Accounting Information Systems An Overview

ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW
Chapter 1
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Learning Objectives

Explain what an accounting information system (AIS) is and describe the basic functions it performs. Discuss why studying the design and management of an AIS is important. Explain the role played by the AIS in a company s value chain and discuss ways that the AIS can add value to a business. Describe and contrast the basic strategies and strategic positions that a business can adopt.
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Introduction: S&S Inc.

Scott Parry and Susan Gonzalez form S&S, Inc., to sell consumer electronic devices. Parry and Gonzalez decide to pursue a clicks and bricks strategy. They plan to hold the grand opening of S&S in five weeks.
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Introduction: S&S, Inc.

What types of important decisions do Scott and Susan have to make?
How to organize their accounting records How to design a set of procedures to ensure that they meet all of their government obligations How to price their products
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Introduction: S&S, Inc.

Important decisions, continued Whether to extend credit, on what terms, and how to accurately track what customers owe and have paid How to hire, train, and supervise their employees How to keep track of cash flows The appropriate product mix and quantities to carry What functionality to provide on their website
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What Is An AIS?
A system is a set of two or more interrelated components that
interact to achieve a goal.
Systems are almost always composed of smaller subsystems,
each performing a specific function supportive of the larger system.
An accounting information system (AIS) consists of: People Procedures Data Software Information technology infrastructure
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What Is An AIS?
What important functions does the AIS perform in an organization?
1 It collects and stores data about activities and
transactions. 2 It processes data into information that is useful for making decisions. 3 It provides adequate controls to safeguard the organization s assets.
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Why Study AIS?

In Statement of Financial Accounting Concepts No. 2, The FASB...
defined accounting as an information system. stated that the primary objective of accounting is to provide information useful to decision makers.
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Why Study AIS?

The Accounting Education Change Commission recommended that the accounting curriculum should provide students with a solid understanding of three essential concepts:
The use of information in decision making The nature, design, use and implementation of an AIS 3. Financial information reporting
1. 2.
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Why Study AIS?

To understand how the accounting system
works.
How to collect data about an organization s activities and transactions How to transform that data into information that management can use to run the organization How to ensure the availability, reliability, and accuracy of that information
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Why Study AIS?

Auditors need to understand the systems that are used to produce a company s financial statements. Tax professionals need to understand enough about the client s AIS to be confident that the information used for tax planning and compliance work is complete and accurate.
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Why Study AIS?

One of the fastest growing types of
consulting services entails the design, selection, and implementation of new Accounting Information Systems. A survey conducted by the Institute of Management Accountants (IMA) indicates that work relating to accounting systems was the single most important activity performed by corporate accountants.
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Ten Most Important Activities Performed By Accountants

1. Accounting systems and financial reporting 2. Long-term strategic planning 3. Managing the accounting and finance function 4. Internal Consulting 5. Short-term budgeting 6. Financial and economic analyses 7. Process improvement 8. Computer systems and operations 9. Performance evaluation 10. Customer and product profitability analyses
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Factors Influencing Design of the AIS

Organizational Culture Strategy
AIS
Information Technology
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Data, Information & Systems
Figure 1.1 Input-process-output

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System
capturing inputs
Manual keying Scanning through barcode technology Scanning through image scanners Magnetic ink character recognition Voice recognition Optical mark readers
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System
processes
Processes are the sets of activities that are performed on the inputs into the system. Examples
Format checks on data Validity checks on data Sorting Totalling
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System
outputs
Outputs refer to what is obtained from a system, or the result of what the system
does. Examples:
Receipts Invoices Monthly Sales Report
Outputs are normally the starting point
when designing a system.

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Data, Information & Systems
Figure 1.3 Several subsystems make up this corporate accounting system.
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External users of accounting information
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Internal users of accounting information
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Information Systems
A management information system (MIS) is a system that
captures data about an organization stores and maintains the data provides meaningful information for management.
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Information Systems
An MIS can be viewed as a set of subsystems that provide information for such functions as: production marketing human resources accounting finance
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Information Systems
MIS captures
data about business processes aggregates, summarizes, and organizes data produces information that helps monitor and control business processes ERP systems integrate all aspects of a firm s business processes.
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Information Systems
An AIS is a subset of an organization s MIS that provides:
accounting and financial information other information obtained in the routine processing of accounting transactions
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Computer-Integrated Manufacturing (CIM)

Components of CIM typically include computeraided design (CAD) workstations, real-time production monitoring and control systems, and order inventory and control systems. Makes use of scanner technology and machinereadable bar codes.
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Advantages:
The materials requirements relating
to demands for products are determined beforehand, so that the materials are transferred to the production areas in time for production starts Production orders are scheduled to accommodate the manufacturing capacity Data are validated upon online entry, so that errors are detected more quickly and reprocessing delays due to undetected errors are reduced
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Advantages:
Inventory and production order
records are updated in a timely manner from materials requisitions, labor-time entries, and move tickets Accounting-related processing is simplified, since transactions are posted without sorting to online files Control reports such as cost variance analyses are prepared for managers
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A configuration for CIM
Engineering Production Planning
Logistics data base
Accounting data base
Warehousing MRP Cost Accounting Manufacturing JIT FMS CAD CAM Robotics
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Automated Handling
Inventory Control Product Costing
Benefits of CIM systems

Greater flexibility in meeting the changing needs of customers Savings in the material inventory investment Increased quality in products Optimal scheduling of production, with dynamic adjustments as conditions change or new orders are received
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Shorter production cycle times Improved productivity of employees and hence reduced labor costs Continuous monitoring of production operations, with immediate feedback of control problems as they arise
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Savings in paperwork costs, since most interactions are performed via computer and records are stored electronically Better utilization of all production facilities Greater accessibility of information, including the ability to provide ad hoc reports for planning and control
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Doing more with less inventory
Just-In-Time (JIT) Production
smoothing the flow of material to arrive just as it is needed
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User
Role of Accountants in Relation to AIS
Manager Consultant Evaluator Provider of accounting and tax services
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Evolution of AIS
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Accounting and IS a changing relationship
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Role of accounting and accounting information
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The Value Chain

The objective of most organizations is to provide value to
their customers. What does it mean to deliver value? Adding value means making the value of the finished product greater than the sum of its parts. It may mean: Making it faster Making it more reliable Providing better service or advice Customizing it
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The Value Chain

Value Chain models the firm as a chain of valuecreating activities. Its ultimate goal is to maximize value creation while minimizing costs. The value chain framework is a powerful analysis tool for strategic planning.
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The Value Chain
Only if these things are arranged into systems and systematic activates will it become possible to produce something for which customers are willing to pay a price. The ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage
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The Value Chain

Primary Activities Inbound Logistics Operations Outbound Logistics
Marketing and Sales
Service
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The Value Chain

The four support activities in the value chain make it possible for the primary activities to be performed efficiently and effectively.
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The Value Chain

Support Activities Infrastructure Technology
Human Resources
Purchasing
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The Value System

The value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers. An organization s value chain and the value chains of its suppliers, distributors, and customers collectively form a value system.
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The Value System
The term Margin implies that organizations realize a profit margin that depends on their ability to manage the linkages 2/10/2012 between all activities in the value chain.
The Supply Chain

Raw Materials Supplier Manufacturer
Distributor
Retailer
Consumer
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The Supply Chain
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How An AIS Can Add Value To An Organization

An AIS adds value by: improving the quality and reducing the costs of products or services. improving efficiency. Improving decision making capabilities. increasing the sharing of knowledge.
A well-designed AIS can also help an organization profit by improving the efficiency and effectiveness of its supply chain.
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1.
Improving the quality of products.
Example: AIS monitors machines signal to operators when operation falls outside acceptable quality limits.
2. Improving efficiency. Example: IT system provides detailed, timely, & accurate information about production schedules for suppliers. Enable the company to locate raw materials.
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3. Improve Decision Making.
Example: Wal-Mart data base about sales transactions used to analyzes sales patterns to: Find which items are purchased together to improve layout. Optimize the amount of each product carried at each store. 4. Sharing Knowledge. Example: Accounting, auditing, & consulting firms (best practices to serve customers). Amazon.com (availability of products). Compaq (24 hours on line customer services).
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Hewlett-Packard engineers developed a metric called break-even time (BET) to measure the effectiveness of its product development cycle BET measures the time from the beginning of product development work until the product has been introduced and has generated enough profit to pay back the investment originally made in its development
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Information and Decision Making

Characteristics of Useful Information Relevant Reliable Complete Timely Understandable Verifiable
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What is decision making? Decision making involves the following steps:
1. 2. 3. 4. 5. 6.
Identify the problem. Select a method for solving the problem. Collect data needed to execute the decision model. Interpret the outputs of the model. Evaluate the pro s and con s of each alternative. Choose and execute the preferred solution.
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Structured decisions Semi structured decisions Unstructured decisions
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Decision Structure
Structured decisions are repetitive, routine, and understood well enough that they can be delegated to lower-level employees in the organization. An example is:
Extending credit to customers.
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Decision Structure
Semistructured decisions are characterized by incomplete rules for making the decision and the need for subjective assessments and judgments to supplement formal data analysis. An example is:
Setting a marketing budget for a new product.
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Decision Structure
Unstructured decisions are nonrecurring and nonroutine. An example is:
Choosing the cover for a
magazine.
AIS and Corporate Strategy
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How IT affects Business Strategy

Example: The internet provided the opportunity for companies to cut cost (implement a low cost strategy), through: eliminating intermediaries, lower levels of inventory, on line order entry and processing, etc.
Once copied by other organizations it is no longer
a competitive advantage. This will motivate companies to differentiate their products (implement a product differentiation strategy).
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How IT affects Business Strategy

Example: Digitizing products like songs, books, softwares (Amazon.com).
24 hours on line customer service (Compaq, dell,
HP, IBM).
Tracking the order (Fedex).
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Accounting Information Systems An Overview

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ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW

Introduction: S&S Inc.

Introduction: S&S, Inc.

Introduction: S&S, Inc.

interact to achieve a goal.

 Systems are almost always composed of smaller subsystems,

each performing a specific function supportive of the larger system.

Why Study AIS?

Why Study AIS?

Why Study AIS?

Why Study AIS?

Why Study AIS?

Ten Most Important Activities Performed By Accountants

Factors Influencing Design of the AIS

Data, Information & Systems

Figure 1.1 Input-process-output

 Outputs are normally the starting point

when designing a system.

Data, Information & Systems

Figure 1.3 Several subsystems make up this corporate accounting system.

External users of accounting information

Internal users of accounting information

Computer-Integrated Manufacturing (CIM)

Computer-Integrated Manufacturing (CIM)

Computer-Integrated Manufacturing (CIM)

A configuration for CIM

Engineering Production Planning

Logistics data base

Accounting data base

Inventory Control Product Costing

Benefits of CIM systems

Benefits of CIM systems

Benefits of CIM systems

 Doing more with less inventory

Just-In-Time (JIT) Production

smoothing the flow of material to arrive just as it is needed

Role of Accountants in Relation to AIS

 Manager  Consultant  Evaluator  Provider of accounting and tax services

Accounting and IS a changing relationship

Role of accounting and accounting information

The Value Chain

The Value Chain

The Value Chain

The Value Chain

Marketing and Sales

The Value Chain

The Value Chain

The Value System

The Value System

The Supply Chain

The Supply Chain

How An AIS Can Add Value To An Organization

How An AIS Can Add Value To An Organization

How An AIS Can Add Value To An Organization

How An AIS Can Add Value To An Organization

Improving the quality of products.

How An AIS Can Add Value To An Organization

How An AIS Can Add Value To An Organization

How An AIS Can Add Value To An Organization

Information and Decision Making

Information and Decision Making

Information and Decision Making

Systems are almost always composed of smaller subsystems,

Outputs are normally the starting point

Doing more with less inventory

Manager Consultant Evaluator Provider of accounting and tax services