CHAPTER 1
Accounting Information Systems:
An Overview
INTRODUCTION
Questions to be addressed in this lecture include:
What is the meaning of system, data, and information?
What is an accounting information system (AIS)?
Why is the AIS an important topic to study?
How does the AIS provide information for decision making?
SYSTEMS, DATA, AND INFORMATION
A system is:
A set of interrelated components
That interact
To achieve a goal
SYSTEMS, DATA, AND INFORMATION
Most systems are composed of smaller subsystems . . .
. . . and vice versa!
SYSTEMS, DATA, AND INFORMATION
Every organization has goals.
The subsystems should be designed to maximize achievement of the
organizations goals.
Even to the detriment of the subsystem itself.
EXAMPLE: The production department (a subsystem) of a company might
have to forego its goal of staying within its budget in order to meet the
organizations goal of delivering product on time.
SYSTEMS, DATA, AND INFORMATION
Goal conflict occurs when the activity of a subsystem is not consistent
with another subsystem or with the larger system.
Goal congruence occurs when the subsystems goals are in line with
the organizations goals.
The larger and more complicated a system, the more difficult it is to
achieve goal congruence.
SYSTEMS, DATA, AND INFORMATION
The systems concept encourages integration (i.e., minimizing the
duplication of recording, storing, reporting, and processing).
Data are facts that are collected, recorded, stored, and processed by
an information system.
Organizations collect data about:
Events that occur
Resources that are affected by those events
Agents who participate in the events
SYSTEMS, DATA, AND INFORMATION
Information is different from data.
Information is data that have been organized and processed to
provide meaning to a user.
Usually, more information and better information translates into
better decisions.
SYSTEMS, DATA, AND INFORMATION
However, when you get more information than you can effectively
assimilate, you suffer from information overload.
Example: Final exams week!
When youve reached the overload point, the quality of decisions
declines while the costs of producing the information increases.
SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
Benefits of information may include:
Reduction of uncertainty
Improved decisions
Improved ability to plan and schedule activities
SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
Costs may include time and resources spent:
Collecting data
Processing data
Storing data
Distributing information to users
SYSTEMS, DATA, AND INFORMATION
Benefits of information
- Cost of producing information
Value of information
Costs and benefits of information are often difficult to
quantify, but you need to try when youre making decisions
about whether to provide information.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:
Relevance
It reduces uncertainty by helping you predict what will
happen or confirm what already has happened.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:
Relevance
Reliability
Its dependable, i.e., free from error or bias and faithfully
portrays events and activities.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:
Relevance
Reliability
Completeness
It doesnt leave out anything thats important.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:
Relevance
Reliability
Completeness
Timeliness
You get it in time to make your decision.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:
Relevance
Reliability
Completeness
Timeliness
Understandability
Its presented in a manner you can comprehend and use.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:
Relevance
Reliability
Completeness
Timeliness
Understandability A consensus notionthe nature of the information is such
that different people would tend to produce the same
Verifiability result.
SYSTEMS, DATA, AND INFORMATION
Characteristics that make information useful:
Relevance
Reliability
Completeness
Timeliness
Understandability
Verifiability
You can get to it when you need it and in a format you can
Accessibility use.
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:
External users
Internal users
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:
External users
Internal users
SYSTEMS, DATA, AND INFORMATION
External users primarily use information that is either:
MANDATORY INFORMATIONrequired by a governmental entity,
ESSENTIAL INFORMATIONrequired to conduct business with external
parties, such as purchase orders.
SYSTEMS, DATA, AND INFORMATION
In providing mandatory or essential information, the focus should be
on:
Minimizing costs.
Meeting regulatory requirements.
Meeting minimum standards of reliability and usefulness.
SYSTEMS, DATA, AND INFORMATION
Information is provided to both:
External users
Internal users
SYSTEMS, DATA, AND INFORMATION
Internal users primarily use discretionary information.
The primary focus in producing this information is ensuring that
benefits exceed costs, i.e., the information has positive value.
WHAT IS AN AIS?
An AIS is a system that collects, records, stores, and processes data to
produce information for decision makers.
It can:
Use advanced technology; or
Be a simple paper-and-pencil system; or
Be something in between.
Technology is simply a tool to create, maintain, or improve a system.
WHAT IS AN AIS?
The functions of an AIS are to:
Collect and store data about events, resources, and agents.
Transform that data into information that management can
use to make decisions about events, resources, and agents.
Provide adequate controls to ensure that the entitys
resources (including data) are:
Available when needed
Accurate and reliable
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
Accounting is an information-providing activity,
so accountants need to understand:
How the system that provides that
information is designed, implemented, and
used.
How financial information is reported.
How information is used to make
decisions.
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
Other accounting courses focus on how the
information is provided and used.
An AIS course places greater emphasis on:
How the data is collected and transformed.
How the availability, reliability, and
accuracy of the data is ensured.
AIS courses are not number-crunching
courses.
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
The skills are critical to career success.
Auditors need to evaluate the accuracy and
reliability of information produced by the AIS.
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
The skills are critical to career success.
Tax accountants must understand the clients
AIS adequately to be confident that it is
providing complete and accurate information
for tax planning and compliance work.
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
The skills are critical to career success.
In private industry and not-for-profit, systems
work is considered the most important activity
performed by accountants.
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
The skills are critical to career success.
In management consulting, the design,
selection, and implementation of accounting
systems is a rapid growth area.
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
The skills are critical to career success.
The AIS course complements other systems courses.
Other systems courses focus on design and
implementation of information systems, databases,
expert systems, and telecommunications.
AIS courses focus on accountability and control.
WHY STUDY ACCOUNTING INFORMATION
SYSTEMS?
Its fundamental to accounting.
The skills are critical to career success.
The AIS course complements other systems courses.
AIS topics are tested on the new CPA exam.
AIS topics impact corporate strategy and culture.
The Role of Accountants in AIS
Accounts play a prominent role on system development teams
as domain experts, responsible for many aspects of the
conceptual system including specifying rules, reporting
requirements and internal control objectives.
IT professionals determine the most economical and effective
technologies for the physical system, including data storage.
Accountants perform audits which typically involve the AIS.
External audit is an independent attestation and opinion (audit
report) regarding financial statement presentation.
Requires auditors (independent CPAs) to test internal controls and perform
substantive tests of data.
Critical element is auditor independence, which means the auditor is free
from factors that might influence the audit report.
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The Role of Accountants in AIS
Internal auditing is an independent appraisal function within
an organization to examine and evaluate activities.
External auditors represent outsiders and internal auditors
represent the interests of the organization.
Fraud audits have increased in popularity as a corporate
governance tool.
May be initiated by managers to investigate employees or the board
to investigate management.
Audit committees serves an independent check and balance
for internal audit functions and a liaison with external auditors.
Usually three people, one of which must be a financial expert.
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An Information Systems Framework
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