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Chapter 1: The Study of Accounting Information Systems

An accounting information system (AIS) is a system that collects, records, stores, and processes accounting data to produce useful information for decision-makers. It has six key components: people, procedures, data, software, IT infrastructure, and internal controls. Studying AIS is important for accountants because it underpins accounting work and supports functions like financial reporting, auditing, management, and tax. The design of an AIS is influenced by information technology developments, business strategy, and organizational structure. It also plays an important role in an organization's value chain by supporting primary and support activities.

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624 views

Chapter 1: The Study of Accounting Information Systems

An accounting information system (AIS) is a system that collects, records, stores, and processes accounting data to produce useful information for decision-makers. It has six key components: people, procedures, data, software, IT infrastructure, and internal controls. Studying AIS is important for accountants because it underpins accounting work and supports functions like financial reporting, auditing, management, and tax. The design of an AIS is influenced by information technology developments, business strategy, and organizational structure. It also plays an important role in an organization's value chain by supporting primary and support activities.

Uploaded by

Aliah Cyril
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Accounting Information Systems:

Essential Concepts and Applications

Chapter 1: The Study of


Accounting Information
Systems
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.
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
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.
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
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
The Universal Data Processing
Model

Storage

Processing

Consumers

Exchange Events
Internal Events
Environmental Events
}
Accounting Information
System

 An Accounting Information
System is a unified structure that
employs physical resources and
components to transform economic
data into accounting information
for external and internal users.
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
Resources Required for an AIS

 Processor(s): Manual or Computerized


 Data Base(s): Data Repositories
 Procedures: Manual or
Computerized
 Input/Output Devices
 Miscellaneous Resources
AIS as an MIS Subsystem

Sales/ Production
Marketing Info

AIS

Personnel Finance
Relationship of AIS & MIS

MIS

Finance Sales/Marketing Production AIS Personnel

Order entry/Sales

Billing/A.Rec./Cash receipts

Purchasing/A. Pay./Cash disb.


Inventory

Payroll
General ledger

Production
Reasons for Studying
Accounting Information Systems

 Career accountants will be users, auditors, and


developers of AIS
 Modern-day AIS are complex because of new
technologies
 Concepts studied in AIS are integrated into
every other accounting course
Information-Oriented
Professionals
 An array of professionally trained persons from
different fields of study have focused on providing
information to users
 These professionals include system and
managerial accountants and auditors,
system analysts and industrial engineers
 Professional certifications are increasing. These
include Certified Computing Professional,
Certified Information Systems Auditor,
Certified Managerial Accountant, Certified
Fraud Examiner, etc.
Roles of Accountants With
Respect to an AIS

 Financial accountants
prepare financial information
for external decision-making
in accordance with GAAP
 Managerial accountants
prepare financial information
for internal decision-making
Roles of Accountants With
Respect to an AIS
 Auditors - evaluate controls
and attest to the fairness of
the financial statements.
 Accounting managers -
control all accounting
activities of a firm.
 Tax specialists - develop
information that reflects tax
obligations of the firm.
 Consultants - devise
specifications for the AIS.
Ethical Standards for
Consulting
 Professional competence
 Exercise due professional care
 Plan and supervise all work
 Obtain relevant data to support reasonable
recommendations
 Maintain integrity and objectivity
 Understand and respect the responsibilities of all
parties
 Disclose any conflicts of interest
 Accounting Information System by
Romney
What is an AIS by Romney
 Is a system that collects, records, stores
and processes data to produce information
for decision makers.
 Can be very simple paper-and-pencil-
based manual system, a very complex
system using the very latest in computers
& information technology, or something
between these two extremes.
What is an AIS by Romney
 Is a system that collects, records, stores and
processes data to produce information for
decision makers.
Characteristics of Useful Information
1. Relevant – Information is relevant if it reduces uncertainty,
improve decision makers’ ability to make predictions, or
confirms or corrects their prior expectations.
2. Reliable – Information is reliable if it is free from error
or bias & accurately represents the events or activities
of the organization.
What is an AIS by Romney
 Is a system that collects, records, stores
and processes data to produce information
for decision makers.
Characteristics of Useful Information
3. Complete – Information is complete if it does not
omit important aspects of the underlying events
or activities that it measures.
4. Timely – Information is timely if it is provided in time
for decision makers to make decisions.
What is an AIS by Romney
 Is a system that collects, records, stores
and processes data to produce information
for decision makers.
Characteristics of Useful Information
5. Understandable – Information is understandable if it
is presented in a useful and intelligent format.
6. Verifiable – Information is verifiable if two
knowledgeable people acting independently would
each produce the same information.
What is an AIS by Romney
 Is a system that collects, records, stores
and processes data to produce information
for decision makers.
Characteristics of Useful Information
7. Accessible – Information is accessible if it is available
to users when they need it in a
format they can use.
What is an AIS by Romney
 There are six components of an AIS
1. The people who operate the system and perform various
functions.
2. The procedures & instructions both manual and automated, involved
in collecting, processing, and storing data about organization’s activities.
3. The data about the organization and its business processes.
4. The software used to process the organization’s data.
5. The information technology infrastructures, including
computers, peripheral devices, & network communication devices
used to collect, store process and transmit data and information.
6. The internal controls and security measures that safeguard the data
in AIS.
Why Study AIS?
 Study of the AIS is Fundamental to
Accounting.
 Primary objective of accounting is to
provide information useful to decision
making
 AIS Skills are important to your Career
Success
For example, Auditors need to evaluate the accuracy
and reliability of information produced by the AIS.
The impact of the AIS on
Corporate Strategy & Culture?
 Three factors that influence the design
of an AIS.
1. Development of Information
Technology
2. Business Strategy
3. Organizational Structure
The impact of the AIS on
Corporate Strategy & Culture?
 Three factors that influence the design
of an AIS.
1. Development of Information
Technology
2. Business Strategy
3. Organizational Structure
The role of the AIS in the Value
Chain
 The objectives of most organization is to
provide VALUE to their customers.
 This requires performing a number of different
activities – VALUE CHAIN
Primary Activities that directly provide value to customers:
1. Inbound Logistics
2. Operations
3. Outbound Logistics
4. Marketing and Sales
5. Service
The role of the AIS in the Value
Chain
 The objectives of most organization is to provide
VALUE to their customers.
 This requires performing a number of different
activities – VALUE CHAIN
Support Activities allow five primary activities to be performed
efficiently and effectively:
1. Firm Infrastructure
2. Human Resources
3. Technology
4. Purchasing
How an AIS can add value to the
organization?
 A well-designed AIS can do this by:

1. Improving the quality and reducing costs or products and


services.
2. Improving Efficiency
3. Sharing Knowledge
4. Improving the efficiency and effectiveness of its supply chain.
5. Improving the internal control structure.
6. Improving decision making.
Providing Information for
Decision Making?
 Decision Making is a complex, multistep
activity:
1. Identify the problem
2. Collect and interpret information
3. Evaluate ways to solve the problem.
4. Select a solution methodology.
5. Implement the solution.
Providing Information for
Decision Making?
 An AIS can provide assistance in all phases of decision
making.
 An AIS provide feedback on the results of action.
 Information can improve decision making in several ways:
1. It identifies situations requiring managerial action.
2. It provides a basis for choosing among alternative actions by reducing uncertainty.
3. Information about the results of previous decisions provides valuable feedback that
can be used to improve future decisions
4. An AIS can improve decision making by providing accurate information in a timely
manner.
Decision Structure?

 Decisions vary in terms of the degree to which they are


structured.
 Structured decisions – are repetitive, routine and understood
well enough that they can be delegated to lower level
employees in the organization.
 Semistructured decisions – are characterized by imcomplete
decision making rules and the need for subjective assessments
and judgments to supplement formal data analysis.
 Unstructured decisions – are nonrecurring and nonroutine
decision with no framework or model exists to solve problems.
Instead, they require considerable judgment and intuition.
Decision Scope?

 Decisions vary in terms of their scope.


 Operational control – relates to the effective &
efficient performance of specific tasks.
 Management control – relates to the effective and
efficient use of resources for accomplishing
organizational objective.
 Strategic planning – relates to establishing
organizational objectives and policies for
accomplishing objectives.
AIS and Corporate Strategy?

 Michael Porter, a world renowned Professor of


Business at Harvard, argues that there are two basic
strategies that companies can follow:

1. Product Differentiation Strategy – entails adding


features or services not provided by competitors to a
product so you can charge customers a premium
price.
2. Low-Cost Strategy – entails striving to be the most
efficient producer of product or service
AIS and Corporate Strategy?

 Porter argues that the fundamental choice companies


must make involves selecting a specific strategic
position they wish to adopt.
 He describes three basic strategic positions:

1. Variety-Based Strategic Position


2. Needs-Based Strategic Position
3. An Access-Based Strategic Position

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