Introduction to Accounting Information Systems

ACCOUNTING INFORMATION SYSTEMS: CONTROLS AND PROCESSES

Chapter 1: Introduction to Accounting Information Systems

The Accounting Information System

  • Various Business Process

    • Business process: a prescribed sequence of work steps performed in order to produce a desired result for an organization

      • Each process is usually completed in a relatively short period

      • A process has a well-defined beginning and end

      • A process is initiated by a particular kind of event

      • Example of Business Process: purchasing raw materials, completing sale, paying employees

    • Revenue, Expenditures, conversion, and Admin Processes —> create Inputs for Process of Data

      • Revenue - sub-processes include Sales Processes, cash collection processes, sales return processes

      • Sub-process of Expenditure: purchasing process

    • Organizations vary in there use of AIS

      • Some use only computerized processes and digital records

      • Some use only manual steps and paper record

      • Most use a combination of manyal and computerized work steps

Interrelationships in an AIS System

  • General Journal

    • Place of original entry for any transactions that are not recorded in special journals

    • Administrative processes, include general ledger processes

  • Special Journals

    • Maintain detailed information regarding routine transactions, with an account established for each entity

  • Subsidiary Ledgers

    • Maintains detailed information regarding routine transactions with an account established for each entity

  • General Ledger

    • provides detail for the entire set of accounts used in the organization’s accounting systems

Process Throughout the Supply Chain

Definition and Scope of Supply Chain

  • Supply Chain

    • Encompasses the entire process of moving materials, funds, and information from raw material acquisition to finished product delivery.

    • Components of the Supply Chain Include:

      • Vendors - provides materials/operating supplies to an organization

      • Service providers

      • Customers

      • Intermediaries

Supply Chain Management

  • Describes the organization and control of materials, funds, and related information in logistics from acquisition to delivery.

IT Enablement

  • IT Enablement

    • Utilizing IT systems to enhance efficiencies and effectiveness of internal or supply chain processes

    • Example: Touch screen cash registers at McDonalds

IT Enablement of Business Processes

Definition of Key Terms

  • Information Technology (IT): Includes computers, software, ancillary equipment, and services that support business processes.

  • IT Enablement:

    • Enhancing business process efficiency and effectiveness through IT systems.

Objectives of IT Usage

  1. Increased efficiency in business processes

  2. Reduced operational costs

  3. Enhanced data accuracy

Business Process Reengineering (BPR)

  • Purposeful and organized changing of business process to make them more efficient 

  • Goal: to make business processes more efficent, reduce cost, and increase accuracy

  • Defined as a systematic change to business processes to improve efficiency.

  • Digital Transformation:

    • Integration of technology to fully automate and connect internal systems with customers and other entities.

Basic Computer and IT Concepts

Data Organization: Data Hierarchy in correct order: Bit, Byte, Field, Record, File, Database

  • Database: collection of data stored on computer - allows data to be easily accessed, retrieved, manipulated and stored

    • Relational Databases: Structures that relate data, such as customers with multiple orders.

  • File: entire set of related records - like payroll file

    • Master Files: Permanent files for key data, such as payroll records.

      • Used to maintain the detailed data for each major process

    • Transaction Files: Files that process against master files to maintain current balances, relatively temporary records that will be process to update the permanent file

  • Record: set of related fields for the same entity - like how a payroll record is composed of many fields

  • Field: one item within a record - ex: last name

  • Byte: unit of storage represents one character - composed of 8 bits (e.g., the letter "A").

  • Bit: smallest unit of information in a computer system, can only have one or two values - 0 or 1

Types of Data

  • Structured Data:

    • Fits neatly into rows/columns (e.g., names, phone numbers).

    • Collected from transactions

  • Unstructured Data:

    • Does not fit fixed formats (e.g., text reviews).

  • Big Data:

    • Large-scale, high-speed information requiring advanced processing methods.

File Access and Processing Modes

  • Sequential Access:

  • Random Access:

  • Indexed Sequential Access Method (ISAM):

  • Batch Processing:

  • Online Processing:

  • Real-time Processing

  • Data Mining: process of searching for identifiable patterns in data

Networking Concepts

  • Local Area Network (LAN):

    • Connects computers within a small area, primarily for organizational use.

  • Internet:

    • Global network, backbone of the worldwide web.

  • Intranet:

    • Private company network for internal use only.

  • Extranet:

    • Company network that allows selected external users, facilitating information exchange with partners.

Example of IT enablement

  • E-business - use of electronic means to enhance business processes; encompasses all forms of online electronic trading

    • encompasses: online electronic trading, consumer-based e-commerce, business-to-business transactions, internal use of IT

  • Electronic data interchange - inter-company, computer-to-computer transfer of business documents in a standard business format

    • Example: transmit purchase orders, invoices, and payments electronically between trading partners

  • Point of Sale System - a system in which software matched an invoice to its related purchase order and receiving report

  • Automated Matching - computer system in which software matches an invoice to its related purchase order and receiving report

  • Evaluated receipt settlement - an invoice-less match comparing the purchase order with the goods received

  • E-payables and electronic invoice presentment and payment - both refer to web-enabled receipt and payment of vendor invoices

  • Enterprises Resources planning systems - multi-module software systems designed to manage all aspects of an enterprise

    • Usually broken down into modules such as:

      • financials

      • sales: have a direct impact of the organization financial status because it directly increases cash or other assets

      • Purchasing: Business process of purchasing raw materials is triggered when there is the need for raw materials in production department

      • inventory management

      • manufacturing

      • human resources

  • Blockchain: a new form of internet based recording system described by IBM as:

    • single, shared, tamper-evident ledger - once recordered transactions cannot be altered

    • all parties must give consensus before a new transaction is added to the network

    • eliminates or reduces paper processes, speeding up transaction times and increasing efficiencies

Internal Control Structure of Organizations

Risks Impacting Financials

  • Risks include:

    • Theft or misuse of assets

    • Errors in accounting data or information

    • Fraudulent activities

    • IT systems-related risks (e.g., erroneous data input, processing errors, computer fraud, hardware or software failure, natural disasters).

Enterprise Risk Management (ERM)

  • Defined as a structured process for board of directors and management to identify and manage potential risks within their risk appetite, ensuring achievement of objectives.

    • Requires management set policies and procedures related to:

      • Control Aspects of ERM Include:

        • Internal Environment

        • Objective Setting

        • Event Identification

        • Risk Assessment

        • Risk Response

        • Control Activities

        • Information and Communication

        • Monitoring

Control Structures Required by Management: management should ensure the following types of control structures exist

  1. Code of Ethics

  2. COSO Internal Control Structure

  3. IT Controls

  4. Corporate Governance

  5. IT Governance

COSO Accounting Internal Control Structure

  • Describes five interrelated components crucial for internal control effectiveness.

    • control environment

    • monitoring

    • risk management

    • information and communication

    • control activities

Importance of AIS to Accountants

  • Roles of Accountants in AIS:

    • Users of the system

    • Part of design or implementation teams

    • Auditors of AIS

Relation of Ethics to AIS

Potential Unethical Behaviors Include:

  • Fraudulent financial reports

  • Revenue inflation

  • Expense account fraud

  • Inflated payroll hours

  • Computer fraud, hacking, and browsing confidential data