© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart1 of 85 C HAPTER 1 Accounting Information Systems: An Overview

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart2 of 85 An AIS is a system that collects, records, stores, and processes data to produce information for decision makers. It can: –Use advanced technology; or –Be a simple paper-and-pencil system; or –Be something in between. Technology is simply a tool to create, maintain, or improve a system. WHAT IS AN AIS?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart3 of 85 The functions of an AIS are to: –Collect and store data about events, resources, and agents. –Transform that data into information that management can use to make decisions about events, resources, and agents. –Provide adequate controls to ensure that the entity’s resources (including data) are: Available when needed Accurate and reliable WHAT IS AN AIS?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart4 of 85 Pharmaceuticals, Inc. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Customer Pharmacy Inbound Logistics Operations Inbound Logistics Marketing & Sales Service The linking of these separate value chains creates a larger system known as a supply chain. Information technology can facilitate synergistic linkages that improve the performance of each company’s value chain.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart5 of 85 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: –Relevance –Reliability –Completeness –Timeliness –Understandability –Verifiability –Accessibility

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart6 of 85 SYSTEMS, DATA, AND INFORMATION Benefits of information - Cost of producing information Value of information Costs and benefits of information are often difficult to quantify, but you need to try when you’re making decisions about whether to provide information.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart7 of 85 C HAPTER 2 Overview of Business Processes

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart8 of 85 The business transaction cycle is a process that: –Begins with capturing data about a transaction. –Ends with an information output, such as financial statements. BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart9 of 85 Many business processes are paired in give-get exchanges. Basic exchanges can be grouped into five major transaction cycles: –Revenue cycle –Expenditure cycle –Production cycle –Human resources/payroll cycle –Financing cycle BUSINESS CYCLES

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart10 of 85 Accountants play an important role in data processing. They answer questions such as: –What data should be entered and stored? –Who should be able to access the data? –How should the data be organized, updated, stored, accessed, and retrieved? –How can scheduled and unanticipated information needs be met? To answer these questions, they must understand data processing concepts. TRANSACTION PROCESSING: THE DATA PROCESSING CYCLE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart11 of 85 Ledger General ledger Subsidiary ledger Coding techniques Chart of accounts Journals Audit trail DATA STORAGE

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart12 of 85 The traditional AIS captured financial data. –Non-financial data was captured in other, sometimes-redundant systems Enterprise resource planning (ERP) systems are designed to integrate all aspects of a company’s operations (including both financial and non-financial information) with the traditional functions of an AIS. ROLE OF THE AIS

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart13 of 85 C HAPTER 3 Systems Development and Documentation Techniques

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart14 of 85 INTRODUCTION Questions to be addressed in this chapter include: –What is the purpose of documentation? –Why do accountants need to understand documentation? –What documentation techniques are used in accounting systems? –What are data flow diagrams and flowcharts? How are they alike and different? How are they prepared?

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart15 of 85 INTRODUCTION How do accountants use documentation? –At a minimum, they have to read documentation to understand how a system works. –They may need to evaluate the strengths and weaknesses of an entity’s internal controls. Requires heavy reliance on documentation –They may peruse documentation to determine if a proposed system meets the needs of its users. –They may prepare documentation to: Demonstrate how a proposed system would work Demonstrate their understanding of a system of internal controls

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart16 of 85 INTRODUCTION In this chapter, we discuss two of the most common documentation tools: –Data flow diagrams –Flowcharts Include three types: –Document flowcharts describe the flow of documents and information between departments or units. –System flowcharts describe the relationship between inputs, processing, and outputs for a system. –Program flowcharts describe the sequence of logical operations performed in a computer program.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart17 of 85 INTRODUCTION Documentation techniques are necessary tools for accountants: –SAS-94 requires that auditors understand the automated and manual procedures an entity uses. This understanding can be gleaned through documenting the internal control system—a process that effectively exposes strengths and weaknesses of the system. –SOX (2002) effectively requires that publicly-traded corporations and their auditors document and test the company’s internal controls. –Auditing Standard No. 2 promulgated by the PCAOB requires that the external auditor express an opinion on the client’s system of internal controls.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart18 of 85 DATA FLOW DIAGRAMS A data flow diagram consists of four basic elements: –Data sources and destinations –Data flows –Transformation processes –Data stores

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart19 of 85 DATA FLOW DIAGRAMS Customer 1.0 Process Payment 2.0 Update A/R Credit Manager Bank Accounts Receivable Customer payment Remittance data Receivables Information Deposit Example of a data flow diagram of the customer payment process from Figure 3-3 in your textbook.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart20 of 85 DATA FLOW DIAGRAMS Payroll Processing System Depart- ments Human Resources Govt. Agencies Employees Bank Manage- ment Time cards New employee form Employee change form Tax report & payment Employee checks Payroll check Payroll report This is the context diagram for the S&S payroll processing system (Figure 3-5 in your textbook).

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart21 of 85 DATA FLOW DIAGRAMS 1.0 Update Empl. Payroll File 2.0 Pay Employ- ees 5.0 Update Gen. Ledger 4.0 Pay Taxes 3.0 Prepare Reports Employee/ Payroll File General Ledger Human Resources Depart- ments Employees Bank Govt. Agencies Manage- ment Employee change form New employee form Time cards Employee paychecks Payroll check Payroll disburse- ment data Payroll tax disb. voucher Tax report & payment Payroll report This diagram shows the next level of detail for the context diagram in Figure 3-5.

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart22 of 85 DOCUMENT FLOWCHARTS A document flowchart shows the flow of documents and information among areas of responsibility in an organization. These flowcharts trace a document from cradle to grave and show: –Where a document comes from –Where it’s distributed –How it’s used –It’s ultimate disposition –Everything that happens as it flows through the system

© 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart23 of 85 This is part of the document flowchart from Figure 3-9 in your textbook.