AE112: ACCOUNTING INFORMATION SYSTEMS (AIS)

Chapter 2: Evolution of IS Models

By: Robert E. Regala

1. DESCRIPTION
This module tracks the evolution of Information System (IS) models from the late 19th to
the early 21st century. The evolution of IS has progressed from manual bookkeeping to
complex, integrated systems, significantly impacting business operations, particularly in
accounting. Early systems relied on manual processes, using physical journals and
ledgers. The introduction of flat-file systems marked a shift to electronic record-keeping,
but these systems were characterized by data redundancy and lack of integration.

The development of the relational database model addressed these issues by

centralizing data, eliminating redundancy, and providing a shared platform for multiple
users. This was followed by the REA model, which focuses on resources, events, and
agents to model accounting systems as virtual representations of actual business.
Enterprise Resource Planning (ERP) systems further revolutionized business by
integrating various functions such as accounting, manufacturing, and human resources
into a single platform. These systems provide real-time views of core business processes
and facilitate information flow across departments.

Accountants play a crucial role in all these systems, acting as users, designers, and
auditors, ensuring the integrity and effectiveness of the information. Understanding the
progression from manual systems to ERP, along with the underlying database and
infrastructure technologies, is essential for modern accounting practices.

2. LEARNING OBJECTIVES
A. Primary: Design an accounting information system using the REA model by
identifying and relating key resources, events, and agents within a given business
process. This includes going beyond traditional accounting frameworks by
constructing a model that directly represents real-world business objects and their
relationships. More specifically, this learning objective includes:

 Constructing an understanding of the foundational concepts of the REA model,

including the definitions of resources (goods, services, money), events
(business transactions affecting resources), and agents (people or other
entities involved in events).

 Developing the skill to identify and classify resources, events, and agents
within a specific business process, such as sales, purchases, or manufacturing,
and to model their relationships. This will involve understanding that a separate
REA model may be required for each business process.

 Designing a conceptual REA model that represents the duality relationship

between events, such as the exchange of resources, typically involving a
resource being given and a resource being received, for example in a sales
process the giving of a good and the receipt of cash.
  Developing the ability to translate a business scenario into an REA model, thus
moving away from traditional accounting objects like debits and credits. This
includes understanding how the REA model treats the accounting system as a
virtual representation of the actual business.

 Designing a data model based on the REA framework, potentially using entity-
relationship diagrams, that can be implemented in a relational database. This
involves understanding how REA can be used with relational databases.

 By achieving this objective, learners will be able to apply the REA model to
analyze and design accounting systems that more accurately represent
business operations and move beyond the limitations of traditional accounting
frameworks. This would mean they can translate a business scenario into a
well defined data model, as opposed to a traditional accounting model,
allowing a software engineer to implement that model in code.

B. Secondary (Enabling)
1. Distinguish between traditional accounting objects and REA model components.
Learners will be able to define and differentiate between traditional accounting terms
such as assets, liabilities, debits, and credits, and the core components of the REA
model, which are resources, events, and agents. This includes recognizing that the
REA model treats the accounting system as a virtual representation of the actual
business, and understanding that traditional accounting concepts like debits and
credits disappear in an REA system.

Also, students will be able to identify real-world examples of resources (goods,

services, money), events (business transactions or agreements that affect resources),
and agents (people or other human agencies involved in events) in various business
scenarios, moving beyond the use of traditional accounting terms.

2. Apply the REA model to analyze business processes. Given a description of a

business process (e.g., sales, purchasing, manufacturing), students will be able to
identify and classify the key resources, events, and agents involved. This includes
understanding that a separate REA model may be necessary for each business
process.

Learners will be able to model the relationships between these components, including
the duality of events, demonstrating how resources are exchanged or impacted by
transactions. For example, in a sales process, they will be able to link the event of
giving up goods (a resource) with the event of receiving cash (another resource).

Learners will be able to create a basic REA diagram to represent the flow of resources
between events and the agents involved, visually demonstrating the model's
application in a specific business process.

3. Translate an REA model into a conceptual data model. Learners will be able to design
an entity-relationship diagram (ERD) based on the identified resources, events, and
agents in the REA model. They will be able to map REA model components to
database entities and attributes. For example, resources can be mapped to tables,
and attributes can be mapped to table columns. This will help them understand how
 to translate a business process conceptualization into a structure that a database
designer or software developer could implement.

Lastly, learners will understand the use of primary and foreign keys in creating
relationships between different tables, ensuring the integrity of data within the
relational database. They will also understand how the relationships in an ERD (one-
to-one, one-to-many, many-to-many) reflect the relationships between the various
elements of the REA model.

3. PRE-ASSESSMENT (NOT GRADED): [Link]

4. MODULE CONTENT

The sources below provide a comprehensive overview of the evolution of information

systems, focusing on accounting information systems (AIS) and database
management systems (DBMS). The lessons cover a range of topics, starting with the
manual accounting model and progressing through flat-file systems, relational
databases, the REA model, and Enterprise Resource Planning (ERP) systems. The
sources also discuss the role of accountants in relation to these systems.

PROCESSING THE LEARNING MATERIALS

Watch main lecture video: Evolution of Information System Models

LINK: [Link]
LENGTH: 01:13:08

Or, read the video script (optional):

[Link]
p=sharing

TIMELINE TOPICS
00:00:45 IS Evolution Timeline
CHECK YOUR UNDERSTANDING
1. What is the primary driver behind the evolution of information system models?
2. Why is the timeline drawn like an upward arrow?

00:05:25 Manual or Traditional Model

CHECK YOUR UNDERSTANDING

1. What key characteristic defines the manual or traditional accounting model?
2. Discuss the reasons why learning the manual system is still considered
relevant for accounting students.
3. What was the major impact of the Industrial Revolution on accounting?

00:12:40 Flat-File

CHECK YOUR UNDERSTANDING

1. What key characteristic defines the Flat-file model?
2. Explain why the flat-file model is associated with data redundancy.
3. Discuss the key characteristics of the flat-file model and how these
characteristics result in significant problems related to data management.

00:31:00 Relational Database

CHECK YOUR UNDERSTANDING

1. What key characteristic defines the Relational Database system?
2. How does the relational database model address the problems of the flat-file
model?
3. Discuss how the relational database enables data sharing and integration
across an organization.
4. What is the role of the DBMS in a shared database model?

00:39:20 Resource, Events and Agents (REA)

CHECK YOUR UNDERSTANDING

1. What key characteristic defines the REA model?
2. What is the primary goal of the REA (Resources, Events, Agents) model in
accounting systems?
3. Describe the practical applications and influence of the REA model in modern
business and technology.
4. Describe how the REA model can be implemented using a relational database,
and explain how this implementation supports the capture and storage of both
accounting and non-accounting data about business transactions.

00:44:05 Enterprise Resource Planning (ERP)

CHECK YOUR UNDERSTANDING

1. What key characteristic defines the ERP model?
2. Explain the key advantages and disadvantages of implementing an ERP
system.
 3. Discuss the relationship between the Relational Database Model (RDBMS) and
the Enterprise Resource Planning (ERP) model.
4. Evaluate the role of accountants in the context of Accounting Information
Systems (AIS) and Enterprise Resource Planning (ERP) systems.

01:04:00 Sample of REA/ERP System Implementation

01:05:30 How the Accountant Fits

CHECK YOUR UNDERSTANDING

1. Describe the difference between the conceptual system and physical system
in information system design.
2. What are the three ways that accountants are primarily involved in the
development and maintenance of information systems?
3. Discuss the role of the accountant in the development and maintenance of
accounting information systems, highlighting the division of responsibility
between accountants and IT professionals and the importance of
collaboration.

SUPPLEMENTARY LEARNING MATERIALS:

Watch video: IT Infrastructure Evolution
LENGTH: 00:05:26
LINK: [Link]

Watch video: The Logical Organisation of a Flat File Database

LENGTH: 00:03:00
LINK: [Link]

Watch video: Relational Database Relationships (Updated)

LENGTH: 00:06:18
LINK: [Link]

Watch video: Flat File vs Relational Database Models

LENGTH: 00:02:03
LINK: [Link]
Watch video: Database Management System (DBMS)
LENGTH: 00:05:34
LINK: [Link]

5. SUMMARY OF LEARNING MATERIALS

Imagine a world where every transaction, every sale, every piece of data was meticulously
recorded by hand in giant ledgers – that's where our journey begins! The evolution of
information systems isn't just a dry history lesson; it's an incredible story of human
ingenuity and our relentless quest to make sense of the world. We've gone from
painstakingly writing everything down, to the clunky but groundbreaking flat-file systems,
where data lived in isolated silos, to the revolutionary relational databases that brought
everything together. It's a story about how we've learned to manage information, not just
as a pile of numbers and words but as a powerful tool for understanding and shaping our
businesses. And just when you think that was the peak, we explored ways of modelling
business through REA, and then the rise of ERP systems that integrate all business
functions into a single, powerful hub – pretty amazing, right?

This journey isn't just about technology; it's about us, the people who use these tools.
We'll see how accountants have been at the heart of this transformation, evolving from
traditional bookkeepers to key players in the design and auditing of these complex
systems. It’s a reminder that even as technology advances, the human element is what
truly drives innovation. We'll also explore how IT infrastructure and database
management systems have become the backbone of our modern world. So, get ready to
dive in and be inspired by how far we've come and how these developments continue to
shape the way we work and live today. It's a story of progress, of collaboration, and of the
endless possibilities that lie ahead.

Listen to podcast episode for a summary in conversational form

LINK: [Link]
LENGTH: 00:30:39
Here is a summary of what you have learned in this module:
A. MANUAL OR TRADITIONAL MODEL
The earliest form of information systems, involving manual recording of
transactions in physical journals and ledgers. Utilizes manual preparation of
documents, updating records, and generating reports.

Key Characteristics. The manual or traditional model of information systems is

characterized by its reliance on physical, manual processes for recording and
managing financial transactions. This model is the oldest form of accounting
systems and is synonymous with what is still taught in classrooms today. Key
characteristics include:

1. Manual record-keeping: Transactions are recorded manually in physical

journals and ledgers. This involves the physical preparation of documents,
the updating of records and files, and the preparation of reports.
 2. Physical worksheets: Month-end tasks are performed using a multiple-
column worksheet from which financial statements are derived.

3. Manual preparation of financial statements: Formal financial statements

are manually prepared from the worksheet.

4. Use of a double-entry system: This model employs the double-entry

bookkeeping system, which evolved over time and was religiously adapted
by Amatino Manucci.

5. Physical and observable processes: The procedures for processing

information are manual, and the medium for transmitting and storing data
is paper. The processes are physical, observable, and unambiguous.
Age of the model: This model is approximately 8 centuries old. Evidence of
business bookkeeping from this period exists, including ledgers from the 13th
century.

Foundation for understanding IT systems: Learning the manual system provides

a foundation for understanding concepts in IT courses, including Accounting
Information Systems (AIS). It helps students understand the "black box" of IT
by relating computer tasks to manual tasks. It also enables better business
process design as students are exposed to business cycle transactions and
internal controls.

Still in use: Although it is an old model, the manual system is still in use today in
many organizations.

In summary, the manual or traditional model is characterized by its reliance on

physical records, manual processes, and a double-entry bookkeeping system.
Despite its age, it remains relevant as a foundation for understanding modern IT-
based accounting systems and is still used in some organizations today.

B. FLAT-FILE MODEL
Characterized by independent data files that are not related to each other. Each
user owns their own data files, leading to data redundancy. Associated with older
mainframe systems (e.g., IBM 701, IBM System/360), often referred to as "legacy
systems."

Key Characteristics. The flat-file model of information systems is characterized

by its lack of structure for indexing or recognizing relationships between
records. This model, often associated with legacy systems, is a significant
step in the evolution of information systems after the manual model. Key
characteristics include:

1. Standalone applications: The flat-file model is characterized by stand-

alone applications that perform data processing separately from each
other. These applications are not integrated, and data is not shared
between them.
 2. Individual data files: In this model, individual data files are not related to
other files. Users own their data files rather than sharing them with other
users. When multiple users need the same data for different purposes,
they must obtain separate data sets structured to their specific needs.

3. Implementation: Flat-file databases can be implemented using simple

tools such as lists of names and addresses written on paper, typewriters,
word processors, spreadsheets, or text editors. In programs such as MS
Excel, a workbook with a single sheet is considered a flat file. In the early
days of computing, punch cards were used as a form of flat-file database.

Issues associated with the model:

1. Data redundancy: Because databases are not shared, each department
keeps its own database, leading to significant data redundancy. This
means that the same data may be duplicated multiple times across
different files. For example, customer data might be stored in separate
files for accounting, marketing, and product services.

2. Data storage issues: The lack of shared databases and data redundancy
results in inefficient data storage. Organizations must incur the costs of
multiple data collection and storage procedures, and commonly used data
may be duplicated many times.

3. Data updating challenges: Because data is not shared, changes to data

must be made separately for each group of users, significantly increasing
the task and cost of data management. This means that when a
customer’s information changes, multiple files must be updated
independently.

4. Currency of information issues: The problem of failing to update all user

files affected by a change in status can lead to outdated information and
decisions based on that information. If update information is not properly
disseminated, the change will not be reflected in some users’ data.

5. Task-data dependency: Users are often constrained by the data they

possess and control, making it difficult to obtain additional information as
their needs change. New information needs tend to be satisfied by
procuring new data files, which adds to data redundancy and increases
data management costs.

6. Limited data integration: The flat-file approach is a single-view model,

where files are structured and formatted to suit the specific needs of the
owner or primary user of the data. This structure may exclude data
attributes useful to other users, preventing successful integration of data
across the organization. For instance, accounting data may be structured
for financial reporting, making it less useful for marketing or production.

7. Lack of relationships: Unlike relational databases, a flat file database

consists of a single table. The individual records in the flat file do not
 contain links or indexes to relate them to each other. The data is stored in
a simple list format.

Age of the model: The flat-file model is associated with "legacy systems," which
are large mainframe systems that were implemented from the late 1960s
through the 1980s, so it is about 60 years old as of today. While the flat-file
model is an older approach to data management, it is still in use today. The
term "legacy" to describe computer systems probably began being used in the
1970s. Some of these systems were still in use in the 1990's.

Prevalence of Legacy Systems: The flat-file model is often associated with legacy
systems, which are large mainframe systems implemented in the late 1960s
through the 1980s. While these systems are older, many organizations still use
them extensively.

In summary, the flat-file model is characterized by its lack of integration and data
sharing, leading to data redundancy, inconsistent data, and difficulties in updating
and accessing information. Despite its limitations, many organizations still use
this model today, often as a part of legacy systems, because they still provide value
or due to the costs associated with switching to a new system.

C. RELATIONAL DATABASE MODEL

Data is organized into tables with relationships between them (overcoming the
limitations of the flat-file model). A Database Management System (DBMS)
controls access to a shared central database.

Key Characteristics. The relational database model is characterized by its ability

to organize data into tables with defined relationships, a significant departure
from the flat-file model. Here are its key characteristics:

1. Centralized data: The relational database model pools data into a common
database that is shared by multiple users or departments. This eliminates
the data redundancy found in the flat-file model.

2. Data accessibility: All users have access to the data they need to achieve
their objectives. Access to data is controlled by a Database Management
System (DBMS), which manages user access permissions.

3. Data integrity: Because each data element is stored only once, the
relational model reduces data redundancy and ensures data consistency.
A change to a data attribute is automatically available to all users of that
attribute.

4. Data independence: The DBMS provides a centralized view of data that

can be accessed by multiple users from multiple locations in a controlled
manner. Users and software programs are free from having to understand
where the data is physically located.

5. Flexibility and Integration: The relational database model permits the

design of integrated systems applications that can support the information
 needs of multiple users from a common set of integrated database tables.
It made true integration possible, unlike the flat-file model.

6. Data is presented in tables (relations): Data is organized into tables, with

each table consisting of rows (records) and columns (fields). This tabular
structure makes it easier to understand and manage data.

7. Relationships between tables: Unlike the flat-file model, a relational

database defines relationships between tables using primary and foreign
keys. These relationships can be one-to-one, one-to-many, or many-to-
many, allowing for complex data structures and minimizing data
redundancy.

8. Relational operators: The model provides relational operators to

manipulate data in tabular form. This allows for querying, updating, and
managing the database in a structured manner, often using SQL
(Structured Query Language).

9. Market Dominance: The relational database has become the predominant

type of database.

Overcoming flat-file issues: The relational model overcomes problems

associated with the flat-file model, such as data redundancy, inconsistent data,
and difficulties in updating and accessing information.

Introduces Database Management System (DBMS): A software system, known

as a relational database management system (RDBMS), is used to maintain
the database. The DBMS acts as an interface between the database and users,
ensuring data is consistently organized and remains easily accessible.

Age of the model: The relational database model was proposed by E.F. Codd of
IBM in 1970. This means that, as of today, the relational database model is
more than 50 years old.

In summary, the relational database model is characterized by its structured

approach to organizing data into tables, defining relationships between those
tables, and using a DBMS to manage and control access to the data. This model
facilitates data sharing, reduces redundancy, and supports complex data
relationships, making it a significant improvement over the flat-file model.

D. REA MODEL
A conceptual model for re-engineering accounting systems for the computer age.
Focuses on resources, events, and agents, moving away from traditional
accounting objects.

Key Characteristics. The REA (Resources, Events, Agents) model is a conceptual

model for how an accounting system can be re-engineered for the computer
age, shifting away from traditional accounting objects to focus on real-world
business objects. It was originally proposed in 1982 by William E. McCarthy
as a generalized accounting framework. Here are its key characteristics:
1. Focus on real-world objects: The REA model treats the accounting system as
a virtual representation of the actual business, creating computer objects that
directly represent real-world business objects. These include:

Resources: Goods, services, or money.

Events: Business transactions or agreements that affect resources.
Agents: People or other human agencies (e.g., employees, customers, other
companies).

These objects contrast with conventional accounting terms such as asset

or liability, which are less directly tied to real-world objects. For example,
goodwill is not considered a resource in the REA model.

2. Elimination of traditional accounting objects: The REA model eliminates many

traditional accounting objects that are not necessary in the computer age.
Most notably, debits and credits disappear. Many general ledger accounts also
disappear, at least as persistent objects. For example, accounts receivable or
accounts payable are not stored as persistent objects. The system can
generate these accounts in real time using source document records.

3. Duality of events: At the heart of each REA model, there is usually a pair of
events linked by an exchange relationship, often referred to as the "duality"
relation. One event typically represents a resource being given away or lost,
while the other represents a resource being received or gained. For example,
in the sales process, one event would be "sales" (goods are given up), and the
other would be "cash receipt" (cash is received).

4. Business process focus: There is a separate REA model for each business
process in the company. A business process roughly corresponds to a
functional department or a function in Michael Porter's value chain. Examples
of business processes include sales, purchases, conversion/manufacturing,
human resources, and financing.

Relational database implementation: REA systems have usually been modeled as

relational databases with entity-relationship diagrams, although this is not
compulsory. This means that the data is stored in tables with defined
relationships, similar to other relational databases.

Influence on e-commerce standards: REA is a continuing influence on the

electronic commerce standard ebXML. However, the competing XBRL GL
standard is at odds with the REA concept, as it closely mimics double-entry
bookkeeping.

Recognition in enterprise frameworks: REA is now recognized by The Open Group

(OG) within the TOGAF® standard, an industry standard enterprise framework,
as one of the modeling tools useful for modeling business processes.

Not widely adopted: Although REA is a popular model in teaching accounting

information systems (AIS), it is rare in business practice. Most companies
cannot easily dismantle their legacy data warehouse systems or are unwilling
 to do so. Some exceptions include Workday, Inc., IBM Scalable Architecture
for Financial Reporting, REATechnology, and ISO 15944-4.

Age of the model: The REA (Resources, Events, Agents) model was originally
proposed in 1982 by William E. McCarthy as a generalized accounting
framework. This means that, as of today, the REA model is more than 40 years
old.

In summary, the REA model is characterized by its focus on real-world resources,

events, and agents, its elimination of traditional accounting objects like debits and
credits, and its implementation using relational databases. It provides a
framework for modeling an organization's critical resources, events, and agents
and the relationships between them. REA can also add value when modeling
existing ERP business processes. Despite its benefits, it is not widely used in
business practice.

E. ERP MODEL
Integrates key business processes into a single system, encompassing various
functional areas. These systems utilize an RDBMS as an information repository. It
tracks business resources and commitments and facilitates information flow
between departments and stakeholders. Includes best practices, but also provides
configurability by systems integrators.

Key Characteristics. The Enterprise Resource Planning (ERP) model is

characterized by its focus on integrating and automating core business
processes through a centralized system. It merges accounting information
systems with other business functions like manufacturing, supply chain, and
human resources. Here are the key characteristics of the ERP model:

1. Integrated System: ERP systems are designed to be integrated, meaning

different modules or applications within the system share data and work
together. This eliminates the need for complex interfaces between
separate systems. ERP systems are often referred to as "Centralized
Integrated Enterprise System (CIES)".

2. Real-time Operation: ERP systems typically operate in or near real-time,

providing an up-to-date view of core business processes.

3. Common Database: ERP systems use a common database that supports

all the applications or modules. This allows different parts of the
organization to access and use the same data, ensuring consistency and
accuracy. The database is maintained by a database management system
(DBMS).

4. Standardized Look and Feel: ERP systems usually have a consistent look
and feel across all their modules, which makes it easier for users to
navigate and use different parts of the system.

5. Comprehensive Functionality: ERP systems cover a wide range of

business functions including financial accounting, management
 accounting, human resources, manufacturing, order processing, supply
chain management, project management, and customer relationship
management (CRM).

6. Module-based: ERP systems are usually structured as a suite of integrated

applications, with each application focusing on a particular business
function or area. These modules are integrated together, and are able to
access the same data and execute complex business processes.

7. Integration Focus: ERP systems facilitate information flow between all

business functions and manage connections to outside stakeholders. They
also focus on integrating hardware, applications, networking, and supply
chains.

8. Scalability: ERP systems can be used by both large and small enterprises.

Business Process Management: Implementing ERP often requires changes in

existing business processes. Organizations must analyze their current
business processes before deploying ERP software to identify opportunities
for process modernization.

Best Practices: Most ERP systems incorporate best practices, which represent
the vendor's interpretation of the most effective way to perform each business
process. These practices can help with compliance with standards such as
IFRS and Sarbanes-Oxley.

Deployment Options: ERP systems can be deployed in various ways, including on-
premises, cloud-hosted, or as Software as a Service (SaaS).

Data Management: ERP systems are used to collect, store, manage, and interpret
data from many business activities. They track business resources like cash,
raw materials, and production capacity.

Age of the model: The sources indicate that the acronym ERP was first used by
the Gartner Group in the 1990s, so it is relatively new compared with the
previous models. The term came to represent a larger whole that reflected the
evolution of application integration beyond manufacturing, encompassing the
capabilities of material requirements planning (MRP) and manufacturing
resource planning (MRP II).

Evolution of ERP:
 Early ERP systems focused on automating back-office functions.
 Later, front office functions like CRM and e-business systems were
integrated.
 "ERP II" systems, which are web-based, provide real-time access to ERP
systems to employees and partners, expanding beyond traditional resource
optimization and transaction processing.
 Modern ERP systems integrate mobile devices.

Advantages:
  Saves time and expense by integrating business processes and making
data visible across the organization.
 Enables faster and more accurate decision-making due to centralized data.
 Improves data security in closed environments and allows for better
collaboration.
 Creates more agile companies that can adapt to change.

Disadvantages:
 Customization can be problematic, forcing organizations to find
workarounds.
 Re-engineering business processes to fit the ERP system may damage
competitiveness.
 Can be costly and have high switching costs.

In summary, the ERP model is characterized by its integrated approach to

managing business processes, its use of a common database, its real-time
operation, and its comprehensive functionality. It integrates various organizational
systems and facilitates error-free transactions, enhancing the organization's
efficiency. However, implementing and managing an ERP system can be complex
and costly and may not always fit the specific needs of the business.

We've seen how information systems have gone from simple, manual processes to the
complex, integrated systems we rely on today. From the early days of handwritten ledgers
and journals, through the clunky but necessary flat-file systems, to the game-changing
relational databases that brought data together, and then the powerful REA model that
reimagined how accounting could be represented in the computer age, it's been an
incredible journey. We've witnessed the rise of ERP systems that now run entire
businesses from a single, integrated platform, and frequently with the facility of cloud
computing.

F. THE ROLE OF THE ACCOUNTANT

Throughout it all, the role of the accountant has been crucial, evolving from manual
record keepers to key players in system design and auditing. This isn't just about
technology, it’s about how we, as humans, continually innovate to make the world
a better, more efficient place. The evolution of information systems is a testament
to our ability to adapt, create, and never stop improving, and that’s something to
be truly inspired by.

As Users:
 Accountants are often the largest users of IT in organizations.
 They must clearly specify their needs to system designers, including
accounting rules, internal controls, and special algorithms.
 Active participation is crucial to avoid system design errors.

As System Designers:
 Historically, accountants were responsible for key aspects of IS design,
including information needs, output formats, data sources, accounting
rules, and controls.
  The design of the conceptual system (specifying information requirements
and rules) is the accountant's responsibility. IT professionals are
responsible for the physical implementation of these systems.
 System design requires a collaborative effort between accountants and IT
professionals.

As System Auditors:
 Auditors evaluate and test a company's internal controls to ensure the
reliability of financial statements, using the attest function.
 IS auditors are concerned with general and application controls. IS auditing
is different from traditional audits by requiring "auditing through the
computer."
 They evaluate controls regarding existence/occurrence, completeness,
rights/obligations, valuation/allocation, and presentation/disclosure.

G. IT Infrastructure Evolution:
 Early Stages: Accounting/tabulating machines with limited functions
(calculator + printer).
 Mainframe Era: Powerful systems capable of processing large data sets
(e.g. IBM/360).
 PC Revolution: Personal computers offered increased accessibility and
programmability, becoming common in homes and offices.
 Client-Server Model: Individual PCs connected to central servers to share
resources and services.
 Enterprise Computing: Integrated platforms that streamline business
processes, allowing for enterprise-wide access to data, reports, and
databases.
 Cloud Computing: Remote servers over the internet offering scalable
resources, remote access, and mobility.

H. Important Facts and Points

 The development of computer hardware capabilities drives sophistication

in IS, and vice versa.
 Software development is limited by hardware capabilities and driven by user
requirements.
 The Industrial Revolution was pivotal for the growth of mechanized
accounting systems and factories.
 IBM initially utilized punch-card technology before embracing computers.
 "Legacy" systems persist for reasons beyond just being outdated.
 The Y2K problem resulted in many companies updating their existing
systems.
 Modern ERP systems incorporate best practices, and are typically
configured by systems integrators
 MIS (Management Information System) was the first major system of the
information age. Now, the term IT or information technology is more
commonly used.
The evolution of information systems has been a continuous process, influenced by
technological advancements and the changing needs of organizations. Accountants play
a critical role at every stage of this process, from understanding fundamental accounting
principles to designing and auditing complex enterprise systems. Their responsibilities
have evolved beyond traditional record-keeping to encompass active participation in the
design and oversight of modern IT systems. It's important to understand not only the
various models, but also the potential of these systems, the role accountants play, and
how IT infrastructures support these models.

6. POST-ASSESSMENT (NOT GRADED): [Link]

7. TEAM AND INDIVIDUAL ACTIVITY. Will be conducted in-person and graded.

8. SUMMATIVE TEST. Will be conducted in-person and graded.

9. LEARNING OBJECTIVE ACTIVITY

Case Study: From Flat Files to Fast Servers: How Tech Solutions Inc. Leveraged
REA to Modernize Fixed Asset Purchases

10. GLOSSARY OF KEY TERMS

1. Application Controls: Specific controls within a software application designed to
ensure the accuracy, completeness, and validity of data processing within the
system.
2. Attest Function: The service provided by auditors to validate and express an
opinion on the fairness of a company's financial statements.
3. Conceptual System: The design of an information system defining what data is
needed, its sources, destination, and accounting rules.
4. Data Redundancy: The unnecessary duplication of data, often due to a lack of data
sharing, causing inconsistencies and wasted storage space.
5. Database: A structured collection of data, stored in a computer system, which
allows for efficient retrieval and management of that data.
6. Database Management System (DBMS): Software that facilitates the creation,
reading, updating, and deletion of data within a database, also managing access
control, views, and data integrity.
7. Double-Entry Bookkeeping: An accounting method where each financial
transaction has equal and opposite effects recorded as debits and credits.
8. Enterprise Resource Planning (ERP): Integrated software platforms designed to
manage and automate core business processes by integrating data and workflows
across different departments and applications.
9. Flat-File Model: A data storage system where data is stored in individual, non-
related files, resulting in data redundancy and inconsistencies.
10. General Controls: Company-wide controls governing the design, security, and
operation of IT infrastructure and systems, to protect data and prevent fraud or
unauthorized access.
11. Legacy System: An outdated or older computer system, technology, or application
program still in use.
12. Manual Model: The traditional approach to accounting involving physical record-
keeping in journals and ledgers.
13. Physical System: The medium and method of capturing and presenting
information within an information system, as determined by computer
professionals.
14. REA Model (Resources, Events, Agents): A conceptual accounting framework
that emphasizes real-world business objects, transactions, and human actors
within an accounting system.
15. Relational Database: A database model where data is stored in tables with defined
relationships, reducing redundancy and facilitating data integration and sharing.
16. Structured Query Language (SQL): A domain-specific language used in
programming and designed for managing data held in a relational database
management system.
17. System Auditor: An expert who evaluates and tests a company's internal controls,
both manual and those embedded in information systems.

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