IT CONCEPT AND SYSTEM ANALYSIS DESIGN

Systems are created to solve problems. One can think of the systems approach as an
organized way of dealing with a problem. In this dynamic world, the subject System Analysis
and Design (SAD), mainly deals with the software development activities.
1.2 OBJECTIVES After going through this lesson, you should be able to
l define a system l explain the different phases of system development life cycle l
enumerate the components of system analysis l explain the components of system
designing
1.3 DEFINING A SYSTEM A collection of components that work together to realize some
objectives forms a system. Basically there are three major components in every system,
namely input, processing and output.
In a system the different components are connected with each other and they are
interdependent. For example, human body represents a complete natural system. We are
also bound by many national systems such as political system, economic system,
educational system and so forth. The objective of the system demands that some output is
produced as a result of processing the suitable inputs. A well-designed system also includes
an additional element referred to as control that provides a feedback to achieve desired
objectives of the system.
1.4 SYSTEM LIFE CYCLE System life cycle is an organizational process of developing and
maintaining systems. It helps in establishing a system project plan, because it gives overall
list of processes and sub-processes required for developing a system. System development
life cycle means combination of various activities. In other words we can say that various
activities put together are referred as system development life cycle. In the System Analysis
and Design terminology, the system development life cycle also means software
development life cycle.
Following are the different phases of system development life cycle:
l Preliminary study l Feasibility study l Detailed system study l System analysis l System
design l Coding l Testing l Implementation l Maintenance The different phases of system
development life cycle is shown in Fig. 1.2 below.

ADVANCED FINANCIAL ACCOUNTING AND REPORTING INTRODUCTION

The paper is designed to develop an understanding among candidates of the concepts and
principles of financial accounting and reporting for non-private entities. Candidates are
expected to display an in-depth knowledge of financial reporting standards applicable to
public entities.
OBJECTIVE To equip the candidates with knowledge and skill in applying financial reporting
standards in preparing financial statements for public companies including group of
companies.
INCOME TAXATION

An income tax is a tax that governments impose on financial income generated by all entities within
their jurisdiction. By law, businesses and individuals must file an income tax return every year to
determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of
funds that the government uses to fund its activities and serve the public.
An income tax is a government levy (tax) imposed on individuals or entities (taxpayers) that varies with the income or
profits (taxable income) of the taxpayer. Details vary widely by jurisdiction. Many jurisdictions refer to income tax on
business entities as companies tax or corporate tax. Partnerships generally are not taxed; rather, the partners are
taxed on their share of partnership items. Tax may be imposed by both a country and subdivisions. Most jurisdictions
exempt locally organized charitable organizationsfrom tax.
Income tax generally is computed as the product of a tax rate times taxable income. The tax rate may increase as
taxable income increases (referred to as graduated rates). Tax rates may vary by type or characteristics of the
taxpayer. Capital gains may be taxed at different rates than other income. Credits of various sorts may be allowed
that reduce tax. Some jurisdictions impose the higher of an income tax or a tax on an alternative base or measure of
income.
Taxable income of taxpayers resident in the jurisdiction is generally total income less income producing expenses and
other deductions. Generally, only net gain from sale of property, including goods held for sale, is included in income.
Income of a corporation's shareholders usually includes distributions of profits from the corporation. Deductions
typically include all income producing or business expenses including an allowance for recovery of costs of business
assets. Many jurisdictions allow notional deductions for individuals, and may allow deduction of some personal

expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to
other jurisdictions on such income. Nonresidents are taxed only on certain types of income from sources within the
jurisdictions, with few exceptions.
Most jurisdictions require self-assessment of the tax and require payers of some types of income to withhold tax from
those payments. Advance payments of tax by taxpayers may be required. Taxpayers not timely paying tax owed are
generally subject to significant penalties, which may include jail for individuals or revocation of an entity's legal
existence.
(another information)

U.S. Federal Revenues

The federal government of the United States obtains most of its revenues from income taxes
on individuals and corporations. Social insurance taxes help pay for government programs
that benefit the poor, the elderly, the unemployed, and the disabled.
Taxation, system of raising money to finance government. All governments require
payments of moneytaxesfrom people. Governments use tax revenues to pay soldiers
and police, to build dams and roads, to operate schools and hospitals, to provide food to the
poor and medical care to the elderly, and for hundreds of other purposes. Without taxes to
fund its activities, government could not exist.
Throughout history, people have debated the amount and kinds of taxes that a government
should impose, as well as how it should distribute the burden of those taxes across society.
Unpopular taxes have caused public protests, riots, and even revolutions. In political
campaigns, candidates views on taxation may partly determine their popularity with voters.
Taxation is the most important source of revenues for modern governments, typically
accounting for 90 percent or more of their income. The remainder of government revenue
comes from borrowing and from charging fees for services. Countries differ considerably in
the amount of taxes they collect. In the United States, about 30 percent of the gross
domestic product (GDP), a measure of economic output, went for tax payments in 2000. The
30 percent figure is relatively low from a historical standpoint. As a result of a new round of
tax cuts in 2003, the tax percentage share of GDP was expected to be lower than at any
time since 1959 when many major government programs, such as Medicare and Medicaid,
did not exist. In Canada about 35 percent of the countrys gross domestic product goes for
taxes. In France the figure is 45 percent, and in Sweden it is 51 percent.
In addition to using taxation to raise money, governments may raise or lower taxes to
achieve social and economic objectives, or to achieve political popularity with certain
groups. Taxation can redistribute a societys wealth by imposing a heavier tax burden on one
group in order to fund services for another. Also, some economists consider taxation an
important tool for maintaining the stability of a countrys economy.
TYPES OF TAXES
Governments impose many types of taxes. In most developed countries, individuals pay
income taxes when they earn money, consumption taxes when they spend it, property taxes
when they own a home or land, and in some cases estate taxes when they die. In the United
States, federal, state, and local governments all collect taxes.
Taxes on peoples incomes play critical roles in the revenue systems of all developed
countries. In the United States, personal income taxation is the single largest source of
revenue for the federal government. In 2002 it accounted for about 48.8 percent of all
federal revenues. Payroll taxes, which are used to finance social insurance programs such as
Social Security and Medicare, account for 36.4 percent of federal revenues. The United
States also taxes the incomes of corporations. In 2002 corporate income taxation accounted
for 10.4 percent of federal revenues.
State and local governments depend on sales taxes and property taxes as their main
sources of funding. Most U.S. states also tax the incomes of individuals and corporations,
although less heavily than the federal government. All Canadian provinces collect income
taxes from individuals and corporations.
A
Individual Income Tax

An individual income tax, also called a personal income tax, is a tax on a persons income.
Income includes wages, salaries, and other earnings from ones occupation; interest earned
by savings accounts and certain types of bonds; rents (earnings from rented properties);
royalties earned on sales of patented or copyrighted items, such as inventions and books;
and dividends from stock. Income also includes capital gains, which are profits from the sale
of stock, real estate, or other investments whose value has increased over time.
The national governments of the United States, Canada, and many other countries require
citizens to file an individual income tax return each year. Each taxpayer must compute his or
her tax liabilitythe amount of money he or she owes the government. This computation
involves four major steps. (1) The taxpayer computes adjusted gross incomeones income
from all taxable sources minus certain expenses incurred in earning that income. (2) The
taxpayer converts adjusted gross income to taxable incomethe amount of income subject
to taxby subtracting various amounts called exemptions anddeductions. Some deductions
exist to enhance the fairness of the tax system. For example, the U.S. government permits a
deduction for extraordinarily high medical expenses. Other deductions are allowed to
encourage certain kinds of behavior. For example, some governments permit deductions of
charitable contributions as an incentive for individuals to give money to worthy causes. (3)
The taxpayer calculates the amount of tax due by consulting a tax table, which shows the
exact amount of tax due for most levels of taxable income. People with very high incomes
consult a rate schedule, a list of tax rates for different ranges of taxable income, to compute
the amount of tax due. (4) The taxpayer subtracts taxes paid during the year and any
allowable tax credits to arrive at final tax liability.
After computing the amount of tax due, the taxpayer must send this information to the
government and enclose the amount due. In 2001 the average taxpayer in the United States
paid about 15 percent of his or her income in income taxes. Many taxpayers, rather than
owing money, receive a refund from the government after filing a tax return, typically
because they had too much tax withheld from their wages and salaries during the year. Lowincome workers in the United States may also receive a refund because of the earned
income tax credit, a federal government subsidy for the working poor.
Income taxation enjoys widespread support because income is considered a good indicator
of an individuals ability to pay. However, income taxes are hard to administer because
measuring income is often difficult. For example, some people receive part of their income
in-kindin the form of goods and services rather than in cash. Farmers provide field hands
with food, and corporations may give employees access to company cars and free parking
spaces. If governments tax cash income but not in-kind compensation, then people can
avoid taxation by taking a higher proportion of their income as in-kind compensation.
The Internal Revenue Service (IRS), an agency of the Department of the Treasury,
administers the federal income tax in the United States. Canada Customs and Revenue
Agency, which operates under the Minister of National Revenue, administers the tax in
Canada.

MANAGEMENT ACCOUNTING
All of these institutions use financial accounting as a primary source of information for
these allocation decisions. Investors and stock analysts review corporate financial
statements prepared in accordance with Generally Accepted Accounting Principles.
Banks review financial statements as well as projections of cash flows and financial
performance. The Internal Revenue Service taxes income that is calculated only slightly
differently from income for financial reporting purposes. In effect, the same set of financial
accounting rules is used by these different users, with only minor modifications.
However, this is only part of the story, because when I buy stock in Microsoft, whether my
investment turns out to be profitable depends largely on the operational, marketing and

strategic decisions that Microsofts managers make during the time that I hold my
investment. And when Microsofts management team sits down to decide what products to
develop, which markets to enter, and how to source production, they are not, almost
certainly, looking at the companys most recent annual report or any other financial
accounting report. By the time the annual report is available, the information is too old, and
in any case, it is too highly summarized; there is not enough detail and not enough forwardlooking data. Rather, when Microsofts management team makes decisions, it bases these
decisions on management accounting information. This is definitional. By definition,
management accounting is the information that managers use for decision-making. By
definition, financial accounting is information provided to external users.
Hence, both financial accounting and management accounting are all about allocating
scarce resources. Financial accounting is the principle source of information for decisions of
how to allocate resources among companies, and management accounting is the principle
source of information for decisions of how to allocate resources within a company.
Management accounting provides information that helps managers control activities within
the firm, and to decide what products to sell, where to sell them, how to source those
products, and which managers to entrust with the companys resources.
-If management accounting so important, why are we not likely to see a headline like the
fictional announcement shown above? There are two reasons. First, management accounting
information is proprietary; public companies are generally not required to disclose
management accounting data nor much detail about the systems that generate this
information. Typically, companies disclose very little management accounting information to
investors and analysts beyond what is imbedded in financial reporting requirements. Even
very basic information, such as unit sales by major product category, or product costs by
product type, is seldom reported, and when it is reported one can be sure that management
believes voluntary disclosure of this information will be viewed as good news by the
marketplace.
The second reason we are not likely to see a headline like the one above is that most
management accounting systems seem to work reasonably well most of the time. Hence, it
is difficult for a company to gain a competitive advantage by installing a better management
accounting system than its competitors. However, this observation does not imply that
management accounting systems are not important. On the contrary, as the following news
story indicates, poor management accounting systems can significantly affect the
investment communitys perception of a companys prospects.
Health insurance is a relatively stable industry. 1997 was the middle of a strong bull market.
What was the problem with Oxford such that in this environment it should lose half its stock
value almost overnight? The answer is that its management accounting system was broken,
big time. Management accounting is something like indoor plumbing. When it functions
properly, we tend to take it for granted, but when it breaks down, we quickly develop a
greater appreciation for it.

Definition and Scope of Management Accounting:

Management accounting is the process of measuring and reporting information about
economic activity within organizations, for use by managers in planning, performance
evaluation, and operational control:
Planning: For example, deciding what products to make, and where and when to make
them. Determining the materials, labor, and other resources that are needed to achieve
desired output. In not-for-profit organizations, deciding which programs to fund.

Performance evaluation: Evaluating the profitability of individual products and product

lines. Determining the relative contribution of different managers and different parts of the
organization. In not-for-profit organizations, evaluating the effectiveness of managers,
departments and programs.
Operational control: For example, knowing how much work-in-process is on the factory
floor, and at what stages of completion, to assist the line manager in identifying bottlenecks
and maintaining a smooth flow of production.
Also, the management accounting system usually feeds into the financial accounting
system. In particular, the product costing system is usually used to help determine inventory
balance sheet amounts, and the cost of sales for the income statement.
Management accounting information is usually financial in nature and dollar-denominated,
although increasingly, management accounting systems collect and
report nonfinancial information as well.
The mechanical process of collecting and processing information poses substantial and
interesting challenges to large organizations. Also, there are important conceptual issues
about how to aggregate information in order to measure, report, and analyze costs. Issues of
how to allocate costs across products, services, customers, subunits of the organization, and
time periods, raise questions of substantial intellectual content, to which there are often no
clear answers.
Management accounting is used by businesses, not-for-profit organizations, government,
and individuals:
Businesses can be categorized by the sector of the economy in which they operate.
Manufacturing firms turn raw materials into finished goods, and we also include in this
category agricultural and natural resource companies. Merchandising firms buy finished
goods for resale. Service sector companies sell services such as legal advice, hairstyling and
cable television, and carry little if any inventory. Businesses can also be categorized by their
legal structure: corporation, partnership, proprietorship. Finally, businesses can be
categorized by their size.
Not-for-profit organizations include charitable organizations, not-for-profit health care
providers, credit unions, and most private institutions of higher education.
Government includes Federal, state and local governments, and governmental agencies
such as the post office and N.A.S.A.
All of these organizations use management accounting extensively. Also, individuals use the
economic concepts that form the foundation of management accounting in their personal
lives, to assist in decisions large and small: home and automobile purchases, retirement
planning, and splitting the cost of a vacation rental with friends.
Management Accounting and Financial Accounting Compared:
The field of accounting consists of three broad subfields: financial accounting, management
accounting, and auditing. This classification is user-oriented. Financial accounting is
concerned with communicating accounting information to external parties. Management
accounting is concerned with generating accounting information for managers and other
employees to assist them in performing their jobs. Auditing refers to examining the
authenticity and usefulness of all types of accounting information. Other subfields of
accounting include tax and accounting information systems.
Because many students taking management accounting have just completed a course in
financial accounting, it is useful to examine the ways in which management accounting
differs from financial accounting:

Management Accounting

s. Financial reporting is required

blic companies. Private companies with debt
to prepare audited financial statements in

Mostly optional. However, it is inconceivable that a large comp

sophisticated management accounting systems. Also, legislati
Oxley Act of 2002 sets minimum standards for public compani
systems.

ccounting Principles (GAAP) in the U.S., and

her countries.

No general principles. Companies often develop management

measurement rules that are unique and company-specific.

ostly on reporting past performance.

Forward-looking: includes estimates and predictions of future

information

Can include many subjective estimates.

rmation. Investors, stock analysts, and

mation (one size fits all).

Provides many reports tailored to specific users.

y of the business

Can provide a great deal of detail.

dollar-denominated amounts. A recent

ut still infrequent) use of the Triple Bottom

Communicates many nonfinancial measures of performance, p

such as units produced and sold by product type.

These differences are generalizations, and are not universally true. For example, GAAP
allows some important choices, such as the FIFO or LIFO inventory flow assumption. Also,
GAAP uses predictions of future events and transactions to value assets and liabilities under
certain circumstances. Nevertheless, the differences between financial accounting and
management accounting shown above reveal important attributes of financial accounting
that are driven by the goal of providing reliable and understandable information to investors
and regulators. These individuals are often far removed from the companies in which they
are interested, so a regulatory and self-regulatory institutional structure exists to ensure the
quality of the information provided to them.
For example, financial accounting uses historical information, not because investors are
interested in the past, but rather because it is easier for accountants and auditors to agree
on what happened in the past than to agree on managements predictions about the future.
The past can be audited. Investors then use this information about the past to make their
own predictions about the companys future.
As another example, financial accounting follows a set of rules (GAAP in the U.S.) that
investors can study. Once investors obtain an understanding of GAAP, the fact that
all U.S. companies comply with the same rules greatly facilitates investors ability to follow
multiple companies. Also, the fact that financial reporting is mandatory for all public
companies ensures that the information will be available.
Management accounting, on the other hand, serves an entirely different audience, with
different needs. Managers need detailed information about their part of the organization, so
management accounting provides detailed information tailored for specific users. Also,
managers must make decisions, sometimes on a daily basis, that affect the future of the
business, and they need the best predictions of the future that are available as input in
those decisions, no matter how subjective those estimates are.
Management Accounting Institutions:
The most important professional association of management accountants in the U.S. is
the Institute of Management Accountants (IMA). There are similar organizations in other
countries. Formerly theNational Association of Accountants, the IMA has about 100,000 members.

Its headquarters are in Montvale, NJ, outside of New York City, and there are local chapters throughout
the country.
The IMA sponsors the Certified Management Accountants certification program. Certification requires
passing the CMA examination, and working for two years in a field related (at least loosely) to
management accounting. The exam is similar to the CPA exam, although it is broader in scope and
places less emphasis on financial reporting and auditing. Unlike the CPA certification, which is required
by state laws of accountancy for practicing public accountants, the CMA certification is voluntary. Next
to the CPA, the CMA and CIA (Certified Internal Auditor) are probably the most widely-recognized
certifications of accountants in the U.S.
The IMA issues a Code of Professional Ethics for management accountants, which is mandatory for
CMAs. The Code clearly indicates that management accountants have responsibilities to the public as
well as to organizations for which they work. The Code provides explicit guidance on how management
accountants should respond to questionable or clearly improper financial or regulatory reporting
practices in their organizations, which is probably the most difficult ethical issue that every
management accountant should be prepared to encounter. Anyone who becomes a management
accountant (even if he or she does not become a CMA), and anyone who works with or supervises
management accountants, should become familiar with the CMAs ethical standards.
The IMA supports research on management accounting, sponsors continuing education seminars,
publishes materials on management accounting topics (some of which are available at no charge from
the IMA website), and publishes a monthly magazine called Strategic Finance (prior to March 1999, the
magazine was called Management Accounting). Strategic Finance is probably the premier
management accounting magazine for practitioners in the U.S.
A Note on Terminology:
Because management accounting developed over many decades in a decentralized fashion, within
leading companies of the day and without the direction of a regulatory or self-regulatory rule-making
body, terminology has evolved that is sometimes redundant and sometimes inconsistent. A single
concept can go by multiple names, and the same term can refer to multiple concepts.
For example, full costing has two meanings, one of which is synonymous with absorption costing.
Variable costing is synonymous with direct costing, and overhead is synonymous with indirect costs.
However, direct costs, direct costing, and the direct method of cost allocation all refer to different
concepts and techniques.
There is nothing normal about a normal costing system. A standard costing system is closely related
tobut not quite synonymous withthe concept of a standard cost.
Management accounting and managerial accounting are synonymous. However, the relationship
between these terms and cost accounting is ambiguous. Many accounting practitioners use these
terms interchangeably. When cost accounting is distinguished from management accounting, cost
accounting sometimes refers to accounting for inventory, and as such, the term applies primarily to
manufacturing and merchandising firms. In this case, cost accounting would be a large subset of the
management accounting system, because most but not quite all of the accounting activity inside
manufacturing and merchandising companies relate to inventory. Alternatively, cost accounting is
sometimes distinguished from management accounting in the following way: if the answer depends
upon the accounting techniques employed, the question is a cost accounting question; if the answer is
independent of the accounting techniques employed, the question is a management accounting
question. For example, the valuation of ending inventory depends on whether the company uses the
LIFO (last in, first out) or FIFO (first in, first out) inventory flow assumption. That is cost accounting.
However, the determination of whether the company would be more profitable in the long-run by
closing the factory and sourcing product from an independent supplier is independent of the inventory
flow assumption or any other accounting choice. That is a management accounting problem.
Even recent advances in management accounting are sometimes associated with ambiguous or
redundant terminology. For example, supervariable costing is synonymous with throughput costing.
Textbooks usually shelter students from this ambiguity in terminology, by defining terms carefully,
avoiding redundancy, and maintaining consistency. However, the ambiguity exists out there in
practice.