Slides 2
Criticisms of the Traditional
Accounting System Architecture
and a Solution
Criticisms of Traditional Accounting Systems
• There are non-integrated systems in an organization
• The architecture captures data about a subset of an
organization's business events (the accounting
transactions) - FILTERED
• The architecture stores and processes only a limited
number of characteristics about these accounting
transactions – FILTERED EVEN MORE
• The architecture captures and stores duplicate data in a
highly summarized form - AGGREGATED
• The architecture stores financial data to satisfy one
primary view - ACCOUNTANT’S PERSPECTIVE
• Data are not recorded and processed in real-time
Accounting Data: A Subset of
Business Data
(Limited view &
limited data)
Data that
describes
Business
Events
Business
Events
Accounting
Data
Accountants
filter data
General
Ledger
Limited Output:
Views & Formats
Evolution Of AIS
Stage 1
Stage 2
Manual
Systems
Automated
Systems
Resources:
Manual
Resources:
Information Technology
Process:
Accounting Cycle
Process:
Accounting Cycle
Data Stores (Files):
Journals & Ledgers
Data Stores (Flat-Files):
Journals & Ledgers
Objective:
Generate financial
statements
Objective:
Generate financial
statements
Stage 3
?
The solution:
An event-driven, enterprise-wide
information system, sitting on top of a
relational database management system
Evolution Of AIS
Stage 1
Stage 2
Stage 3
Manual
Systems
Resources:
Manual
Process:
Accounting Cycle
Automated
Systems
Resources:
Information Technology
Process:
Accounting Cycle
Data Stores (Files):
Journals & Ledgers
Objective:
Generate financial
statements
Data Stores (Flat-Files):
Journals & Ledgers
Event-Driven, EnterpriseWide IT Applications
Resources:
Information Technology
Process:
Record, Maintain, Report
All Business Event Data
of Interest
Data Stores (Tables):
RBMS
Objective:
Generate financial
statements
Objective:
Support Planning,
Executing, Control
And Evaluation Activities
(PEACE)
Source:
Hollander,
Denna &
Cherrington,
2000 (adapted)
Activity Models:
Template for Decomposition of Business
Processes (IPSO template)
Suppliers
Request
input
resources
Customers
Pay for input
resources
Supply goods
and services
Receive
payment
ORGANIZATION
AMP
Processes
Provides
Input of
Resources to
Organization
Conversio
n
Processes
Provides
Finished
Goods and
Services
MSC
Processes
Add value
Data Storage and Retrieval: Relational Database Management System
Creating Value
Organizations add value by converting
resources to develop and provide the
goods and services that customers
desire.
Types of High-Level Business Processes
• Acquisition/ Maintenance /Payment Processes (AMP) - acquire, maintain, and pay for resources
needed (e.g. labor, finance, fixed assets, raw
materials, supplies, research & development) to
provide goods and services.
• Conversion Processes - adding value; converting the
resources into goods and services for customers.
• Marketing/Sales/Collection Processes (MSC) –
marketing, delivering goods and services to
customers, and collecting payment.
Traditional Accounting “Stovepipe”
Systems
Expenditure Cycle (AMP)
Conversion Cycle
Revenue Cycle (MSC)
Purchases
Cash Disbursement
Payroll
Cost Accounting
Materials Requirements
Planning
Sales Processing
Cash Receipts
What is a process?
A process is group of related business events intended to
accomplish the strategic objectives of the enterprise
Business event (often used synonymous with business
activity): an activity performed by the business, e.g.,
“take customer order”
(Hint:Each event should contain at least a verb and a noun)
Business Processes and Events
Place TV ad
Take customer
order
Business Process:
MSC
Collect
payment
Ship goods
Managing Business and Information
Processes (PEACE)
Should Do
Do
Plan
Control;
Evaluate
Execute And
Trigger
Business
Rules
Feedback
Business
Processes
How to
Value Add
Measures
Data
Information
System
Record Data &
Convert to
Information
P - Plan
Planning requires leaders to define the
business objectives, to prioritize business
processes, and to provide a blueprint for
achieving the objectives. They must identify
opportunities available to the organization
as well as assess the risk associated with
each opportunity.
E - Execute
Managers execute their plan by dividing
business processes into smaller activities,
assigning people to perform each activity,
and motivating them to do a good job. A
clearly defined plan increases the likelihood
of proper execution.
A - And
C - Control
Control is exercised by reviewing the
results of an activity or an entire business
process to see if they are consistent with
expectations. The review may cause a
change in expectations or a change in the
way an activity or a process is performed to
bring the actual results in line with
expectations.
E - Evaluate
Periodically, managers evaluate the
operating results to see if the business
processes are achieving the organization's
objectives. The results of the evaluation
are used to modify the plans, objectives,
and expectations.
Relationship between Business Processes,
Information Processes and Management
Activities
Business
Processes
Manage Business Processes
AMP
Processes
Information System
Conversion
Processes
Capture
Data
RDMS:
Data
Management
Activities
Plan
Provide
Reports
Execute &
Control
MSC
Processes
Manage Business Processes
Source: Hollander, Denna & Cherrington, 2000
Evaluate
Managing Organizations:
Business & Information
Processes
• PEACE (Management)
– Plan
– Execute, And
– Control
– Evaluate
• Business Processes
– AMP: Acquire, Maintain, Pay for Business Resources
– Convert: Add value, particularly unique to organization
– MSC: Market, Sell goods/services, Collect payment
• Information Processes
– Record, Maintain, Report
Modeling A Business
Cash Disbursements
Cash Receipts
$
$
“Suppliers”
AMP: Raw Materials,
Supplies,
Labor,
Finance,
Fixed assets
Enterprise
Convert: Operations
Job Costing
Customers
MSC: Marketing
Sales
Collection
How Can Accountants Add Value
In The Information Age?
– Provide useful information for decision makers who
are responsible for planning, executing, controlling or
evaluating activities of an organization
– Help embed information processes in the business
processes (to capture and store data about the
processes in real time)
– Help embed controls in the business processes
– Help management define business rules or policies
that shape the nature of its business processes