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Accounting Information Systems: An Overview

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Learning Objectives

1. Explain what an accounting information system (AIS) is and describe the basic functions it performs.

2. Discuss why studying the design and management of an AIS is important.

3. Explain the role played by the AIS in a company’s value chain and discuss ways that the AIS can add value to a business.

4. Describe and contrast the basic strategies and strategic positions that a business can adopt.

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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.

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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

recordsHow 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

Important decisions, continued

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Introduction

This chapter defines an accounting information system (AIS).

It discusses why AIS is an important topic to study.

It describes how an AIS adds to an organization’s value chain.

It describes and contrasts the basic strategies that a business can pursue.

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Learning Objective 1

Explain what an accounting information system (AIS) is and describe the basic functions it performs.

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What Is An AIS? A system is a set of two or more interrelated

components that interact to achieve a goal. Systems are almost always composed of smaller

subsystems, each performing a specific function supportive of the larger system.

An accounting information system (AIS) consists of: People Procedures Data Software Information technology infrastructure

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What Is An AIS?

1 It collects and stores data about activities and transactions.

2 It processes data into information that is useful for making decisions.

3 It provides adequate controls to safeguard the organization’s assets.

What important functions does the AIS

perform in an organization?

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Learning Objective 2

Discuss why studying the design and management of an AIS is important.

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Why Study AIS?

In Statement of Financial Accounting Concepts No. 2, The FASB...

– defined accounting as an information system.

– stated that the primary objective of accounting is to provide information useful to decision makers.

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Why Study AIS? The Accounting Education Change

Commission recommended that the accounting curriculum should provide students with a solid understanding of three essential concepts:

1. The use of information in decision making2. The nature, design, use and implementation of

an AIS3. Financial information reporting

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Why Study AIS?

To understand how the accounting system works. How to collect data about an organization’s

activities and transactions How to transform that data into information

that management can use to run the organization

How to ensure the availability, reliability, and accuracy of that information

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Why Study AIS?

Auditors need to understand the systems that are used to produce a company’s financial statements.

Tax professionals need to understand enough about the client’s AIS to be confident that the information used for tax planning and compliance work is complete and accurate.

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Why Study AIS?

One of the fastest growing types of consulting services entails the design, selection, and implementation of new Accounting Information Systems.

A survey conducted by the Institute of Management Accountants (IMA) indicates that work relating to accounting systems was the single most important activity performed by corporate accountants.

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Information Technologyand Corporate Strategy

The same survey conducted by the Institute of Management Accountants (IMA) also indicates that the second most important job activity of corporate accountants is long-term strategic planning.

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The CITP Designation

CITP: certified information technology professional

Identifies CPAs who possess a broad range of technological knowledge and the manner in which information technology (IT) can be used to achieve business objectives

Reflects the AICPA’s recognition of the importance and interrelationship of IT with accounting

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Ten Most Important Activities Performed By Accountants

1. Accounting systems and financial reporting

2. Long-term strategic planning

3. Managing the accounting and finance function

4. Internal Consulting

5. Short-term budgeting

6. Financial and economic analyses

7. Process improvement

8. Computer systems and operations

9. Performance evaluation

10.Customer and product profitability analyses

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Factors InfluencingDesign of the AIS

Organizational

CultureStrategy

InformationTechnology

AIS

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Learning Objective 3

Explain the role played by the AIS in a company’s value chain and discuss ways that the AIS can add value to a business.

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The Value Chain

The ultimate goal of any business is to provide value to its customers.

A business will be profitable if the value it creates is greater than the cost of producing its products or services.

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The Value Chain

An organization’s value chain consists of nine interrelated activities that collectively describe everything it does.

The five primary activities consist of the activities performed in order to create, market, and deliver products and services to customers and also to provide post-sales services and support.

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The Value Chain

Primary Activities

InboundLogistics

OutboundLogistics

Operations

Marketingand Sales

Service

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The Value Chain

The four support activities in the value chain make it possible for the primary activities to be performed efficiently and effectively.

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The Value Chain

Support Activities

Infrastructure

HumanResources

Technology

Purchasing

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The Value System

The value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers.

An organization’s value chain and the value chains of its suppliers, distributors, and customers collectively form a value system.

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The Supply Chain

Raw Materials Supplier

Manufacturer

Distributor

Retailer

Consumer

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How An AIS Can Add ValueTo An Organization

An AIS adds value...– by providing accurate and timely

information so that five primary value chain activities can be performed more effectively and efficiently.

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How An AIS Can Add ValueTo An Organization

– An AIS adds value by:– improving the quality and reducing the costs

of products or services.– improving efficiency.– Improving decision making capabilities.– increasing the sharing of knowledge.

A well-designed AIS can also help an organization profit by improving the efficiency and effectiveness of its supply chain.

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Information and Decision Making

What is information? The term data refers to any and all of

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

Information is data that has been organized and processed so that it is meaningful.

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Data Needs For Activities

Resource EventAgent

Agent

Inventory SaleCustomer

Sales

Cash Payment Cashier

Supplier

Generic Example

Sales Transaction

Payment to Supplier

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Information and Decision MakingCharacteristics of Useful Information

Understandable

Verifiable

TimelyRelevant

Reliable

Complete

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Information and Decision Making What is decision making? Decision

making involves the following steps:1. Identify the problem.

2. Select a method for solving the problem.

3. Collect data needed to execute the decision model.

4. Interpret the outputs of the model.

5. Evaluate the merits of each alternative.

6. Choose and execute the preferred solution.

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Information andDecision Making

Decisions can be categorized as follows:

– in terms of the degree of structure that exists

– by the scope of the decision

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Decision Structure

Structured decisions are repetitive, routine, and understood well enough that they can be delegated to lower-level employees in the organization.

An example is:Extending credit to customers.

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Decision Structure

Semistructured decisions are characterized by incomplete rules for making the decision and the need for subjective assessments and judgments to supplement formal data analysis.

An example is:Setting a marketing budget for a new

product.

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Decision Structure

Unstructured decisions are nonrecurring and nonroutine.

An example is:Choosing the cover for a

magazine.

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Decision Scope Decisions vary in terms of the scope of

their effect. Operational control is concerned with the

effective and efficient performance of specific tasks.

Management control is concerned with the effective and efficient use of resources for accomplishing organizational objectives.

Strategic planning is concerned with establishing organizational objectives and policies for accomplishing those objectives.

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Learning Objective 4

Describe and contrast the basic strategies and strategic positions that a business can adopt.

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Information Technologyand Corporate Strategy

New developments in IT affect the design of an AIS.

What basic requirements are needed to evaluate the costs and benefits of new IT developments?

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Information Technologyand Corporate Strategy

Develop a basic understanding of…– corporate strategies.– how IT developments can be used to

implement existing organizational strategies.

– how IT developments can be used to create an opportunity to modify existing strategies.

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Information Technologyand Corporate Strategy

Because an AIS functions within an organization, it should be designed to reflect the values of that organizational culture.

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Strategy and Strategic Positions

Two Basic Strategies

To be a lower-cost producer than competitors

To differentiate products and services from competitors

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Strategy and Strategic Positions

Three Basic Strategic Positions

Variety-based strategic position

Need-based strategic position

Access-based strategic position

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Strategy and Strategic Positions

What role does the AIS play in helping organizations adopt and maintain a strategic position?

– Data collection about each activity– Transforming data into information

that can be used by management to coordinate those activities

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What is the Value of Information?

The value of information is the benefit produced by the information minus the cost of producing it.

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The Role of the AIS

The Internet makes strategy more important than ever

Enterprise resource planning (ERP) systems integrate all aspects of a company’s operations with its traditional AIS.

The key feature of ERP systems is the integration of financial data and other nonfinancial operating data.

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End of Topic 1