1. CHAPTER 2 ACCOUNTING AS A PROFESSION AND ACCOUNTING INFORMATION SYSTEM
Pr. SAMLAL Zoubida , MBA, CFA & PHD candidate for HBS program

2. The Study of Accounting Information Systems

3. WHAT IS A SYSTEM?
A System is an entity consisting of interacting parts that are coordinated to achieve one or more common objectives.

4. SYSTEM
INPUT
PROCESS
OUTPUT
FEEDBACK

5. INFORMATION SYSTEM
DATA
INFORMATION
INPUT
PROCESS
OUTPUT
FEEDBACK

6. DATA VERSUS INFORMATION
Data are raw facts and figures that are processed to produce information
Information is data that have been processed and are meaningful and useful to users. The terms “meaningful” and “useful” are value-laden terms and usually subsume other qualities such as timeliness, relevance, reliability, consistency, comparability, etc.

7. FUNCTIONAL STEPS IN TRANSFORMING DATA INTO INFORMATION
Data collection - capturing, recording, validating and editing data for completeness and accuracy
Data Maintenance/Processing - classifying, sorting, calculating data
Data Management - storing, maintaining and retrieving data
Data Control - safeguarding and securing data and ensuring the accuracy and completeness of the same
Information Generation - interpreting, reporting, and communicating information

8. FUNCTIONS OF AN INFORMATION SYSTEM
INPUT
OUTPUT
PROCESS
FEEDBACK
INFORMATION SYSTEM
ENVIRONMENT
Customers Suppliers
Regulatory Stockholders Competitors
Agencies
ORGANIZATION

9. AIS AS AN MIS SUBSYSTEM Sales/ Production Marketing Info AIS Personnel
Finance

10. RELATIONSHIP OF AIS & MIS
Finance
Sales/Marketing
Production
AIS
Personnel
Order entry/Sales
Billing/A.Rec.Cash receipts
Production
General ledger
Payroll
Inventory
Purchasing/A. Pay./Cash disb.

11. EXAMPLES OF AIS SUBSYSTEMS (MERCHANDISING)
Inventory
System
General
Ledger
Order entry
Sales
Billing/
A. Receivable
Cash Receipts
Purchasing/
A. Payable/
Cash Disb.
Human
Resource
Management
(Payroll)
Revenue
Cycle
Expenditure
Shipping
Receiving
Ext/Fin. reporting
Tax & req. reporting
Internal reporting

12. OBJECTIVES AND USERS OF AIS
Support day-to-day operations
Transaction processing
Support Internal Decision-Making
Trend Analyses
Quantitative & Qualitative Data
Non-transactional sources
Help fulfill Stewardship Role

13. RESOURCES REQUIRED FOR AN AIS
Processor(s): Manual or Computerized
Data Base(s): Data Repositories
Procedures: Manual or Computerized
Input / Output Devices
Miscellaneous Resources

14. ROLES OF ACCOUNTANTS WITH RESPECT TO AN AIS
Financial accountants prepare financial information for external decision-making in accordance with GAAP
Managerial accountants prepare financial information for internal decision-making

15. ROLES OF ACCOUNTANTS WITH RESPECT TO AN AIS
Auditors - evaluate controls and attest to the fairness of the financial statements.
Accounting managers - control all accounting activities of a firm.
Tax specialists - develop information that reflects tax obligations of the firm.
Consultants - devise specifications for the AIS.

16. ETHICAL STANDARDS FOR CONSULTING
Professional competence
Exercise due professional care
Plan and supervise all work
Obtain relevant data to support reasonable recommendations
Maintain integrity and objectivity
Understand and respect the responsibilities of all parties
Disclose any conflicts of interest

17. ACCOUNTING INFORMATION

18. CHARACTERISTICS OF ACCOUNTING INFORMATION
Accounting information is composed principally of financial data about business transactions, expressed in terms of money.
The recorded data must be sorted and summarized before significant reports and analyses can be prepared.
The “basic raw materials” of accounting are composed of business transaction data.
Its “primary end products” are composed of various summaries, analyses, and reports.

19. USERS OF ACCOUNTING INFORMATION
Accounting provides the techniques for accumulating and the language for communicating economic data to :
Investors in a business enterprise need information about its financial status and its future prospects.
The government agencies are concerned with the financial activities of business organizations for purposes of taxation and regulation.
The individuals most dependent upon and most involved with the end products of accounting are those charged with the responsibility for directing the operations of enterprises.

20. USERS OF ACCOUNTING INFORMATION
In the conduct of day-to-day operations, management relies upon accounting to provide the amount owed to each creditor and by each customer and the date each payment is due.
The accountant is able to establish an information network to assist each group in forming judgments and making decisions regarding future actions.

21. ACCOUNTING AS A PROFESSION

22. RELATIONSHIP OF ACCOUNTING TO OTHER FIELDS
Everyone engaged in business activities, from the youngest employee to the manager and owner, comes into contact with accounting.
The higher the level of authority and responsibility, the greater is the need for an understanding of accounting concepts and terminology.
The importance of understanding accounting is not limited to the business world.
Many employees with specialized training in non-business areas also make use of accounting data and should understand accounting principles and terminology.

23. PROFESSION OF ACCOUNTANCY
Accountancy is a profession with stature comparable to that of engineering or law.
Accountants who render accounting services on a fee basis, and staff accountants employed by them, are said to be engaged in public accounting.
Accountants employed by a particular business enterprise or not-for-profit organization, as chief accountant, controller, or financial vice-president, are said to be engaged in private accounting.

24. PUBLIC ACCOUNTING
The practice of public accounting is generally restricted to licensed CPA’s.
This act created the Board of Accountancy which was given the power among other, to issue the certificate of Certified Public Accountant, abbreviated as CPA.

25. PRIVATE ACCOUNTING
The scope of activities and duties of private accountants varies widely. Private accountants are frequently called management accountants.
If they are employed by a manufacturing concern, they may be call industrial or cost accountants. The chief accountant in a business may be call controller. Various governmental units and other not-for-profit organizations also employ accountants.
Internal auditors are accountants who review the accounting and operating procedures prescribed by their companies. Accountants who specialize in internal auditing may be granted the Certified Internal Auditor (CIA) certificate.

26. RELATIONSHIP OF ACCOUNTING TO OTHER FIELDS
For example, an engineer responsible for selecting the most desirable solution to a technical manufacturing problem may consider cost accounting data to be the decisive factor.
Lawyers use accounting data in tax cases and in lawsuits involving property ownership and damages from breach of contract.
Governmental agencies rely on accounting data in evaluating the efficiency of government operations and for appraising the feasibility of proposed taxation and spending programs.

27. FIELDS OF ACCOUNTING

28. SPECIALIZED ACCOUNTING FIELDS
FINANCIAL ACCOUNTING
It is concerned with the recording of transactions for a business enterprise or other economic unit and the periodic preparation of various reports from such records.
Corporate enterprise must employ such principles in preparing their annual reports on profitability and financial status for their stockholders and the investing public.

29. SPECIALIZED ACCOUNTING FIELDS
AUDITING
It is a field of activity involving an independent review of the accounting records. In conducting an audit, public accountants examine the records supporting financial reports of an enterprise and express an opinion regarding their fairness and reliability.
COST ACCOUNTING
It emphasizes the determination and control of costs. It is concerned primarily with the costs of manufacturing processes and of manufactured products, but increasing attention is being given to distribution costs.

30. SPECIALIZED ACCOUNTING FIELD
MANAGEMENT ACCOUNTING
It employs both historical and estimated data in assisting management in daily operations and in planning future operations. It deals with the specific problems that confront enterprise managers at various organizational levels.
TAX ACCOUNTING
It encompasses the preparation of tax returns and the consideration of the tax consequences of proposed business transactions or administrative courses of action.

31. SPECIALIZED ACCOUNTING FIELDS
ACCOUNTING SYSTEM
It is the special field concerned with the design and implementation of procedures for the accumulation and reporting of financial data. The systems accountant must devise appropriate “checks and balances” to safeguard business assets and provide for information flow that will be efficient and helpful to management.
BUDGETARY ACCOUNTING
It presents the plan of financial operations for a period and, through records and summaries provides comparisons of actual operations with the predetermined plans.

32. SPECIALIZED ACCOUNTING FIELDS
INTERNATIONAL ACCOUNTING It is concerned with the special problems associated with the international trade of multinational business organizations. NOT-FOR-PROFIT ACCOUNTING It specializes in recording and reporting the transactions of various governmental units and other not-for-profit organizations such as church, charities, and educational institutions.

33. BOOKKEEPING AND ACCOUNTING
BOOKKEEPING is the recording of business data in a prescribed manner. A bookkeeper may be responsible for keeping all the records of a business or only a minor segment, such portion of customer accounts in department store.
ACCOUNTING is primarily concerned with the design of the system of records, the preparation of reports based on the recorded data, and the interpretation of the reports. Accountants often direct and review the work of bookkeeper.

34. CASE STUDY- Price Waterhouse Coopers