AcctIS10E_Ch01_CE

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

Introduction

• Overview of the importance of accounting information systems (AIS) in the accounting field.

Learning Objectives

• Recognize primary information flows within the business environment.

• Differentiate between accounting information systems (AIS) and management information systems (MIS).

• Distinguish financial transactions versus nonfinancial transactions.

• Know principal features of the general model for information systems.

• Understand the organizational structure and functional areas in a business.

• Differentiate between external auditing, internal auditing, and advisory services in relation to AIS.

The Information Environment

• Accounting Information Systems (AIS): Specialized systems that process financial transactions.

• Information Flows: Refers to the movement of information into and out of an organization.

• Trading Partners: External users who interact with the organization, encompassing customer sales, billing information, and supplier purchase data.

• Stakeholders: Encompass entities with interest in the organization, including customers, creditors, and regulatory agencies.

Information Objectives

• Operational Support: AIS assists in daily business transactions.

• Management Decision Support: Provides data essential for strategic decisions.

• Stewardship Function Support: Aids in management's responsibility towards organizational resources.

An Information Systems Framework

• Definition: A formal set of procedures for collecting, processing, and distributing data.

• Management Information System (MIS): Processes nonfinancial transactions not typically handled by traditional AIS.

• Transaction Types:

  • Financial Transactions: Economic events impacting the organization’s assets and liabilities, reflected in financial statements.

  • Nonfinancial Transactions: Events not categorized as financial transactions (e.g., employee scheduling).

Framework for Information Systems

• Transaction Processing System (TPS): Handles day-to-day financial transactions, including revenue, expenditure, and conversion cycles.

• General Ledger/Financial Reporting System (GL/FRS): Produces financial statements and reports required by law (e.g., income statements, balance sheets).

• Management Reporting System (MRS): Provides internal financial information for management use.

AIS Subsystems

• Transaction Processing System: Central to recording everyday transactions.

• General Ledger/Financial Reporting Systems:

  • Nondiscretionary Reporting: Required reports with limited flexibility, e.g., legal compliance.

  • Management Reporting System: Allows customization in reporting (discretionary reporting).

General Model for AIS

• Users: End users include both internal (management, operations personnel) and external users (creditors, investors, regulatory agencies).

• Data vs Information: Data are raw facts; information is processed data that influences user actions.

Data Handling in AIS

• Data Sources: Financial transactions originating from internal or external events.

• Data Collection: Initial stage of information processing.

• Data Processing: Management of daily transactions through IT resources.

Information Generation

• Process: Compiling, formatting, and presenting information.

• Key Qualities: Relevance, timeliness, accuracy, completeness, and summarization.

• Feedback Mechanism: Output sent back to the system to enhance data accuracy.

Organizational Structure and AIS

• Physical AIS: Technologies and personnel involved in AIS operations.

• Sales Processing System: Includes functions like sales, credit, inventory control, and billing.

Functional Segmentation

• Functional Units of Business:

  • Materials Management: Involves purchasing, receiving, and storage.

  • Production Management: Scheduling of materials and labor.

  • Quality Control: Ensuring product standards.

The Accounting Function

• Reliability: Contributions of reliable information to decision-making.

• Independence: Separation of accounting's record-keeping from other operational areas.

Information Technology

• Data Processing Models:

  • Centralized Data Processing: Data processed by central servers for the organization.

  • Distributed Data Processing (DDP): Smaller processing units distributed across users.

• Systems Development and Maintenance: Includes commercial and custom software solutions.

Outsourcing and Cloud Computing

• IT Outsourcing: Contracting third-party vendors for IT management and services.

• Cloud Computing Services:

  • Software as a Service (SaaS): Hosted applications accessible online.

  • Infrastructure as a Service (IaaS): Provision of computing resources over the internet.

  • Platform as a Service (PaaS): Provides tools for application development in the cloud.

Role of Accountants in AIS

• Involvement: Accountants design and audit AIS, providing expertise in system development.

Accountants as System Designers

• Conceptual vs Physical Systems: Variations between design alternatives and implementation methods.

• Data Storage: Efficient systems to capture and manage data effectively.

Accountants as System Auditors

• Auditors' Role: Provide opinions on the fairness of financial statements.

• Internal vs External Auditing: Differentiates between internal evaluations and independent audits.

• Audit Functions: Includes substantive tests and tests of controls for effectiveness.