Chapter 1 AIS and the Business

Firms invest in Accounting Information Systems (AIS) to create business value

o AIS tracks performance, information on employees, etc...
o Ex. Starbucks uses AIS to predict how much coffee to sell and purchase
Excess coffee = carrying cost of inventory, too little coffee =
missed sales
AIS: a system that records, processes, and reports on transactions to provide
financial and nonfinancial information to make decisions and have appropriate
levels of internal controls for those transactions
o Input may come in the form of sales recorded in a cash register (Point of
sale terminal)
o Processing may also query the database (SQL) to produce the output in
the form of a report
Relevance: the information from the AIS is useful and would affect a business
decision
o Predictive value (helps with forecasting the future)
o Feedback value (corrects or confirms what had been predicted in the
past)
o Timeliness (available when needed or in time to have an impact on a
decision)
Reliability: users can depend on AIS to be free from bias and error
o Verifiable (can be confirmed by an independent party)
o Representational faithfulness (reports what actually happened)
o Neutrality (information is not biased)
Management must often make tradeoffs between relevance and reliability
Data: raw facts that describe characteristics of an event but ultimately have
little meaning
o Managers and users of AIS must draw conclusions to make sense of the
o Information: data organized in a way to be useful to the user
o Information Overload: difficulty a person faces to make a decision
when there is too much information
o Information Value Chain: transformation from a business need and
business event to the collection of data and information and then to an
ultimate decision
Discretionary Information: information generally produced for internal
information purposes and not required by law to be provided to management or
stakeholders (ex. managerial accounting)
o Value of information = Benefits realized from using information costs
of producing information
o Discretionary information should only be produced if there is a positive
value of information
Mandatory Information: financial statements, tax accounting, etc... must be
produced at lowest possible cost and comply with laws
Information Technology (IT) goes hand in hand with accounting; accountants
must decide what information is relevant to solve business problems and
analyze
o Accountant as a user: inputting journal entries, financial spreadsheets

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Accountant as a manager: plan and coordinate AIS and organize and

lead staff
Designer: preparation of feasibility analysis, documentation techniques,
data file design
Must understand business processes and information requirements
of other systems
Evaluator: offer practical recommendations for improvement where
appropriate; apply IT tools and techniques to effectively evaluate the AIS

Value Chain and AIS:

- Businesses use inputs (ex. materials, workers) to produce a more valuable
output (ex. iphone)
- Business Value: all items, events, interactions that determine the financial
health and/or well being of the firm
o Ex. Red Cross may define business value as how many lives they saved
- Business Process: coordinated, standardized set of activities conducted by
both people and equipment to accomplish a specific task (ex. invoicing a
customer)
- Michael Porters Value Chain: chain of business processes for a firm; at each
activity, the product gains some value
o Primary activities: directly provide value to the customer
Inbound Logistics: associated with receiving and storing raw
materials and partially completed materials; distributing materials
to manufacturing
Operations: transform inputs into finished goods/services (wood
into furniture)
Outbound Logistics: warehouse and distribute the finished goods
to customers
Ex. AIS finds cheapest route to deliver goods = more value
Marketing and Sales Activities: Identify needs and wants of
customers to help attract them to firms products
Service Activities: provide support after products/services are
sold (ex. warranties)
o Support Activities: sustain the primary activities
Firm Infrastructure: all the activities needed to support the firm;
including CEO and the finance, accounting, legal departments
Human Resource Management: recruiting, hiring, training,
compensating employees
Technology: include research and development to develop new
products; determine ways to produce products at cheaper prices
Procurement: purchasing inputs (ex. raw materials, equipment)
- AIS is usually the foundation for an Enterprise Resource Planning system
(ERP)
o Centralized database that collects data from throughout the firm
o Ex. data from orders, customers, sales; made available to all ERP users
including accounting, operations, human resources departments
o Benefits include enhanced completeness, transparency, and timeliness of
information

Authorized users use information to make business decisions

AIS and External Business Processes:

- Supply Chain Management: firms interaction with suppliers
o Involves flow of materials, information, payments, etc... from raw
materials suppliers through factories, all the way to final customers
o Supply chain management software (SCM): designed to facilitate decision
making and optimize required levels of inventory ordered and held in
stock
o Walmart: one of the best supply chain systems because their database
allows suppliers to view real-time data and then assess the demand for
their own products; planning
The benefits trickle down to Walmart itself and to the customers
(lower prices)
- Customer Relationship Management (CRM): interaction with customers;
managing relationships including potential customers
o Ex. Starbucks uses loyalty cards and surveys to track customer purchases
and build customer profiles
- AIS effect on the Income Statement: increased revenues (CRM), lower COGS
(Supply chain management), lower admin expenses, lower interest expenses
from lower inventory costs leading to less debt; increased net income
- Automate: replace human labour in automating business processes (lowest
value)
- Informate-Up: provide information about business activities to senior
management (medium value)
- Informate-down: provide information to employees (medium value)
- Transform: fundamentally redefine business processes and relationships
(highest value)

Chapter 2 Accountants as Business Analysts

-

Accountants changing from reporting functions duties to optimizing processes

and achieving performance levels to maximize shareholder value
o Accountants must understand how business collects data, summarizes,
and communicates business information; assess risks and mitigate them
Business Process: sequence of business activities that use resources to
transform inputs into outputs to achieve a business goal
o Constrained by business rules
Business analysis: defining business process requirements and evaluating
potential improvements
Business model: abstract representation of one or more business processes
Documentation: explains how business processes and business systems work
o Tool for information transmission and communication
o Includes business rules, user manuals, training manuals, product specs,
schedules, etc...
o Sarbanes-Oxley Act in 2002 made documentation essential for
businesses; must assess if internal controls are effective at providing
reasonable assurance
o Important for auditing purposes, accountability, facilitating process
improvement
Improving effectiveness, efficiency, internal controls, and
compliance to various policies and statutes

Business Models:
- Allow us to depict important features of business processes clearly and
concisely
- Persuasion tools suited for planning business transformations
o Ex. Mergers and acquisitions, outsourcing, offshoring, product innovation
- Managing complexity, eliciting requirements, reconciling viewpoints, specifying
requirements
- Must describe 3 different elements:
o Process Activity
o Data structures
o Business rules
Activity Models:

Describe the sequence of workflow in a business process or processes

o Ex. flowchart, dataflow diagrams
o Used to analyze business processes and design changes
Must describe:
o Events that start, change or stop flow in the process
o Activities and tasks in the process
o Sequence of flow between tasks
o Decisions points that affect flow
o Division of activity depending on organizational roles

Business Process Modeling Notation (BPMN):

- Events: include start, intermediate, and end events
o Basic events are modeled as small circles; start events have a single thin
line circle; end events have a single thick line circle; intermediate events:
double thin line circle
- Activities: Represent specific steps in business process
o Modeled as rounded rectangles with a short verb phrase
- Sequence Flows: represented by arrows to indicate progression of activity
- Gateways: show process branching and merging as result of decisions
o Modeled as diamonds
- Annotations: allow modeller to add more information
o Modeled with text inside a bracket [ ] connected to other symbols with a
dashed line
- Participant: something that performs activities and interacts with other
participants
o Ex. people, systems, organizations, machines
o Participants can also be identified by the role of the actor in the process
o The organization is identified by a pool and the department is identified
by swimlanes within the pool
o Activities can be assigned to only one participant and may appear in only
one pool or swimlane
- Activities within a pool are organized by sequence flow BUT interactions
BETWEEN pools are represented by message flows
o Shown as a dashed arrow with a small circle at the starting end
- For BPMN diagrams, focus on one business process at a time; identify the events
that start and end the process
Flowcharts:
- BPMN are extension of flowcharts; they are visualizations of a process activity
o Systems Flowcharts: provide overall view of a system including inputs,
activities, outputs
o Process Maps: use basic set of flowchart symbols to represent steps
within a business process
o Document Flowcharts: present flow of documents through an entity;
outlines who is responsible for particular tasks
- Have slightly different symbols compared to a BPMN (ex. start/end symbols are
ovals instead of a circle; Gateways are now called Decisions)
- Deployment Flowcharts: show both the sequence of steps in a process as
well as the organizational responsibility for each step

Also uses swimlanes to represent different organizational units or

functions
o Useful for identifying multiple handoffs between organization units in a
process
Opportunity Flowcharts: highlight opportunities for improvement by
separating Value-added from cost-added activities
o Value-added activities are essential to producing the end result; costadded activities are those related to checking for defects,
troubleshooting, etc...
Data Flow Diagram (DFD): represents graphically the flow of data through a
system
o Have no start and end symbols
o Specifically represent the datastores; system files affected by or
supporting the process
o Present external sources of, or destinations for, the data
Chapter 3 Data Modeling
o

Structure Models: describe data and information structures in a business process

- Used to create a blueprint for development of a relational database to support
collection and communication of process information
- Data Models: used to represent conceptual contents of databases and
communicate to users
- Must describe entities or things in the domain of interest, their relationships,
cardinalities, and attributes/characteristics
Unified Modeling Lanuage (UML):
- Class: any separately identifiable collection of objects about which the
organization wants to collect and store information
o Ex. resources (trucks, cash, investments), people (customers, employees)
o Represented by a rectangle with 3 compartments
Top: name of class; Middle: attributes shared in the class; Bottom:
describes operations the class performs
- Association: relationship between 2 classes
o Ex. customers (class) participate in sales (class); professors (class)
teach courses (class)
o Makes it easy to see how classes are linked together
- Multiplicities: describe minimum and maximum # of times instances in one
class can be associated with instances in another class
o Have minimum and maximum values on either side of the association
o Note: maximum values are either 1 or many (*)
o Ex. One person can have many cars BUT each car must be owned by at
least one person/entity
o One to one; one to many; many to many relationship
- Attributes: data elements that describe the instances in a class
o Identifies primary and foreign keys; constraints on the value
- Primary Key: attribute or combination of attributes that uniquely identifies
each instance in a class or row in a table

Ex. The State class collectively defines all the state; each state is an
instance in that class and would be identified by a unique primary key
(AR, CA, etc...)
o Primary keys should not be duplicated; uniquely identifies each instance
o Cannot change over time and cannot be null
o Shorter primary keys ease data entry, indexing, and retrieval
Foreign Key: attribute or combination of attributes that allows tables to be
linked together
o Linked to the primary key of another table
o Ex. Customers table primary key is Customer_Number; which is the
foreign key in the Orders table so that there is a link
o

Other Relationships:
- Generalization: allows grouping of things that share common characteristics;
reduces redundancy
- Aggregation: describe classes that are often considered together
o Ex. players could exist separately from a team but they are part of a team
o Nested aggregation: the team is part of a league
- Composition: a form of aggregation; ex. chapters do not exist separately from
the books
- Constraints: the association has a conditional statement on it or something
constraining
UML Class Models for Relational Database Design:
- A UML class diagram to a Relational database defines the tables, fields,
relationships, keys, etc... in the database
1.
2.
3.
4.

Map Classes to tables

Map class attributes to table fields and assign primary keys
Map associations to foreign keys
Create new tables to implement many to many relationships
- The default primary key for the new table is the combination of the 2 primary
keys for the associated tables (concatenated or composite key)
5. Implement relationships among tables

Business Rule: statement of a constraint on a business process; affects structure and

flow of models
- Obligatory Rules: states what SHOULD occur; ex. payment should be made in
$US
- Prohibited Rules: states what should NOT occur; ex. no payments by check
- Allowed Rules: says what is allowed under what conditions
o Ex. credit card payments are allowed if the card is Visa
- Enforcement levels of rules:
o Strict enforcement: violations are not authorized
o Pre-override: violations are allowed if authorized in advance

Post-Override: violations are allowed if authorized after the violation

occurs

Entity Relationship Diagram (ERD): represents graphically the logical data

structure of a system
Cardinality Options (multiplicities):
- One to one (1:1): one instance of A is related only to one instance of B
o Ex. Each sale earns on cash receipt
- One to many (1:N): one instance of A is related to many instance of B (or vice
vers)
o Ex. a customer participates in many sales
- Many to many (M:N): many instances of A are related to each instance of B AND
many instance of B are related to A
o Ex. a sale can include many inventory items and each item could be sold
on many sales
- If minimum cardinality is 0, the relationship is optional
o If minimum cardinality is 1, then relationship is mandatory