Chapter 1:
Introduction to Accounting
Information Systems
Accounting Information Systems 9e
Gelinas ►Dull ► Wheeler
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives
Appreciate the complex, dynamic environment
in which accounting is practiced.
Know the relationship between the AIS and the
organization’s business processes.
Know the attributes of information.
Recognize how information is used for different
types of decisions and at various levels in the
organization.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives (cont’d)
Recognize how the information system supports
the management function.
Recognize the accountant’s role in relation to
the current environment for the AIS.
Understand how to use this textbook effectively
to learn AIS.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Focus of the Course
Internal Control — a process to provide
reasonable assurance that organizational
objectives will be achieved.
Chapters 7 and beyond (8, 9, 11, 12, 13, 16)
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
What is an Information System?
An Information System (IS) is interrelated
components to collect, process, store and
distribute information to support mainly
decision makings in an organization
Information technology (IT) describes the
combination of computer technology (hardware
and software) with telecommunications
technology (data, image, and voice networks).
CBIS vs. Manual IS
Data vs. Information
Data
 refers to raw facts
 Example: inventory part number or sales orders
Information
 refers to data that have been processed and
presented in a form suitable for human
interpretation
 Example: total number of registered students based
on each major or geographical purchasing pattern of
SUV
Example of data
Example of information
Why study AIS?
Information Age
 Bill Gates (how much rich?), List of GDP
 Major TANGIBLE product of Microsoft
 Information age phenomena
Population of “facebook.com” : 800 million active user
US: 310 million
 Accounting service
Software
Online
Example of why studying AIS
Sarbanes-Oxley Act of 2002
 The Sarbanes-Oxley Act (SOX) mandated strict
reforms to improve financial disclosures from
corporations and prevent accounting fraud.
 SOX was enacted in response to the accounting
scandals in the early 2000s.
 Scandals such as Enron, Tyco, and WorldCom shook
investor confidence in financial statements and
required an overhaul of regulatory standards.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
WorldCom scandal
 Fierce competitors to AT&T and Sprint
 Used to have:
 88,000 employees
 60,000 miles of telephone lines around the world
 Revenue of $40 billion
 Collapsed because of the accounting fraud
 $11 billion
 One of the biggest (second: Lehman Brothers, ENRON)
 A main trigger
 Simple: failure of systems integration
 Four different billing systems
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sarbanes-Oxley Act of 2002
(cont’d)
Implications for both public and private
accountants:
Section 404 (as modified by PCAOB Auditing
Standard No. 5) –
Management must identify, document, and
evaluate significant internal controls.
Auditors must report on the effectiveness of
the organization’s system of internal controls.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sarbanes-Oxley Act of 2002
(cont’d)
Implications for both public and private
accountants:
Section 409 –
Requires disclosure to the public on a
“rapid and current” basis of material changes
in an organization’s financial condition.
None of sections possible w/o AIS
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
More examples
Average American relies on more than 250
computers per day
 More so in accounting
45 of the 2008 Fortune 500 companies were IT
companies
Dell Computer is one of them – it was started in
1984 and now has 65,000 employees worldwide
1-14
Downside of information age
$490 – credit card number and PIN
$147 – driver’s license number
$147 – birth certificate
$6 – PayPal logon and password
$78-$294 – billing data including account
number, address, birth date, etc
1-15
Type of Jobs based on
Type of Decisions-Makings
Better to have a job that complies with rules of
information age….
Structured
 Small accounting book keepers and small
independent travel agencies
 Routine & Repetitive
 Problems are predictable
 Problems can be solved by applying standard
solutions
Type of Jobs based on
Type of Decisions-Makings
Unstructured
 Accounting consultant
 Non-routine, Unpredictable, and Fuzzy
 Standard solutions are not applicable
 Solve problems by individual judgment
Type of Jobs based on
Type of Decisions-Makings
Semi-structured
 Production/inventory accounting manager
 Combination of non-routine and predictable
(production Scheduling)
 Require a combination of standard solution
procedures and individual judgment
Effect of Information Age
1) Globalization (Nike Corporation)
 Global accounting thru computer network (Internet)
 Dramatic increase of global management
2) Organizational Change
 Less traditional middle management : collect,
process, store and distribute information for various
decision makings
 Cross functional (project based – virtual team or
organization)
What’s ahead?
Post information age
 IBM Watson
 Khan Academy: education industry
 Uncertainty (i.e., product life cycle)
Singularity in 2045:
 Technological creation of smarter-than-human
intelligence
 Exceed the sum total of human brainpower
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Functions of an information system
Competitive Advantage Thru IS or AIS
Definition of competitive advantage
 Competitive advantage is a significant benefit
(ideally long term) to a business over its competitors
because of the quality or superiority of products or
services which will persuade customers to buy from
them rather than from competitors.
Initiative # 1: Cost leadership
 Achieve competitive advantage by providing lower
cost than competitors
 Wal-Mart: Always Low Price (read this article!):
lower price using computerized purchasing and
inventory system
Competitive Advantage Thru IS or AIS
Initiative # 2: Differentiation
 Achieve competitive advantage by providing more
unique and value added products/services than
competitors
 First ATM system by Citibank
Initiative # 3: Focus (Cost leadership +
Differentiation)
 Achieve competitive advantage by providing lower
cost + unique and value added products/services
 Amazon.com (others: SW, DVD, games and extra
value added information for each product)
Competitive Advantage Thru IS or AIS
Initiative #4: Enhance products and services
 First Online Order Tracking system by FedEx
Initiative #5: Create new products and services
 E*Trade.com
Risks of IS or AIS success
IS can be easily copied by competitors.
IS can bring on litigation or regulation
 SABRE by AA: first computer-based online
reservation system.
 Monopolization of the entire market by
monopolizing information
Bad timing
 on-line home banking in the early 1980s by chemical
bank
Fail to integrate system: WorldCom
Elements in the Study of AIS
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Key Information Qualities
Validity: information about actual authorized
events and objects.
Accuracy: correspondence or agreement
between the information and the actual events
or objects that the information represents.
Completeness: degree to which information
includes data about every relevant object or
event necessary to make a decision and
includes that information only once.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Information Qualities Matrix
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Management Decision Making
1. Intelligence: Searching the environment for
conditions calling for a decision.
2. Design: Inventing, developing, and analyzing
possible courses of action.
3. Choice: Selecting a course of action.
4. Implementation
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Steps in Decision Making
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Management Problem Structure
and Information Requirements
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Horizontal and Vertical
Information Flows
Horizontal information flows relate to specific
business events, such as one shipment, or to
individual inventory items. The information
moves through operational units such as sales,
the warehouse, and accounting.
Vertical information flows service a multi-level
management function from operations and
transaction processing through tactical,
operations, and strategic management.
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distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Accountant’s Role in Current
Business Environment
Designer — application of accounting
principles, auditing principles, IS techniques,
and systems development methods to design an
AIS.
User — participate in the AIS design process.
Auditor — provide audit and assurance services.
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.