The Internet and World Wide Web

1
Chapter 12 Accounting on the Internet
PowerPoint Presentations

• Introduction
• The Internet and World Wide Web
• XBRL Financial Reporting on the Internet
• Electronic Commerce
• Privacy and Security on the Internet

2
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.
• 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 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.

3
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 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.

4
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
• 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.

5
XBRL FINANCIAL REPORTING ON THE INTERNET

• The primary repository of financial information
  on the Internet is the Security and Exchange
  Commissions Electronic Data Gathering and
  Retrieval Database (EDGAR).
• EDGAR contains the financial report filings of
  U.S. publicly held companies in plaintext format.
• PricewaterhouseCoopers developed EdgarScan to
  take the information in EDGAR and change it to a
  common format.
• EdgarScans common format allows users to extract
  data from multiple companies and compare it.
• However, such comparisons are limited to formal
  financial report filings for a limited
  set of enterprises.

Printed Financials
Regulatory Filings
Without XBRL
Accounting System
Web Site
Explanatory Text
Tax Return
Third Party Information
Trade Filings
6
XBRL Financial Reporting on the Internet

• The eXtensible Business Reporting Language (XBRL)
  is a specialized software language for the
  financial reporting industry.
• XBRL is a subset of eXtensible Markup Language
  (XML).
• XML is similar to HTML and yet different because
• Its tags are extensible
• The tags describe the data rather than just
  indicating their display
• XBRL is a global effort by the XBRL Steering
  Committee (www.xbrl.org).
• XBRLs many benefits include
• Single-format filing
• Ease of corporate comparisons

Printed Financials
Regulatory Filings
Accounting System
Web Site
XBRL Documents
Explanatory Text
Tax Return
Third Party Information
Trade Filings
7
How Does XBRL Affect Accountants

• Provides greater transparency
• Permits automatic and reliable exchange of
  financial information across different formats
  and technologies
• Does not require a change to existing accounting
  standards or disclosure requirements
• Eliminates the need to re-enter financial data
  for different users
• Lowers the cost of the preparation and
  distribution of financial statements
• Improves investor- and analyst- access to
  information
• Allows accountants to consolidate and scrutinize
  internal data for financial reporting purposes
• Allows CEOs and CFOs to deliver more transparent
  information

8
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.
• EC can be business-to-business (B2B) and
  business-to-customer (B2C).
• General categories of EC include retail sales,
  E-cash, E-wallets, and electronic data
  interchange (EDI).
• Because EC transactions cross the boundaries of
  the enterprise, security is of primary concern.
  Security issues include
• The correct identification of the transaction
  parties (authentication)
• Determination of who may rightfully make binding
  agreements (authorization)
• Protecting the confidentiality and integrity of
  information
• Assuring the trustworthiness of listed prices and
  discounts
• Providing evidence of the transmission and
  receipt of documents
• Guarding against repudiation by the sender or
  recipient
• The proper extent of verification of payment data
• The best method of payment to avoid wrongdoing or
  disagreements
• Lost or duplicated transactions
• Determining who bears the risk or fraud

9
ELECTRONIC COMMERCE

• Responses to security issues include
• Encryption associated authentication methods,
  preferably by physically secure hardware rather
  than software
• Numerical sequencing to identify missing or false
  messages
• The capacity of the host computer to avoid
  downtime and repel attacks
• Non-repudiation methods, such as digital
  certificates, which prove origination and
  delivery so that parties cannot disclaim
  responsibility for sending or receiving a message
• Adherence to legal requirements, such as privacy
  statutes
• Documenting trading agreements, especially the
  terms of trade and methods of authorization and
  authentication
• Agreements for end-to-end security and
  availability with providers of information
  services and value-added networks
• Disclosure by public trading systems of their
  terms of business

• Common security issues that must be addressed
  with electronic commerce transactions include
• Authentication, authorization, confidentiality,
  and verification. (CPA, adapted)
• Encryption, repudiation, sequencing, and
  downtime.
• Disclosure, duplicate transactions, risk of
  fraud, and transmission protocols.
• Prices and discounts, evidence of transmission,
  digital certificates, and trading agreements.

10
Retail Sales Advantages of Virtual Stores

• Web pages are much cheaper than creating and
  mailing catalogs
• Distribution is global
• Sales can occur around the clock
• Customers can search for specific products or
  services electronically, either within a
  particular web site or as a hit from another
  site
• Businesses can easily outsource its web business
  to others, enabling it to focus on core
  processes
• The web sites themselves can use automated tools
  to verify customer credit cards
• Businesses can send emails to confirm orders or
  advise customers about shipping dates
• Businesses can update product descriptions, sales
  prices, and information on merchandise
  availability immediately
• Customers create their own sales orders online

11
E-Cash and E-Wallet

• 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
  consumers 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.

12
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.

• Which of the following is not an advantage of
  business-to-business (B2B)? (CPA adapted)
• Increased market efficiency
• Decreased inventory levels
• Reduced purchasing costs
• Reduced information technology costs

13
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.

• Which of the following is usually a benefit of
  transmitting transactions in an electronic data
  interchange (EDI) environment?
• A compressed business cycle with lower year-end
  receivables balances.
• A reduced need to test computer controls related
  to sales and collections transactions
• An increased opportunity to apply statistical
  sampling techniques to account balances.
• No need to rely on third-party service providers
  to ensure security. (CPA, adapted)

14
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.

15
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.
• 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.

16
Firewalls and Proxy Servers

• 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 servers own hard disk.

17
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.
• In a public key encryption system, the public key
  is used to encrypt the message prior to
  transmission. Accordingly, the parties who wish
  to transmit coded messages must use
  algorithmically-related pairs of public and
  private keys. The sender searches a directory for
  the recipients public key, uses it to code the
  message, and transmits the message to the
  recipient. The latter uses the related private
  (secret) key to decode the message. The private
  key is needed to decrypt (decode) the message.

• A client communicates sensitive data across the
  Internet. Which of the following controls will be
  most effective to prevent the use of the
  information if it were intercepted by an
  unauthorized party? (CPA, adapted)
• A firewall. B. Passwords.
• C. An access log. D. Encryption.

18
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.
• The sender uses its private key to encode all or
  part of the message, and the recipient uses the
  senders public key to decode it. Hence, if that
  key decodes the message, the sender must have
  written it.

• A digital signature is used primarily to
  determine that a message is
• Unaltered in transmission.
• Not intercepted en route.
• Received by the intended recipient.
• Sent to the correct address. (CPA, adapted)

19
Digital Certificate and Digital Time-Stamping

• 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.