Chapter 1

Accounting Information Systems:

An Overview

INTRODUCTION

Learning Objectives:

Explain the meaning of system, data, and information, and address some qualitative characteristics that make information useful.Define accounting information system (AIS), and explain AIS basic functions.Discuss why AIS is an important topic to study.Explain the role of AIS in the value chain?Discuss how AIS can add value to the business by improving decision making.Discuss how AIS can add value to the business by maintaining corporate strategies.

SYSTEMS, DATA, AND INFORMATION

A system is:A set of interrelated componentsThat interactTo achieve a goalMost 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 goalsEven to the detriment of the subsystem itselfEXAMPLE: 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

Data are facts that are collected, recorded, stored, and processed by an information system.

Organizations collect data about:Events that happen in the organizationResources that are affected by those eventsAgents who have been involved 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 costs of producing the information increases while the quality of decisions declines.

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 improving abilities to make predictions, or confirm or corrects prior expectations.

SYSTEMS, DATA, AND INFORMATION

Characteristics that make information useful:RelevanceReliability

Its dependable, i.e., free from error or bias and accurately represents events and activities of the organization.

SYSTEMS, DATA, AND INFORMATION

Characteristics that make information useful:RelevanceReliabilityCompleteness

It doesnt leave out anything thats important.

SYSTEMS, DATA, AND INFORMATION

Characteristics that make information useful:RelevanceReliabilityCompletenessTimeliness

It is timely provided to make decision.

SYSTEMS, DATA, AND INFORMATION

Characteristics that make information useful:RelevanceReliabilityCompletenessTimelinessUnderstandability

Its presented in a manner you can comprehend and use.

SYSTEMS, DATA, AND INFORMATION

Characteristics that make information useful:RelevanceReliabilityCompletenessTimelinessUnderstandabilityVerifiability

The nature of the information is such that different independent people would tend to produce the same information.

SYSTEMS, DATA, AND INFORMATION

Characteristics that make information useful:RelevanceReliabilityCompletenessTimelinessUnderstandabilityVerifiabilityAccessibility

You can get to it when you need it and in a format you can use.

WHAT IS AN AIS?

AIS is a system that collects, records, stores, and processes data to produce information useful for making decisions.AIS consists of the following components:People: those who perform various functionsProcedures: Manual or automated guidelines that include instructions.Data: REA (resource Event Agent) relationshipSoftware: System that transmit data into informationInformation technology: Computer, peripheral devices (Storage ), network communicationControl: security measures or mean to protect data

WHAT IS AN AIS?

The basic functions of AIS are to:

Collect and store data about events happened in the organization, resources affected by those events, and agents who participated in these event so that management and interested parties know what is happening.

WHAT IS AN AIS?

Transform data into information so that management can use to make decisions.Provide adequate controls to protect the business resources (including data) so that data are:Available when neededAccurate and reliable

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.

ROLE OF THE AIS IN THE VALUE CHAIN

The objective of most organizations is to provide value to their customers.

ROLE OF THE AIS IN THE VALUE CHAIN

Value is provided by performing a series of activities referred to as the value chain. These include:Primary activitiesSupport activitiesThese activities are sometimes referred to as line and staff activities respectively.

ROLE OF THE AIS IN THE VALUE CHAIN

Primary activities include:Inbound logistics

Receiving, storing, and distributing the materials that are inputs to the organizations product or service.

For an electronic devices company, this activity might involve handling incoming merchandise and ordering it in the warehouse.

ROLE OF THE AIS IN THE VALUE CHAIN

Primary activities include:Inbound logisticsOperations

Transforming those inputs into products or services.

For the electronic devices company, this step involves displaying various merchandise for sale.

ROLE OF THE AIS IN THE VALUE CHAIN

Primary activities include:Inbound logisticsOperationsOutbound logistics

Distributing products or services to customers.

For the electronic devices company, this step involves delivering merchandise to customers.

ROLE OF THE AIS IN THE VALUE CHAIN

Primary activities include:Inbound logisticsOperationsOutbound logisticsMarketing and sales

Helping customers to buy the organizations products or services.

This may include the advertising and announcing for various types of merchandise.

ROLE OF THE AIS IN THE VALUE CHAIN

Primary activities include:Inbound logisticsOperationsOutbound logisticsMarketing and salesService

Post-sale support provided to customers such as repair and maintenance function.

Under such situation, the electronic company should provide after-sale services such as repairs and maintenance.

ROLE OF THE AIS IN THE VALUE CHAIN

Support activities include:Firm infrastructure

Accounting services including accounting information services, lawyers, and administration.

ROLE OF THE AIS IN THE VALUE CHAIN

Support activities include:Firm infrastructureHuman resources

Involves recruiting and hiring new employees, training employees, paying employees, and handling employee pension, retirement and other benefits.

ROLE OF THE AIS IN THE VALUE CHAIN

Support activities include:Firm infrastructureHuman resourcesTechnology

Activities to improve the products or services (e.g., R&D, website development).

For the electronic company, these activities would include on-line sales and internet business.

ROLE OF THE AIS IN THE VALUE CHAIN

Support activities include:Firm infrastructureHuman resourcesTechnologyPurchasing

Buying the resources (e.g., materials, inventory, fixed assets) needed to carry out the entitys primary activities.

In the electronic company, the purchasing department negotiates prices and terms with different suppliers.

THE AIS AND CORPORATE STRATEGY

Michael Porter suggests that there are two basic business strategies companies can adopt:Product-differentiation strategyLow-cost strategy

THE AIS AND CORPORATE STRATEGY

Michael Porter suggests that there are two basic business strategies companies can follow:Product-differentiation strategyLow-cost strategy

THE AIS AND CORPORATE STRATEGY

A product differentiation strategy involves adding to your product something that let customers prefer it over other similar products. For instance, building a better mousetrap by offering one thats faster, has enhanced features, etc.

THE AIS AND CORPORATE STRATEGY

Michael Porter suggests that there are two basic business strategies companies can follow:Product-differentiation strategyLow-cost strategy

THE AIS AND CORPORATE STRATEGY

A low-cost strategy involves offering a cheaper product than your competitors. The low cost is made possible by operating more efficiently.

THE AIS AND CORPORATE STRATEGY

Choosing a strategic position is important because it helps a company focus its efforts as opposed to trying to be everything to everybody.EXAMPLE: A radio station that tries to play all types of music will probably fail.Its critical to design the organizations activities so they reinforce one another in achieving the selected strategic position. The result is synergy, which is difficult for competitors to imitate.

THE AIS AND CORPORATE STRATEGY

The growth of the Internet has profoundly affected the way value chain activities are performed:Inbound and outbound logistics can be streamlined for products that can be digitized, like books and music.The Internet allows companies to cut costs, which impacts strategy and strategic position.Because the Internet is available to everyone, intense price competition can result. The outcome may be that many companies shift from low-cost to product-differentiation strategies.The Internet may impede access-based strategic positions.

THE AIS AND CORPORATE STRATEGY

The AIS should help a company adopt and maintain its strategic position.Requires that data be collected about each activity.Requires the collection and integration of both financial and nonfinancial data.

SUMMARY

What weve learned so far:The meaning of system, data, and informationWhat is meant by AIS, its basic functions, and why its an important topic to study.What is the role of AIS in the value chain and how it provides information for decision making.What are the basic strategies and strategic positions an organization can adopt and how these interact with the AIS