INTERMEDIATE (IPC) COURSE

STUDY MATERIAL

PAPER : 7A

INFORMATION TECHNOLOGY

BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

The Institute of Chartered Accountants of India

This study material has been prepared by the faculty of the Board of Studies. The objective of
the study material is to provide teaching material to the students to enable them to obtain
knowledge in the subject. In case students need any clarifications or have any suggestions to
make for further improvement of the material contained herein, they may write to the Director
of Studies.
All care has been taken to provide interpretations and discussions in a manner useful for the
students. However, the study material has not been specifically discussed by the Council of
the Institute or any of its Committees and the views expressed herein may not be taken to
necessarily represent the views of the Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this material.

The Institute of Chartered Accountants of India

All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or
transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without prior permission, in writing, from the publisher.
Updated Edition :

July, 2015

Website

www.icai.org

E-mail

[email protected]

Committee/

Board of Studies

Department
ISBN No.

Price

Published by

Printed by

The Publication Department on behalf of The Institute of Chartered

Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha
Marg, New Delhi 110 002, India.

ii

The Institute of Chartered Accountants of India

A WORD ABOUT STUDY MATERIAL

The emergence of Information Technology (IT) has very significant impact on all activities
related to Accounting Profession. An accountant who does not comprehend computer-based
accounting system is likely to be left high and dry in the profession. Recognizing the
importance of IT, Chartered Accountancy course has included it as a part of the course
curriculum both at Intermediate (IPC) and Final levels. A paper on Information Technology
forming the part of curriculum at Intermediate (IPC) level of the Chartered Accountancy course
is to provide the understanding of the fundamental concepts of how Business Process
Management and Information Systems are closely interfaced with IT to provide the required
Business Process Automation for enterprises.
In this prompt shifting world of Information and Communication Technologies, the Institute felt
an urgent need to revisit the syllabus of IT related papers separately and hence, the syllabus
of Information Technology paper has been revised with a view to rationalize the same in the
light of recent technological developments by making necessary additions/deletions and
modifications therein.
This paper enables students to understand how business processes are automated and
explains the business implications, considerations and imperatives for practical deployment of
IT in enterprises. The topics covered are closely linked with the topics covered in other papers
viz. Strategic Management and Audit and Assurance, which will facilitate students to
understand the conceptual framework of business processes and information systems and
thus assist better understanding of topics covered in the curriculum. The topics covered in this
paper elucidate how business processes and information systems are inter-linked and how
these can be automated using different IT components.
Students may note that the CA course is not just about understanding of theory but provides a
platform for practical application of the knowledge gained, through their work as articles in the
area of compliance, assurance or advisory services. The study material covered both concepts
and practical aspects and hence, students are advised to read the study material not only from
examination point of view but also from practical perspective of how this is relevant and can
be applied to their work environment.
The overall learning objective of this paper To develop understanding of Information
technology as a key enabler and facilitator of implementing Information systems in
enterprises and their impact on business processes and controls has been kept in mind
while developing the material. The learning objectives are translated into a set of task
statements, which outline what the students should learn to do. The task statements are
linked to a set of knowledge statements, which outline what they should know to be able to
perform the tasks. All these together have been used to develop the topics, which provide the
detailed contents with a logical flow. Chapter-wise coverage of various topics in the study
material is given as follows:
iii

The Institute of Chartered Accountants of India

Chapter 1 introduces the concept of Business Process Management (BPM) and Business
Process Re-Engineering (BPR) in bringing about integration and significant improvement in
business processes. Impact of IT on business processes, its risks and benefits are also
discussed in this chapter. Further, it provides an insight to the different mapping systems like
Entity Diagrams, DFDs, Decision Trees and some more.
Chapter 2 includes the discussion on the relevance of auditing in Business Processes, the
phases of System Development Life Cycle (SDLC) and overview of Information Systems
layers. Overview of latest technological devices and popular computing models and
architectures are also focused here.
Chapter 3 deals with the topics on fundamentals, components and functioning of
Telecommunication systems, different types of networks and their architectures. Afterwards,
the chapter provides an insight on the working of internet and its different technologies.
Chapter 4 comprehensively converses in detail various types of Business Information
Systems at different levels of an organization. Further, the students are also introduced with
some specialized systems like Core Banking system, CRM, ERP, CBS etc. used world wide.
Business reporting through IT and organization roles and importance of access controls are
outlined in this chapter for the sake of clarity of students of the concept.
Chapter 5 highlights various aspects pertaining to business process automation through
application software. Emerging concepts in the field of IT like virtualization, Grid computing,
cloud delivery model etc. are also covered in this chapter.
The significant additions in the revised edition are highlighted in Bold and Italics and have
also been consolidated in the form of table Significant Additions in the Revised Edition in
subsequent page.
In case you need any further clarification/guidance, please send your queries at
[email protected]/ [email protected].

iv

The Institute of Chartered Accountants of India

SIGNIFICANT ADDITIONS/MODIFICATIONS IN
2015 EDITION OVER 2014 EDITION
Chapter
no.

Chapter name

Sections/ sub sections wherein major

additions/updations have been done

Page
numbers

Information Systems and

IT Fundamentals

Re-ordering

2.30

5.6.4

Application
Controls

Functions

based

Business
Process
Automation
through
Fig. 5.6.1 Types of Application Controls
Application Software
5.7.1 Virtualization
5.7.2 Grid Computing

The Institute of Chartered Accountants of India

5.28
&
5.30 5.31
5.29
5.33 5.35
5.35 5.42

STUDY PLAN KEY TO EFFECTIVE LEARNING

The primary objective for the inclusion of the Information Technology at Intermediate (IPC)
Level of the Chartered Accountancy course is to provide conceptual understanding of different
aspects of Information Systems, Business Processes and their automation and management.
This paper provides a platform to students to build their conceptual understanding on
Information systems, challenges, risks, threats and controls during implementation of Business
Process Automation; much helpful for them while dealing with Paper 6: Information Systems
Control and Audit at Final Level of their Chartered Accountancy Course.
The level of knowledge required for the subject is 'Working knowledge' and the objective is To
develop understanding of Information Technology as a key enabler and facilitator of
implementing Information Systems in enterprises and their impact on business
processes and controls. For this, students have to focus their study on fundamental
comprehension of business processes; and automation of various business processes through
Business Information Systems. Besides, students should also give due importance to the
terms/definitions for proper conceptualization of the answers. The detailed learning objectives
of the paper are given below:

To be familiar with the concept of Business Processes, Business Process Management

(BPM), Business Process Re-Engineering (BPR) and representation of these business
processes using different mapping systems like Entity Diagrams, DFDs, Decision Trees
and some more.

To understand the importance of auditing in Business Processes, phases of System

Development Life Cycle (SDLC) and overview of Information Systems layers.

To comprehend the topics on fundamentals, components and functioning of

Telecommunication systems, different types of networks and their architectures.

To have a detailed understanding of various types of Business Information Systems (like

Management Information Systems, Knowledge Management Systems, Office Automation
Systems etc.) and also some specialized systems like Core Banking System, Customer
Relationship Management, Enterprise Resource Planning, Core Banking System etc.
used world wide.

To acquire an insight about various controls during Business Process Automation, latest
technological devices, popular computing models and emerging concepts like
Virtualization, Grid Computing, and Cloud Computing.

vi

The Institute of Chartered Accountants of India

A.

Planning your study

1.

Draw up a detailed study plan and allocate time for each topic/chapter of the
subject

2.

Make a study plan covering the entire syllabus and then decide how much time you can
allocate to the subject on daily/weekly basis.

Maintain the time balance amongst various subjects such as purely descriptive type and
numerical-based papers.

First of all, have an overview of the chapter to understand the broad contents and
sequence of various sub-topics.

Do the introspection while going through the chapter and ask various questions to
yourself.

Read each chapter slowly to ensure that you understand and assimilate the main
concept. If need be, read once again with concentration and then try to attempt
questions and exercises given in the Practice Manual.

Recapitulate the main concept after going through each chapter by way of brief notes.

Always assess your preparation periodically, say, on monthly basis. If necessary, revise
your plan and allocate more time for the subject in which you feel deficient.

Read, understand and assimilate each chapter.

Preparation of the subject should never be selective in any case. Because broad
coverage of the syllabus is more important than preparing 2-3 chapters exhaustively.

Jot down the key points, in each topic while reading, that would facilitate revision,
especially when you have a limited time of just one day before each examination.

Make full use of BoS Knowledge inputs in a systematic pattern

The Board of Studies brings out various publications from time to time with a view to assist
the students in education. You are advised to make full use of the Study Material and other
educational inputs provided to you in the hard copy mode and also in the soft copy format
under BoS Knowledge Portal under the Students' section of the Institute's website
www.icai.org. Study Material lays a strong foundation of the understanding of any particular
topic in detail. After having a fair idea about the topic from the study material, attempt the
questions from the practice manual, Revision Test Papers etc.

3.

Chapter-wise Tips for Preparation

While studying IT paper, students should try to understand the linkages between the
chapters at macro-level. This will help them in recollecting the concepts during
examination. We have made an attempt to explain with the help of tabular format given
here under the manner in which concepts contained in the particular chapter of the study
vii

The Institute of Chartered Accountants of India

material have to be interlinked with another chapter of the study material and read
together:
Inter - linked
Name of the Chapter(s)
Chapter
No(s).
1
Business Process Management
& IT
2
Information Systems and IT
Fundamentals
5
Business Process Automation
through Application software
2
Information Systems and IT
Fundamentals
5
Business Process Automation
through Application software
3
Telecommunication and Networks
4
Business Information Systems

Inter-linked Topic(s)

Business Process Automation

Cloud Computing
e-Commerce and m-Commerce
technologies and Payment
Mechanisms

During preparation of the first chapter, students should understand the concepts of
various business processes and their representation through various mapping
systems and how these business processes are impacted by IT. Students should
pay emphasize on bringing a clarity on Business Process Managements principles
and practices and their implementation in a structured manner to have better
understanding of them. Further, students should understand various business
processes flows before representing them with the help of any mapping system.

Consequently in the second chapter, students should stress on comprehending IT

fundamentals and the emerging technologies/devices helpful in automating
business processes. To provide better understanding of the Information systems,
the Information Systems Life Cycle is incorporated in this chapter. Further an
overview of latest devices and technologies used nowadays has been incorporated
in the chapter to keep you updated.

The third chapter deals with telecommunication and networking concepts which lay
a foundation for a student to comprehend working of Internet, e-commerce and mcommerce. The understanding of these concepts is the hour of need. Students may
draw comparative analysis on different architectures, topologies, transmission
modes after establishing the topic clarity. Also Network Security is the major
concern area, so the chapter provides an overview of different security measures
that can be adopted against network threats, risks and vulnerabilities.

The fourth chapter links the concepts of first three chapters and gives an insight
about different business information systems and their reporting through Information
viii

The Institute of Chartered Accountants of India

Technology and different online payment mechanisms. Students will get a fair idea
about different types of Information Systems and their advantages in the real time
world while reading this chapter.

B.

C.

In the last chapter, students should appreciate numerous business applications and
the emerging technologies in the IT field like Cloud Computing, Grid computing etc.
The controls needed in Business Process Automation from an auditors perspective
are dealt here in depth. The content of the chapter has been drafted in a
comprehensive manner to enable the students to prepare in a better way for their
examination.

Tips for Examination

For the theoretical question, the answer should be laid down in bullets with brief
description given in small paragraphs for making answer more appealing and legible.

Make sure that your handwriting is neat and legible. Answer all parts of a question
one after the other. Do not answer different parts of the same question at different
places.

Plan your time so that equal time is awarded for each mark. Keep sometime for
revision as well.

In case a question leaves room for making an assumption and there is a possibility of
more than one assumption, it is important to clearly state the assumption you have
taken and solve the question accordingly.

Always attempt to do all questions. Remember that six average answers fetch more
marks than five best answers. Therefore, it is important that you must finish each
question within allocated time.

Read the question carefully more than once before starting the answer to understand
very clearly as to what is required by the paper-setter.

Always be concise and write to the point and do not try to fill pages unnecessarily.

There must be logical expression of the answer.

Wherever possible, students should try to include relevant diagrams, tables, rough
sketch etc.

Revise your answers carefully and underline important points before leaving the
examination hall.

To conclude

Last but not the least, remember that study will not be an arduous task if it is approached with a
positive attitude and pursued with interest. If you enjoy your study; your learning will be permanent
and profound. Always bear in mind that your own resolution to succeed is more important than any
other. Therefore, give your hundred percent and there will be no looking back.
Best Wishes and Happy Learning!!!
ix

The Institute of Chartered Accountants of India

SYLLABUS
Paper - 7A: Information Technology (50 Marks)
Level of Knowledge: Working Knowledge
Objective: To develop understanding of Information Technology as a key enabler and
facilitator of implementing Information Systems in enterprises and their impact on business
processes and controls.
Contents
1.
Business Process Management & IT: Introduction to various Business processes
Accounting, Finances, Sale, Purchase etc. Business Process Automation Benefits & Risks,
Approach to mapping systems: Entity Diagrams, Data Flow Diagrams, Systems Flow
diagrams, Decision Trees/tables, Accounting systems vs. Value chain automation. Information
as a business asset, Impact of IT on business processes. Business Risks of failure of IT,
Business Process Re-engineering
2.
Information Systems and IT Fundamentals: Understand importance of IT in business
and relevance to Audit with case studies. Understand working of computers and networks in
business process automation from business information perspective. Concepts of Computing
(Definition provided by ACM/IEEE and overview of related terminologies). Overview of IS
Layers Applications, DBMS, systems software, hardware, networks & links and people.
Overview of Information Systems life cycle and key phases. Computing Technologies &
Hardware Servers, end points, popular computing architectures, emerging computing
architectures & delivery models example: SaaS, Cloud Computing, Mobile computing, etc.,
Example: Overview of latest devices/technologies i5, Bluetooth, Tablet, Wi-Fi, Android,
Touchpad, iPad, iPod, Laptop, Notebook, Smartphone, Ultra- Mobile PC etc.
3.
Telecommunication and Networks: Fundamentals of telecommunication,
Components and functions of Telecommunication Systems. Data networks types of
architecture, LAN, WAN, Wireless, private and public networks etc., Overview of computing
architectures centralized, de-centralized, mainframe, client-server, thin-thick client etc.
Network Fundamentals Components, Standards and protocols, Network risks & controls
VPN, Encryption, Secure protocols. Network administration and management concepts and
issues. How information systems are facilitated through telecommunications. How Internet
works, Internet architecture, key concepts, risks and controls, e-Commerce and M-commerce
technologies
4.
Business Information Systems : Information Systems and their role in businesses, IT
as a business enabler & driver ERP, Core Banking System, CRM, SCM, HRMS, Payment
Mechanisms. The relationship between organizations, information systems and business
x

The Institute of Chartered Accountants of India

processes, Accounting Information Systems and linkages to Operational systems, Business

Reporting, MIS & IT. Organization Roles & responsibilities and table or authorities, importance
of access controls, privilege controls. Specialized systems - MIS, DSS, Business Intelligence,
Expert Systems, Artificial Intelligence, Knowledge Management systems etc.
5.
Business Process Automation through Application software: Business Applications
overview and types, Business Process Automation, relevant controls and information
systems. Information Processing & Delivery channels and their role in Information Systems.
Key types of Application Controls and their need. Emerging concepts Virtualization, Grid
Computing, Cloud delivery model.

xi

The Institute of Chartered Accountants of India

xii

The Institute of Chartered Accountants of India

CONTENTS
SECTION A: INFORMATION TECHNOLOGY
CHAPTER 1 BUSINESS PROCESS MANAGEMENT & IT
1.1

Introduction ..................................................................................................... 1.2

1.2

Overview of Business Processes ..................................................................... 1.2

1.3

Classification of Business Processes ............................................................... 1.8

1.4

Business Process Management ........................................................................ 1.9

1.5

Theories of Process Management .................................................................. 1.14

1.6

BPM Implementation ...................................................................................... 1.18

1.7

Accounting Systems Automation .................................................................... 1.24

1.8

Impact of IT on BPM and Risks of failure of IT ................................................ 1.29

1.9

Approaches to Mapping Systems.................................................................... 1.32

1.10

Summary ....................................................................................................... 1.49

CHAPTER 2 INFORMATION SYSTEMS AND IT FUNDAMENTALS

2.1

Introduction ..................................................................................................... 2.2

2.2

Need for Information Technology ...................................................................... 2.3

2.3

Importance of IT in Auditing ............................................................................. 2.5

2.4

Overview of Business Process Automation ...................................................... 2.9

2.5

Overview of Computing .................................................................................. 2.12

2.6

Computing Technologies ................................................................................ 2.13

2.7

Information System Layers ............................................................................. 2.27

2.8

Information System Life Cycle ........................................................................ 2.43

2.9

Recent Technologies/Devices ........................................................................ 2.46

2.10

Summary ....................................................................................................... 2.50

xiii

The Institute of Chartered Accountants of India

CHAPTER 3 TELECOMMUNICATION AND NETWORKS

3.1

Introduction ..................................................................................................... 3.2

3.2

Networking an Enterprise ................................................................................. 3.3

3.3

Trends in Telecommunication ........................................................................... 3.3

3.4

The Business Value of Telecommunications ..................................................... 3.6

3.5

Telecommunications Network ........................................................................... 3.6

3.6

Classification of Telecommunication Networks................................................ 3.12

3.7

Network Computing ........................................................................................ 3.23

3.8

Network Risks, Control and Security............................................................... 3.37

3.9

Network Administration and Management ....................................................... 3.45

3.10

The Internet Revolution .................................................................................. 3.47

3.11

Electronic Commerce ..................................................................................... 3.56

3.12

Mobile Commerce .......................................................................................... 3.60

3.13

Electronic Fund Transfer ............................................................................... 3.61

3.14

Summary ....................................................................................................... 3.61

CHAPTER 4 BUSINESS INFORMATION SYSTEMS

4.1

Introduction ..................................................................................................... 4.2

4.2

Information Technology as a Key Business Enabler & Driver ............................ 4.3

4.3

Information Systems ........................................................................................ 4.5

4.4

Organizations, Information Systems and Business Processes ........................... 4.8

4.5

Information Systems and their role in Businesses ............................................. 4.9

4.6

Types of Information Systems ........................................................................ 4.10

4.7

Specialized Systems ...................................................................................... 4.30

4.8

Artificial Intelligence ...................................................................................... 4.51

4.9

Expert Systems .............................................................................................. 4.53

4.10

Business Intelligence ..................................................................................... 4.55

4.11

Importance of Access and Privilege Controls .................................................. 4.59

xiv

The Institute of Chartered Accountants of India

4.12

Payment Mechanisms ................................................................................... 4.61

4.13

Summary ....................................................................................................... 4.65

CHAPTER 5 BUSINESS PROCESS AUTOMATION THROUGH APPLICATION

SOFTWARE
5.1

Introduction ..................................................................................................... 5.2

5.2

Classification of Business Applications ............................................................. 5.3

5.3

Business Process Automation .......................................................................... 5.7

5.4

Information Processing .................................................................................. 5.18

5.5

Delivery Channels .......................................................................................... 5.20

5.6

Controls in BPA ............................................................................................. 5.21

5.7

Emerging Technologies .................................................................................. 5.33

5.8

Summary ....................................................................................................... 5.46

References ................................................................................................................... i-ii

Glossary..................................................................................................................... iii-x

xv

The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India