Chapter 2

Accounting on the
Internet

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Outline
Accounting on the Internet (Chapter 2)
Internet components
Data communications
The Internet
Financial Reporting on the Internet
HTML versus XML
XBRL
The benefits of XBRL
Privacy and Security on the Internet
Electronic Business
Electronic Data Interchange
Cloud Computing 2
Data Communications

Refers to transmitting data to and from different

locations over a network
Many accounting applications rely on data
communication, such as revenue and purchase
related activities, financial reporting, etc.
Accountants sometimes are called upon to evaluate
the capabilities of a network with regard to the
transmission accuracy and data integrity

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Data Communications
A communication channel is the physical path of data
transmission. It could be wired or wireless
Wired communication
Twisted pair wire
copper wire used to connect telephone devices
twisted to enhance signal transmission
Coaxial cables (or simply coax)
are used for cable television
capable of far higher transmission speeds and less
susceptible to interference
Fiber optic cables
carry only digital signals at very high speeds in the
form of light pulses
Provide much larger bandwidth (higher transmission
speed) and impervious to interference 4
Data Communications
(contd)
Wireless communication
Microwaves
high frequency radio waves that travel along a
line of sight path
Relayed via repeater stations
also very high bandwidth and carries over half of
all telephone and television traffic in the U.S.
Satellites
Radio signals are sent from ground stations to
satellites, which then transmit the signals to
other ground stations at distant locations
Leasing time on a satellite can be very expensive
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Data Communications
Modem: Modulator demodulator
converts digital signals into analog signals for
transmission over phone lines
theoretically capable of 56 kbps transmission
DSL: Digital Subscriber Lines
Data and voice transmissions can occur simultaneously by
splitting the telephone line into two lines
speeds up to 9 mbps
Requires proximity to phone company switching station
Cable Modem
speeds up to 50 mbps for downloading and up to 10 mbps
for uploading
FiOS Quantum: 300 Mbps/65 Mbps
Google Fiber: up to 1Gbit/s for both download and upload
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Data Communications
Local Area Networks (LANs)
consists of microcomputers, printers, servers and
similar devices that are connected together for
communications purposes
most LANs cover a single or several buildings
Advantages: facilitating communications, sharing
computer equipment, and computer files, saving
software costs
Wide Area Networks (WANs)
Span regional, national, or even global areas

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Data Communications
Client/server computing is an architecture that
distributes (shares) data processing in a networked
environment between clients and one or more servers
Any node in a network requesting data or a service is
considered to be a client, and any node or device
providing a service is considered to be a server
In a client/server network, the client computer can
perform certain local processing tasks such as handling
the user interface, while a server at a remote location
performs the more data intensive tasks such as
searching and retrieving data from large corporate
databases
Three interacting components
Presentation: users view of the system
Application-logic: processing user request
Data management: database query and updates 8
The Internet

The Internet is a interconnected network

Is a collection of local and wide area networks
Evolved from a variety of university- and government-
sponsored computer networks built largely for research
Grew rapidly in the 90s
Internet basics
Internet addresses
TCP/IP
Intranets and Extranets

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Internet Addresses

To transmit data over the Internet, a computer uses an

Internet address and a forwarding system
An internet address begins as a domain address, which is
also called a universal resource locator (URL)
Example: www.name.com.uk
First entry: the World Wide Web
Second entry: site name
Third entry: organization code
Fourth entry (optional): country code

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Internet Addresses
For transmission purposes, internet computers use tables of
domain names that enable them to translate a text-based
domain address into a numeric Internet Protocol (IP)
address
Example: www.google.com 74.125.95.99
First element: geographic region
Second element: organization number
Third element: computer group
Fourth element: a specific computer

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TCP/IP
The internet uses packet switching to transmit data
Information to be sent is divided into small blocks called
packets
Each packet is coded with the destination address (IP
address) and is sent separately via different routes over the
network
Upon arrival at the destination, the packets are assembled
together in the correct order
Transmission control protocol(TCP)/Internet protocol (IP)
Protocols are rules and procedures that govern the process of
data transmission over the Internet
TCP: specifies the procedures for dividing a file into packets
and the methods for reassembling the original file at the
destination
IP: specifies the structure of those packets and routing path 12
Intranets and Extranets
Intranet
comprises information made available using similar
technology as the Internet but only to authorized
users
Through user accounts and passwords, information
published on such Intranets is shielded from the
general public
Extranet
An emerging variant of the intranet
Whereas the intranet is typically an internal
company network used by its employees, an
extranet allows controlled access to the
corporation's Intranet by selected outside users
such as suppliers and customers
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Financial Reporting on the Internet

Exchanging financial information between trading

partners requires detailed specifications
HTML (HyperText Markup Language): uses a series of
predefined tags to display the data on Web pages
XML (eXtensible Markup Language): similar to HTML,
but allows users to define their own tags to describe the
data
XBRL (eXtensible Business Reporting Language): a
specialized subset of XML that standardizes the tags
that describe financial information in documents

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HTML versus XML

HTML code
<b> California State University at Fullerton </b>
<i> 800 N. State College Blvd. Fullerton, CA 92831-3599 </i>

What the HTML code displays in a web browser

California State University at Fullerton
800 N. State College Blvd. Fullerton, CA 92831-3599

XML code
<school id=12345678>
<name> California State University at Fullerton </name>
<address> 800 N. State College Blvd. Fullerton, CA 92831-3599 </address>
</school>
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XBRL
XBRL code
<ifrs-gp: CashCashEquivalents contextRef=Current_AsOf
unitRef=U-Euros decimals=0> 1000000</ifrs-gp:
CashCashEquivalents>
<ifrs-gp: OtherAssetsCurrent contextRef=Current_AsOf
unitRef=U-Euros decimals=0> 200000</ifrs-gp: OtherAssetsCurrent >
<ifrs-gp: AssetsCurrentTotal contextRef=Current_AsOf
unitRef=U-Euros decimals=0> 1200000</ifrs-gp: AssetsCurrentTotal>

What the XBRL code displays in a web browser

Current Assets:
Cash and Cash Equivalents: 1,000,000
Other Assets, Current: 200,000
Current Assets, Total: 1,200,000
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XBRL

XBRL instance documents: examples (instances) of

a class of documents defined by a standard or
specification
XBRL taxonomies: define the tags that represent
accounting and financial terms used in XBRL instance
documents
XBRL Specification 2.1: defines the rules and syntax for
XBRL documents and taxonomies
IDEA (interactive data and electronic applications):
the SECs database that contains XBRL data for over
10,000 companies

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The Benefits of XBRL
XBRL enables transmission of financial information in a
standard format, thus facilitating communications
between companies and financial statement users
XBRLs standard tags make searching for data items in
XBRL documents relatively easy because each data item
is uniquely defined
XBRL expresses the semantic meaning (relationship) in
formulas, thus making the data self-checking
XBRL-enabled software is used to save financial
information in standard XBRL format and exchange
data across all software platforms and technologies,
thus avoiding the errors caused by and lowering the
cost of duplicate data entry
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Privacy and Security on the Internet
An internet presence for companies introduces
unique privacy and security concerns
Security
safeguard an organizations electronic resources
and limit access to authorized users
Privacy
Companies are responsible for protecting the
privacy of personal information
Companies collect and use their customers
personal information in compliance with their
privacy policies

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Privacy and Security on the Internet

Spamming: sending unsolicited mass emails

Social engineering: obtain confidential information by
tricking people
- Spoofing and Phishing: emails pretending to be from a
legitimate company and requesting confidential
information
- Vishing: voice phishing, emails requesting recipients to
call a specified phone number
- Posing: creating a seemingly legitimate business,
collecting personal information while making a sale, and
never delivering a product

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Privacy and Security on the Internet

A firewall guards against unauthorized access to

sensitive file information from external Internet users
Can be either hardware or software-based
A firewall examines packets of incoming messages and
uses the access control list (ACL) to control the network
traffic
Two primary methods of firewall protection:
Inclusion: limits access to authorized users
Exclusion: denies access to unauthorized users

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Privacy and Security on the Internet
An Intrusion Detection System (IDS) creates logs of
network traffic and analyzed those logs for signs of
attempted or successful intrusions
Most common analysis is to compare logs to a database
containing patterns of traffic associated with known
attacks
Passive IDSs: create logs of potential intrusions and alert
network administrators to them
Reactive IDSs: detect potential intrusions dynamically,
log off potentially malicious users, and even reprogram a
firewall to block further messages from the suspected
source

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Privacy and Security on the Internet
A Virtual Private Network (VPN) is a private network
that uses a public network (such as Internet) to connect
remote sites or users together
The cost of establishing a VPN is much less than creating
a private network by leasing dedicated lines
A VPN enables secure data transmission by
creating private communication channels (i.e.
tunnels)
authenticating all users before permitting any data
transmission
encrypting all data transmission

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Privacy and Security on the Internet

A Proxy Server is a computer and related software can be

used to control Web accesses
Advantages of proxy servers:
- Funnel all internet requests through a single server
- Examine all incoming requests for information and test
them for authenticity (acting like a firewall)
- Limit employee internet access to approved web sites
- Store frequently accessed web pages on the servers own
hard disk (cache)

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Privacy and Security on the Internet

Data Encryption transforms plaintext messages into

unintelligible cyphertext ones using an encryption key
Decryption decodes the encrypted messages back
plaintext
Example of a simple encryption method (Caesar
Cypher): Shifting each letter by 3 positions to the right
- Plaintext message: fullerton
- Cypertext message: ixoohuwrq

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Privacy and Security on the Internet
Two types of Encryption Systems
Secret key encryption
- The same key is used both to encrypt and to decrypt
and shared by the communication parties
- The number of secret keys become difficult to manage
when a large number of parties are involved
- No way to prove who create a specific document
Public key encryption
- a pair of public/private encryption keys are used
- The sending party uses the recipients public to encode
the message, and the receiving party uses the
corresponding private key to decode it
- The public keys are freely distributable
- It is possible to prove who create a specific document
with a digital signature 26
Privacy and Security on the Internet
A digital signature
can be used to authenticate business documents: if a
companys private key decodes a message, then that
company must also have created the message
provides assurance that the message has not been
altered
A digital certificate is an electronic document that
verifies the identity of the owner of the key using the
corresponding public key
created and digitally signed by an independent third
party called a certificate authority (CA) and contains a
partys name and pubic key information (e.g., Thawte
or Verisign)

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Electronic Data Interchange
Electronic Data Interchange (EDI) allows organizations to
transmit standard business documents over high-speed
data communications channels
EDI represents a business arrangement between the buyer
and seller in which they agree, in advance, to the terms of
their relationship
EDI automates the exchange of business information and
streamlines processes because
- business partners exchange documents quickly and
easily (no postal delays), and
- EDI eliminates most of the paperwork
Internet-based EDI: use well-understood Internet
technology transmit business data
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Cloud Computing

Wikipedia definition: cloud computing is the use of

computing resources (hardware and software) that are
delivered as a service over a network (typically the
Internet)
Examples of cloud services:
Storage as a service:
iCloud, Google drive, Drop Box, Amazon Cloud
Drive
Software as a Service: software applications are hosted
over a network

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Cloud Computing
Advantages
cost savings: hardware, software, IT personnel
pay as you go: only pay for the services consumed
accessibility
scalability

Disadvantages
data security risk
loss of control over data
reliability of the Internet

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Homework

Test yourself: 1-10

Discussion Questions: 2, 4, 6, 8, 10-15

Case Analysis: 32

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