Management Information System
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A business system that provides past, present,
and projected information about a company
andits environment (David M. Kroenke and
Kathleen A. Nolan)
A formal method of making available to
management the accurate and timely
information necessary to facilitate the decisionmaking process and enable the organization’s
planning, control, and operational functions to
be carried out effectively
The system that monitors and retrieves data
from the environment, captures data from
transactions and operations within the firm,
filters, organizes, and selects data and presents
them as information to managers, and provides
the means for managers to generate information
as desired (Robert G. Maurdick)
Designing a Management Accounting System
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The firm’s legal nature must be reflected in its
organizational form (proprietorship, partnership,
or corporation).
The firm’s organizational structure refers to
how authority and responsibility for decision
making are distributed (centralized or
decentralized form).
The firm’s organizational culture refers to the
underlying set of assumptions about an entity
and the goals processes, practices, and values
that are shared by its members.
The systems that are already in placed should be
evaluated to determine answers to the following:
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What data is being gathered and in what form?
What outputs are being generated and in what
form?
How do the current systems interact with one
another and how effective are those
interactions?
Is the current chart of accounts appropriate for
the management accounting information
desired?
What significant information issues are not
presently being addressed by the information
system and could those issues be integrated into
the current system?
The system must be composed of the three primary
elements:
1. Motivational elements – includes performance
measures,
reward
structure,
support
of
organizational mission and competitive strategy.
2. Informational elements – includes all necessary
information related to budgeting, cost control, value
added and non-value added activities, and
assessment of core competencies and analysis of
make-or-outsource decisions.
3. Reporting elements – includes the preparation of
financial statements for both financial and
management accounting purpose (provision for the
details of responsibility accounting system).
Management Control System (MCS)
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MCS guides the organizations in designing and
implementing strategies such that the
organizational goals and objectives are achieved.
It has four primary components:
1. A detector or sensor – is a measuring device that
identifies what is actually happening in the
process being controlled.
2. An assessor – is a device for determining the
significance of what is happening. Significance is
assess by comparing the information on what is
actually happening with some standard or
expectation of what should be happening.
3. An effector – is a device that alters behavior if
the assessor indicates the need for doing so. This
is what we call “feedback.”
4. A communication network – transmits
information between the detector and the
assessor and between the assessor and the
effector.
Cost Management System (CMS)
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CMS consists of a set of formal methods
developed for planning and controlling an
organization’s cost-generating activities relative
to its goals and objectives.
5. Sensitivity refers to the effect of decision that should
have been made if the information was given on time
or not given on time. The power of computers has
made it possible for managers to have not only the
right information, but also the right information at
the right time. Today, data processed in weeks could
now be processed in minutes.
CMS helps managers:
 identify the cost of resources consumed in
performing significant activities of the firm – the
accounting models and practices.
 determine the efficiency and effectiveness of the
activities
performed
–
performance
measurement
 identify and evaluate new activities that can
improve the future performance of the firm –
investment management; and
 accomplishing the first three functions stated
above in an environment characterized by
changing technology – adapting the firm in the
changes of technologies.
Essential characteristics
information
and
qualities
Components of Information Systems
(Computer based system)
System, as defined, is a group of components (functions,
people, activities, events, etc.) that interface with and
complement one another to achieve one or more
predefined goals.
Information System is a mixture or combination of
hardware, software, people, procedures, and data. The
term information system is normally referred to as a
computer-based system that provides the following:
 Data processing (DP) capabilities of a department or
perhaps an entire company, and
of
1. Accuracy and verifiability – The accuracy quality of
information refers to the degree to which
information is free from error. Information is usually
assumed to be accurate unless it is presented
otherwise. As the saying goes, “Garbage-in, Garbageout” or GIGO. Thus, the need for a good information
system is inevitable.
2. Completeness – Information can be completely
accurate and verifiable, but it may not necessarily
give the entire situation. The completeness quality of
information refers to the degree to which it is free
from omissions.
3. Relevance – The relevance quality of information
refers to the appropriateness of the information as
input for a particular decision to be made. Not all
information at hand could be relevant to the user.
Information overload normally happens. Information
overload occurs when the volume of available
information is too many that the user cannot
distinguish relevant information from that which is
not.
4. Timeliness – The timeliness quality of information
refers to the time sensitivity of information.
 Information – as people need to make better, more
informed decisions is inevitable.
 Components of Information Systems (Computer
based system)
Major components of a system are:
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Inputs – are the various human,
material, financial, equipment and
informational resources put together
required to produce goods and services.
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Transformation processes – are the
organization’s
managerial
and
technological abilities that are applied to
convert inputs into outputs.
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Outputs – are the products, services,
information or any other outcomes
produced by the organization.
o
Feedback – is the information about the
results and organizational status relative
to the environment.
Purpose of Accounting Information and
Need for Accounting Systems
Accounting system – is a formal mechanism or device for
gathering, organizing, and communicating information,
about an organization’s activities.
A well-defined and organized accounting system
helps the firm achieve its goals and objectives generally
classified as to:
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Operating results – Accounting information
enables both internal and external users
evaluate organizational performance.
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Setting priorities – Accounting information, by
the way of accounting reports, enables the
management to focus on operating problems,
imperfections, inefficiencies, and opportunities.
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Managers set priorities and concentrate on
important areas of operations promptly enough
for effective action.
Problem solving – Problem solving is commonly
related with non-recurring decisions or
situations that require special accounting
analyses or reports. This is the aspect of
accounting that quantifies the potential results
of possible courses of action and often
recommends the best of the most acceptable
course of action.
Components of an Accounting System:
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General Guideline in Setting Good
Accounting System Design
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Users of Accounting System
Accounting System is useful for:
Forms – are the documents on which the data is
recorded.
Equipment – consists of devices and machines
such as computers, cash registers and other
business machines.
Procedures – are a series of operations or step
that must be performed to complete a task.
People – no matter how sophisticated the other
components of the organization have, an
accounting system can only function efficiently
and effectively if the people who are involved in
it perform their duties.
Flexibility – It is very important that the system
is adaptable to meet changing circumstances
and demands.
Reliability – Accuracy and timeliness are both
relative and subjective evaluation of
information.
Simplicity – The system must be simple and easy
to understand by the people in the organization.
Helpfulness – It is not just the achievement of
goals and objectives, but also the usefulness of
the system to those who have to work with it.
Economy – It is always related to the idea of costbenefit analysis.
Control Mechanisms – Accounting system must
contain controls that are accurate, honest, with
efficiency and speed.
Elements of Good Internal Control
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Routine reporting to management, primarily for
planning and controlling current operations;
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Special reporting to management, primarily for
long-range planning and short-term but nonrecurring decisions; and
Reliable personnel – Personnel should be given
duties and responsibilities appropriate to their
interests, experience, and capabilities.
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Separation of duties – Recording and
custodianship functions of assets should not be
in the hands of one person. No one person must
be in complete or total control of any activity.
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Supervision – Each superior oversees and
appraises the performance of his subordinates.
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Routine reporting on financial and operating
results, primarily got external parties.
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Responsibility – Responsibility of every
personnel must be clearly laid out to trace who
should be praised and who should be punished.
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Personnel System – all personnel events are
recorded. The major activities include hiring,
giving benefits, evaluation, and payroll activities.
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Document control – This means immediate,
complete, and tamper-proof recording.
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Job rotations and forced leaves and bonds – Key
employees handling custodianship functions
should be forced to take some vacation leaves
and be rotated occasionally and if possible to
place bonds.
General Accounting System – data from all other
transaction systems are brought together, and
most management reports and financial
statements are generated.
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Periodic review of the system – Periodic review
of all phases of the system by internal or external
auditors are necessary.
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Physical safeguards – Safe boxes, locks, and
other safety measures must be installed, and
limited access to authorized personnel will
minimize asset and record losses.
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Routine and spot checks – Routine but
unscheduled checks must be done by authorized
personnel to prevent commission of fraud at any
time.
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Cost feasibility – Benefits should outweigh costs
in setting up internal control systems in all cases.
Sources of Accounting Data
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Order (sales or service) Entry System – sales
orders from customers are processed and filled,
and customers are billed for their purchases.
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Cash Receipts System – cash receipts from
customers are recorded, and cash is deposited
intact.
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Purchases System – items for sale or for
production use are ordered, received and
recorded.
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Production Planning and Control System – in
manufacturing firms, production schedules are
set; purchases are made; materials, labor, and
equipment are schedules; and production
output is monitored.
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Cash Disbursement System – all payments for
purchases and any other activities are made and
recorded.