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Accounting Information Accounting Information Systems: An OverviewSystems: An Overview
Professor MartinProfessor MartinProfessor XiongProfessor Xiong
CSUSCSUS
This lecture is based primarily on Romney & This lecture is based primarily on Romney & Steinbart(2003). It also draws on Martin (2002).Steinbart(2003). It also draws on Martin (2002).
Updated on: Monday, January 27, 2003Updated on: Monday, January 27, 2003
AgendaAgenda The Accounting Information The Accounting Information
System (AIS)System (AIS) Why study AIS?Why study AIS? The Role of AIS In the Value ChainThe Role of AIS In the Value Chain
What is information System?What is information System? A system is a set of two or more A system is a set of two or more
interrelated components that interact interrelated components that interact to achieve a goal.to achieve a goal.
Systems are almost always Systems are almost always composed of smaller subsystems, composed of smaller subsystems, each performing a specific function each performing a specific function supportive of the larger system.supportive of the larger system.
Components of AISComponents of AIS PeoplePeople ProceduresProcedures DataData SoftwareSoftware Information technologyInformation technology
AIS FunctionsAIS Functions• Collect and store data about activities and transactionsCollect and store data about activities and transactions
• Transaction Processing Systems Transaction Processing Systems (TPS)(TPS)• Process data into information useful for making Process data into information useful for making
decisionsdecisions• Provide adequate controls to safeguard organization’s Provide adequate controls to safeguard organization’s
assetsassets
Extending the Scope of AISExtending the Scope of AIS
ACCOUNTING INFORMATION
SYSTEMS
MANAGEMENT INFORMATION
SYSTEMS
ACCOUNTING
Distinguishing Feature = Transaction Processing for Accountability Purposes
•Financial Reporting
•Managerial Decision Making
•Auditing & Control
•Taxation
•Management Science
•Behavioral & Organizational Science
•Supply Chain
•Computer Science
Source: JIS editorial, 1989
cookie cashExchange or Transformation
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)
delivered raw materials
delivered manufactured goods
$$$$
$$
$$manufactured goods
payment
sale
Cash payment
Cash payment
logistical operation
shipment
labor
payment
labor acquire
labor
labor
facilities, services & technology
payment
service acquire
manufacture job
material issue
manufacture operation
$$
$$
service contract
service operation product services
labor
raw materialspurchase
payment
$$
Example Value Chain (source, make,
deliver) ______ ______ _______ Source: ebXML BP Catalog
delivered raw materials
delivered manufactured goods
$$$$
$$
$$manufactured goods
cash recsale
Cash receipt
Cash paymnt
logistical operation
shipment
labor
payment
labor acquire
labor
labor
facilities, services & technology
payment
service acquire
manufacture job
material issue
manufacture operation
$$
$$
service contract
service operation product services
labor
raw materialspurchase
payment
$$
Example Value Chain (per Porter
and SCOR) Source: ebXML BP Catalog
AIS SubsystemsAIS Subsystems
Expenditure cycleExpenditure cycle: : buying and paying for goods or buying and paying for goods or services used by organization services used by organization
Production cycleProduction cycle:: converting raw materials and labor converting raw materials and labor into finished goodsinto finished goods
Human resources/payroll cycleHuman resources/payroll cycle:: hiring and paying employees hiring and paying employees
AIS SubsystemsAIS Subsystems Revenue cycleRevenue cycle: : selling goods or services and selling goods or services and
collecting payment collecting payment Financing cycleFinancing cycle:: obtaining necessary funds to obtaining necessary funds to
run organizationrun organization repay creditorsrepay creditors distribute profits to investorsdistribute profits to investors
AIS SubsystemsAIS Subsystems
Financing
Revenue
Expendi-ture
GeneralLedger
FundsFunds
HumanResources
FundsFunds
Produc-tion
Raw
Materials
Raw
Materials
LaborLabor
Finished GoodsFinished Goods
Cash
Cash
DataData
AgendaAgenda The Accounting Information System The Accounting Information System
(AIS)(AIS) Why Study AIS?Why Study AIS? The Role of AIS in the Value ChainThe Role of AIS in the Value Chain
Why Study AISWhy Study AIS In Statement of Financial Accounting In Statement of Financial Accounting
Concepts No. 2, The FASB...Concepts No. 2, The FASB...– defined accounting as an information defined accounting as an information
system.system.– stated that the primary objective of stated that the primary objective of
accounting is to provide information accounting is to provide information useful to decision makers.useful to decision makers.
Why Study AIS?Why Study AIS?
To understand how the accounting system To understand how the accounting system works.works. How to collect data about an How to collect data about an
organization’s activities and transactionsorganization’s activities and transactions How to transform that data into How to transform that data into
information that management can use to information that management can use to run the organizationrun the organization
How to ensure the availability, reliability, How to ensure the availability, reliability, and accuracy of that informationand accuracy of that information
Why Study AIS?Why Study AIS? Auditors need to understand the Auditors need to understand the
systems that are used to produce a systems that are used to produce a company’s financial statements.company’s financial statements.
Tax professionals need to Tax professionals need to understand enough about the client’s understand enough about the client’s AIS to be confident that the AIS to be confident that the information used for tax planning information used for tax planning and compliance work is complete and compliance work is complete and accurate.and accurate.
Why Study AIS?Why Study AIS? One of the fastest growing types of One of the fastest growing types of
consulting services entails the design, consulting services entails the design, selection, and implementation of new selection, and implementation of new Accounting Information Systems.Accounting Information Systems.
A survey conducted by the Institute of A survey conducted by the Institute of Management Accountants (IMA) Management Accountants (IMA) indicates that work relating to indicates that work relating to accounting systems was the single accounting systems was the single most important activity performed by most important activity performed by corporate accountants.corporate accountants.
Ten Most Important Activities Ten Most Important Activities Performed By AccountantsPerformed By Accountants
1.1. Long-term strategic Long-term strategic planningplanning
2.2. Managing the Managing the accounting and accounting and finance functionfinance function
3.3. Accounting systems Accounting systems and financial and financial reportingreporting
4.4. Internal consultingInternal consulting
5. 5. Short-term Short-term budgetingbudgeting
6. 6. Process Process improvementimprovement
7. 7. Computer systems Computer systems and operationsand operations
8. 8. Performance Performance evaluationevaluation
9. 9. Customer and Customer and product profitability product profitability analysesanalyses
Factors InfluencingFactors InfluencingDesign of the AISDesign of the AIS
OrganizationalCulture
Strategy
InformationTechnology
AIS
Technology and the Accounting Technology and the Accounting CurriculumCurriculumResponses from 151 universities and 62 Responses from 151 universities and 62
firms ( survey by Hastings et al. (2002)firms ( survey by Hastings et al. (2002)5 areas out of 14 are seen by % of 5 areas out of 14 are seen by % of
respondents as needing coverage to 3 respondents as needing coverage to 3 weeks or moreweeks or more
Excel (80%)Excel (80%) Access (74%)Access (74%) E-Business Concepts (61%)E-Business Concepts (61%) System Security (52%)System Security (52%) Business Process Analysis (66%)Business Process Analysis (66%)
CITP DesignationCITP Designation Certified Information Certified Information
Technology Professional Technology Professional (CITP)(CITP)
Identifies CPAs who possess a broad Identifies CPAs who possess a broad range of technological knowledge and the range of technological knowledge and the manner in which information technology manner in which information technology (IT) can be used to achieve business (IT) can be used to achieve business objectives objectives
Reflects the AICPA’s recognition of the Reflects the AICPA’s recognition of the importance and interrelationship of IT importance and interrelationship of IT with accountingwith accounting
CISACISA
Certified Information Systems Certified Information Systems Auditor-Newest DesignationAuditor-Newest Designation
AgendaAgenda The Accounting Information System The Accounting Information System
(AIS)(AIS) Why Study AIS?Why Study AIS? The Role of AIS in the Value ChainThe Role of AIS in the Value Chain
The Value ChainThe Value Chain
Value chain consists of 9 interrelated activities Value chain consists of 9 interrelated activities 5 primary activities consist of: 5 primary activities consist of:
receiving and storing materials, manufacturing, marketing, and receiving and storing materials, manufacturing, marketing, and delivering products / services to customers delivering products / services to customers
providing post-sales services and supportproviding post-sales services and support 4 support activities4 support activities
Porter’s Value Chain ModelPorter’s Value Chain Model
Firm InfrastructureFirm Infrastructure
Human Resource ManagementHuman Resource Management
Technology DevelopmentTechnology Development
ProcurementProcurementSupp
ort A
ctiv
ities
Supp
ort A
ctiv
ities
Prim
ary
Act
ivit i
esPr
imar
y A
ctiv
it ies
ProfitProfit
Margin
Margin
Inbo
und
Logi
stic
sIn
boun
d Lo
gist
ics
Ope
ratio
nsO
pera
tions
Out
boun
d Lo
gist
ics
Out
boun
d Lo
gist
ics
Mar
ketin
g / S
ales
Mar
ketin
g / S
ales
Serv
ice
Serv
ice
The Value SystemThe Value System
Value chain concept can be extended by Value chain concept can be extended by recognizing that organizations must interact recognizing that organizations must interact with suppliers, distributors, and customerswith suppliers, distributors, and customers
An organization’s value chain and value chains of its An organization’s value chain and value chains of its suppliers, distributors, and customers collectively form a suppliers, distributors, and customers collectively form a value systemvalue system
Supply Supply ChainChain
RetailerRetailer
WholesalerWholesaler
DistributorDistributor
ManufacturerManufacturer
Ord
ers
Ord
ers
CustomerCustomer
Del
iver
ies
Del
iver
ies
E-Commerce BypassE-Commerce Bypass
Demand
Demand
How AIS Adds ValueHow AIS Adds Value An AIS adds value by:An AIS adds value by:
– providing accurate and timely information to providing accurate and timely information to perform various value chain activitiesperform various value chain activities
– improving efficiency and effectiveness of value chain improving efficiency and effectiveness of value chain
activitiesactivities
InformationInformation
DataData : facts collected, stored, and : facts collected, stored, and processed by information systemprocessed by information system
IInformationnformation:: data organized and processed so it is data organized and processed so it is meaningfulmeaningful for business decision makingfor business decision making
Information and Information and Decision MakingDecision Making
Characteristics of Useful Information
Understandable
Verifiable
TimelyRelevant
Reliable
Complete
Useable
Value of InformationValue of Information Value of informationValue of information
benefit produced by benefit produced by informationinformation
minus cost of producing it.minus cost of producing it.