer satisfaction.

• Production or Manufacturing: Optimally deploy man, machine and material to maximize production or service.

• Inventory / Stores Management: Keeping track of material at stores. Regulate minimum and maximum levels of stock, optimize re-order quantity, facilitate queries about stock like ABC Analysis, Total Inventory Value.


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Types of Information Systems

• Operational Support Systems (OSS)• Management Support Systems (MSS)• Office Automation Systems (OAS)


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Operations Support Systems (OSS)

• Object is to improve the operational efficiency of the enterprise.

• Consists of three components– Transaction Processing Systems– Management Information Systems– Enterprise Resource Planning Systems


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Transaction Processing System (TPS)

• Information system that manipulates data from business transactions. E.g. Sales, purchase, production, delivery, payments or receipts – to be organized and manipulated to generate various products for external use.


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Management Information Systems (MIS)

• To assist managers in decision making and problem solving. Uses results produced by TPS in addition to other sources, if need be. Can be developed further as understanding of recurring decisions improves.


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Characteristics of an effective MIS• Management Oriented: Starts from an appraisal of management needs

and overall business objectives.• Management Directed: Management should actively direct system’s

development efforts.• Integrated: All functional and operational information sub-system should be

tied together into one entity.• Common Data Flows: Use of common input, processing and output

procedures and media whenever required.• Heavy Planning Element: MIS usually takes 3-5 years and sometimes

longer to be established.• Sub-System Concept: Should be broken down into digestible sub-systems

that can be implemented one at a time.• Common Database: Database is the mortar that holds the functional

systems together. It is a “Super-File” that consolidates and integrates data records formerly stored in many seperate data files.

• Computerized: Can be implemented without the use of computers, but computers increase the effectiveness of the system.


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MIS Misconceptions

• Use of Computers: Not true, MIS computer based, but computer is just a tool.

• More Data = More Information: It is not the quantity of data, but it’s relevance that is important.

• Accuracy of vital importance: Accuracy is relevant, but not an absolute ideal for decision making. Estimation should be fairly correct.


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Enterprise Resource Planning (ERP)

• One of the latest high end solutions that seek to streamline and integrate operation processes and information flows in an organization to synergize MEN, MONEY, MACHINE, MATERIALS and MARKET.


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ERP Features


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ERP Benefits


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ERP – Pros & Cons


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Management Support Systems (MSS)


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Decision Support System (DSS)


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Executive Information System (EIS)


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Office Automation Systems (OAS)

Information system and control audit – lecture i

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