1. Chapter 1 Accounting Information Systems and Firm Value
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2. Learning Objectives
LO#1 Define an accounting information system and explain characteristics of useful information.
LO#2 Distinguish among data, information and an information system.
LO#3 Distinguish the roles of accountants in providing information and explain certifications related to accounting information systems.
LO#4 Describe how business processes affect the firm’s value chain.
LO#5 Explain how AIS affects firm value.
LO#6 Describe how AIS assists the firm’s internal business processes.
LO#7 Assess how AIS facilitates the firm’s external business processes.
LO#8 Assess the impact of AIS on firm profitability and stock prices.

3. Accountants as Business Analysts
LO# 1
Increasingly, the role of an accountant is to help address business opportunities.
To address such a business opportunity, the accountants need to decide what information is needed, then build an information system to gather the necessary information and finally analyze that information to offer helpful advice to management.

4. Accounting Information Systems
LO# 1
An accounting information system (AIS) is defined as a system that records, processes and reports on transactions to provide financial and non-financial information to make decisions and have appropriate levels of internal controls (security measures to protect sensitive data) for those transactions.
An AIS is important because it provides information that companies are required to have and also information that can be used to make important decisions.

5. Why Study AIS? It’s fundamental to accounting.
LO# 1
It’s fundamental to accounting.
Accounting is an information providing activity, so accountants need to understand:
How the system that provides that information is design, implemented, and used
How financial information is reported
How information is used to make decisions

6. What Can an AIS Do?
LO# 1
Imagine Starbucks’ system, which can track a variety of things.
The number of hours worked by employees all over the world.
The amount of sales taxes to be paid by one store.
Wal-Mart has an extensive information system.

7. A Simple Information System
LO# 1
Possible Input: Sales at Starbucks Possible Storage: Database of all Sales at Starbucks Possible Processing: Queries of What Sells Best at Night Possible Output: Reports of What Sells Best at Night

8. Attributes of Useful Information
LO# 1
To be useful information must have these attributes:
Relevant – information that is capable of making a difference in a decision
Predictive Value
Feedback Value
Timely
Reliable – information that is free from bias and error
Verifiable
Representational Faithfulness
Neutrality

9. Data vs. Information
LO# 2
Data are simply raw facts that describe an event and have little meaning on their own.
Information is defined as being data organized in a meaningful way to be useful to the user. Data serves as an input.
For example, the sales prices of a particularly toy might be considered data. However, after subtracting the cost of goods sold from the sales price to compute the net profit would be considered information if it helps a retailer decide whether to carry that particular toy in its inventory.

10. Information Overload
LO# 2
Computers can process and organize a large amount of data.
Too much information causes information overload.
Decision making is hindered.

11. Information Value Chain
LO# 1

12. Discretionary versus Mandatory Information
LO# 2
Discretionary information is information that is not required by law.
Using an ABC system to determine the overheads costs associated with each pound of chicken at Tyson Foods.
Managers must decide if the benefits of discretionary information outweigh the costs of obtaining it.

13. Discretionary versus Mandatory Information
LO# 2
Mandatory information is information that is required by law.
Examples include: Form 10-K (Annual Reports that include Financial Statements) and Tax Returns
See SEC EDGAR for examples of required annual reports for public companies.
Since it is required manager usually choose to minimize the costs of producing this information.

14. Role of Accountants in AISs
LO# 3
Designer
System Analyst
Implementer
Database Administrator
User
Recording Journal Entries
Evaluator
Auditor
Manager
Controller or CFO

15. Certifications in AIS Certified Information Systems Auditor (CISA)
LO# 3
Certified Information Systems Auditor (CISA)
Perform IT Audits
Certified Information Technology Professional (CITP)
Work to effectively and efficiently manage information while ensuring the data’s reliability, security, accessibility and relevance.
Certified Internal Auditor
Globally accepted certification for internal auditors

16. Value Chain
LO# 4

17. Where do AIS add value to a Business? In the Primary Activities?
LO# 4
Inbound logistics are the activities associated with receiving and storing raw materials and other partially completed materials, and distributing those materials to manufacturing when and where they are needed.
Operations are the activities that transform inputs into finished goods and services (e.g. turning wood into furniture for a furniture manufacturer; building a house for a home builder).
Outbound logistics are the activities that warehouse and distribute the finished goods to the customers.
Marketing and sales activities identify the needs and wants of their customers to help attract them to the firm’s products and buy them.
Service activities provide the support of customers after the products and services are sold to them (e.g. warranty repairs, parts, instruction manuals, etc.).

18. Where do AIS add value to a Business? In the Support Activities?
LO# 5
Firm infrastructure activities are all of the activities needed to support the firm, including the CEO, finance, accounting, and legal.
Human resource management activities include recruiting, hiring, training and compensating employees.
Technology activities include all of the technologies to support value-creating activities. These technologies also include research and development to develop new products or research and development to determine ways to produce products at a cheaper price.
Procurement activities involve purchasing inputs such as raw materials, supplies, and equipment.

19. AIS and Internal Business Processes
LO# 6
AIS usually serve as the as the foundation for the enterprise (or ERP) system.
The enterprise system is a centralized database that collects data from throughout the company including orders, customers, sales, inventory, and employees.
Information is thus available to everyone within the company in a useful and timely way.

20. Use of ERP System
LO# 6
The enterprise system can take an order from a customer, fill the order, ship it, and then create an invoice to bill the customer.
Used to check customers credit.
Check the inventory levels in the warehouse.
Determine when it can be shipped.
Everyone throughout the entire process can view and update the information.

21. Figure 1.6 AIS and External Business Processes
LO# 7

22. The Supply Chain
LO# 7
The supply chain refers to the flow of materials, information, payments, and services from suppliers all the way through the customer.
There are many processes involved which can be made more efficient using the AIS.

23. Supply Chain Management
LO# 7
Supply Chain Management software can be used to optimize processes within the supply chain.
Determine levels of inventory in stock and to be ordered.
Determine timing to transferring inventory.

24. Customer Relationship Management
LO# 7
This software is used to manage interactions with customers.
Track customer purchases.
Ensure customer satisfaction.
Product placement

25. Customer Relationship Management
LO# 7
As an example, Amazon.com keeps a record of their past purchases and product searches and then uses that information to recommend other similar products for the customer to consider.
Loan officers at a bank learns more about the financial products currently being used by its bank’s customers through its AIS, they will be able to help identify additional bank products (upselling items such as insurance products, CD’s, mutual funds, etc.) to sell to their clients.

26. The Effect of AIS on the Income Statement
LO# 7

27. AIS, Firm Profitability, and Stock Prices
LO# 8
As show on the previous slide, AIS can be used to improve company profits.
In addition, studies show that investments in IT can positively affect a company’s stock price.

28. Summary
LO# 8
An accounting information system (AIS) is defined as being an information system that records, processes and reports on transactions to provide financial information for decision making and control.
Firms invest in accounting information systems to create value. The value chain illustrates how during each primary activity, the product should gain some value. An AIS serves an important role in enabling value in each primary and supporting activity.
An AIS creates value by managing internal and external business processes such as enterprise systems, supply chain management and customer relationship management software.
An AIS system generally helps make business processes more efficient and effective. A well-designed and well-functioning AIS can be expected to create value by increasing revenues and reducing expenses.