2. Criticisms of the Traditional Accounting System Architecture and a Solution Slides 2

3. Criticisms of Traditional Accounting Systems There are non-integrated systems in an organization The architecture captures data about a subset of an organization's business events (the accounting transactions) - FILTERED The architecture stores and processes only a limited number of characteristics about these accounting transactions – FILTERED EVEN MORE The architecture captures and stores duplicate data in a highly summarized form - AGGREGATED The architecture stores financial data to satisfy one primary view - ACCOUNTANT’S PERSPECTIVE Data are not recorded and processed in real-time

4. Accounting Data Data that describes Business Events Business Events Accountants filter data General Ledger Limited Output: Views & Formats (Limited view & limited data) Accounting Data: A Subset of Business Data

5. Evolution Of AIS Stage 1 Manual Systems Stage 2 Automated Systems Stage 3 Resources: Manual Process: Accounting Cycle Data Stores (Files): Journals & Ledgers Resources: Information Technology Process: Accounting Cycle Data Stores (Flat-Files): Journals & Ledgers Objective: Generate financial statements Objective: Generate financial statements ?

6. The solution: An event-driven, enterprise-wide information system, sitting on top of a relational database management system

7. Evolution Of AIS Stage 1 Manual Systems Stage 2 Automated Systems Stage 3 Resources: Manual Process: Accounting Cycle Data Stores (Files): Journals & Ledgers Resources: Information Technology Process: Accounting Cycle Data Stores (Flat-Files): Journals & Ledgers Event-Driven, Enterprise- Wide IT Applications Resources: Information Technology Process: Record, Maintain, Report All Business Event Data of Interest Data Stores (Tables): RBMS Objective: Generate financial statements Objective: Generate financial statements Objective: Support Planning, Executing, Control And Evaluation Activities (PEACE)

8. ORGANIZATION Conversio n Processes Customers Provides Finished Goods and Services MSC Processes Supply goods and services Receive payment Activity Models: Template for Decomposition of Business Processes (IPSO template) Suppliers AMP Processes Provides Input of Resources to Organization Request input resources Pay for input resources Add value Data Storage and Retrieval: Relational Database Management System Source: Hollander, Denna & Cherrington, 2000 (adapted)

9. Creating Value Organizations add value by converting resources to develop and provide the goods and services that customers desire.

10. Types of High-Level Business Processes Acquisition/ Maintenance /Payment Processes - (AMP) - acquire, maintain, and pay for resources needed (e.g. labor, finance, fixed assets, raw materials, supplies, research & development) to provide goods and services. Conversion Processes - adding value; converting the resources into goods and services for customers. Marketing/Sales/Collection Processes (MSC) – marketing, delivering goods and services to customers, and collecting payment.

11. Traditional Accounting “Stovepipe” Systems

12. What is a process? A process is group of related business events intended to accomplish the strategic objectives of the enterprise Business event (often used synonymous with business activity): an activity performed by the business, e.g., “take customer order” ( Hint:Each event should contain at least a verb and a noun )

13. Business Process: MSC Business Processes and Events Place TV ad Take customer order Collect payment Ship goods

14. Managing Business and Information Processes (PEACE) P lan E xecute A nd C ontrol; E valuate Business Processes Information System Business Rules Trigger Measures Should DoDo Feedback Data How to Value Add Record Data & Convert to Information

15. P - Plan Planning requires leaders to define the business objectives, to prioritize business processes, and to provide a blueprint for achieving the objectives. They must identify opportunities available to the organization as well as assess the risk associated with each opportunity.

16. E - Execute Managers execute their plan by dividing business processes into smaller activities, assigning people to perform each activity, and motivating them to do a good job. A clearly defined plan increases the likelihood of proper execution. A - And

17. C - Control Control is exercised by reviewing the results of an activity or an entire business process to see if they are consistent with expectations. The review may cause a change in expectations or a change in the way an activity or a process is performed to bring the actual results in line with expectations.

18. E - Evaluate Periodically, managers evaluate the operating results to see if the business processes are achieving the organization's objectives. The results of the evaluation are used to modify the plans, objectives, and expectations.

19. Relationship between Business Processes, Information Processes and Management Activities Management Activities Management Activities Plan Execute & Control Evaluate Business Processes AMP Processes Conversion Processes MSC Processes RDMS: Data RDMS: Data Information System Manage Business Processes Capture Data Provide Reports Source: Hollander, Denna & Cherrington, 2000

20. Managing Organizations: Business & Information Processes PEACE (Management) –Plan –Execute, And –Control –Evaluate Business Processes –AMP: Acquire, Maintain, Pay for Business Resources –Convert: Add value, particularly unique to organization –MSC: Market, Sell goods/services, Collect payment Information Processes –Record, Maintain, Report

21. Modeling A Business “Suppliers”EnterpriseCustomers Convert: Operations Job Costing AMP: Raw Materials, Supplies, Labor, Finance, Fixed assets MSC: Marketing Sales Collection $ $ Cash DisbursementsCash Receipts

22. How Can Accountants Add Value In The Information Age? –Provide useful information for decision makers who are responsible for planning, executing, controlling or evaluating activities of an organization –Help embed information processes in the business processes (to capture and store data about the processes in real time) –Help embed controls in the business processes –Help management define business rules or policies that shape the nature of its business processes