Accounting Information Systems: Introduction Aristotle’s “Nicomachean Ethics” Objectives: To have an overview of Accounting Information Systems; To understand the related concepts of transaction cycles and internal control structure; To agree on a ‘foundational framework’ (aka ‘mother ideas’) for BA 121

Information Systems The term information system suggests the use of computer technology in an organization. Hardware Data Information Software

Major Types of Systems in Organizations Some of the major types of information systems

Information Systems Transactions Processing System (DP) Management Information System (MIS) Decision Support System (DSS) Expert System (ES) Executive Information System (EIS) Accounting Information System (AIS)

A Framework for Information Systems

Transaction Processing Cycles 1. Revenue cycle 2. Expenditure cycle 3. Production cycle 4. Finance cycle

Internal Control Process Reliability of financial reporting Effectiveness and efficiency Compliance

General Model for Accounting Information Systems The External Environment The business organization The Information System Database Management External Sources of Data Data Collection Data Processing Information Generation External End- Users FEEDBACK Internal Sources of Data Internal End- Users FEEDBACK

Overarching theme/purpose: Internal Controls Corporate governance Ethics The business organization ‘Black box’ (IS / AIS) External Sources of Data External End- Users

Internal Control Process What are the elements of internal control? Control environment Risk assessment Control activities Information and communication Monitoring

Internal Control Process Segregation of Duties: No individual or department should control the accounting records relating to its own operation. Internal Auditing: It is an independent appraisal activity within the organization.

The Accounting Function 2 impt. roles: 1) captures and records financial effects of transactions; 2) distributes transaction info to operations personnel to coordinate tasks. The Value of Information:  RELIABILITY -- relevance -- completeness -- & timeliness -- accuracy -- summarization Accounting Independence:  INDEPENDENCE -- accounting activities must be separate from and independent of the functional areas that maintain custody of physical resources.

The I.T. Function Associated with the information resource. Centralized Data Processing Distributed Data Processing (DDP): Disadvantages: Lack of control of organizationwide resources Hardware & software incompatibility Redundant tasks Consolidating incompatible activities Hiring qualified professionals Lack of Standards Advantages: Cost savings; improved cost control responsibility Increased user satisfaction Improved operational efficiency Backup

Evolution of Information Systems Models The Manual Process Model The Flat-File Model Data Storage Data Updating Currency of Information Task-Data Dependency The Database Model The REA (Resources, Events, Agents) Model

The Role of the Accountant Corporate governance Ethics Accountants as Users Accountants as System Designers Accountants as System Auditors External Auditing Assurance IT Auditing Internal Auditing