Accounting Information

Systems: An Overview

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 Learning Objectives
1. Explain what an accounting information
system (AIS) is and describe the basic
functions it performs.
2. Discuss why studying the design and
management of an AIS is important.
3. Explain the role played by the AIS in a
company’s value chain and discuss ways that
the AIS can add value to a business.
4. Describe and contrast the basic strategies
and strategic positions that a business can
adopt.

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What Is Accounting?
🞆 It is the principal way of organizing and
reporting financial information. It has been
called the “language of business.”
🞆 Accounting and information systems
comprise the functional area of business
responsible for providing information to the
other areas to enable them to do their jobs
and for reporting the results to interested
parties.
🞆 To that end, an accounting system is used
to identify, analyze, measure, record,
summarize, and communicate relevant
economic information to interested parties.
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 What Is a System?
🞆 A System is an entity consisting of interacting parts
that are coordinated to achieve one or more common
objectives. Systems must possess
🞆 Organization:
Transactions-Journals-Ledgers-Financial Statements
● Interrelationships:
The relationship between Subsidiary ledgers and the
General Ledger
● Integration:
Individual transactions to Financial Statements
● Central Objectives:
Financial Reports, Budgets, Management Reports
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Data Versus Information
🞆 Data are raw facts and figures that
are processed to produce
information
🞆 Information is data that have
been processed and are
meaningful and useful to users.
The terms “meaningful” and
“useful” are value-laden terms and
usually subsume other qualities
such as timeliness, relevance,
reliability, consistency,
comparability, etc. 1-5
 Functional Steps in Transforming
Data into Information
🞆 Data collection - capturing, recording,
validating and editing data for
completeness and accuracy
🞆 Data Maintenance/Processing -
classifying, sorting, calculating data
🞆 Data Management - storing, maintaining
and retrieving data
🞆 Data Control - safeguarding and securing
data and ensuring the accuracy and
completeness of the same
🞆 Information Generation - interpreting,
reporting, and communicating information 1-6
 What Is an Information
System?
🞆 An Information system is a framework in which data
is collected, processed, controlled and managed
through stages in order to provide information to
users
🞆 It evolves over time and becomes more formalized as
a firm grows and becomes more complex. It can be
a manual or computerized system
🞆 Firms depend on information systems in order to
survive and stay competitive

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 The Universal Data Processing
Model

Storage

Processing

Consumers

}
Exchange Events
Internal Events
Environmental Events
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 Learning Objective 1

Explain what an accounting

information system (AIS) is and
describe the basic functions it
performs.

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 What Is An AIS?
🞆 A system is a set of two or more interrelated
components that interact to achieve a goal.
🞆 Systems are almost always composed of
smaller subsystems, each performing a specific
function supportive of the larger system.
🞆 An accounting information system (AIS)
consists of:
● People
● Procedures
● Data
● Software
● Information technology infrastructure

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What Is An AIS?
🞆What important functions does the AIS
perform in an organization?
1 It collects and stores data about
activities and transactions.
2 It processes data into information that
is useful for making decisions.
3 It provides adequate controls to
safeguard the organization’s assets.

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Objectives and Users of AIS

🞆Support day-to-day operations

● Transaction processing
🞆Support Internal Decision-Making
● Trend Analyses
● Quantitative & Qualitative Data
● Non-transactional sources
🞆Help fulfill Stewardship Role

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Resources Required for an AIS

🞆Processor(s): Manual or
Computerized
🞆Data Base(s): Data Repositories
🞆Procedures: Manual or
Computerized
🞆Input/Output Devices
🞆Miscellaneous Resources

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Learning Objective 2

🞆Discuss why studying the

design and management
of an AIS is important.

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Why Study AIS?

🞆In Statement of Financial Accounting

Concepts No. 2, The FASB...
– defined accounting as an information
system.
– stated that the primary objective of
accounting is to provide information
useful to decision makers.

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 Why Study AIS?
🞆 The Accounting Education Change
Commission recommended that the
accounting curriculum should provide
students with a solid understanding of
three essential concepts:
1. The use of information in decision making
2. The nature, design, use and implementation of
an AIS
3. Financial information reporting

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 Why Study AIS?
🞆 To understand how the accounting
system works.
● How to collect data about an organization’s
activities and transactions
● How to transform that data into information
that management can use to run the
organization
● How to ensure the availability, reliability, and
accuracy of that information

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 Why Study AIS?

🞆Auditors need to understand the

systems that are used to produce a
company’s financial statements.
🞆Tax professionals need to understand
enough about the client’s AIS to be
confident that the information used for
tax planning and compliance work is
complete and accurate.

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 Why Study AIS?
🞆 One of the fastest growing types of
consulting services entails the design,
selection, and implementation of new
Accounting Information Systems.
🞆 A survey conducted by the Institute of
Management Accountants (IMA)
indicates that work relating to accounting
systems was the single most important
activity performed by corporate
accountants.

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Information Technology
and Corporate Strategy
The same survey conducted by
the Institute of Management
Accountants (IMA) also
indicates that the second most
important job activity of
corporate accountants is long-
term strategic planning.

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 The CITP Designation
🞆 CITP: certified information technology
professional
🞆 Identifies CPAs who possess a broad
range of technological knowledge and
the manner in which information
technology (IT) can be used to achieve
business objectives
🞆 Reflects the AICPA’s recognition of the
importance and interrelationship of IT
with accounting
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 Ten Most Important Activities
Performed By Accountants
1. Accounting systems 6. Financial and
and financial reporting economic analyses
2. Long-term strategic 7. Process improvement
planning 8. Computer systems
3. Managing the and operations
accounting and 9. Performance
finance function evaluation
4. Internal Consulting 10. Customer and product
5. Short-term budgeting profitability analyses

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Factors Influencing
Design of the AIS

Organizational
Strategy
Culture

AIS

Information
Technology

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AIS as an MIS Subsystem

Sales/ Productio
Marketing n
Info

AIS

Personnel Finance

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 Relationship of AIS & MIS

MI
S
Financ Sales/Marketing Productio AIS Personnel
e n
Order entry/Sales
Billing/A.Rec./Cash
receipts
Purchasing/A. Pay./Cash disb.
Inventor
y
Payroll
General ledger

Productio
n
 Learning Objective 3

🞆 Explain the role played by the AIS in a

company’s value chain and discuss
ways that the AIS can add value to a
business.

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 The Value Chain

🞆The ultimate goal of any business is to

provide value to its customers.
🞆A business will be profitable if the
value it creates is greater than the
cost of producing its products or
services.

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 The Value Chain

🞆 An organization’s value chain consists of

nine interrelated activities that collectively
describe everything it does.
🞆 The five primary activities consist of the
activities performed in order to create,
market, and deliver products and services
to customers and also to provide post-sales
services and support.

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 The Value Chain
Primary Activities

Inbound Outbound
Operations
Logistics Logistics

Marketing
Service
and Sales
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 The Value Chain

🞆The four support activities in the value

chain make it possible for the primary
activities to be performed efficiently
and effectively.

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The Value Chain
Support Activities

Infrastructur
Technology
e

Human
Purchasing
Resources
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 The Value System

🞆The value chain concept can be

extended by recognizing that
organizations must interact with
suppliers, distributors, and customers.
🞆An organization’s value chain and the
value chains of its suppliers,
distributors, and customers
collectively form a value system.

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 The Supply Chain
Raw Materials
Supplier

Manufacturer

Distributor

Retailer

Consumer

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 How An AIS Can Add Value
To An Organization
🞆An AIS adds value...
– by providing accurate and timely
information so that five primary value
chain activities can be performed more
effectively and efficiently.

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How An AIS Can Add Value
To An Organization
– An AIS adds value by:
– improving the quality and reducing the costs
of products or services.
– improving efficiency.
– Improving decision making capabilities.
– increasing the sharing of knowledge.
A well-designed AIS can also help an
organization profit by improving the
efficiency and effectiveness of its supply
chain.

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 Information and
Decision Making
🞆What is information?
🞆The term data refers to any and all of
the facts that are collected, stored,
and processed by an information
system.
🞆Information is data that has been
organized and processed so that it is
meaningful.

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 Data Needs For Activities
Generic Example Agent
Resource Event
Agent
Sales Transaction Customer
Inventory Sale
Sales
Payment to Supplier
Cashier
Cash Payment

Supplier
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 Information and Decision
Making
Characteristics of Useful Information

Relevant Timely

Reliable Understand
able

Complete Verifiable

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Information and
Decision Making
🞆 What is decision making? Decision
making involves the following steps:
1. Identify the problem.
2. Select a method for solving the problem.
3. Collect data needed to execute the decision
model.
4. Interpret the outputs of the model.
5. Evaluate the merits of each alternative.
6. Choose and execute the preferred solution.

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Information and
Decision Making
Decisions can be categorized as
follows:
– in terms of the degree of structure that
exists
– by the scope of the decision

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Decision Structure

🞆Structured decisions are repetitive,

routine, and understood well enough
that they can be delegated to lower-
level employees in the organization.
🞆An example is:
● Extending credit to customers.

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Decision Structure

🞆Semistructured decisions are

characterized by incomplete rules for
making the decision and the need for
subjective assessments and
judgments to supplement formal data
analysis.
🞆An example is:
● Setting a marketing budget for a new
product.

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Decision Structure

🞆Unstructured decisions are

nonrecurring and nonroutine.
🞆An example is:
● Choosing the cover for a
magazine.

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Decision Scope
🞆 Decisions vary in terms of the scope of
their effect.
🞆 Operational control is concerned with the
effective and efficient performance of
specific tasks.
🞆 Management control is concerned with the
effective and efficient use of resources for
accomplishing organizational objectives.
🞆 Strategic planning is concerned with
establishing organizational objectives and
policies for accomplishing those objectives.

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 Learning Objective 4

🞆 Describe and contrast the basic

strategies and strategic positions that a
business can adopt.

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 Information Technology
and Corporate Strategy
🞆New developments in IT affect the
design of an AIS.
🞆What basic requirements are needed
to evaluate the costs and benefits of
new IT developments?

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Information Technology
and Corporate Strategy
🞆Develop a basic understanding of…
– corporate strategies.
– how IT developments can be used to
implement existing organizational
strategies.
– how IT developments can be used to
create an opportunity to modify
existing strategies.
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 Information Technology
and Corporate Strategy
🞆Because an AIS functions within an
organization, it should be designed to
reflect the values of that organizational
culture.

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 Strategy and
Strategic Positions
Two Basic Strategies

To be a lower-cost producer than competitors

To differentiate products and services

from competitors

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Strategy and
Strategic Positions
Three Basic Strategic Positions

Variety-based strategic position

Need-based strategic position

Access-based strategic position

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Strategy and
Strategic Positions
🞆What role does the AIS play in helping
organizations adopt and maintain a
strategic position?
– Data collection about each activity
– Transforming data into information
that can be used by management to
coordinate those activities

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What is the Value
of Information?
🞆The value of information is the benefit
produced by the information minus the
cost of producing it.

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 The Role of the AIS
🞆 The Internet makes strategy more
important than ever
🞆 Enterprise resource planning (ERP)
systems integrate all aspects of a
company’s operations with its traditional
AIS.
🞆 The key feature of ERP systems is the
integration of financial data and other
nonfinancial operating data.

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End of Chapter 1

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