Chapter 1
 ACCOUNTING
INFORMATION
SYSTEMS: AN OVERVIEW
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The Changing World
“IT is changing everything”
 Accounting Educators must invent the third wave
accounting paradigm and produce graduates who
can function effectively in the third wave
organizations they will be joining

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Current Business Environment
 A very
competitive, changing environment in
which companies that add the most value and
respond quickly succeed.
 Information
is becoming one of an
organization’s most important
resources.
 Advances
in information technology have been
been much more rapid than in any other industry.
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The Nature and Purpose of an
Organization: Creating Value

Michael Porter, Competitive Advantage: Everything
an organization does should contribute to value for
its customers. Creating value, incurs costs for the
organization
Margin
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=
Value
- Cost
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Key Elements of the Value Chain
 Value
chain: a sequence of activities that
creates a good or service, in which each step
of the sequence adds something the
customer values to the product. A value
chain includes:

Input activities: product design, process design,
purchasing, receiving, hiring, training
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Key Elements of the Value Chain
Processing activities: making, moving, storing,
inspecting
 Output activities: selling, shipping, service
 Administrative activities: personnel, finance,
legal, accounting, research

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Creating Value
 Organizations
create value by developing
and providing the goods and services
customers desire.
 Goods
and services are provided through a
series of business processes.
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Creating Value
 A business
process is a series of activities
that accomplishes a business objective.
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Adding Value
 How
can accountants further add value??
Provide useful information for decision makers
who are responsible for planning, executing, or
evaluating activities of an organization
 Help embed information processes into
business processes
 Help management define business rules or
policies that shape the nature of its business
processes

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Solving Business Problems
 When
you begin to think about solving
business problems, you begin to:
Consider strategy, business processes,
organization structures, measurements, and IT.
They are all important.
 Make sure each proposed solution is aligned
with an organization’s business processes.
 Encourage continuous organization learning
and real-time adaptation to a complex and ever
changing world.

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Framework for Information Systems
Information System (IS)
Accounting
Information
System
(AIS)
Management
Information System
(MIS)
The information system is the set of formal procedures by which
data are collected, processed into information and distributed to
users.
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Information Systems
 A "computer-based"
information system is a
collection of computer hardware and
software designed to transform data into
useful information.
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Management information systems
(MISs)
 use
computer technology to provide
decision-oriented information to managers.
 MIS provides a wide variety of information
beyond that which is associated with DP in
organizations.
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MIS
Management Systems
 Marketing Systems

 Production Systems

 Human Resource Systems

 Decision Support Systems
(DSS) and Expert Systems (ES)
 Financial
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Portfolio Management
Capital Budgeting
New Product development
Market Analysis
Production Planning
Job Scheduling
Job Skill Tracking
Employee Benefits
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Decision Support Systems (DSSs)
 process
data into a decision-making format
for the end user
 DSSs serve ad hoc, specific, nonroutine
information requests by management,
including what-if analyses.
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Expert Systems (ESs)
 knowledge-based
information systems that
use knowledge about a specific application
area to act as an expert consultant to end
users.
 An ES differs from a DSS in that a DSS
assists a user in making a decision, whereas
an ES makes the decision.
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accounting information system
 collection
of resources designed to
transform financial and other data into
information
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Accounting Information Systems
(AISs)
 include
transaction processing cycles, the
use of information technology, and the
development of financial information
systems
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Transaction Processing Cycles
 AIS
deals with a variety of activities that
may be grouped according to four common
cycles of business activity called transaction
processing cycles.
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Revenue cycle
 Events
related to the distribution of goods
and services to other entities and the
collection of related payments
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Expenditure cycle
 Events
related to the acquisition of goods
and services and the settlement of related
obligations
[the expenditure cycle can be expanded into
the Purchase cycle and the Payroll cycle]
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Production cycle
 Events
related to the transformation of
resources into goods and services
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Finance cycle
 Events
related to the acquisition and
management of capital funds, including
cash
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Financial Reporting cycle
 not
an operating cycle
 obtains data from the other cycles and
processes these data in such a manner that
financial reports may be prepared
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Information and Decisions
 users
of accounting information fall into
two broad groups:


external
internal
 the
distinction between external and internal
groups is getting blurry.
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mandatory and discretionary
information
 mandatory
information: primary
consideration is minimizing costs while
meeting minimum standards of reliability
and usefulness
 discretionary information: primary
consideration is that the benefits obtained
exceed the costs
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Information and Decisions
 Higher
level managers require less
information detail than lower level
managers.
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Top
Management
Stakeholders
Middle
Management
Customers
Operations
Management
Operations Personnel
Day-to-Day Operations Information
Suppliers
Internal Control Process
 The
term internal control process suggests
actions taken within an organization to
regulate and direct the activities of the
organization and tosafeguard company
assets
 policies and procedures established to
provide reasonable assurance that specific
organizational objectives will be achieved
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Elements of Internal Control
Process
 control
environment
 risk assessment
 control activities
 information and communication
 monitoring
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Adequate records
 Internal
control also calls for the
maintenance of adequate records in an effort
to control assets and analyze the assignment
of responsibility.
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Segregation of Accounting
Functions
 Segregate
record keeping, custody, and
authorization.
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Internal Audit Function
 Internal
audit is charged with monitoring
and assessing compliance with
organizational policies and procedures.
 must be segregated from the accounting
function and have neither responsibility nor
authority for any operating activity
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Behavioral Considerations in
Systems Development
 The
user cooperation needed to operate the
system successfully should be ensured
during the design of a system, not
afterward.
 A philosophy of user-oriented design fosters
a set of attitudes and an approach to systems
development that consciously considers the
organizational context.
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React to change
Ways
to react to calls for
change:
resist change - be pulled
 respond
to events as they occur -
follow
 be at the forefront of change - lead
if
change is not understood
and adapted, our ability to
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AICPA: Values and Skills


Continuing education
and lifelong learning
Communication skills

Strategic and critical
thinking skills

Focus on clients and
markets

Ability to interpret
converging inform.

Technological
adeptness
Competence
 Integrity


Attunement with
broad business issues
 Objectivity
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Top 5 Service and Delivery Issues
Assurance: reliability of
information and systems.
Future success relies on public
perceptions of PAs' roles and abilities.
Technology: systems analysis,
information management, and system
security.
PAs must be market driven, and not
depend on regulations to keep them in
business.
Management consulting: advice to
organizations on management and
performance improvements.
The market demands less auditing
and accounting, and more value-added
consulting services.
Financial planning: advice in broad Specialization is critical for the
future survival of the PA profession.
financial planning areas.
The marketplace demands that PAs
International: services for crossbe conversant with global business
border tax planning, multinational
practices and strategies.
mergers and joint ventures, etc.
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Accounting Information Systems
 Fixed Asset
System (FAS)
 General Ledger/ Financial Reporting
System (GL/FRS)
 Transaction Processing System (TPS)
Expenditure Cycle
 Conversion Cycle
 Revenue Cycle

 Management
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Reporting System (MRS)
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The Information Systems
Function
 Every
organization that uses computers to
process transactional data has an
information systems function.
 The information systems function is
responsible for data processing (DP).
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Organizational Location
 The
head of the information systems
function is typically called the Chief
Information Officer and is advised by an
advisory group called a steering committee.
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Functional Specializations
 The
most prevalent information systems
departmental structure is the assignment of
responsibilities and duties by area of
technical specialization, that is, function.
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Information System functions
 analysis
 programming
 operations
 technical
support
 user support function
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Information
Systems
Function
Systems
Analysis
Application
Analysts
Programming
Application
Programmers
Chief
Information
Officer
Steering
Committee
Operations
Technical
Support
Maintenance
Programmers
Systems
Programmers
File
Librarian
Communication
Analysts
Data
Entry
Database
Administration
User
Support
Computer
Operators
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project organization
 analysts
and programmers are assigned to
specific application projects and work
together to complete a project under the
direction of a project leader
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End-User Computing (EUC)
 End-user
is one who requires computing
and IS resources
 A common EUC application is information
retrieval and management from a database
using the query language feature of a
DBMS
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Risks of EUC
 The
proliferation of PCs and a client-server
computing environment has lead to an
increase in EUC
 Inadequate systems development, data
integrity, and data security issues are
paramount
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Quick Response Technology
 Just-in-Time
(JIT)
 Electronic Data Interchange (EDI)
 Computer-Integrated Manufacturing (CIM)
 Electronic Funds Transfer (EFT)
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Wholesale EFT
 FedWire
 Clearing
House Interbank Payment System
(CHIPS)
 Clearing House Automated Payment
System (CHAPS)
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FedWire
 an
electronic payment and communications
system
 Banks holding reserve accounts with the U.
S. Federal Reserve Bank use FedWire to
transfer funds among themselves.
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CHIPS
 an
automated clearing house system used
for the clearing of Eurodollar payments
between U. S. and non-U. S. financial
institutions
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Retail EFT systems
 telephone
wire transfers and payment
systems
 preauthorized payment systems
 point-of-sale (POS) applications
 automated teller machines (ATMs)
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Electronic Data Interchange
(EDI)
 EDI
refers to computer-to-computer
exchange of business documents and
transactions
 EDI is transforming the way businesses
process transactions and is significantly
impacting the business models in various
industries
 Success of Dell Computer
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