Chapter 1: The Information System — An Accountant’s Perspective

Vocabulary flashcards covering key AIS concepts, MIS distinctions, information flows, data concepts, system components, and auditing roles as presented in Chapter 1.

Accounting Information System (AIS)

A specialized subset of information systems that processes financial transactions.

Management Information System (MIS)

A system that processes nonfinancial transactions not normally processed by AIS.

Information Environment

AIS subset of information systems with information flows; includes trading partners and stakeholders.

Information System

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

Transaction

An event that affects or is of interest to the organization and is processed as a unit of work.

Financial Transaction

An economic event that affects assets and equities, measured in financial terms and reflected in the accounts.

Nonfinancial Transaction

An event that does not meet the narrow definition of a financial transaction.

End Users

Users for whom the system is built.

External Users

Creditors, stockholders, potential investors, regulatory agencies, tax authorities, suppliers, and customers.

Internal Users

Management at all levels and operations personnel.

Data

Facts that may or may not be processed and have no direct effect on the user.

Information

Data that have been processed and that cause a user to take action.

Data Sources

Financial transactions entering the information system from internal or external sources.

Data Collection

The first operational stage in the information system.

Data Processing

The group that manages the computer resources used to perform day-to-day processing.

Database

A physical repository for financial data.

Data Attribute

A property or characteristic of a data element.

Record

A collection of related data about one entity.

File

A collection of related records.

Database Management (DBMS)

Software system that manages data and controls access/permissions for users.

Data Hierarchy

Organization of data into attributes, records, and files within a database.

Information Generation

Process of compiling, arranging, formatting, and presenting information to users.

Relevance

A quality of information that makes it useful for decision making.

Timeliness

Information delivered when it is needed to influence decisions.

Accuracy

Correctness of information and data.

Completeness

All necessary information is included; nothing essential is omitted.

Summarization

Condensing data into concise, meaningful information.

Feedback

Output returned to the system as data for further processing.

Three Information Objectives

To support day-to-day operations, support management decision making, and support stewardship.

Transaction Processing System (TPS)

AIS subsystem for processing transactions; includes revenue, expenditure, and conversion cycles.

General Ledger/Financial Reporting System (GL/FRS)

System that produces traditional financial statements (income statement, balance sheet, cash flows, etc.).

Management Reporting System (MRS)

System that provides internal financial information needed to manage a business.

Nondiscretionary Reporting

Reporting with little or no choice in information provided; includes traditional financial statements and legal documents.

Discretionary Reporting

Reporting where the organization can choose what information to report and how to present it.

Attest Function

Independent auditor’s responsibility to opine on the fair presentation of a client’s financial statements.

Substantive Tests

Tests to determine whether database contents fairly reflect the organization’s transactions.

Tests of Controls

Tests to determine whether internal controls are functioning properly.

IT Auditing

Review of the computer-based components of an organization, often part of a broader financial audit.

Internal Audit

The appraisal function housed within the organization.

Audit Committee

Group that oversees the auditing processes within the organization.

Conceptual System

The production of several alternative designs for a new system.

Physical System

The actual medium and method for capturing and presenting information.

Data Storage

Efficient storage of data once for access by all users who need it.

Accountants as System Designers

Accountants contribute as domain experts in system design; IT professionals handle the physical system.

Advisory Services

Non-attest services offered by auditors, separate from attestation work.

Reliability

The property of information that makes it useful to users.

Independence

Separation of the record-keeping function from the custody of physical resources.