Accounting Information Systems: An Overview

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Accounting Information Systems An Overview

• Professor Martin
• Professor Xiong
• CSUS
• This lecture is based primarily on Romney
  Steinbart(2003). It also draws on Martin (2002).
• Updated on Monday, January 27, 2003

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Agenda

• The Accounting Information
  System (AIS)
• Why study AIS?
• The Role of AIS In the Value Chain

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What is information System?

• 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.

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Components of AIS

• People
• Procedures
• Data
• Software
• Information technology

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AIS Functions

• Collect and store data about activities and
  transactions
• Transaction Processing Systems (TPS)
• Process data into information
  useful for making decisions
• Provide adequate controls to
  safeguard organizations assets

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Extending the Scope of AIS
Source JIS editorial, 1989
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BUSINESS PROCESS DEFINITION A business process
is a set of activities that takes one or more
types of inputs and turns them into an output of
greater value to the customer (Hammer)
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delivered raw materials

delivered manufactured goods
Example Value Chain (source, make, deliver)
_______
______
______
Source ebXML BP Catalog
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financing
procurement
transportation
human resources
delivered raw materials

manufacturing
delivered manufactured goods
procurement
EXPLODE
marketing sales
customer service
Example Value Chain (per Porter and SCOR)
Source ebXML BP Catalog
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AIS Subsystems

• Expenditure cycle buying and
  paying for goods or services used by
  organization
• Production cycle converting raw
  materials and labor into finished goods
• Human resources/payroll cycle hiring and paying
  employees

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AIS Subsystems

• Revenue cycle selling goods or
  services and collecting payment
• Financing cycle obtaining necessary funds to
• run organization
• repay creditors
• distribute profits to investors

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AIS Subsystems
Data
Financing
Expendi- ture
Human Resources
Raw Materials
General Ledger
Produc- tion
Revenue
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Agenda

• The Accounting Information System (AIS)
• Why Study AIS?
• The Role of AIS in the Value Chain

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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?

• To understand how the accounting system works.
• How to collect data about an organizations
  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 companys financial statements.
• Tax professionals need to understand enough about
  the clients 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

• Long-term strategic planning
• Managing the accounting and finance function
• Accounting systems and financial reporting
• Internal consulting

• 5. Short-term budgeting
• 6. Process improvement
• 7. Computer systems and operations
• 8. Performance evaluation
• 9. Customer and product profitability analyses

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Factors InfluencingDesign of the AIS
Organizational Culture
Strategy

AIS
Information Technology
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Technology and the Accounting Curriculum

• Responses from 151 universities and 62 firms (
  survey by Hastings et al. (2002)
• 5 areas out of 14 are seen by of respondents as
  needing coverage to 3 weeks or more
• Excel (80)
• Access (74)
• E-Business Concepts (61)
• System Security (52)
• Business Process Analysis (66)

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CITP Designation

• Certified Information
  Technology Professional
  (CITP)
• Identifies CPAs who possess a broad range of
  technological knowledge and the manner in which
  information technology (IT) can be used to
  achieve business objectives
• Reflects the AICPAs recognition of the
  importance and interrelationship of IT with
  accounting

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CISA

• Certified Information Systems Auditor-Newest
  Designation

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Agenda

• The Accounting Information System (AIS)
• Why Study AIS?
• The Role of AIS in the Value Chain

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The Value Chain

• Value chain consists of 9
  interrelated activities
• 5 primary activities consist of
• receiving and storing materials, manufacturing,
  marketing, and delivering products / services to
  customers
• providing post-sales services and
  support
• 4 support activities

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Porters Value Chain Model
Support Activities
Profit
Procurement
Margin
Primary Activities
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The Value System

• Value chain concept can be
  extended by recognizing that
  organizations must interact with
  suppliers, distributors, and customers
• An organizations value chain and value
  chains of its suppliers, distributors, and
  customers collectively form a value system

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Supply Chain
Customer
Retailer
Wholesaler
Distributor
Manufacturer
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How AIS Adds Value

• An AIS adds value by
• providing accurate and timely
  information to perform various
  value chain activities
• improving efficiency and effectiveness of value
  chain activities

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Information

• Data facts collected,
  stored, and processed by
  information system
• Information data organized and processed so it
  is meaningful
• for business decision making

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Information and Decision Making
Characteristics of Useful Information
Timely
Relevant
Reliable
Understandable
Verifiable
Complete
Useable
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Value of Information

• Value of information
• benefit produced by
  information
• minus cost of producing it.

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Topics Discussed

• The Accounting Information
  System (AIS)
• Why Study AIS?
• The value of AIS