Auditors Involved with SDLC? The creation of an IS entails SIGNIFICANT FINANCIAL TRANSACTIONS THE NATURE OF THE PRODUCTS THAT EMERGE FROM SDLC the quality of accounting information rests directly on the SDLC activities that produce accounting information systems. And therefore the accountants responsibility is to ENSURE that the system employ PROPER ACCOUNTING CONVENTIONS & RULES, & PROCESSES ADEQUATE CONTROLS. (QUALITY OF THE PROCESS THAT PRODUCES AIS) How are Accountants Involved with the SDLC 1. Users -must specify accounting techniques to be used, internal control requirements. 2. Members of the development team -provide advice 3. Auditors -system must be auditable
System Evaluation & Selection PHASE 4 Seeks the BEST system 2 steps: 1. Perform a FEASIBILITY STUDY 2. Perform a COST-BENEFIT ANALYSIS 1 ST STEP: Perform a Feasibility Study What is a feasibility study? -simply is a listing of a detail in all the things you need to make the business work.
TELOS Concerned with whether or not hardware/software can be acquired or developed to solve the problem new or existing technology is needed Determines if the project makes financial sense Managements financial commitment to this project
Determines whether laws or regulations may prevent or limit a systems development project Measure of whether or not the project can be put into action or operation Degree of compatibility between the firms existing/new procedures & personnel skills
Determines if the project can be completed in a reasonable amount of time If the project envisioned that it cannot be produced internally by the target date, then they will do the acquisition method or the target date must be changed
2 ND Step: Perform a Cost-Benefit Analysis It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much. 3 Steps: 1. Identify the 2. Identify the 3. Compare 1 ST Identify the Costs 2 CATEGORIES: ON E - T I ME C OS T S Examples: 1. Hardware Acquisition 2. Site preparation 3. Software Acquisition 4. System Design 5. Programming & Testing 6. Data Conversion 7. Training RECURRI NG COST S Examples: 1. Hardware Maintenance 2. Software Maintenance 3. Insurance 4. Supplies 5. Personnel Costs
2 nd Identify the Benefits 2 Categories 1. Tangible Benefits 2. Intangible Benefits Tangible Benefits Examples: 1. Increased Revenues -Increased Sales within existing market - Expansion into other markets 2. Cost Reduction - Labor Reduction - Reduced Inventories Intangible Benefits 1. Increased Costumer Satisfaction 2. More Current Information 3. Operational Flexibility 4. Better internal & external communications 3 rd /Final Step: Compare Costs & Benefits 2 Most Common Methods Used for Evaluating IS are: 1. NPV 2. Payback NPV Method Is how much your investments worth today The better investment is the one with higher/positive investment. PRODUCT 1 PRODUCT 2 INITIAL COSTS 3000 2000 ANNUAL SAVINGS 1000 700 DESIRED RATE 10% 10% YEAR PRODUCT 1 CASH FLOW PRODUCT 2 CASH FLOW 0 -3000 -2000 1 1000 700 2 1000 700 3 1000 700 4 1000 700 5 1000 700 Payback Method The length of time required to recover the cost of an investment. The better investment is the one with the shorter payback period COSTS ANNUAL CASH INFLOWS PRODUCT 1 100,000 20,000 PRODUCT 2 210,000 30,000 PRODUCT 1 100,000/20,000 = 5 yrs. PRODUCT 2 210,000/30,000 =7 yrs. Prepare Systems Selection Report -It is a formal document that is consists of a revised feasibility study, a cost-benefit analysis, & a list & explanation of intangible benefits for each alternative design. On the basis of this report, the STEERING COMMITTEE will select a single system that will go forward to the next phase of the SDLC DETAILED DESIGN. The Auditors Role in Evaluation & Selection The Primary concern for auditors is that the ECONOMIC FEASIBILITY of the proposed system is measured as accurately as possible.
Ensure 5 things: 1. Only escapable costs are used in calculations of costs savings benefit 2. Reasonable interest rates are used in measuring present value of cash flows 3. One time & recurring costs are completely & accurately reported 4. Realistic useful lives are used in comparing competing projects. 5. Intangible benefits are assigned reasonable financial values