Appendix D
Financial Information Systems
Users of Financial
Users of Financial
Information
Information
Internal users
Internal users
–
Managers
Managers
–
Nonmanagers
Nonmanagers
Environmental users
Environmental users
Financial Information
Financial Information
Systems
Systems
CBIS subsystem that provides information to
CBIS subsystem that provides information to
persons and groups both inside and outside the
persons and groups both inside and outside the
firm concerning the firm’s financial matters
firm concerning the firm’s financial matters
Information type
Information type
–
Periodic and special reports
Periodic and special reports
–
Results of mathematical simulations
Results of mathematical simulations
–
Electronic communications
Electronic communications
Database
Accounting
information
system
Internal
audit
subsystem
Financial
intelligence
subsystem
Forecasting
subsystem
Funds
management
subsystem
Control
subsystem
Internal sources
Environmental
sources
Input
subsystems
Output
subsystems
Users
Data Information
A Model of a Financial Information System
Prewritten Financial Software
Prewritten Financial Software
More prewritten software exists for the
More prewritten software exists for the
financial area than any other
financial area than any other
Most is accounting in nature
Most is accounting in nature
Both general business and personal
Both general business and personal
Accounting Information
Accounting Information
Subsystem
Subsystem
The foundation upon which all information-
The foundation upon which all
information-oriented CBIS are built
oriented CBIS are built
–
Who did what?
Who did what?
–
When?
When?
–
Where?
Where?
Internal Audit Subsystem
Internal Audit Subsystem
Internal
Internal
–
Audit committee
Audit committee
»
Probably includes the CFO
Probably includes the CFO
»
Director of internal auditing
Director of internal auditing
External auditors
External auditors
Chief
Executive
Officer
Director of
Internal
Auditing
Internal
Auditing
Department
Audit Committee
Board of Directors
Position of
Types of Auditing Activity
Types of Auditing Activity
Financial auditing
Financial auditing
Operational auditing
Operational auditing
–
Adequacy of controls
Adequacy of controls
–
Efficiency
Efficiency
–
Compliance with company policy
Compliance with company policy
Concurrent auditing
Concurrent auditing
Internal Auditor as a
Internal Auditor as a
Member of the CBIS Team
Member of the CBIS Team
Required knowledge and skills of auditors
Required knowledge and skills of auditors
–
Not always accounting-related
Not always accounting-related
Senior management attitude makes a
Senior management attitude makes a
10%
10%
40%
40%
100%
100%
500%
500%
1200%
1200%
4000%
4000%
Requirements
Requirements
Design
Design
Development
Development
Module testing
Module testing
Integrated testing
Integrated testing
Implementation
Implementation
Operation/maintenance
Operation/maintenance
Conceptualization
Conceptualization
R
el
at
iv
e
C
o
st
o
f
R
el
at
iv
e
C
o
st
o
f
F
ix
in
g
a
D
ef
ec
t
F
ix
in
g
a
D
ef
ec
t
Escalating Cost of Correcting Design Errors
Escalating Cost of Correcting Design Errors
as the SDLC Progresses
Financial Intelligence
Financial Intelligence
Subsystem
Subsystem
Represents the firm in establishing two-way
Represents the firm in establishing two-way
links with:
links with:
Stockholders or owners
Stockholders or owners
Stockholder relations department
Stockholder relations department
Financial Intelligence
Financial Intelligence
Subsystem [cont.]
Subsystem [cont.]
Financial community-
Financial
Indirect influence from the
Indirect influence from the
government
government
Sources of financial intelligence:
Sources of financial intelligence:
–
Word of mouth
Word of mouth
–
Periodicals
Periodicals
Forecasting Subsystem
Forecasting Subsystem
One of the oldest mathematical activities in business
One of the oldest mathematical activities in business
–
Rely on past data
Rely on past data
–
Make semistructured decisions
Make semistructured decisions
–
Cannot be perfect
Cannot be perfect
Short-term forecasts
Short-term forecasts
–
One to three years
One to three years
–
May be done by marketing
May be done by marketing
Long-term forecasts
Long-term forecasts
Forecasting Methods
Forecasting Methods
Nonquantitative (qualitative)
Nonquantitative (qualitative)
–
Panel consensus
Panel consensus
–
Delphi method
Delphi method
Electronic meeting system (EMS) help
Electronic meeting system (EMS) help
combine nonquantitative and quantitative
combine nonquantitative and quantitative
Forecasting Methods
Forecasting Methods
[cont.]
[cont.]
Quantitative forecasting methods
Quantitative forecasting methods
–
Regression analysis is dominant
Regression analysis is dominant
–
Related methods are available
Related methods are available
–
Many software packages used
Many software packages used
Using the Number of
Using the Number of
Salespersons to Project
Salespersons to Project
Sales
Sales
0
1
2
3
4
5 10 15 20 25 30 35
.
.
.
.
Sales prediction
S
a
le
s
i
n
t
h
o
u
s
a
n
d
s
o
f
u
n
it
s
Re
gr
es
sio
Sales Forecast Data
Sales Forecast Data
1
24
4
80
2
27
4
80
3
31
5
90
4
29
5
100
5
33
6
100
6
38
7
110
7
37
8
120
8
40
8
100
9
45
9
90
10
49
10
100
Sales Advertising Price Ratio
Sales Advertising Price Ratio
Year (Y) (X2) (X3)
Year (Y) (X2) (X3)
Historical Data
Funds Management
Funds Management
Subsystem
Subsystem
Manage to achieve
Manage to achieve
–
Revenue flow inflow exceeds expense outflow
Revenue flow inflow exceeds expense outflow
–
Maintain stability
Maintain stability
Cash flow models
Cash flow models
Unbalanced Cash Flow
Unbalanced Cash Flow
Example
Example
D
ol
la
rs
(
m
ill
io
n
s)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
Delaying Supplier Payments
Delaying Supplier Payments
Eliminates Months of Negative Sales
Eliminates Months of Negative Sales
Control Subsystem
Control Subsystem
Operating budget for the fiscal year
Operating budget for the fiscal year
Three approaches
Three approaches
1.
1.
Top-down
Top-down
2.
2.
Bottom-up
Bottom-up
3.
BUDGET REPORT
AS OF JANUARY 31 MIDWEST REGION
CURRENT MONTH YEAR-TO-DATE
ITEM BUDGET ACTUAL DOLLARS BUDGET ACTUAL DOLLARS
SALARIES $23,500 $22,000 $1,500- $59,000 $54,250 $4,750-TRAVEL 8,250 9,000 750+ 23,500 28,100 4,600+
ENTERTAINMENT 1,400 1,635 235+ 4,200 5,100 900+
TELEPHONE 200 85 115+ 600 225 375+
RENT 535 535 0 1,605 1,605 0
FURNITURE 0 0 0 420 505 85+
SUPPLIES 625 410 215- 1,875 1,320 555-
MISC. 400 620 220+ 1,200 1,963 765+
TOTAL $34,910 $34,285 625- $92,400 $93,070 670+
Performance Ratios
Performance Ratios
current assets
Current ratio
=
current liabilities
cost of goods sold
Inventory turnover ratio
=
Users of Financial Information System
Users of Financial Information System
Vice-president of finance
X
X
X
Other executives
X
X
X
Controller
X
X
X
Manager of accounting
X
Manager of financial planning
X
X
Director of budgets
X
Other functional managers X
X
X
Subsystem
Funds
Summary
Summary
Financial information systems provide a wide range of
Financial information systems provide a wide range of
information for both managers and interested external people
information for both managers and interested external people
Uses include:
Uses include:
–
Auditing
Auditing
–
Financial intelligence
Financial intelligence
–
Forecasting
Forecasting
–
Funds management
Funds management
–
Budgeting
Budgeting
Financial modeling is one of the oldest uses of mathematical
Financial modeling is one of the oldest uses of mathematical
simulations in business
