ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW CMIS312 2017

Presentation Outline: The users of AIS Information Systems Transaction Processing Cycles The Internal Control Process Organization Interaction with IS The Development of a System

I. The Users of Accounting Information Systems: External Users Internal Users “Mandatory vs. Discretionary Information”

A. EXTERNAL USERS:

B. INTERNAL USERS:

C. MANDATORY vs. DISCRETIONARY INFORMATION:

II. INFORMATION SYSTEMS: The term information system suggest the use of computer technology in an organization Electronic Data Processing (EDP) or Data Processing (DP) Management Information Systems (MIS) Decision Support Systems (DDS) Expert Systems (ES) Executive Information Systems (EIS) Accounting Information Systems (AIS)

A. ELECTRONIC DATA PROCESSING (EDP) OR DATA PROCESSING (DP) Use of computer technology to perform an organization’s transaction-oriented data processing. DP systems serve routine, recurring, general information needs.

B. MANAGEMENT INFORMATION SYSTEMS (MIS):

C. DECISION SUPPORT SYSTEMS (DSS): Process data into a decision making format for end users. DSS process non-routine information requests on an ad hoc basis. Requires the use of decision models and specialised databases beyond what is in a DP system.

D. EXPERT SYSTEMS: Emulates an experts decision making process to provide a decision Different from DSS which only provides information for decision making Two components of the ES are as follows: Knowledge base: special knowledge that an expert possesses in the decision area Inference engine: process by which experts make the decision

E. EXECUTIVE INFORMATION SYSTEM (EIS): EIS tailor information to the strategic needs of top level management. Much of the information used by top-level management come from sources outside the organization: meetings, memos, television, periodicals, social activities

F. ACCOUNTING INFORMATION SYSTEMS (AIS): A computer-based system designed to transform accounting data into information. Can also include transactions, processing cycles, the use of information technology, and the development of IS

III. TRANSACTION PROCESSING CYCLES: Transaction processing cycles provide a means of viewing the activities of a business: Revenue cycle Expenditure cycle Production cycle Finance cycle Financial reporting cycle

A. REVENUE CYCLE: Events related to the distribution of goods and services to other entities and the collection of related payments.

B. EXPENDITURE CYCLE: Events related to the acquisition of goods and services from other entities and the settlement of related obligations

C. PRODUCTION CYCLE: Events related to the transformation of resources into goods and services

D. FINANCE CYCLE: Events related to the acquisition and management of capital funds, including cash. The treasurer is responsible for the finances of the business.

F. FINANCIAL REPORTING CYCLE: Not an operating cycle This cycle obtains accounting and operating data from other cycles and processes this data so that financial reports can be prepared A controller is in charge of the accounting function.

IV. THE INTERNAL CONTROL PROCESS: Since management is far removed from the scene of operations in a large organization, personal supervision of employees is often replaced with various control techniques. Definition of internal control The five elements of the internal control process Segregation of accounting functions The internal audit function

A. DEFINITION OF INTERNAL CONTROL: The concept of internal control structure is based on two major premises: management responsibility and reasonable assurance regarding the achievement of objectives relating to: Reliability of financial reporting Effectiveness and efficiency of operations Compliance with applicable laws and regulations.

B. FIVE ELEMENTS OF THE INTERNAL CONTROL PROCESS Control environment – Overall values and integrity of organization Risk assessment – Identification and evaluation of risks (Potential x Probability = Exposure) Control activities – activities undertaken to reduce probability of loss due to significant risks

(Elements:) Information and communication – communication information about the control environment and control activities Monitoring – Keeping watch over and changing internal controls so that they function effectively and efficiently

C. SEGREGATION OF ACCOUNTING FUNCTIONS Segregate the following duties: Authorization Record keeping Custody of assets

D. INTERNAL AUDIT FUNCTION Internal auditing is an independent appraisal function charged with monitoring and assessing compliance with organizational policies and procedures

V. ORGANIZATIONAL INTERACTION WITH IS: The steering committee End-user computing Quick response technology

A. THE STEERING COMMITTEE A committee advising the Chief Information Officer that is composed of high-level members of user functions such as manufacturing and marketing. The committee provides a means by which managers from other areas can influence the information services process.

B. END-USER COMPUTING (EUC) Functional end users do their own information processing activities through an EUC application such as databases that uses a query language feature to generate specific information needed by the end user to make decisions.

EUC Problems: Inadequate system development May solve wrong problem or have poor documentation Ineffective use of resources Underutilised equipment or inefficient design Data integrity and security problems Inadvertent alteration of data to implement security controls

C. QUICK RESPONSE TECHNOLOGY Just-in time Web commerce Electronic data interchange Extensible business reporting language Computer integrated manufacturing Electronic payment systems

1. JUST-IN-TIME Purchase orders for inventory items are made on a “demand-pull” basis to restock inventory levels Adds flexibility to meet customer needs and reduces product rework

2. WEB COMMERCE Provides worldwide availability of products on a single computer Specially trained CPAs offer the Web Trust seal to sites that meet certain security and privacy criteria

3. ELECTRONIC DATA INTERCHANGE EDI is the direct computer-to-computer exchange of business documents via communication network EDI differs from e-mail in that EDI messages are created and interpreted by computers without human intervention. Also makes use of the universal product code (UPC) bar code

4. EXTENSIBLE BUSINESS REPORTING LANGUAGE XBRL is a language that facilitates the exchange over the Internet of all kinds of business documents and financial statements. The SEC permits companies to file their financial reports electronically using XBRL format.

5. COMPUTER-INTEGRATED MANUFACTURING (CIM) Components of CIM typically include computer-aided design (CAD) workstations, real-time production monitoring, order inventory and control systems Makes use of scanner technology and machine-readable bar codes

6. ELECTRONIC PAYMENT SYSTEMS Electronic funds transfer (EFT) systems are electronic payment systems in which processing and communication are primarily or totally electronic

VI. THE DEVELOPMENT OF SYSTEMS Blueprinting System development Behavioural considerations

A. BLUEPRINTING The company uses generic or industry standard stock blueprints rather than designing its own system

B. SYSTEM DEVELOPMENT A system development project ordinarily consists of three phases: system analysis, design, and implementation. The procedure attempts to improve information quality , internal control, and minimize costs.

SIX STEPS OF SYSTEM APPROACH Statement of system objectives Creation of alternatives System analysis System design System implementation System evaluation

C. BEHAVIORAL CONSIDERATIONS The users of systems should be included throughout the steps of systems development Users provide valuable input into what is needed and must accept the system that is developed.

SUMMARY Five types of IS Five transaction processing cycles The internal control process Steering committee and EUC Quick-response technology The steps of systems development