Accounting Information Systems An Introduction Chapter 1 Accounting Information Systems An Introduction

The Information Environment

Information System Objectives To support the stewardship function of management. Stewardship refers to management’s responsibility to properly manage the resources of the firm. The information system provides information about resource utilization to external users via traditional financial statements and other mandated reports. To support management decision making. The information system supplies managers with the information they need to carry out their decision-making responsibilities. To support the firm’s day-to-day operations. The information system provides information to operations personnel to assist them in the efficient and effective discharge of their daily tasks.

What is a System? A group of interrelated multiple components or subsystems that serve a common purpose

What is an Information System? An information system is the set of formal procedures by which data are collected, processed into information, and distributed to users

An Information Systems Framework Financial Transactions Information System User Decision Making Information Nonfinancial Transactions 10

An Information Systems Framework Transactions A transaction is a business event. Financial transactions economic events that affect the assets and equities of the organization (sales, and purchase). Nonfinancial transactions all other events processed by the organization’s. adding new supplier of raw materials

An Information Systems Framework Financial transactions and nonfinancial transactions are closely related and are often processed by the same physical system……? For example a financial portfolio management system that collects and tracks stock prices (nonfinancial transactions). When the stocks reach a threshold price, the system places an automatic buy or sell order (financial transaction).

AIS versus MIS Accounting Information Systems (AIS) financial transactions; e.g., sale of goods and nonfinancial transactions that directly affect the processing of financial transactions; e.g., addition of newly approved vendors. Management Information Systems (MIS) process nonfinancial transactions that are not normally processed by traditional AIS; e.g., tracking customer complaints

AIS Subsystems Transaction processing system (TPS) converts economic events into financial transactions, recording financial transactions in the accounting records (journals and ledgers), and distributing essential financial information to operations personnel to support their daily operations. The management reporting system (MRS), provides internal management with special-purpose financial reports and information needed for decision making such as budgets, variance reports, and responsibility reports

AIS Subsystems Management reporting system (MRS) provides internal management with special-purpose financial reports and information needed for decision making IS AIS GLS/FRS TPS MRS MIS Finance Marketing Production HRS Distribution

The General AIS Model

Information Versus Data Raw facts No organization or meaning Have not processed (edited, summarized, or redefined) Have no direct effect on the users. Information Processed data Meaningful to users Cause the user to take an action.

Data sources Data sources are financial transactions that enter the information system from internal and external sources. External financial transactions are the most common source of data for most organizations. E.g., sale of goods and services, purchase of inventory, receipt of cash, and disbursement of cash (including payroll). Internal financial transactions involve the exchange or movement of resources within the organization. E.g., movement of raw materials into work-in-process (WIP), application of labor and overhead to WIP, transfer of WIP into finished goods inventory, and depreciation of equipment

Transforming the Data into Information Data Collection Capturing transaction data Recording data onto forms Validating and editing the data Two rules govern the design of data collection procedures: relevance and efficiency. data that ultimately contribute to information are relevant Efficient data collection procedures are designed to collect data only once

Transforming the Data into Information Data Processing Merging Calculating Summarizing Comparing Data Management Storing Retrieving Deleting

What Makes Information Useful? Relevant: information needed to make a decision (e.g., the decision to extend customer credit would need relevant information on customer balance from an A/R aging report) Reliable: information free from bias Complete: does not omit important aspects of events or activities Timely: information needs to be provided in time to make the decision Summarization: aggregated in accordance with the user’s needs

The Role of the Accountant Accountants As System Designers The accounting function is responsible for the conceptual system, while the computer function is responsible for the physical system The conceptual system determines the nature of the information required, its sources, its destination, and the accounting rules that must be applied

The Role of the Accountant Accountants As System Auditors External Auditors Auditing is a form of independent attestation performed by an expert—the auditor—who expresses an opinion about the fairness of a company’s financial statements External Auditing attest to fairness of financial statements. IT Auditors evaluate IT, often as part of external audit, The IT auditor attests to the effectiveness of a client’s IT controls to establish their degree of compliance with prescribed standards

End of Chapter 1