1: Support auditing activities and regulatory compliance Create audit trails and analyze financial data Evaluate the effectiveness of internal controls Ensure organizations meet financial regulations

System

A group of interrelated multiple components or subsytems that serve a common purpose

Information Objectives

1. To support the firm’s day-to-day operations.

2. To support management decision making.

3. To support the stewardship function of management.

Information system

is the set of formal procedures by which data are collected, stored, processed into information, and distributed to users.

Transaction

is an event that affects or is of interest to the organization and is processed by its information system as a unit of work.

Financial transaction

is an economic event that affects the assets and equities of the organization, is reflected in its accounts, and is measured in monetary terms.

Financial transaction

Examples: Sales of products to customers, purchases of inventory from vendors, and cash disbursements and receipts

Nonfinancial transaction

are events that do not meet the narrow definition of a financial transaction.

Nonfinancial transaction

Example: Adding a new supplier of raw materials to the list of valid suppliers is an event that may be processed by the enterprise’s information system as a transaction.

AIS subsystems

process financial transactions and nonfinancial transactions that directly affect the processing of financial transactions.

Major subsystems of AIS

1. Transaction Processing System (TPS)

2. General Ledger/Financial Reporting System (GL/FRS)

3. Management Reporting System (MRS)

Transaction processing system

One of the AIS major subsystem wherein it supports daily business operations with numerous reports, documents, and messages for users throughout the organization

• is central to the overall function of the information system.

• converts economic events into financial transactions, records financial transactions in the accounting records (journals and ledgers), and distributes essential financial information to operations personnel to support their daily operations.

Revenue cycle, Expenditure cycle, Conversion cycle

The 3 transaction cycles of transaction processing system

General ledger/financial reporting system

One of the AIS major subsystem wherein it produces the traditional financial statements, such as the income statement, balance sheet, statement of cash flows, tax returns, and other reports required by law;

Management reporting system

One of the AIS major subsystem wherein it provides internal management with special-purpose financial reports and information needed for decision making such as budgets, variance reports, and responsibility reports.

Management reporting system

provides the internal financial information needed to manage a business include budgets, variance reports, cost-volume-profit analyses, and reports using current (rather than historical) cost data.

Nondiscretionary reporting

The organization has few or no choices in the information it provides as the information of traditional financial statements, tax returns, and other reports are demanded by law.

Management information system

processes nonfinancial transactions that are not normally processed by traditional AIS.

Data sources

are financial transactions that enter the information system from either internal or external sources.

External financial transactions

• are the most common source of data.

• are economic exchanges with other business entities and individuals outside the firm.

• Examples: Sale of goods and services, tpurchase of inventory, receipt of cash, and disbursement of cash (including payroll).

Internal financial transactions

• involve the exchange or movement of resources within the organization.

• Examples:

  • the movement of raw materials into work- in-process (WIP)

  • the application of labor and overhead to WIP

  • the transfer of WIP into finished goods inventory

  • the depreciation of plant and equipment.

Data collection

• is the first operational stage in the information system.

• ensure that event data entering the system are valid, complete, and free from material errors.

• Two Rules in Data Collection Design: Relevance & Efficiency

Data Processing

• Once collected, data usually require processing to produce information.

• range from simple to complex.

• Examples:

  • Mathematical algorithms (such as linear programming models) used for production scheduling applications

  • Statistical techniques for sales forecasting,

  • Posting and summarizing procedures used for accounting applications.

Database

is the organization’s physical repository for financial and nonfinancial data.

Data attribute

• is the most elemental piece of potentially useful data in the database.

• is a logical and relevant characteristic of an entity about which the firm

  captures data.

• Example in an Account Receivable:

  • Customer Name

  • Address

  • Account Balance

  • Credit Limit

Record

• is a complete set of attributes for a single occurrence within an entity class

• Example: A particular customer’s name, address, and account balance is one occurrence (or record) within the AR class.

• Every record must have a unique identifier which called primary key (e.g. Customer Account Number) 

  • Customer Name isn’t considered since there are times that there are customers with identical names

File (or table)

• is a complete set of records of an identical class.

• Examples:

  • All Accounts Receivable records → AR File

  • All Inventory records → Inventory File

  • All Payroll records → Payroll File

• The organization’s database is the entire collection of such files.

Storage, Retrieval, Deletion

Fundamental tasks of Database Management

Storage task

One of the fundamental database management tasks wherein it assigns keys to new records and stores them in their proper location in the database.

Retrieval

One of the fundamental database management tasks wherein it is the task of locating and extracting an existing record from the database for processing.

Deletion

One of the fundamental database management tasks wherein it is the task of permanently removing obsolete or redundant records from the database.

Information generation

is the process of compiling, arranging, formatting, and presenting information to users.

Relevance, Timeliness, Accuracy, Completeness, Summarization.

Characteristics of a Useful Information

Relevance

The contents of a report or document must serve a purpose. This could be to support a manager’s decision or a clerk’s task.

Timeliness

The age of information is a critical factor in determining its usefulness. Information must be no older than the time frame of the action it supports.

Accuracy

Information must be free from material errors.

Completeness

No piece of information essential to a decision or task should be missing.

Summarization

Information should be aggregated in accordance with the user’s needs.

• Lower-level managers tend to need information that is highly detailed.

• As information flows upward through the organization to top management, it becomes more summarized.

Feedback

is a form of output that is sent back to the system as a source of data. It may be internal or external and is used to initiate or alter a process.

Functional Segmentation

• is a common method of organizing a business entity by its business function

• Example in a manufacturing firm:

  • Material management handles materials

  • Human resources handles labor

  • Finance handles financial capacity

Materials management

• plan and control the materials inventory of the company.

• Subfunctions:

  • Purchasing

  • Receiving

  • Stores

Production

• occur in the conversion cycle in which raw materials, labor, and plant assets are used to create finished products.

• Primary manufacturing activities shape and assemble raw materials into finished products.

• Production support activities ensure that primary manufacturing activities operate efficiently and effectively.

Marketing

• deals with the strategic problems of product promotion, advertising, and market research.

• On an operational level, marketing performs such daily activities as sales order entry.

Distribution

• is the activity of getting the product to the customer after the sale.

• Success depends on filling orders accurately in the warehouse, packaging goods correctly, and shipping them quickly to the customer.

Personnel

• is to effectively manage this resource.

• A well-developed personnel function includes recruiting, training, continuing education, counseling, evaluating, labor relations, and compensation administration.

Finance

• manages the financial resources of the firm through banking and treasury activities, portfolio management, credit evaluation, cash disbursements, and cash receipts.

Accounting function

• manages the financial information resource of the firm.

• Important Roles

  • (1) Accounting captures and records the financial effects of the economic events that constitute the firm’s transactions.

  • (2) Accounting distributes transaction information to operations personnel to coordinate many of their key tasks.

Reliability

The value of information to a user is determined by its _________

Independence

Information reliability rests heavily on the concept of accounting ____________.

Data processing

brings to bear IT personnel, computer hardware, application programs (software), and corporate data to support user information needs through transaction processing and information reporting.

Data Processing Configurations

• Centralized Data Processing

• Distributed Data Processing (DDP)

Centralized Data Processing

• All data processing is performed by one or more large computers housed in a common data center that serves users throughout the organization.

• lends itself to intra-organization communication and data sharing

  between user departments.

Distributed Data Processing

• Under this configuration each user segment possesses the IT personnel, facilities, hardware, software, and data they need to support their operations.

• function independently and tend not to share data and information.

Systems Development

• Ito yung process ng pagbuo o pagkuha ng information system na gagamitin ng organization.

• Organizations acquire information systems in two ways:

  • Purchase commercial software

  • Build custom systems in-house from scratch.

Commercial software

• sometimes called turnkey systems (user can only modify it with little or no modification)

• is available for both general accounting use and for industry-specific applications, such as medical billing.

• Both small and large firms that have standardized information needs are potential customers

Custom software

• are more expensive

• Larger organizations with unique information develop this through a formal process called the systems development life cycle.

• Requires the organization to have an in-house team of qualified and experienced IT professionals

Database administration

a special independent group headed by the database administrator is responsible for the security and integrity of the database.

Network

is a collection of interconnected computers and communications devices that allows users to communicate, access data and applications, and share information and resources.

Network administration

• is responsible for the effective functioning of the software and hardware that constitute the organization’s network.

• is responsible for monitoring network activity to ensure that the network is being used

  • in accordance with company policies and

  • is secure from attack by hackers from outside the organization as well as unauthorized individuals within the organization.

IT Outsourcing

the organization sells its IT resources (hardware, software, and facilities) to a third-party outsourcing vendor such as HP Enterprise Services (formally EDS).

Cloud computing

• a variant of IT outsourcing

• is location-independent computing, where shared data centers deliver hosted IT services over the Internet.

• Categories of Services:

  • software as a service (SaaS)

  • infrastructure as a service (IaaS)

  • platform as a service (PaaS)

Roles of Accountants

• Accountants as System Designers

• Accountants as Auditors

Accountants as System Designers

• In system development teams, they serve as domain experts,
  shaping the conceptual system, including:

  • Rules, requirements, and objectives the system must fulfill

  • Operational procedures

  • Reporting standards

  • Internal control objective

Conceptual System

• Define delinquent accounts

• Decide what info to report & its source

• Ensure accounting rules are followed

Physical System

• Database structure & storage

• Reporting tools

• Deliver info efficiently

Accountants as Auditors

• Support auditing activities and regulatory compliance

• Create audit trails and analyze financial data

• Evaluate the effectiveness of internal controls

• Ensure organizations meet financial regulations