Hi its zero sir robs electronic Voice Assistant today I am going to talk about the definition and nature of
accounting information systems. You will notice that the ensuing discussions are largely repetitions of our
last topic in ae one one It business tools. Last semester, however, I have updated some substance to
segue to this course and make it more It oriented. Slide Two The topics of this presentation starts with the
rationale why we can refer to accounting as an information system. Then we will look at the three
components of AIS.
After that we will look at how AIS is distinguished from management, information system or mis. Next, we
will then go into the three stages of or the major processes performed by an AIS or any type of
information system for that matter. Then we will differentiate data from information and lastly we will have
a look at the objectives of AIS. And so we're off to our first topic in the next slide. Slide Three as was
discussed in your basic accounting subject, one characteristic of accounting is that it is an information
system.
By system we mean that there are several components working interdependently. In a later topic we will
learn about the components of an information system, the most important of which is people. Without
people, all other components will not function. In fact, in any organisation, project or system, people is the
most important factor in any endeavor. These interdependent components follow a predefined process
that includes specific tasks like authorization, processing, recording, reporting and housekeeping.
Some are manual, some are automated, driven by predefined instructions, which is known in the It world
as programs. The tasks that the interdependent component do progresses toward the common goal and
particular to AIS. That goal is none other than to provide the financial information needed by management
and other users, internal and external, to make important economic decisions. Slide Four AIS is usually
surrounded by subsystems or small segments of It which are also complete systems by themselves that
process financial and nonfinancial transactions that directly affect the processing of financial transactions.
For example, infrequent updates to the chart of Accounts are made to keep the list current.
Although not technically a financial transaction, these changes provide vital parameters or business rules
for processing future financial transactions. pos fixed assets and inventory are what we call Transaction
Processing systems, or tps, and their function is to capture day to day transactions and feed them to AIS
using either of the two methods of processing real time or batch process. These subsystems are only
some of the many that businesses have. The bigger the organization, the more subsystems that feed into
AIS. Slide Five The AIS is composed of three major subsystems, namely one the transaction processing
system tps which supports daily business operations with numerous reports, documents and messages
for users throughout the organization.
Two, the General ledger financial reporting system gl frs, which produces the traditional financial
statements such as the income statement balance sheet, statement of cash flows, tax returns and other
reports required by law. And three the Management Reporting System, or Mrs, which provides internal
management with special purpose financial reports and information needed for decision making, such as
budgets, variance reports and responsibility reports. The Mrs is also an important component of
management Advisory Services, or mas, rendered by professional accountants as source of financial
data. However, increasingly nowadays the Mrs is being transformed by It into what is now popularly
known as data analytics or business intelligence. That means that in order for mas to stay relevant,
professional accountants must also train to become competent in business intelligence, data mining and
data science.
Slide Six in your other subjects you must have learned about the Management Information System, or
mis. Management often requires information that goes beyond the capability of AIS. As organizations
grow in size and complexity, specialized financial areas emerge requiring additional information for
production planning and control, sales forecasting, inventory, warehouse planning, market research and
so on. The mis processes nonfinancial transactions that are not normally processed by traditional AIS.
These transactions include, but are not limited to, capital budgeting systems, market analysis, delivery
scheduling, job skill tracking, etc.
Why is it important to distinguish between AIS and mis? Because of the highly integrative nature of
modern information systems management and auditors need a conceptual view of the information system
that distinguishes key processes and areas of risk and legal responsibility from the other non legally
binding aspects of the system. For example, AIS must be distinguished from mis to identify a boundary of
the pfrs, sarbanes, oxley Or, SEC and bir scope of responsibilities of the management. slides Seven and
Eight all information systems follow a basic model of transforming data into useful information driven by
the concept of input process output. AIS is not an exception.
The basic model of any information system is comprised of three major stages, namely stage One data
collection. The task of this stage is to collect data from various sources, primarily the Transaction
processing systems or tps, via the Online Transaction Processing or oltp facility of the It infrastructure.
The data collected can come from interna as well as external sources. tps is a type of system that is most
widely used in an organisation because it is designed to accommodate the day to day transactions of the
business. It is built to be robust, highly reliable, highly available and designed to be user friendly.
The main purpose of the data collection stage is to ensure that event data entering the system are valid
and free from material errors. In many respects, this is the most important stage in the system. Should
transaction errors pass through data collection undetected, the system may process the errors and
generate erroneous and unreliable output. This, in turn could lead to poor decisions and actions by the
users. Two rules govern the design of data collection procedures relevance and efficiency.
The information system should capture only relevant data. A fundamental task of the system analyst or
designer is to determine what is and what is not relevant. He or she does this by analyzing the user's
needs. Only data that the user determines to ultimately contribute to information are relevant and thus
must be captured by the tps. Therefore, this stage should be designed to filter irrelevant facts from the
system.
Efficient data collection procedures are designed to collect data only once. These data can then be made
available to multiple.
Users capturing the same data more than once leads to data redundancy and inconsistency. Information
systems have limited collection, processing, and data storage capacity. Data redundancy overloads
facilities and reduces the overall efficiency of the system. inconsistency among among redundant data
elements can also result in bad decisions and inappropriate actions. Slide Nine the second operational
stage of the information system is data processing.
Once collected, data is processed that is, edited, summarized or refined to produce information. Tasks in
the data processing stage range from simple to complex, depending on how the system was designed.
Examples include mathematical algorithms such as linear programming models used for production,
scheduling applications, statistical techniques for sales, forecasting and posting, and summarizing
procedures for accounting applications. An important task related to data processing is database
management. Database management involves three fundamental tasks one, storage, two retrieval and
three deletion.
The storage task assign keys to new records and stores them in their proper location in the database.
Retrieval is the task of locating and extracting an existing record from the database for processing. After
processing is complete, the storage task restores the updated record to its place in the database. deletion
is the task of permanently removing obsolete or redundant records from the database. The organization's
database is its physical repository for financial and nonfinancial data.
When we use the term database in the generic sense, it could mean a filing cabinet or a computer disk.
Regardless of the database's physical form, we can represent its content in a logical hierarchy. On
succeeding slides, you can see the levels in the data hierarchy attribute, record and file in both physical
and logical sense. In an It information system setup, however, database management refers to the
hardware and software that manages the data and defines a logical barrier that limits the access to data
by users. It is usually referred to as the database management system or dbms.
Database management tasks are usually performed during off peak hours when the users are not actively
using the databases. The doubleheaded arrow indicates a two way flow of data between the two
elements of data processing. That is because data processing is an iterative process, meaning it
processes data, sends the processed data to the dbms, retrieves the data when some users need it, the
data might get updated, deleted, or some data might be added to the database if the users are allowed to
do these things. Slide ten the third stage in the basic information system model is information generation.
This is the process of compiling, arranging, formatting and presenting information to users.
Information can be an operational document, such as a sales order, a structured report, such as a
variance analysis report or a message on a computer screen, such as a customer alert. cautioning a
customer officer about a customer sensitivity. Regardless of physical form, useful information has the
following characteristics relevance, timeliness, accuracy, completeness and summarization. Relevance
requires that the contents of a report or document must serve a purpose. This could be to support a
manager's decision or a clerk's task.
We have established that only data relevant to a users action have information content. Therefore, the
information system should present only relevant data in its reports, depending on who the users are.
Reports containing irrelevancies waste resources and may be counterproductive to the user irrelevancies
detract attention from the true message of the report and may result in incorrect decisions or actions.
timeliness dictates that the age of information is a critical factor in determining its usefulness. Information
must be no older than the time of the action it supports.
For example, if a manager makes decisions daily to purchase inventory from a supplier based on an
inventory status report, then the information in the report should be no more than a day old. Accuracy
requires that information must be free from material errors. However, materiality is a difficult concept to
quantify. It has no absolute value. It is a problem specific concept.
This means that in some cases information must be perfectly accurate. In other instances, the level of
accuracy may be lower. Material error exists when the amount of inaccuracy in information causes the
user to make poor decisions or to fail to make necessary decisions. We sometimes must sacrifice
absolute accuracy to obtain timely information. Often, perfect information is not available within the user's
decision time frame.
Therefore, in providing information, system designers seek a balance between information that is as
accurate as possible, yet timely enough to be useful. Completeness means that no piece of information
essential to a decision or task should be missing. For example, a report should provide all necessary
calculations and present its message clearly and unambiguously. summarization is aggregation in
accordance with the user's needs. Lower level managers tend to need information that is highly detailed.
As information flows upward through the organization to top management, it becomes more summarized.
Slide Eleven feedback is a form of output that is sent back to the system as a source of data. Feedback
may be internal or external and is used to initiate or alter a process. For example, an inventory status
report signals the inventory control clerk that items of inventory have fallen to or below their minimum
allowable levels. Internal feedback from the information will initiate the inventory ordering process to
replenish the inventories.
Similarly, external feedback about the level of uncollected customer accounts can be used to adjust the
organization's credit policies. Slide Twelve at this point, it is appropriate to distinguish data from
information. Data are facts which may or may not be processed, that is, edited, summarized or refined
and have no direct effect on the user. By contrast, information causes the user to take an action that he or
she otherwise could not or would not have taken. Information is often defined simply as processed data.
This is an inadequate definition. Information is determined by the effect it has on the user, not by its
physical form. For example, a purchasing agent receives a daily report listing raw material inventory items
that are at low levels. This report causes the agent to place orders for more inventory. The facts in this
report have information content for the purchasing agent.
However, this same report, in the hands of the personnel Manager, is a mere collection of facts or data
causing no action and having no information content. We can see from this example that one person's
information is another person's data. This information is not just a set of processed facts arranged in
formal report. Information allows users to take action to resolve conflicts, reduce uncertainty, and make
decisions. We should note that action does not necessarily mean a physical act.
For instance, a purchasing agent who receives a report showing that inventory levels are adequate will
respond by ordering nothing. The agent's action to do nothing is a conscious decision triggered by
information and different from doing nothing because of being misinformed. The distinction between data
and information has pervasive implications for the study of information systems. If output from the
information system fails to cause users to act, the system serves no purpose and has failed in its primary
objective. Slide 13 as mentioned, we can speak of database in physical form, such as a collection of
customer data in a folder or electronic form, such as the same customer data encoded into an excel
spreadsheet.
Data Attribute The data attribute is the most elemental piece of potentially useful data in the database. An
attribute is a logical and relevant characteristic of an entity about which the firm captures data. The
attributes shown on the slide are logical because they all relate sensibly to a common entity. Customer
Information the attributes in both physical and electronic data are Customer number, name, address, and
Credit limit. Each attribute is also relevant because it contributes to the information content of the entire
set.
As proof of this, the absence of any single relevant attribute diminishes or destroys the information
content of the set. The addition of irrelevant or illogical data, such as the name of a customer's pet, would
not enhance the information content of the set unless the database is about animals. Record A record is a
complete set of attributes for a single occurrence within an entity class. For example, a particular
customer in the sample on the slide has customer number, name, address, and credit limit. This complete
set is one occurrence or record within the class.
To find a particular record within the database, we must be able to identify it uniquely. Therefore, every
record in the database must be unique in at least one attribute. This unique identifier attribute is the
primary key. Because no natural attribute, such as a customer name can guarantee uniqueness, we
typically assign artificial keys to records. In our example, the key for the Customer info is the Customer
Number, which is an arbitrary number.
File a file is a complete set of records of an identical class. In our example, a complete set of customer
records similarly, files are constructed for other classes of records, such as accounts receivable, inventory
accounts payable and payroll. The organisation's database is the entire collection of such files. Slide 14
Information System Objectives Each organisation must tailor its information system to the needs of its
users. Therefore, specific information system objectives may differ from firm to firm.
Three fundamental objectives are, however, common to all systems one, to support the stewardship
function of management. Stewardship refers to management's responsibility. To properly manage the
resources of the firm, the information system provides information about resource utilization to external
users via traditional financial statements and other mandated reports. Internally, management receives
stewardship information from various responsibility reports. Two, to support management decision
making.
The information system supplies managers with the information they need to carry out their decision
making responsibilities. Three to support the firm's day to day operations. The information system
provides information to operations personnel to assist them in the efficient and effective discharge of their
daily tasks. There it is an introduction to accounting information system, including the three components
of ais Basic Information System model, the three basic stages or processes, as well as a comparison of
ais and mis and data and information. On the slide is the reference I used in the production of this topic
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Our next topic will be about the brief history of information systems, which is inextricably linked to the
developments in information technology and computers. Thank you and stay safe always.