Accounting 3603

C

HAPTER 1

Accounting Information

Systems:

An Overview

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart

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INTRODUCTION

• Questions to be addressed in this chapter include:

– What is the meaning of system , data , and

information?

– What is an accounting information system (AIS)?

– Why is the AIS an important topic to study?

– What is the role of the AIS in the value chain?

– How does the AIS provide information for decision making?

– What are the basic strategies and strategic positions an organization can pursue?


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SYSTEMS, DATA, AND INFORMATION

• A system is:

– A set of interrelated components

– That interact

– To achieve a goal


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• Most systems are composed of smaller subsystems . . .

• . . . and vice versa!


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• Every organization has goals.

– The subsystems should be designed to maximize achievement of the organization’s goals.

– Even to the detriment of the subsystem itself.

– EXAMPLE: The production department (a subsystem) of a company might have to forego its goal of staying within its budget in order to meet the organization’s goal of delivering product on time.


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• Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger system.

• Goal congruence occurs when the subsystem’s goals are in line with the organization’s goals.

• The larger and more complicated a system, the more difficult it is to achieve goal congruence.


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• The systems concept encourages integration

(i.e., minimizing the duplication of recording, storing, reporting, and processing).

• Data are facts that are collected, recorded, stored, and processed by an information system.

• Organizations collect data about:

– Events that occur

– Resources that are affected by those events

– Agents who participate in the events


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• Information is different from data.

• Information is data that have been organized and processed to provide meaning to a user.

• Usually, more information and better information translates into better decisions.


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• However, when you get more information than you can effectively assimilate, you suffer from information overload .

– Example: Final exams week!

• When you’ve reached the overload point, the quality of decisions declines while the costs of producing the information increases.


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Benefits of information

- Cost of producing information

Value of information

Benefits of information may include:

• Reduction of uncertainty

• Improved decisions

• Improved ability to plan and schedule activities


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Costs may include time and resources spent:

• Collecting data

• Processing data

• Storing data

• Distributing information to users


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Costs and benefits of information are often difficult to quantify, but you need to try when you’re making decisions about whether to provide information.


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• Characteristics that make information useful:

– Relevance

It reduces uncertainty by helping you predict what will happen or confirm what already has happened.


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– Relevance

– Reliability

It’s dependable, i.e., free from error or bias and faithfully portrays events and activities.


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– Relevance

– Reliability

– Completeness

It doesn’t leave out anything that’s important.


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– Relevance

– Reliability


– Timeliness

You get it in time to make your decision.


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– Relevance

– Reliability


– Timeliness

– Understandability

It’s presented in a manner you can comprehend and use.


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– Relevance

– Reliability


– A consensus notion —the nature of the

Timeliness


– Verifiability


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– Relevance

– Reliability


– Timeliness


– Verifiability

– Accessibility


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• Information is provided to both:

– External users

– Internal users


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– External users

– Internal users


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• External users primarily use information that is either:

– MANDATORY INFORMATION—required by a governmental entity, such as Form 10-K required by the SEC; or

– ESSENTIAL INFORMATION—required to conduct business with external parties, such as purchase orders.


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• In providing mandatory or essential information, the focus should be on:

– Minimizing costs.

– Meeting regulatory requirements.

– Meeting minimum standards of reliability and usefulness.


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– External users

– Internal users


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• Internal users primarily use discretionary information.

• The primary focus in producing this information is ensuring that benefits exceed costs, i.e., the information has positive value.


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WHAT IS AN AIS?

• An AIS is a system that collects, records, stores, and processes data to produce information for decision makers.

• It can:

– Use advanced technology; or

– Be a simple paper-and-pencil system; or

– Be something in between.

• Technology is simply a tool to create, maintain, or improve a system.


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WHAT IS AN AIS?

• The functions of an AIS are to:

– Collect and store data about events, resources, and agents.

– Transform that data into information that management can use to make decisions about events, resources, and agents.

– Provide adequate controls to ensure that the entity’s resources (including data) are:

• Available when needed

• Accurate and reliable


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WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

• It’s fundamental to accounting.

• Accounting is an information-providing activity, so accountants need to understand:

– How the system that provides that information is designed, implemented, and used.

– How financial information is reported.

– How information is used to make decisions.


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• Other accounting courses focus on how the information is provided and used.

• An AIS course places greater emphasis on:

– How the data is collected and transformed.

– How the availability, reliability, and accuracy of the data is ensured.

• AIS courses are not number-crunching courses.


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• The skills are critical to career success.

• Auditors need to evaluate the accuracy and reliability of information produced by the AIS.


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• Tax accountants must understand the client’s AIS adequately to be confident that it is providing complete and accurate information for tax planning and compliance work.


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• In private industry and not-for-profit , systems work is considered the most important activity performed by accountants.


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• In management consulting , the design, selection, and implementation of accounting systems is a rapid growth area.


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• The AIS course complements other systems courses.

• Other systems courses focus on design and implementation of information systems, databases, expert systems, and telecommunications.

• AIS courses focus on accountability and control.


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• AIS topics are tested on the new CPA exam.

• Makes up about 25% of the Business

Environment & Concepts section of the CPA exam.


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• AIS topics are tested on the new CPA exam.

• AIS topics impact corporate strategy and culture.


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Occupational

Culture

Strategy

AIS design is affected by information technology, the organization’s strategy, and the organization’s culture.

AIS

Information

Technology


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Occupational

Culture

Strategy

Information technology affects the company’s choice of business strategy. To perform cost-benefit analyses on

IT changes, you need to understand business strategy.

AIS

Information

Technology


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Occupational

Culture

Strategy

Although culture affects the design of the AIS, it’s also true that the AIS affects culture by altering the dispersion and availability of information.

AIS

Information

Technology


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ROLE OF THE AIS IN THE VALUE CHAIN

• The objective of most organizations is to provide value to their customers.

• What does it mean to deliver value?

• Let’s peek in on a conversation at Joe’s pharmacy . . .


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Well, Mr. Pharmaceutical

Salesman, your proposal looks good, but your prices are about

5% higher than your competitors.


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That’s true, but we’re comfortable with that because of the valueadded that we bring to this arrangement.


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What is that “value-added,” and how do you convert it into dollars?


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Blah —blah—blah– customer service – blah —blah — blah


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• Although “adding value” is a commonly used buzzword, in its genuine sense, it means making the value of the finished component greater than the sum of its parts.

• It may mean:

– Making it faster

– Making it more reliable

– Providing better service or advice

– Providing something in limited supply (like O-negative blood or rare gems)

– Providing enhanced features

– Customizing it


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• Value is provided by performing a series of activities referred to as the value chain .

These include:

– Primary activities

– Support activities

• These activities are sometimes referred to as “line” and “staff” activities respectively.


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• Value is provided by performing a series of activities referred to as the value chain.

These include:





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• Primary activities include:

– Inbound logistics

Receiving, storing, and distributing the materials that are inputs to the organization’s product or service.

For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs.


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– Operations

Transforming those inputs into products or services.

For the pharmaceutical company, this step involves combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers.


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– Operations

– Outbound logistics

Distributing products or services to customers.

For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals.


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– Operations

– Outbound logistics

Helping customers to buy the organization’s products or services.

– Marketing and sales A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders.


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– Inbound logistics maintenance function.

– Operations

– Outbound logistics typically not be repairing it’s

– Marketing and sales

– Service be periodically reformulated).

The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc.


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• Value is provided by performing a series of activities referred to as the value chain.

These include:





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• Support activities include:

– Firm infrastructure

Accountants, lawyers, and administration.

Includes the company’s accounting information system.


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– Human resources

Involves recruiting and hiring new employees, training employees, paying employees, and handling employee benefits.


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– Human resources

– Technology

Activities to improve the products or services

(e.g., R&D, Web site development).

For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones.


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– Firm infrastructure assets) needed to carry out the

– Human resources

– Technology

– Purchasing

In the pharmaceutical company, the purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations.


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• Information technology can significantly carried out.

customer control over delivery, higher

• An organization’s value chain can be connected with the value chains of its

– Limited Brands tangled integration of over 60 customers, suppliers, and distributors.

400 trailers trying to jam into a 150 trailer lot.


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Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

For example, the inbound logistics of

Pharmaceuticals, Inc., links to the outbound logistics of its suppliers.

Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Customer Pharmacy

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


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Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

And the outbound logistics of

Pharmaceuticals, Inc., links to the inbound logistics of its customers.


Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


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Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

The linking of these separate value chains creates a larger system known as a supply chain.


Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


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Inbound Logistics

Operations

The linking of these separate value chains creates a larger system known as a chain.

Outbound Logistics

Marketing & Sales

Service

Information technology can facilitate synergistic linkages that improve the performance of each company’s value chain.


Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service supply


Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


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• There is variation in the degree of structure used to make decisions:

– Structured decisions

• Repetitive and routine.

• Can be delegated to lower-level employees.

• EXAMPLE: Deciding whether to write an auto insurance policy for a customer with a clean driving history.


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– Semistructured decisions

• Incomplete rules.

• Require subjective assessments.

• EXAMPLE: Deciding whether to sell auto insurance to a customer with a tainted driving history.


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– Semistructured decisions


• Non-recurring and non-routine.

• Require a great deal of subjective assessment.

• EXAMPLE: Deciding whether to begin selling a new type of insurance policy.


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• There is also variation in the scope of a decision’s effect:

– Occupational control decisions

• Relate to performance of specific tasks

• Often of a day-to-day nature.

• EXAMPLE: Deciding whether to order inventory.


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– Management control decisions

• Relate to utilizing resources to accomplish organizational objectives.

• EXAMPLE: Budgeting.


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– Management control decisions

– Strategic planning decisions

• The “what do we want to be when we grow up” types of questions.

• Involves establishing:

– Organizational objectives

– Policies to achieve those objectives

• EXAMPLE: Deciding whether to diversify the company into other product lines.


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• In general, the higher a manager is in the organization, the more likely he/she is to be engaging in:

– Less structured decisions

– Broader scope (i.e., strategic planning) decisions


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THE AIS AND CORPORATE STRATEGY

• Corporations have:

– Unlimited opportunities to invest in technology.

– Limited resources to invest in technology.

• Consequently, they must identify the improvements likely to yield the highest return.

• This decision requires an understanding of the entity’s overall business strategy.


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• Michael Porter suggests that there are two basic business strategies companies can follow:

– Product-differentiation strategy

– Low-cost strategy


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– Product-differentiation strategy

– Low-cost strategy


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• A product-differentiation strategy involves setting your product apart from those of your competitors, i.e., building a “better” mousetrap by offering one that’s faster, has enhanced features, etc.


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– Product-differentiation strategy

– Low-cost strategy


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• A low-cost strategy involves offering a cheaper mousetrap than your competitors.

The low cost is made possible by operating more efficiently.


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• Sometimes a company can do both, but they normally have to choose.


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• Porter also argues that companies must choose a strategic position among three choices:

– Variety-based strategic position

• Offer a subset of the industry’s products or services.

• EXAMPLE: An insurance company that only offers life insurance as opposed to life, health, propertycasualty, etc.


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– Needs-based strategic position

• Serve most or all of the needs of a particular group of customers in a target market.

• EXAMPLE: The original Farm Bureau-based insurance companies provided a portfolio of insurance and financial services tailored to the specific needs of farmers.


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– Variety-based strategic position intended primarily for customers in rural areas

– Needs-based strategic position

– Access-based strategic position


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– Needs-based strategic position

– Access-based strategic position

• These strategic positions are not mutually exclusive and can overlap.


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• Choosing a strategic position is important because it helps a company focus its efforts as opposed to trying to be everything to everybody.

– EXAMPLE: A radio station that tries to play all types of music will probably fail.

• It’s critical to design the organization’s activities so they reinforce one another in achieving the selected strategic position. The result is synergy, which is difficult for competitors to imitate.


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• The growth of the Internet has profoundly affected the way value chain activities are performed:

– Inbound and outbound logistics can be streamlined for products that can be digitized, like books and music.

– The Internet allows companies to cut costs, which impacts strategy and strategic position.

– Because the Internet is available to everyone, intense price competition can result. The outcome may be that many companies shift from low-cost to productdifferentiation strategies.

– The Internet may impede access-based strategic positions.


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– Requires that data be collected about each historical trends.

activity.

• EXAMPLE: You can view forecasts of airfares

– Requires the collection and integration of both


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• The authors believe:

– Accounting and information systems should be closely integrated.

– The AIS should be the primary information system to provide users with information they need to perform their jobs.


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SUMMARY

• What we’ve learned so far:

– The meaning of system , data , and information.

– What an AIS is.

– Why it’s an important topic to study.

– What its role is in the value chain.

– How it provides information for decision making.

– What are the basic strategies and strategic positions an organization can pursue.

• How these interact with the AIS.


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Accounting 3603

HAPTER 1

Accounting Information

Systems:

An Overview

INTRODUCTION

WHAT IS AN AIS?

WHAT IS AN AIS?

SUMMARY

Related documents

Products

Support

Accounting 3603

HAPTER 1

Accounting Information

Systems:

An Overview

INTRODUCTION

WHAT IS AN AIS?

WHAT IS AN AIS?

SUMMARY

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