Accounting Information Systems: An Overview Professor Martin Professor Xiong CSUS This lecture is based primarily on Romney & Steinbart(2003). It also draws on Martin (2002). Updated on: Monday, September 3, 2003

Chapter 1 Overview of AIS Agenda Chapter 1 Overview of AIS Agenda  The Accounting Information System (AIS)  Why study AIS?  The Role of AIS In the Value Chain

What is information System? t A system is a set of two or more interrelated components that interact to achieve a goal. t Systems are almost always composed of smaller subsystems, each performing a specific function supportive of the larger system.

Components of AIS u People u Procedures u Data u Software u Information technology

AIS Functions Collect and store data about activities and transactions Collect and store data about activities and transactions Transaction Processing Systems (TPS) Transaction Processing Systems (TPS) Process data into information useful for making decisions Process data into information useful for making decisions Provide adequate controls to safeguard organization’s assets Provide adequate controls to safeguard organization’s assets

The Scope of AIS ACCOUNTING INFORMATION SYSTEMS MANAGEMENT INFORMATION SYSTEMS ACCOUNTING Distinguishing Feature = Transaction Processing for Accountability Purposes Financial Reporting Managerial Decision Making Auditing & Control Taxation Management Science Behavioral & Organizational Science Supply Chain Computer Science Source: JIS editorial, 1989

cookie cashExchange or Transformation BUSINESS PROCESS DEFINITION: A business process is a set of activities that takes one or more types of inputs and turns them into an output of greater value to the customer (Hammer)

delivered raw materials delivered manufactured goods $$ manufactured goods paymentsale Cash payment logistical operation shipment labor payment labor acquire labor facilities, services & technology payment service acquire manufacture job material issue manufacture operation $$ service contract service operation product services labor raw materials purchase payment $$ Example Value Chain (source, make, deliver) ______ _______ Source: ebXML BP Catalog

delivered raw materials delivered manufactured goods $$ manufactured goods cash recsale Cash receipt Cash paymnt logistical operation shipment labor payment labor acquire labor facilities, services & technology payment service acquire manufacture job material issue manufacture operation $$ service contract service operation product services labor raw materials purchase payment $$ Example Value Chain (per Porter and SCOR) Source: ebXML BP Catalog

AIS Subsystems  Expenditure cycle: buying and paying for goods or services used by organization  Production cycle: converting raw materials and labor into finished goods  Human resources/payroll cycle: hiring and paying employees

AIS Subsystems  Revenue cycle: selling goods or services and collecting payment  Financing cycle: obtaining necessary funds to  run organization  repay creditors  distribute profits to investors

AIS Subsystems Financing Revenue Expendi- ture General Ledger Funds Human Resources Funds Produc- tion Raw Materials R a w M a t e r i a l s Labor Finished Goods Cash Data

Agenda  The Accounting Information System (AIS)  Why Study AIS?  The Role of AIS in the Value Chain

Why Study AIS t 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.

Why Study AIS? t To understand how the accounting system works. u How to collect data about an organization’s activities and transactions u How to transform that data into information that management can use to run the organization u How to ensure the availability, reliability, and accuracy of that information

Why Study AIS? t Auditors need to understand the systems that are used to produce a company’s financial statements. t 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.

Why Study AIS? t One of the fastest growing types of consulting services entails the design, selection, and implementation of new Accounting Information Systems. t 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.

Ten Most Important Activities Performed By Accountants 1. Long-term strategic planning 2. Managing the accounting and finance function 3. Accounting systems and financial reporting 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

Technology and the Accounting Curriculum Responses from 151 universities and 62 firms ( survey by Hastings et al. (2002) 5 areas out of 14 are seen by % of respondents as needing coverage to 3 weeks or more t Excel (80%) t Access (74%) t E-Business Concepts (61%) t System Security (52%) t Business Process Analysis (66%)

New Designations t Certified Information Technology Professional (CITP) t Certified Information Systems Auditor- Newest Designation (CISA) t 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 t Reflects the AICPA’s recognition of the importance and interrelationship of IT with accounting

Agenda  The Accounting Information System (AIS)  Why Study AIS?  The Role of AIS in the Value Chain

The Value Chain t Value chain consists of 9 interrelated activities t 5 primary activities consist of: u receiving and storing materials, manufacturing, marketing, and delivering products / services to customers u providing post-sales services and support t 4 support activities

Porter’s Value Chain Model Firm Infrastructure Human Resource Management Technology Development Procurement Support Activities Primary Activities Profit Margin Inbound Logistics Operations Outbound Logistics Marketing / Sales Service

The Value System t Value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers t An organization’s value chain and value chains of its suppliers, distributors, and customers collectively form a value system

Supply Chain Retailer Wholesaler Distributor Manufacturer Orders Customer Deliveries E-Commerce Bypass Demand

How AIS Adds Value t An AIS adds value by: – providing accurate and timely information to perform various value chain activities – improving efficiency and effectiveness of value chain activities

Information t Data : facts collected, stored, and processed by information system t I nformation: data organized and processed so it is meaningful u for business decision making

Value of Information t Value of information u benefit produced by information u minus cost of producing it.

Topics Discussed  The Accounting Information System (AIS)  Why Study AIS?  The value of AIS