1. Accounting Information Systems: An Overview

2. Presentation Outline The Users of Accounting Information
Information Systems
Transaction Processing Cycles
The Internal Control Process
Organization Interaction with Information Systems
The Development of Systems

3. I. The Users of Accounting Information
External Users of Accounting Information
Internal Users of Accounting Information
Mandatory vs. Discretionary Information

4. A. External Users of Accounting Information
Creditors
Investors
Stockholders
Customers and Vendors
Government Agencies

5. B. Internal Users of Accounting Information
Lower Level Managers
Middle Managers
Top-Level Managers
Characteristic of Information
Operational Control
Management Control
Strategic Planning
Source
Largely internal
External
Level of Aggregation
Detailed
Aggregate
Time Horizon
Historical
Future
Required Accuracy
High
Low

6. C. Mandatory vs. Discretionary Information
Mandatory Information
Certain types of information must be generated regardless of the cost:
Government reports
Payroll
Basic bookkeeping
Evaluation Criteria
For mandatory information, the primary concern is minimization of cost.
In contrast, discretionary information should provide greater benefits than the cost of generating it.

7. II. Information Systems
The term information system suggests the use of computer technology in an organization
Hardware
Software
Information System
Information for Decision Making
Data
Electronic Data Processing (EDP) or Data Processing (DP)
Management Information Systems (MIS)
Decision Support Systems (DSS)
Expert Systems (ES)
Executive Information Systems (EIS)
Accounting Information Systems (AIS)
Information systems can be manual or computerized. A “computer-based” system is a collection of computer hardware and software designed to transform data into useful information.

8. A. Electronic Data Processing (EDP) or Data Processing (DP)
Use of computer technology to perform an organization’s transaction-oriented data processing. DP systems serve routine, recurring, general information needs.

9. B. Management Information Systems (MIS)
Use of computer technology to provide managers with decision-oriented information beyond what a normal DP system provides. Subsystems include:
Marketing information system
Manufacturing information system
Human resource information system
Financial information system
Functional MIS subsystems provide a logical rather than physical way of implementing the MIS concept in organizations.

10. C. Decision Support Systems (DSS)
Processes data into a decision making format for end users. Decision support systems (DSS’s) process nonroutine information requests on an ad hoc basis. Requires the use of decision models and specialized databases beyond what is in a DP system.

11. Inference engine – process by which expert makes the decision.
D. Expert Systems (ES)
I know the answer.
Emulates an experts decision making process to provide a decision. Different from DSS which only provides information for making a decision. Two components of the ES are as follows:
Knowledge base – special knowledge that an expert possesses in the decision area.
Inference engine – process by which expert makes the decision.

12. E. Executive Information System (EIS)
Executive information systems tailor information to the strategic needs of top-level management.
Much of the information used by top-level management comes from sources outside the organizations information system. (i.e., meetings, memos, television, periodicals, and social activities).
Which direction?

13. F. Accounting Information Systems (AIS)
A computer-based system designed to transform accounting data into information.
Can also include transactions processing cycles, the use of information technology, and the development of information systems.

14. III. Transaction Processing Cycles
The transaction processing cycles provide a means of viewing the activities of a business.
Revenue Cycle
Expenditure Cycle
Production Cycle
Finance Cycle
Financial Reporting Cycle

15. A. Revenue Cycle
Events related to the distribution of goods and services to other entities and the collection of related payments

16. B. Expenditure Cycle
Events related to the acquisition of goods and services from other entities and the settlement of related obligations.

17. C. Production Cycle
Events related to the transformation of resources into goods and services.

18. D. Finance Cycle
Events related to the acquisition and management of capital funds, including cash. The treasurer is responsible for the finances of the business.

19. E. Financial Reporting Cycle
Not an operating cycle
This cycle obtains accounting and operating data from other cycles and processes this data so that financial reports can be prepared.
A controller is in charge of the accounting function.

20. IV. The Internal Control Process
Since management is far removed from the scene of operations in a large organization, personal supervision of employees is often replaced with various control techniques.
Definition of Internal Control
The Five Elements of the Internal Control Process
Segregation of Accounting Functions
The Internal Audit Function

21. A. Definition of Internal Control
Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives relating to:
Reliability of financial reporting
Effectiveness and efficiency of operations
Compliance with applicable laws and regulations
The concept of internal control structure is based on two major
premises: management’s responsibility and reasonable assurance.

22. B. Five Elements of the Internal Control Process
Control environment – Overall values and integrity of organization.
Risk assessment – Identification and evaluation of risks (Potential loss x Probability = Exposure).
Control activities – Activities undertaken to reduce probability of loss due to significant risks.
Information and communication – Communicating information about the control environment and control activities.
Monitoring – Keeping watch over and changing internal controls so that they function effectively and efficiently.

23. C. Segregation of Accounting Functions
I kept the records and the cash.
Segregate the following duties:
Authorization
Record keeping
Custody of assets

24. D. Internal Audit Function
Internal auditing is an independent appraisal function charged with monitoring and assessing compliance with organizational policies and procedures.

25. V. Organization Interaction With Information Systems
The Steering Committee
End-User Computing
Quick-Response Technology

26. A. The Steering Committee
A committee advising the Chief Information Officer that is composed of high-level members of user functions such as manufacturing and marketing. The committee provides a means by which managers from other areas can influence the information services process.

27. B. End-User Computing (EUC)
Functional end users do their own information processing activities through an EUC application such as a database that uses a query language feature to generate specific information needed by the end user to make decisions. (See Fig. 1.7 on p. 13)
Potential EUC Problems
Inadequate system development – May solve wrong problem or have poor documentation.
Ineffective use of resources – Underutilized equipment or inefficient design.
Data integrity and security problems – Inadvertent alteration of data or failure to implement security controls.
See contrast to traditional approach in Figure 1.8 on page 14.

28. C. Quick-Response Technology
Just-In-Time
Web Commerce
Electronic Data Interchange
Extensible Business Reporting Language
Computer Integrated Manufacturing
Electronic Payment Systems

29. 1. Just-in-Time
Purchase orders for inventory items are made on a “demand-pull” basis rather than a fixed interval “push” basis to restock store inventory levels. Adds flexibility to meet customer needs and reduces product rework.

30. Provides worldwide availability of products on a single computer.
2. Web Commerce
Provides worldwide availability of products on a single computer.
Specially trained CPAs offer the Web Trust seal to sites that meet certain security and privacy criteria.

31. 3. Electronic Data Interchange
Electronic data interchange (EDI) is the direct computer-to-computer exchange of business documents via a communications network. EDI differs from in that EDI messages are created and interpreted by computers without human intervention. Also makes use of universal product code (UPC) bar code. (See Fig on p. 15)

32. 4. Extensible Business Reporting Language
Extensible Business Reporting Language (XBRL) is a language that facilitates the exchange over the Internet of all kinds of business documents and financial statements. The SEC permits companies to file their financial reports electronically using XBRL format.

33. 5. Computer-Integrated Manufacturing (CIM)
Components of CIM typically include computer-aided design (CAD) workstations, real-time production monitoring and control systems, and order inventory and control systems.
Makes use of scanner technology and machine-readable bar codes.

34. 6. Electronic Payment Systems
Electronic funds transfer (EFT) systems are electronic payment systems in which processing and communication are primarily or totally electronic.

35. VI. The Development of Systems
Blueprinting
Systems Development
Behavioral Considerations

36. A. Blueprinting
The company uses generic or industry standard stock blueprints rather than designing its own system.

37. The Result of Poor Systems Development
B. Systems Development
A systems development project ordinarily consists of three phases: systems analysis, systems design, systems implementation. The procedure attempts of improve information quality, internal control, and minimize cost. The systems approach consists of six steps:
The Result of Poor Systems Development
Statement of system objective(s)
Creation of alternatives
Systems analysis
Systems design
Systems implementation
Systems evaluation
User cooperation to operate the system should be insured during the design of a system, not afterward. Personnel training should also occur at this time rather than being initiated after the system is installed.

38. C. Behavioral Considerations
The users of systems should be included throughout the steps of systems development.
Users provide valuable input into what is needed and must accept the system that is developed.

39. Summary Five Types of Information Systems
Five Transaction Processing Cycles
The Internal Control Process
Steering Committee and EUC
Quick-Response Technology
The Steps of Systems Development
EDP, MIS, DSS, ES, AIS
Revenue, Expenditure, Production, Finance, Financial Reporting
Achievement of objectives relating to: reliability of financial reporting, effectiveness and efficiency of operations, compliance with applicable laws and regulations.
Steering Committee and End-User Computing
The Importance of Systems Development
Statement of systems objectives
Creation of alternatives
Systems analysis
Systems design
Systems implementation
Systems evaluation