AccountingInformationSystems:

IntroductionAristotle’s “Nicomachean Ethics”

Objectives:To have an overview of Accounting

Information Systems;To understand the related concepts

of transaction cycles andinternal control structure;

To agree on a ‘foundational framework’ (aka ‘mother ideas’) for BA 121

Information Systems

The term The term information systeminformation system suggests the use suggests the useof computer technology in an organization.of computer technology in an organization.

HardwareHardware

SoftwareSoftware

DataData InformationInformation

Major Types of Systems in OrganizationsSome of the major types of information systems

Information Systems

Transactions Processing System (DP)Transactions Processing System (DP)

Management Information System (MIS)Management Information System (MIS)

Decision Support System (DSS)Decision Support System (DSS)

Expert System (ES)Expert System (ES)

Executive Information System (EIS)Executive Information System (EIS)

Accounting Information System (AIS)Accounting Information System (AIS)

A Framework for Information SystemsInformationSystems (IS)

AccountingInformation

System (AIS)

ManagementInformation

System (MIS)

General Ledger/Financial ReportingSystem (GL/FRS)

TransactionProcessing

System (TPS)

ManagementReporting

System (MRS)

FinancialManagement

Systems

MarketingSystems

ProductionSystems

HumanResourceSystems

ExpenditureCycle

ConversionCycle

RevenueCycle

PurchaseSystem

CashDisbursement

System

PayrollProcessing

System

Fixed AssetSystem

CostAccounting

System

MaterialsRequirements

PlanningSystem

SalesProcessing

System

CashReceiptsSystem

Transaction Processing Cycles

1. Revenue cycle1. Revenue cycle

2. Expenditure cycle2. Expenditure cycle

3. Production cycle3. Production cycle

4. Finance cycle4. Finance cycle

Internal Control Process

Reliability of financial reportingReliability of financial reporting

Effectiveness and efficiencyEffectiveness and efficiency

ComplianceCompliance

General Model for Accounting Information Systems

The business organization

ExternalSourcesof Data

ExternalEnd-Users

The External Environment

Data

Collection

Data

Processing

Information

Generation

The Information System

Database

Management

InternalSourcesof Data

InternalEnd-Users

FEEDBACK

FEEDBACK

Overarching theme/purpose:

The business organization

Corporategovernance

‘Black box’(IS / AIS)

ExternalSourcesof Data

ExternalEnd-Users

Ethics

InternalControls

Internal Control Process

What are the elements of internal control?What are the elements of internal control?

Control environmentControl environment

Risk assessmentRisk assessment

Control activitiesControl activities

Information and communicationInformation and communication

MonitoringMonitoring

Internal Control Process

Segregation of Duties:Segregation of Duties:

No individual or department shouldNo individual or department shouldcontrol the accounting recordscontrol the accounting recordsrelating to its own operation.relating to its own operation.

Internal Auditing:Internal Auditing:

It is an independent appraisalIt is an independent appraisalactivity within the organization.activity within the organization.

The Accounting Function2 impt. roles: 1) captures and records financial effects of transactions; 2) distributes transaction info to operations personnel to coordinate tasks.

The Value of Information:

RELIABILITY-- relevance -- completeness -- & timeliness-- accuracy -- summarization

Accounting Independence:

INDEPENDENCE

-- accounting activities must be separate from and independent of the functional areas that maintain custody of physical resources.

The I.T. FunctionAssociated with the information resource.Centralized Data Processing

Distributed Data Processing (DDP):Disadvantages:• Lack of control of organizationwide resources• Hardware & software incompatibility• Redundant tasks• Consolidating incompatible activities• Hiring qualified professionals• Lack of Standards

Advantages:• Cost savings; improved cost control responsibility• Increased user satisfaction• Improved operational efficiency• Backup

Evolution of Information Systems Models• The Manual Process Model

• The Flat-File Model– Data Storage– Data Updating– Currency of Information– Task-Data Dependency

• The Database Model

• The REA (Resources, Events, Agents) Model

The Role of the Accountant

• Accountants as Users

• Accountants as System Designers

• Accountants as System Auditors– External Auditing

AssuranceIT Auditing

– Internal Auditing

Corporategovernance Ethics