Accounting systems design & evaluation 9434SB 25 Feb 2002

Class rules Mobile off please Class participation Communication

Last lesson What is a Management Information System (MIS) and Accounting Information System (AIS)? (slides 1-9 to 1-11, TB: ) What are the information & reporting requirements of users of an AIS? (slides 1-12 to 1-22, to 27; TB: 1.1 to 1.2, ) What are the marketing and customer orientation priorities in establishing policies that affect the establishment of a MIS? (slides 1-23 to 24) What are the procedures that may be used to identify the users and their information requirements? (slides 1-28 to 29)

Concept maps What did you come up with? How did you go about it?

Today’s lecture Responsibility accounting system Internal control and security requirements of a MIS / AIS Subsystems of an AIS

Responsibility accounting system provides top-down and bottom-up information flows produces a performance report for each responsibility center

Responsibility centers Responsibility center: –an organization unit where a manager controls financial measures recorded and reported by a managerial accounting information. It may either be a cost center, profit center, or an investment center –profit center –cost centers –investment centers

Vertical flows of information within an organisation A Top-down flow: originates from events that occur at the top management level in an organisation. A bottom-up flow: originates from events that occur at the lower levels in the organisation structure.

Organisation structure in an AIS Characteristics of a well-defined organisation structure: –Distinguish each of its segments –Clear statement of authority and responsibility for the manager of each segment –Each employee should report to only one higher-level manager –Define clearly all superior-subordinate relationship among employees

Developing corporate performance objectives - financial Profit margin 6.7% Net income $2 M Sales $30 M  Sales Expenses Cost of sales $32 M - $30 M Selling & Admin expenses + $20 M $10 M

Developing corporate performance objectives – non-financial Stakeholders Patients Queuing Time Treatment Avg time to wait GovernmentStaffCommunity Quality Convenience Service features Cost Registration PrioritisationPaymentMedical records Value attributes Customer satisfaction Complaints 1,000 visits Number of non-urgent cases Average cost Key processes Performance measures Managers

Information system controls To ensure: –reliability of financial information –Compliance with laws and regulations Internal controls: policies, practices and procedures directed to prevent, detect errors and irregularities Information system controls: internal controls implemented in a computer-based AIS

Security and internal controls in an AIS General controls –data center operations –system software acquisition and maintenance –access security –application system software development and maintenance Application controls –Input –Processing –outputs

System control – Responsibility structure Segregation of duties: –Network administrator –Personal computer help center –Database administrator (DBA) –Web administrators Data and system access controls: –Entry –Modification –Retrieval

Types of system Architecture –Open systems –Integrated systems –Legacy systems Scalability –Mid-range systems –Enterprise Resource Planning systems (ERP)

Types of system Functionality –Transaction-based systems –Specialist financial management systems –Subsystems

Subsystems in AIS Data processing personnel commonly speak of AIS as composed of application systems Auditors think of a system as a set of transaction cycles

Transaction cycles Sales Purchases Cash payments and receipts Payroll General Ledger

Sales / Accounts receivable/ cash receipts Outputs Financial statement information Customer Billing Statement Aging Report Bad debts Report Cash Receipts Forecast Customer Listing Sales Analysis report Activities –Receive payment –Manage customer accounts –Track sales Objective : to record the earning of income and to achieve timely collection of it in order to keep paying the bills that the organisation incurs.

Purchasing / Accounts payable/ Cash disbursements Activities Receive goods or services Purchase goods or services Maintain creditors Outputs Financial statement information Vendor Checks Cheque Register Discrepancy Reports Cash Requirements Forecast Purchase Analysis Reports Purchasing encompasses the procurement, payment and tracking of goods and services that are required to run the organisations.

Payroll/ Human Resource Management Activities Prepare Paycheques Prepare reports Outputs Financial statement information Employee Listings Cheques and Cheque Register Deduction Reports Tax Reports Payroll Summaries Human Resource Management system support an organisation in hiring employees, maintaining employee records, paying employees for work performed and maintaining records around employee’s remuneration.

General ledger Accumulating data,classifying data by general ledger accounts, and recording data in those accounts Interaction with the budgeting systems Fueling the financial reporting, managerial reporting,and other reporting subsystems by providing them the information needed to prepare external and internal reports

Financial reporting Preparing general purpose, external financial statements in compliance with relevant standards Preparing management reports based on data fuelled in from various management information systems

System boundaries & interfaces Boundaries: –separate a system from the other other systems in its environment –not necessarily clearly defined (e.g.. payroll, general ledger) –trace inputs (triggers a transaction) and outputs (satisfies an objective) Interface: –a link at which a transaction exits one system and enter another

Useful websites: Dictionary on technical terms Vendorshttp://

To summarise Responsibility accounting system –slides 2:5-10 Internal control and security requirements of a MIS / AIS –Slides 2:11-13 –Optional reading: Boockholdt Ch 14 Subsystems of an AIS –Slices 2: 14 onwards –TB: 1.4, 2.3 and 6.1

Exercises Text book: Section 2, Chapter 1: –MC Questions 1-7 –Questions 11, 13 Serve on the Internet and find out what subsystems/modules are offered by at least two AIS vendors.