1. Introduction to Accounting Information Systems
IS 530 : Accounting Information Systems
Introduction to Accounting Information Systems
Lecture 1

2. Introduction to Accounting Information Systems
Appreciate the complex, dynamic environment in which accounting is practiced.
Relationship between the Accounting Information Systems and the organization’s business processes.
Attributes of quality information.
Components of an information system
How information is used for different types of decisions and at various levels in the organization.
How the information system supports the management function.
Role of accountant in relation to the current environment for the AIS.
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3. Tools of Trade
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4. Sarbanes-Oxley Act of 2002
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.
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5. Sarbanes-Oxley Act of
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.
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6. CICA Top Ten IT Issues
Maintaining adequate controls during the recession
Maintaining security over moving data
Lack of effective IT governance
Coping with information overload
Impact of IFRS on Information Systems
Green computing
Security requirements of the Payment Card Industry
Malicious activity by laid-off employees
Role of Web 2.0 applications in organizational information systems
Shortage of IT skills
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7. Business Environment Industry The Company Objectives Strategies
Measurements
Competitors
Technologies
Customers
Economic Forces
People
Capital
Technology
Value Chain
Products
Structure
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8. Porter’ s Value Chain: Core Competency of the Company
Porter’ s Value Chain: Core Competency of the Company
VALUE
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTIC
MARKETING
& SALES
LOGISTIC
SERVICE
COST
MARGIN
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9. VALUE CHAIN ANALYSIS : Primary Activities
Inbound logistics - Acquires raw materials and resources, and distributes
Operations - Transforms raw materials or inputs into goods and services
Outbound logistics - Distributes goods and services to customers
Marketing and sales - Promotes, prices, and sells products to customers
Service - Provides customer support
Organizations typically follow one of Porter’s three generic strategies when entering a new market
Broad cost leadership
Broad differentiation
Focused strategy
Broad strategies reach a large market segment
Focused strategies target a niche market
Focused strategies concentrate on either cost leadership or differentiation
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10. VALUE CHAIN ANALYSIS : Support Activities
Firm infrastructure – Includes the company format or departmental structures, environment, and systems
Human resource management – Provides employee training, hiring, and compensation
Technology development – Applies technologies to processes to add value
Procurement – Purchases inputs such as raw materials, resources, equipment, and supplies
Organizations typically follow one of Porter’s three generic strategies when entering a new market
Broad cost leadership
Broad differentiation
Focused strategy
Broad strategies reach a large market segment
Focused strategies target a niche market
Focused strategies concentrate on either cost leadership or differentiation
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11. PORTER’S Five Forces Model : Evaluating Industry Competitiveness
CLASSROOM EXERCISE
Analyzing Porter’s Five Forces
Porter's Five Forces is an easy framework to understand and offers a quick way to analyze a market. Porter’s Five Forces was introduced in the text and you can review the below examples to ensure you have a solid understanding of each force. For this assignment, choose a product from the following list and perform a Porter’s Five Forces analysis. Feel free to use the below Porter’s Five Forces template for your assignment.
Desktop Computer
Address Book
Walkman
VHS Player
Polaroid Camera
Telephone
Textbook
Be sure to add in examples of loyalty programs or switching costs you could implement to help retain your market share.
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12. Buyer Power Bargaining Power of Buyers
high when buyers have many choices
low when buyers have few choices.
Internet increases buyers’ access to information, increasing buyer power.
Internet reduces switching costs, which are the costs, in money and time, to buy elsewhere. This also increases buyer power.
Ideally, an organization wants to be in a market in which there are few substitutes for its products or services
This is difficult to achieve, and most organizations create a competitive advantage through switching costs - the more painful it is for a customer to switch suppliers, the less likely they are to switch
If a customer has to experience pain when switching to a different service provider, then they are unlikely to switch
For example, switching doctors usually involves sending all medical records and explaining all past medical history to the new doctor. Insurance also has to be transferred, along with detailed forms that the customer will be required to complete (such as family history, personal history, HIPAA, etc.) For these reasons customers have to be extremely dissatisfied with a doctor before they will endure the pain of finding or switching to a new doctor
Students typically confuse rivalry with substitute products so be sure to ask students for examples of substitute products
What would be a substitute product for Starbuck’s coffee?
Jamba Juice
Tea House
Vitamin drink
Soda
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13. Supplier Power Bargaining Power of Suppliers
high when buyers have few choices
low when buyers have many choices.
Buyers can use the Internet to find alternative suppliers and compare prices more easily, reducing power of suppliers.
But companies can use the Internet to integrate their supply chains, suppliers can lock in customers.
Ideally, an organization wants to be in a market in which there are few substitutes for its products or services
This is difficult to achieve, and most organizations create a competitive advantage through switching costs - the more painful it is for a customer to switch suppliers, the less likely they are to switch
If a customer has to experience pain when switching to a different service provider, then they are unlikely to switch
For example, switching doctors usually involves sending all medical records and explaining all past medical history to the new doctor. Insurance also has to be transferred, along with detailed forms that the customer will be required to complete (such as family history, personal history, HIPAA, etc.) For these reasons customers have to be extremely dissatisfied with a doctor before they will endure the pain of finding or switching to a new doctor
Students typically confuse rivalry with substitute products so be sure to ask students for examples of substitute products
What would be a substitute product for Starbuck’s coffee?
Jamba Juice
Tea House
Vitamin drink
Soda
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14. Threat of Substitute Products or Services
high when there are many substitutes for an organization’s products or services
low when there are few substitutes.
Information-based industries are in the greatest danger from this threat (e.g., music, books, software). The Internet can convey digital information quickly and efficiently.
Ideally, an organization wants to be in a market in which there are few substitutes for its products or services
This is difficult to achieve, and most organizations create a competitive advantage through switching costs - the more painful it is for a customer to switch suppliers, the less likely they are to switch
If a customer has to experience pain when switching to a different service provider, then they are unlikely to switch
For example, switching doctors usually involves sending all medical records and explaining all past medical history to the new doctor. Insurance also has to be transferred, along with detailed forms that the customer will be required to complete (such as family history, personal history, HIPAA, etc.) For these reasons customers have to be extremely dissatisfied with a doctor before they will endure the pain of finding or switching to a new doctor
Students typically confuse rivalry with substitute products so be sure to ask students for examples of substitute products
What would be a substitute product for Starbuck’s coffee?
Jamba Juice
Tea House
Vitamin drink
Soda
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15. Threat of New Entrants Threat of new entrants / competitors
high when it is easy to enter a market
low when significant barriers to entry exist.
Entry barrier – A feature of a product or service that customers have come to expect and entering competitors must offer the same for survival
What is an industry that has a high entry barrier?
Energy – the organization has to have the infrastructure to support energy
Telecommunications – the organization has to invest in a telecommunications infrastructure prior to offering services
Banking – the bank must offer its customers an array of IT-enabled services including ATMs and online account services
What is an industry that has a low entry barrier?
Restaurants – simply lease a space, obtain a license, and you can sell food
Catering – simply offer food and deliver
Movie rental – simply buy the movies, pay the licensing fee, and offer the movies for rental (although if you want to be a Netflix the entry barrier is high because you have to have the facilities and systems to mimic their movie supply chain)
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16. Rivalry Among Existing Competitors
high when competition is fierce in a market
low when competitors are more complacent
Product differentiation – Occurs when a company develops unique differences in its products or services with the intent to influence demand
What are a few industries where competition is high?
Restaurants, products, telecommunications, banking
What are a few industries where competition is low?
This is typically highly regulated industries such as energy markets and stock exchanges
Ask your students to provide a few examples of differentiation
Different brands of Coke, Ragu spaghetti sauce, Pepsi
Additional features on a cell phone
GREAT BUSINESS DECISIONS – Henry Luce Decides to Rank Companies in the Fortune 500
Henry Luce founded Time magazine in 1923 and Fortune magazine in Luce decided to create a ranking of America’s top 500 companies, called The Fortune 500, which has served as the corporate benchmark for the twentieth century – as well as being a clever marketing tactic for the magazine. The Fortune 500 remains a powerful barometer of who’s up and down in the corporate world. It is also a brilliant marketing tool since every single time its name is mentioned, so is the name of the magazine. However, being ranked on the Fortune 500 does not guarantee that the organization will achieve future success, and its measures of current achievement can also be limited and a bit confusing.
BusinessWeek magazine created a similar ranking by introducing its biannual ranking of business schools. The issue routinely outsells all other issues of the magazine in the year.
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17. Value Chain & Five Forces Model
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18. BUSINESS CONTEXT BUSINESS CONTEXT
BUSINESS DRIVERS
BPR, CRM,
SCM, e-Biz, etc.
Business Data
BUSINESS CONTEXT
Business
Users
BUSINESS CONTEXT
KNOWLEDGE
Database
KNOWLEDGE
Database
PROCESS
Information Processing
Business Rules, Procedures
PROCESS
Information Processing
Business Rules, Procedures
INTERFACE
Input, Output
Location, Security
INTERFACE
Input, Output
Location, Security
Hardware
Hardware
Software
Software
Networking
Networking
ERP, Object, Mobile,
Collaborative, etc.
TECHNOLOGY DRIVERS
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19. Elements in the Study of IS / AIS
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20. Systems and Subsystems …
System: a set of interdependent elements that together accomplish specific objectives. A system must have organization, interrelationships, integration, and central objectives.
Subsystem: a part of a system. Within limits, any system or subsystem can be divided into its component parts.
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21. Systems and Subsystems
INPUT
OUTPUT
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22. Systems and Subsystems . . .
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23. Systems and Subsystems . . .
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24. System Decomposition Diagram
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25. The Information System (IS)
An information system (IS) or management information system (MIS) is a manmade system that consists of an integrated set of computer-based and manual components established to collect, store, and manage data and to provide output information to users. (Gelinas et al.)
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26. Information Technology Vs. Information System
Information Technology (IT): A combination of computer technology (hardware and software) with telecommunications technology (data, image, and voice networks)
Information System (IS): People, data, processes, and information technology that interact to collect data, store, process, and provide as output the information needed to support and improve operational, tactical, and strategic activities of an organization (business).
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27. Information Technology Vs. Information System
Combinations of hardware, software, and telecom networks that people build and use to collect, create, and distribute useful data in organizations (for decision making)
Combinations of hardware, software, and telecom networks use to process data
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28. Functional Model of an Information System
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29. Accounting Information System (AIS)
Accounting information system (AIS) is a specialized subsystem of the IS.
Collect, process and report information related to the financial aspects of business events.
Often integrated and indistinguishable from the overall information system.
Like the IS, the AIS may be divided into components based on the operational functions supported. Components are called business processes or AIS subsystems.
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30. Business Process in Enterprise Systems
A business process is a set of related steps or procedures designed to produce a specific outcome.
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31. Business Process Components
Information process: portion of the overall IS related to a particular business process.
Operations process: man-made system consisting of the people, equipment, organization, policies, and procedures whose objective is to accomplish the work of the organization.
Management process: man-made system consisting of the people, authority, organization, policies, and procedures whose objective is to plan and control the operations of the organization.
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32. Business Process Activities (Events)
Decision /
management
events
Define &Trigger
Operating
events
Trigger
Trigger
Information
events
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33. Transforming Data into Information …
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34. Basic System Model
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35. Example: Architecture of A Payroll System
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36. Information Qualities
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37. 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.
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38. Management Decision Making
Intelligence: Searching the environment for conditions calling for a decision.
Design: Inventing, developing, and analyzing possible courses of action.
Choice: Selecting a course of action.
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39. Decision Making Process
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40. Information Systems in Organization
EXECUTIVE INFORMATION SYSTEMS
STRATEGIC
MANAGEMENT INFORMATION SYSTEMS
TACTICAL
TRANSACTION PROCESSING SYSTEMS
OPERATIONAL
ACC T
F I NANCE H R
PROD
CTN
SALES
OTHERS
VALUE CHAIN
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41. Business Process Reengineering/Redesign
IT/IS contributes to Business Process Reengineering / Redesign (BPR) :
Efficient: Do thing right (cheaper)
Effective: Do right thing (better)
Competitive: Do thing differently (faster/newer)
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42. Decision-Making in an Organization
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43. Decision-Making Levels in an Organization
Executive Level
Long-term decisions (Strategies)
Unstructured decisions (Competitions)
Managerial Level
Decisions covering weeks and months (Tactics)
Semi-structured decisions (Effectiveness)
Operational Level
Day-to-day / repetitive decisions (Operations)
Structured decisions (Efficiency)
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44. Management Problem Structure and Information Requirements
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45. Structure of Decisions
Structured decisions: those for which all three decision phases (intelligence, design, and choice) are relatively routine or repetitive.
Unstructured decisions: those for which none of the decision phases (intelligence, design, or choice) are routine or repetitive.
Semi-structured decisions
Risk Factors in Judgments: No-risk, risky, high-risk Decisions
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46. Horizontal vs. 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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47. Organizational Information Systems
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48. Operational Level
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49. Operational Level Day-to-day business processes
Interactions with customers
Information systems used to:
Automate repetitive tasks
Improve efficiency
Decisions:
Structured
Recurring
Can often be automated using IS
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50. Architecture
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51. Transaction Processing Systems . . .
Data Processing
Online processing
Batch processing
Data Input
Manual data entry
Semi-automated data entry (bar-code + manual)
Fully automated data entry (bar-code)
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52. Managerial Level
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53. Managerial Level Functional managers Managers’ decisions
Monitoring and controlling operational-level activities
Providing information to executive level
Midlevel managers
Focus on effectively utilizing and deploying resources
Goal of achieving strategic objectives
Managers’ decisions
Semi-structured
Contained within business function
Moderately complex
Time horizon of few days to few months
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54. Architecture
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55. Executive Level
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56. Executive Level
The president, CEO, vice presidents, board of directors
Decisions
Long-term strategic issues
Complex and non-routine problems
Unstructured decisions
Long-term ramifications
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57. Architecture
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58. Information Systems Supporting the Functional Areas
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59. Information Systems that Span Organizational Boundaries
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60. Information System Stakeholders
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61. Information System Stakeholders
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62. Role of Accountant 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.
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