The Information System: An Accountant’s Perspective Chapter 1 The Information System: An Accountant’s Perspective 1

Internal & External Information Flows

Information Requirements Each user group has unique information requirements. The higher the level of the organization, the greater the need for more aggregated information and less need for detail. 6

Information in Business Information is a business resource: needs to be appropriately managed is vital to the survival of contemporary businesses 2

What is Information? Information is processed data that is used to make decisions, resolve conflicts, and/or reduce uncertainty. 16

What is a System? A group of interrelated multiple components or subsystems that serve a common purpose System or subsystem? A system is called a subsystem when it is viewed as a component of a larger system. A subsystem is considered a system when it is the focus of attention. 7

Examples of Systems E = mc2 Biological Mechanical Others cell human body Mechanical water heater computer Others solar system mathematics E = mc2 7

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. 9

Information System Objectives in a Business Context The goal of an information system is to support the stewardship function of management. management decision making. the firm’s day-to-day operations. 19

Transactions Financial Transactions User Information Decision System Making Information Nonfinancial Transactions 10

What is Accounting Information Systems? Accounting is an information system which identifies, collects, processes, and communicates economic information about an entity to a wide variety of people regardless of the technology captures and records the financial effects of the firm’s transactions distributes transaction information to operations personnel to coordinate many key tasks 3

AIS vs. MIS? GLS = General Ledger System  FRS = Financial Reporting System TPS = Transaction Processing System MRS = Management Reporting System 11

Transforming the Data into Information Functions for transforming data into information according to the general AIS model: 1. data Collection 2. data Processing 3. data Management 4. information Generation 8

Organizational Structure The structure of an organization helps to allocate responsibility authority accountability Segmenting by business function is a very common method of organizing. 21

Functional Areas Inventory/Materials Management purchasing, receiving and stores Production production planning, quality control, and maintenance Marketing Distribution Personnel Finance Accounting Computer Services 22

Organization of Computer Services Function in a Centralized System

Organizational Structure for a Distributed Processing System

Potential Advantages of DDP Cost reductions in hardware and data entry tasks Improved cost control responsibility Improved user satisfaction since control is closer to the user level Backup of data can be improved through the use of multiple data storage sites

Potential Disadvantages of DDP Loss of control Mismanagement of organization-wide resources Hardware and software incompatibility Redundant tasks and data Consolidating tasks usually segregated Difficulty attracting qualified personnel Lack of standards

The Evolution of IS Models: The Flat-File Model

The Evolution of IS Models: The Database Model Solves the following problems of the flat file approach no data redundancy - except for primary keys, data is only stored once single update current values task-data independence - users have access to the full domain of data available to the firm A database is a set of computer files that minimizes data redundancy and is accessed by one or more application programs for data processing. The database approach to data storage applies whenever a database is established to serve two or more applications, organizational units, or types of users. A database management system (DBMS) is a computer program that enables users to create, modify, and utilize database information efficiently. 6

Accountants as Information System Users Accountants must be able to clearly convey their needs to the systems professionals who design the system. The accountant should actively participate in systems development projects to ensure appropriate systems design. 26

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. 27

Accountants as System Auditors External Auditors attest to fairness of financial statements assurance service: broader in scope than traditional attestation audit IT Auditors evaluate IT, often as part of external audit Internal Auditors in-house IS and IT appraisal services 28