Accounting Information Systems:
Essential Concepts and Applications
The Study of Accounting
Information Systems
What Is a System?
A System is an entity consisting of
interacting parts that are coordinated
to achieve one or more common
objectives. Systems must possess
SYSTEM
INPUT PROCESS OUTPUT
FEEDBACK
INFORMATION SYSTEM
DATA INFORMATION
INPUT PROCESS OUTPUT
FEEDBACK
Data Versus Information
Data are raw facts and figures that are
processed to produce information
Information is data that have been
processed and are meaningful and useful to
users. The terms “meaningful” and “useful”
are value-laden terms and usually subsume
other qualities such as timeliness,
relevance, reliability, comparability,
neutrality etc.
Timeliness principle in accounting refers to the need
for accounting information to be presented to the
users in time to fulfill their decision making needs.
Relevance - information should be relevant to the
decision making needs of the user. Information is
relevant if it helps users of the financial statements in
predicting future trends of the business.
Reliability- information is reliable if a user can
depend upon it to be materially accurate and if it
faithfully represents the information that it purports
to present.
Comparability/Consistency- Financial statements
of one accounting period must be comparable to
another in order for the users to derive meaningful
conclusions about the trends in an entity's financial
performance and position over time.
Neutrality- information contained in the
financial statements must be free from
bias. It should reflect a balanced view of
the affairs of the company without
attempting to present them in a favored
light.
Functional Steps in Transforming Data
into Information
Data collection - capturing, recording, validating and
editing data for completeness and accuracy
Data Maintenance/Processing - classifying, sorting,
calculating data
Data Management - storing, maintaining and retrieving
data
Data Control - safeguarding and securing data and
ensuring the accuracy and completeness of the same
Information Generation - interpreting, reporting, and
communicating information
What Is an Information
System?
An Information system is a framework in which data is
collected, processed, controlled and managed through stages in
order to provide information to users
It evolves over time and becomes more formalized as a firm
grows and becomes more complex. It can be a manual or
computerized system
Firms depend on information systems in order to survive and
stay competitive
The Universal Data Processing
Model
Storage
Processing
Consumers
Exchange Events
Internal Events
Environmental Events
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What Is Accounting?
It is the principal way of organizing and reporting financial
information. It has been called the “language of business.”
Accounting and information systems comprise the functional area
of business responsible for providing information to the other
areas to enable them to do their jobs and for reporting the results
to interested parties.
To that end, an accounting system is used to identify, analyze,
measure, record, summarize, and communicate relevant economic
information to interested parties.
Accounting Information
System
An Accounting Information System is a
unified structure that employs physical
resources and components to transform
economic data into accounting information
for external and internal users.
Management Information Systems
The Role of Information Systems in Business Today
Growing interdependence between ability to use
information technology and ability to implement
corporate strategies and achieve corporate goals
Business firms invest heavily in information systems
to achieve six strategic business objectives:
1. Operational excellence
2. New products, services, and business models
3. Customer and supplier intimacy
4. Improved decision making
5. Competitive advantage
6. Survival
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Management Information Systems
The Role of Information Systems in Business Today
Six Strategic Business Objectives
• Operational excellence:
– Improvement of efficiency to attain higher
profitability
– Information systems, technology an
important tool in achieving greater efficiency
and productivity
– Walmart’s RetailLink system links suppliers to
stores for superior replenishment system
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Management Information Systems
The Role of Information Systems in Business Today
New products, services, and business
models:
Business model: describes how company
produces, delivers, and sells product or service to
create wealth
Information systems and technology a major
enabling tool for new products, services, business
models
Examples: Apple’s iPod, iTunes, iPhone, iPad,
Google’s Android OS, and Netflix
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Management Information Systems
The Role of Information Systems in Business Today
Customer and supplier intimacy:
Serving customers well leads to customers
returning, which raises revenues and profits
Example: High-end hotels that use computers to
track customer preferences and use to monitor
and customize environment
Intimacy with suppliers allows them to provide
vital inputs, which lowers costs
Example: [Link]’s information system
which links sales records to contract
manufacturer
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Management Information Systems
The Role of Information Systems in Business Today
Improved decision making
Without accurate information:
Managers must use forecasts, best guesses, luck
Leads to:
• Overproduction, underproduction of goods and services
• Misallocation of resources
• Poor response times
Poor outcomes raise costs, lose customers
Example: Verizon’s Web-based digital dashboard to
provide managers with real-time data on customer
complaints, network performance, line outages, etc.
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Management Information Systems
The Role of Information Systems in Business Today
Operational excellence:
Improvement of efficiency to attain higher profitability
New products, services, and business models:
Enabled by technology
Customer and supplier intimacy:
Serving customers raises revenues and profits
Better communication with suppliers lowers costs
Improved decision making
More accurate data leads to better decisions
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Management Information Systems
The Role of Information Systems in Business Today
Competitive advantage
Delivering better performance
Charging less for superior products
Responding to customers and suppliers in real
time
Examples: Apple, Walmart, UPS
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Management Information Systems
The Role of Information Systems in Business Today
Survival
Information technologies as necessity of business
May be:
Industry-level changes, e.g. Citibank’s
introduction of ATMs
Governmental regulations requiring record-
keeping
• Examples: Toxic Substances Control Act, Sarbanes-
Oxley Act
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The Business Firm as a System
Organization Organization’s
Environment functions
of the Firm Information
Business System AIS Transaction
Firm Cycles
Operational
Business Events
System
from Operations
TYPES OF INFORMATION SYSTEMS
KIND OF SYSTEM GROUPS SERVED
STRATEGIC LEVEL SENIOR MANAGERS
MANAGEMENT LEVEL MIDDLE MANAGERS
KNOWLEDGE DATA WORKERS
LEVEL
OPERATIONAL OPERATIONAL
LEVEL MANAGERS
TYPES OF SYSTEMS
Management Information
System (MIS)
provides information that organizations
require to manage themselves efficiently
and effectively.
Management information systems are
typically computer systems used for
managing five primary components:
5 Primary Components of MIS
1.) Hardware
2.) Software
3.) Data (information for decision making)
4.) Procedures (design,development and
documentation)
5.) People (individuals, groups, or
organizations).
Relationship of AIS & MIS
MIS
Sales/Marketing Human Resources
Finance Production AIS
Order entry/Sales
Billing/[Link]./Cash receipts
Purchasing/A. Pay.
Inventory
Payroll
General ledger
Production
AIS is composed of three
major subsystems:
Transaction Processing System (TPS)
General Ledger/Financial Reporting
System (GL/FRS)
Management Reporting System
(MRS)
Transaction Processing
System (TPS)
supports daily business operations with
numerous reports, documents, and
messages for users throughout the
organization
General Ledger/Financial
Reporting System (GL/FRS)
produces the traditional financial
statements, such as the income statement,
balance sheet, statement of cash flows,
tax returns, and other reports required by
law
Management Reporting
System (MRS)
provides internal management with
special-purpose financial reports and
information needed for decision making
such as budgets, variance reports, and
responsibility reports.
AIS as an MIS Subsystem
Sales/ Production
Marketing Info
AIS
Human Resources Finance
GENERAL MODEL FOR AIS
End users
Data sources
Data collection
Data processing
Database management
Information generation
Feedback
Users of AIS
Internal users (Primary External users (Secondary
Users) Users)
Management Creditors (Creditors include
suppliers as well as lenders of
Employees finance such as banks)
Owners Tax Authorities
Investors
Customers
Regulatory Authorities
Objectives of AIS
Support day-to-day operations
Transaction processing
Support Internal Decision-Making
Trend Analyses
Quantitative & Qualitative Data
Non-transactional sources
Help fulfill Stewardship Role
Resources Required for an AIS
Processor(s): Manual or Computerized
Data Base(s): Data Repositories
Procedures: Manual or
Computerized
Input/Output Devices
Miscellaneous Resources
Introduction: S&S Inc.
Scott Parry and Susan Gonzalez form S&S,
Inc., to sell consumer electronic devices.
Parry and Gonzalez decide to pursue a “clicks
and bricks” strategy.
They plan to hold the grand opening of S&S
in five weeks.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e,
Romney/Steinbart
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Introduction: S&S, Inc.
What types of important decisions do Scott and
Susan have to make?
How to organize their accounting records
How to design a set of procedures to ensure that they
meet all of their government obligations
How to price their products
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Introduction: S&S, Inc.
Whether to extend credit, on what terms, and
how to accurately track what customers owe and
have paid
How to hire, train, and supervise their
employees
How to keep track of cash flows
The appropriate product mix and quantities to
carry
What functionality to provide on their website
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Reasons for Studying Accounting
Information Systems
Career accountants will be users, auditors, and
developers of AIS
Modern-day AIS are complex because of new
technologies
Concepts studied in AIS are integrated into every
other accounting course
Information-Oriented
Professionals
An array of professionally trained persons from different fields
of study have focused on providing information to users
These professionals include system and managerial
accountants and auditors, system analysts and
industrial engineers
Professional certifications are increasing. These include
Certified Computing Professional, Certified Information
Systems Auditor, Certified Managerial Accountant,
Certified Fraud Examiner, etc.
Roles of Accountants With
Respect to an AIS
Financial accountants prepare
financial information for external
decision-making in accordance with
GAAP
Managerial accountants prepare
financial information for internal
decision-making
Roles of Accountants With
Respect to an AIS
Auditors - evaluate controls and attest to the
fairness of the financial statements.
Accounting managers - control all
accounting activities of a firm.
Tax specialists - develop information that
reflects tax obligations of the firm.
Consultants - devise specifications for the
AIS.
Ethical Standards for
Consulting
Professional competence
Exercise due professional care
Plan and supervise all work
Obtain relevant data to support reasonable
recommendations
Maintain integrity and objectivity
Understand and respect the responsibilities of all parties
Disclose any conflicts of interest