PowerPoint Presentation Materials

Accounting Information Systems:Basic Concepts and Current Issues

2nd edition

Robert L. Hurt

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Chapter 1

Role and Purpose of Accounting Information Systems

Outline

• Objectives• Definition of accounting information systems• FASB Conceptual Framework• Typical AIS structure• Information competence• Textbook structure

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ObjectivesWhen you finish this chapter, you should be able to:

– Define “accounting information systems”

– Discuss why AIS is an important area of study for future accountants

– Compare and contrast AIS with other areas of study in accounting

– Explain the structure of most accounting information systems

– Locate and evaluate information sources on accounting information systems

– Describe the structure and content of the remainder of this text

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Definition of AIS

• Interrelated activities, documents and technologies

• Collect data and process it• Report information• Diverse group of internal and external

decision makers

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FASB Conceptual Framework

• Developed in 1977• Well-designed AIS can respond to many

elements• Components– Objectives of financial reporting– Elements of financial statements and qualitative

characteristics– Assumptions, principles and constraints

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FASB Conceptual Framework

• Objectives of financial reporting– Framework lists multiple

objectives– For AIS study, the most

important may be the most basic: to provide information for decision making

• Elements of financial statements– Balance sheet: assets,

liabilities, equity– Income statement:

revenues, expenses, gains, losses

– Other: comprehensive income

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FASB Conceptual Framework

• Qualitative characteristics– Primary• Relevance: information makes a difference in decisions• Reliability: information can be relied upon for

decisions

– Secondary• Comparability: between organizations• Consistency: across time

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FASB Conceptual Framework

• Assumptions– Economic entity: a business is separate from its

owners– Going concern: a business will survive long

enough to meet its current obligations– Periodicity: the life of a business is divided into

time periods for financial reporting– Monetary unit: the value of a dollar is stable

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FASB Conceptual Framework

• Principles– Historical cost: in

general, items in the AIS are recorded at their historical cost

– Realization: revenue can be recorded in the AIS when the earnings process is essentially complete

– Matching: expenses should appear on the income statement with the revenue they helped generate

– Full disclosure: give decision makers all the information they need

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FASB Conceptual Framework

• Constraints– Cost effectiveness: the

benefit of having information must exceed the cost of obtaining it

– Materiality: dollar amounts must be large enough to make a difference in decisions

– Conservatism: when choosing between accounting practices, make the choice that presents the “worst case” scenario

– Industry practices: follow the conventions of the industry in financial reporting

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Typical AIS structure

• InputsSuch as source documents

• ProcessesJournals, ledgers, information

technology

• OutputsGeneral purpose financial

statements and other reports

• StoragePaper-based or electronic

• Internal controlsDesigned to– Safeguard assets– Promote operating efficiency– Encourage adherence to

management rules– Ensure reliable financial

reports

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Information competence

• Problems in accounting information systems often have more than one “correct” answer

• In other words, they are non-deterministic• But, some answers are clearly incorrect• Research is often required to address

problems in AIS• Therefore, accountants must be able to

evaluate information

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Information competence

• Definition

Information competence is the ability to find,

evaluate, use, and communicate information in all

of its various formats (Curzon, 1995)

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Information competence

• Types of information– Sponsored / commercial

Someone has paid a fee or given other consideration

– Popular / practitionerHas been reviewed. May be descriptive in nature.

– ScholarlyHas been reviewed. Typically intended for academic

audiences.

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Information competence

• Criteria for evaluating information (UMUC)– Authority

– Accuracy

– Objectivity

– Currency

– Coverage

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Information competence

• Authority– Who created the

information?– For what purpose?

• Objectivity– Does the information contain

advertising?– Is it available freely?

• Accuracy– Where did the information

come from?– Any obvious factual errors?

• Currency– When was the information

created / written?– When was it last updated?

• Coverage– Is the information continually

“under construction?”– Does it provide sufficient

depth?

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Textbook structure

• Part One: Introduction and Basic Concepts– Nature and purpose of

AIS– Transaction processing– Professionalism and

ethics– Internal control

• Part Two: Documentation Techniques– Flowcharting– Data flow diagramming

and database design– REAL modeling

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Textbook structure

• Part Three: Systems Analysis and Information Technology– Information technology

basics– Information systems

models– XBRL– E-business and ERP

systems

• Part Four: Business Processes– Sales / collection– Acquisition / payment– Other business

processes– Business process

management

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Textbook structure

• Part Five: Other Topics in AIS– Computer crime and IT

security– Decision-making models and

knowledge management– Professional certifications and

career planning– Auditing and evaluating the

AIS

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