Accounting Information Systems,
6th edition James A. HallCOPYRIGHT © 2009 South-Western, a division of Cengage Learning. Cengage Learning and South-Western are trademarks used herein under license
Objectives for Chapter 1
• Primary information flows within the business environment
• Accounting information systems and management information systems
• The general model for information systems
• Financial transactions from non-financial transactions
• The functional areas of a business
• Two main stages in the evolution of information systems
• Three roles of accountants in an information system
Internal & External
Information Flows
Internal Information Flows
y
Horizontal flows of information used primarily at the operations level to capture transaction and
operations data
y
Vertical flows of information
y downward flows — instructions, quotas, and budgets
y upward flows — aggregated transaction and operations data
Information Requirements
y
Each user group has unique information requirements.
y
The higher the level of the organization, the greater
the need for more aggregated information and less
need for detail.
Information in Business
y Information is a business resource
that :
y needs to be appropriately managed
y is vital to the survival of
contemporary businesses
What is a System?
y
A group of interrelated multiple components or subsystems that serve a common purpose
y
System or subsystem?
y A system is called a subsystem when it is viewed as a component of a larger system.
y A subsystem is considered a system when it is the focus of attention.
System Decomposition versus System Interdependency
y
System Decomposition
y the process of dividing the system into smaller subsystem parts
y
System Interdependency
y distinct parts are not self-contained
y they are reliant upon the functioning of the other parts of the system
y all distinct parts must be functioning or the system will fail
What is an Information System?
An information system is the set of
formal procedures by which data are
collected, processed into information,
and distributed to users.
Transactions
y
A transaction is a business event.
y
Financial transactions
y economic events that affect the assets and equities of the organization
y e.g., purchase of an airline ticket y
Nonfinancial transactions
y all
other
events processed by the organization’s information systemy e.g., an airline reservation — no commitment by the customer
Transactions
Financial Transactions Nonfinancial
Transactions
Information System
User Decision
Making Information
What is Accounting Information Systems?
y
Accounting is an information system.
y
It identifies, collects, processes, and
communicates economic information about a firm using a wide variety of technologies.
y
It captures and records the financial effects of the firm’s transactions.
y
It distributes transaction information to
operations personnel to coordinate many
key tasks.
AIS versus MIS
y Accounting Information Systems (AIS) process
y financial transactions; e.g., sale of goods
y and nonfinancial transactions that directly affect the processing of financial transactions; e.g., addition of newly approved vendors
y Management Information Systems (MIS) process
y nonfinancial transactions that are not normally
processed by traditional AIS; e.g., tracking customer complaints
AIS versus MIS?
AIS Subsystems
y Transaction processing system (TPS)
y supports daily business operations
y General Ledger/ Financial Reporting System (GL/FRS)
y produces financial statements and reports
y Management Reporting System (MRS)
y produces special-purpose reports for internal use
The General AIS Model
Data Sources
y Data sources are financial transactions that enter the information system from internal and external sources.
y
External financial transactions
are the most common source of data for most organizations.y E.g., sale of goods and services, purchase of inventory, receipt of cash, and disbursement of cash (including payroll).
y
Internal financial transactions
involve the exchange or movement of resources within the organization.y E.g., movement of raw materials into work-in-process (WIP), application of labor and overhead to WIP, transfer of WIP into finished goods inventory, and depreciation of equipment.
Transforming the Data into Information
Functions for transforming data into information according to the general AIS model:
1. Data Collection 2. Data Processing 3. Data Management
4. Information Generation
1. Data Collection
y
Capturing transaction data
yRecording data onto forms
y
Validating and editing the data
2. Data Processing
y
Classifying
yTranscribing
ySorting
y
Batching
• Merging
• Calculating
• Summarizing
• Comparing
3. Data Management
y
Storing
y
Retrieving
yDeleting
4. Information Generation
y
Compiling
yArranging
yFormatting
yPresenting
Characteristics of Useful Information
y Regardless of physical form or technology, useful information has the following
characteristics:
y
Relevance:
serves a purposey
Timeliness:
no older than the time period of the action it supportsy
Accuracy:
free from material errorsy
Completeness:
all information essential to a decision or task is presenty
Summarization:
aggregated in accordance with the user’s needsInformation System Objectives in a Business Context
y The goal of an information system is to support
y the stewardship function of management
y management decision making
y the firm’s day-to-day operations
Organizational Structure
y
The structure of an organization helps to allocate
y responsibility
y authority
y accountability
y
Segmenting by business function is a very common
method of organizing.
Functional Areas
y Inventory/Materials Management
y purchasing, receiving and stores y Production
y production planning, quality control, and maintenance
y Marketing y Distribution y Personnel y Finance y Accounting
y Computer Services
Accounting Function
y
Captures & records the financial effects of the firm’s transaction.
y
Distributes transaction information to operations
personnel to coordinate many key tasks.
Accounting Independence
y Information reliability requires accounting independence.
y Accounting activities must be separate and
independent of the functional areas maintaining resources.
y Accounting supports these functions with information but does not actively participate.
y Decisions makers in these functions require that such vital information be supplied by an
independent source to ensure its integrity.
The Information Technology Function
Centralized Data Processing
Distributed Data
Processing Most companies fall in between.
All data processing is performed by one or more large computers housed at a central site that serves users throughout the organization.
Primary areas:
database administration data processing
systems development systems maintenance Reorganizing the
Information technology function into small
information processing units that are distributed to end users and
placed under their control
Organization of IT Function in a Centralized System
Organizational Structure for a Distributed Processing System
Potential Advantages of DDP
y
Cost reductions in hardware and data entry tasks
yImproved cost control responsibility
y
Improved user satisfaction since control is closer to the user level
y
Backup of data can be improved through the use of
multiple data storage sites
Potential Disadvantages of DDP
y
Loss of control
y
Mismanagement of company resources
yHardware and software incompatibility
yRedundant tasks and data
y
Consolidating tasks usually segregated
yDifficulty attracting qualified personnel
yLack of standards
Manual Process Model
y
Transaction processing, information processing, and accounting are physically performed by people,
usually using paper documents.
y
Useful to study because:
y helps link AIS courses to other accounting courses
y often easier to understand business processes when not shrouded in technology
y facilitates understanding internal controls
The Evolution of IS Models: The Flat‐File Model
Data Redundancy Problems
y Data Storage - excessive storage costs of paper documents and/or magnetic form
y Data Updating - changes or additions must be performed multiple times
y Currency of Information - potential problem of failing to update all affected files
y Task-Data Dependency - user’s inability to
obtain additional information as needs change y Data Integration - separate files are difficult to
integrate across multiple users
The Evolution of IS Models: The Database Model
34
An REA Data Model Example
Inventory Line items Sales Party to Sales
person
Pays for
Cash Collections
Increases
Cash
Made to
Customer
Cashier
Received from Received
by M
1
M
M
M
M
M M
M M
1
1
1
1
R E A
REA Model
y The REA model is an accounting framework for modeling an organization’s
y economic resources; e.g., assets
y economic events; i.e., affect changes in resources
y economic agents; i.e., individuals and departments that participate in an economic event
y Interrelationships among resources, events and agents
y Entity-relationship diagrams (ERD) are often
used to model these relationships.
Accountants as Information System Users
y
Accountants must be able to clearly convey their needs to the systems professionals who design the system.
y
The accountant should actively participate
in systems development projects to ensure
appropriate systems design.
Accountants as System Designers
y
The accounting function is responsible for the
conceptual system, while the computer function is responsible for the physical system.
y
The conceptual system determines the nature of the
information required, its sources, its destination, and
the accounting rules that must be applied.
Accountants as System Auditors
y External Auditors
y
attest to fairness of financial statements
y
assurance service: broader in scope than traditional attestation audit
y IT Auditors
y
evaluate IT, often as part of external audit y Internal Auditors
y