ACCOUNTING INFORMATION SYSTEMS Core Concepts of ACCOUNTING INFORMATION SYSTEMS Moscove, Simkin & Bagranoff Developed by: Marianne Bradford, Ph.D. Bryant College John Wiley & Sons, Inc.

Chapter 15 Electronic Commerce and the Internet Introduction The Internet and the World Wide Web Electronic Commerce Privacy and Security on the Internet

Introduction This chapter describes the Internet and some of its accounting uses. One of the most important uses is for electronic commerce. Managers are recognizing the importance of Internet privacy and security since they conduct at least some business on the Internet.

The Internet and World Wide Web The Internet is a collection of hundreds of thousands of local and wide area networks that are now connection together via the Internet backbone. An Internet service provider (ISP) maintains its own Internet computers.

Internet Addresses and Software To transmit data over the Internet, a computer uses an Internet address and a forwarding system. The Internet address begins as a domain address, also called a universal resource locator (URL). Internet computers translate text-based domain addresses into numeric Internet protocol (IP) addresses.

Intranets and Extranets Intranets are internal company networks that use the same software as the Internet. Some businesses create Extranets that enable selected outside users to access their Intranets.

The World Wide Web The graphics portion of the Internet is called the World Wide Web. A Web browser enables users to view the graphics files of the Internet. Web pages are created in an editing language such as hypertext markup language (html) or a programming language such as java.

The World Wide Web The Internet transfers Web pages from one computer to another using a communications protocol such as hypertext transfer protocol (http). A home page is the first page a user sees when he or she supplies a web browser with a domain address. Home pages act as a table of contents with hyperlinks to other web pages.

E-mail, Groupware, and Electronic Conferencing Electronic mail enables individuals or companies to communicate with other Internet users around world. Electronic conferencing tools enable users to teleconference with one another.

Advantages of Email Eliminates “telephone tag” Eliminates inaccurate or misleading messages No interruptions Time shifting Message distribution Facilitates replies Maintaining information Attaching files

E-mail, Groupware, and Electronic Conferencing Newer work group software called groupware allows users to send and receive email, plus perform a wide range of other tasks. Groupware has also been the technology behind the knowledge sharing that many professional service firms use as competitive advantage.

Electronic Commerce Electronic Commerce (EC) refers to conducting business with computers and data communications. EC can be performed over the Internet or using proprietary lines. General categories of EC include retail sales, E-cash,E-wallets, and electronic data interchange.

Retail Sales Advantages of Virtual Stores Creating Web pages is cheaper than creating and mailing catalogs. Distribution is worldwide. Selling takes place around the clock with no additional staffing requirements. Product descriptions, sales prices, and information on merchandise availability can be updated immediately. Customers create their own sales orders online. The sales personnel required for these virtual stores is minimal.

E-Cash With the use of credit cards over the Internet, identity fraud can be a problem. Electronic cash (E-cash) may be a more desirable payment method. The most important advantage of E-cash is the ability to identify its users. E-cash eliminates the need to transmit credit card numbers over the Internet.

E-Wallet E-wallets are software applications that store a consumer’s personal information, including credit card numbers and shipping addresses. The advantage of an E-wallet is that you do not have to enter all your personal information every time you make an online purchase.

Business-to-Business E-Commerce Most e-commerce is business-to-business (b2b). A major part of b2b e-commerce concerns purchases of supplies and equipment electronically or electronic procurement. Companies may manage their supply chain by linking e-commerce to internal enterprise resource planning (ERP) systems.

Electronic Data Interchange Electronic Data Interchange (EDI) allows organizations to transmit standard business documents over high-speed data communications channels. EDI streamlines processes because 1) business partners exchange documents quickly and easily, 2) there are no postal delays, and 3) EDI eliminates most of the paperwork.

VAN-based EDI versus Internet-based EDI To implement EDI applications, most businesses currently use private, point-to-point communication channels called Value-Added Networks (VANs). An alternative to VAN-based EDI is to use the Internet. Advantages of Internet-based EDI are the ability to use well-understood Internet technology, a preexisting, costless network to transmit business data, and convenience. Disadvantages of using Internet-based EDI are data security and lack of consulting expertise in the implementation phase.

Privacy and Security on the Internet The Internet and WWW have the advantage of being very accessible. Accessibility can also mean “vulnerability”. Email, Webpages, and computer files can be accessed by someone posing as an authorized user.

Privacy and Security An Internet presence for companies introduces unique privacy and security concerns. These concerns call for specialized controls that limit data and information access to authorized users. Authentication involves verifying that users are who they say they are.

Firewalls A Firewall guards against unauthorized access to sensitive file information from external Internet users. This is security software that a company installs on Internet computers and that limits file accesses to authorized users. Firewall software examines packets of incoming messages using an access control list. Firewalls cannot prevent spoofing, or masquerading as an authorized user.

Proxy Servers A Proxy Server is a computer and related software that creates a transparent gateway to and from the Internet, and that can be used to control Web accesses. Four advantages of proxy servers: Funnel all incoming and outgoing Internet requests through a single server Examine all incoming requests for information and test them for authenticity Limit employee Internet access to approved Web sites Limit information to only Internet-related materials Ability to store frequently accessed web pages on the server’s own hard disk.

Data Encryption Data Encryption transforms plaintext messages into unintelligible cyphertext ones using an encryption key. Data encryption standard (DES) is an encryption scheme used by the U.S. government. A single key is shared by communicating parties in secret key cryptography. Public key encryption requires each party to use a pair of public/private encryption keys.

Digital Signatures A Digital Signature is used to authenticate business documents transmitted or received over the Internet. In 1994, the Digital Signature Standard (DSS) was adopted by the National Institute of Standards and Technology. The presence of the digital signature authenticates a document.

Digital Certificate Another authentication technique is the digital certificate. Digital certificates are verification of identity provided by an independent third party called a certificate authority. These certificates are signed documents with sender names and public key information.

Digital Time Stamping Many important documents transmitted over the Internet are time sensitive. Digital Time-Stamping Services (DTSSs) attach digital time stamps to documents. Time stamps enable businesses to overcome problems of downed file serves or power failures that delay transmission.

Auditing and Third-Party Assurance Auditing e-commerce is a specialized field. Organizations require assurances that their Internet controls are working and are adequate. The risks introduced by a business’s Internet presence have created a market for third-party assurance services.

TRUSTe TRUSTe assurance seal is an example of limited assurance of data privacy. TRUSTe is a nonprofit organization that issues a privacy seal. Some professional firms incorporate the TRUSTe seal into their information systems.

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Chapter 15