Anup Kumar Saha 1-1 Accounting Information Systems: An Overview

Anup Kumar Saha 1-2 Learning Objectives 1. Explain what an accounting information system (AIS) is and describe the basic functions it performs. 2. Discuss why studying the design and management of an AIS is important. 3. Explain the role played by the AIS in a company’s value chain and discuss ways that the AIS can add value to a business. 4. Describe and contrast the basic strategies and strategic positions that a business can adopt.

Anup Kumar Saha 1-3 Introduction: S&S Inc. Scott Parry and Susan Gonzalez form S&S, Inc., to sell consumer electronic devices. Parry and Gonzalez decide to pursue a “clicks and bricks” strategy. They plan to hold the grand opening of S&S in five weeks.

Anup Kumar Saha 1-4 Introduction: S&S, Inc. What types of important decisions do Scott and Susan have to make? How to organize their accounting records How to design a set of procedures to ensure that they meet all of their government obligations How to price their products

Anup Kumar Saha 1-5 Introduction: S&S, Inc. Whether to extend credit, on what terms, and how to accurately track what customers owe and have paid How to hire, train, and supervise their employees How to keep track of cash flows The appropriate product mix and quantities to carry What functionality to provide on their website Important decisions, continued

Anup Kumar Saha 1-6 Introduction This chapter defines an accounting information system (AIS). It discusses why AIS is an important topic to study. It describes how an AIS adds to an organization’s value chain. It describes and contrasts the basic strategies that a business can pursue.

Anup Kumar Saha 1-7 Learning Objective 1 Explain what an accounting information system (AIS) is and describe the basic functions it performs.

Anup Kumar Saha 1-8 What Is An AIS? A system is a set of two or more interrelated components that interact to achieve a goal. Systems are almost always composed of smaller subsystems, each performing a specific function supportive of the larger system. An accounting information system (AIS) consists of: People Procedures Data Software Information technology infrastructure

Anup Kumar Saha 1-9 What Is An AIS? 1 It collects and stores data about activities and transactions. 2 It processes data into information that is useful for making decisions. 3 It provides adequate controls to safeguard the organization’s assets. What important functions does the AIS perform in an organization?

Anup Kumar Saha 1-10 Learning Objective 2 Discuss why studying the design and management of an AIS is important.

Anup Kumar Saha 1-11 Why Study AIS? In Statement of Financial Accounting Concepts No. 2, The FASB... – defined accounting as an information system. – stated that the primary objective of accounting is to provide information useful to decision makers.

Anup Kumar Saha 1-12 Why Study AIS? The Accounting Education Change Commission recommended that the accounting curriculum should provide students with a solid understanding of three essential concepts: 1. The use of information in decision making 2. The nature, design, use and implementation of an AIS 3. Financial information reporting

Anup Kumar Saha 1-13 Why Study AIS? To understand how the accounting system works. How to collect data about an organization’s activities and transactions How to transform that data into information that management can use to run the organization How to ensure the availability, reliability, and accuracy of that information

Anup Kumar Saha 1-14 Why Study AIS? Auditors need to understand the systems that are used to produce a company’s financial statements. Tax professionals need to understand enough about the client’s AIS to be confident that the information used for tax planning and compliance work is complete and accurate.

Anup Kumar Saha 1-15 Why Study AIS? One of the fastest growing types of consulting services entails the design, selection, and implementation of new Accounting Information Systems. A survey conducted by the Institute of Management Accountants (IMA) indicates that work relating to accounting systems was the single most important activity performed by corporate accountants.

Anup Kumar Saha 1-16 Information Technology and Corporate Strategy The same survey conducted by the Institute of Management Accountants (IMA) also indicates that the second most important job activity of corporate accountants is long- term strategic planning.

Anup Kumar Saha 1-17 The CITP Designation CITP: certified information technology professional Identifies CPAs who possess a broad range of technological knowledge and the manner in which information technology (IT) can be used to achieve business objectives Reflects the AICPA’s recognition of the importance and interrelationship of IT with accounting

Anup Kumar Saha 1-18 Ten Most Important Activities Performed By Accountants 1.Accounting systems and financial reporting 2.Long-term strategic planning 3.Managing the accounting and finance function 4.Internal Consulting 5.Short-term budgeting 6.Financial and economic analyses 7.Process improvement 8.Computer systems and operations 9.Performance evaluation 10.Customer and product profitability analyses

Anup Kumar Saha 1-19 Factors Influencing Design of the AIS Organizational Culture Strategy Information Technology AIS

Anup Kumar Saha 1-20 Learning Objective 3 Explain the role played by the AIS in a company’s value chain and discuss ways that the AIS can add value to a business.

Anup Kumar Saha 1-21 The Value Chain The ultimate goal of any business is to provide value to its customers. A business will be profitable if the value it creates is greater than the cost of producing its products or services.

Anup Kumar Saha 1-22 The Value Chain An organization’s value chain consists of nine interrelated activities that collectively describe everything it does. The five primary activities consist of the activities performed in order to create, market, and deliver products and services to customers and also to provide post-sales services and support.

Anup Kumar Saha 1-23 The Value Chain Primary Activities Inbound Logistics Outbound Logistics Operations Marketing and Sales Service

Anup Kumar Saha 1-24 The Value Chain The four support activities in the value chain make it possible for the primary activities to be performed efficiently and effectively.

Anup Kumar Saha 1-25 The Value Chain Support Activities Infrastructure Human Resources Technology Purchasing

Anup Kumar Saha 1-26 The Value System The value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers. An organization’s value chain and the value chains of its suppliers, distributors, and customers collectively form a value system.

Anup Kumar Saha 1-27 The Supply Chain Raw Materials Supplier Manufacturer Distributor Retailer Consumer

Anup Kumar Saha 1-28 How An AIS Can Add Value To An Organization An AIS adds value... – by providing accurate and timely information so that five primary value chain activities can be performed more effectively and efficiently.

Anup Kumar Saha 1-29 How An AIS Can Add Value To An Organization – An AIS adds value by: – improving the quality and reducing the costs of products or services. – improving efficiency. – Improving decision making capabilities. – increasing the sharing of knowledge. A well-designed AIS can also help an organization profit by improving the efficiency and effectiveness of its supply chain.

Anup Kumar Saha 1-30 Information and Decision Making What is information? The term data refers to any and all of the facts that are collected, stored, and processed by an information system. Information is data that has been organized and processed so that it is meaningful.

Anup Kumar Saha 1-31 Data Needs For Activities Resource Event Agent InventorySale Customer Sales CashPayment Cashier Supplier Generic Example Sales Transaction Payment to Supplier

Anup Kumar Saha 1-32 Information and Decision Making Characteristics of Useful Information Understandable Verifiable TimelyRelevant Reliable Complete

Anup Kumar Saha 1-33 Information and Decision Making What is decision making? Decision making involves the following steps: 1. Identify the problem. 2. Select a method for solving the problem. 3. Collect data needed to execute the decision model. 4. Interpret the outputs of the model. 5. Evaluate the merits of each alternative. 6. Choose and execute the preferred solution.

Anup Kumar Saha 1-34 Information and Decision Making Decisions can be categorized as follows: – in terms of the degree of structure that exists – by the scope of the decision

Anup Kumar Saha 1-35 Decision Structure Structured decisions are repetitive, routine, and understood well enough that they can be delegated to lower- level employees in the organization. An example is: Extending credit to customers.

Anup Kumar Saha 1-36 Decision Structure Semistructured decisions are characterized by incomplete rules for making the decision and the need for subjective assessments and judgments to supplement formal data analysis. An example is: Setting a marketing budget for a new product.

Anup Kumar Saha 1-37 Decision Structure Unstructured decisions are nonrecurring and nonroutine. An example is: Choosing the cover for a magazine.

Anup Kumar Saha 1-38 Decision Scope Decisions vary in terms of the scope of their effect. Operational control is concerned with the effective and efficient performance of specific tasks. Management control is concerned with the effective and efficient use of resources for accomplishing organizational objectives. Strategic planning is concerned with establishing organizational objectives and policies for accomplishing those objectives.

Anup Kumar Saha 1-39 Learning Objective 4 Describe and contrast the basic strategies and strategic positions that a business can adopt.

Anup Kumar Saha 1-40 Information Technology and Corporate Strategy New developments in IT affect the design of an AIS. What basic requirements are needed to evaluate the costs and benefits of new IT developments?

Anup Kumar Saha 1-41 Information Technology and Corporate Strategy Develop a basic understanding of… – corporate strategies. – how IT developments can be used to implement existing organizational strategies. – how IT developments can be used to create an opportunity to modify existing strategies.

Anup Kumar Saha 1-42 Information Technology and Corporate Strategy Because an AIS functions within an organization, it should be designed to reflect the values of that organizational culture.

Anup Kumar Saha 1-43 Strategy and Strategic Positions Two Basic Strategies To be a lower-cost producer than competitors To differentiate products and services from competitors

Anup Kumar Saha 1-44 Strategy and Strategic Positions Three Basic Strategic Positions Variety-based strategic position Need-based strategic position Access-based strategic position

Anup Kumar Saha 1-45 Strategy and Strategic Positions What role does the AIS play in helping organizations adopt and maintain a strategic position? – Data collection about each activity – Transforming data into information that can be used by management to coordinate those activities

Anup Kumar Saha 1-46 What is the Value of Information? The value of information is the benefit produced by the information minus the cost of producing it.

Anup Kumar Saha 1-47 The Role of the AIS The Internet makes strategy more important than ever Enterprise resource planning (ERP) systems integrate all aspects of a company’s operations with its traditional AIS. The key feature of ERP systems is the integration of financial data and other nonfinancial operating data.

Anup Kumar Saha 1-48 End of Topic 1