1. PowerPoint Presentation Materials
Accounting Information Systems:
Basic Concepts and Current Issues
2nd edition
Robert L. Hurt
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Role and Purpose of Accounting Information Systems
Chapter 1
Role and Purpose of Accounting Information Systems

3. Outline Objectives Definition of accounting information systems
FASB Conceptual Framework
Typical AIS structure
Information competence
Textbook structure
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4. Objectives When you finish this chapter, you should be able to:
Define “accounting information systems”
Discuss why AIS is an important area of study for future accountants
Compare and contrast AIS with other areas of study in accounting
Explain the structure of most accounting information systems
Locate and evaluate information sources on accounting information systems
Describe the structure and content of the remainder of this text
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5. Definition of AIS Interrelated activities, documents and technologies
Collect data and process it
Report information
Diverse group of internal and external decision makers
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6. FASB Conceptual Framework
Developed in 1977
Well-designed AIS can respond to many elements
Components
Objectives of financial reporting
Elements of financial statements and qualitative characteristics
Assumptions, principles and constraints
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7. FASB Conceptual Framework

8. FASB Conceptual Framework
Objectives of financial reporting
Framework lists multiple objectives
For AIS study, the most important may be the most basic: to provide information for decision making
Elements of financial statements
Balance sheet: assets, liabilities, equity
Income statement: revenues, expenses, gains, losses
Other: comprehensive income
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9. FASB Conceptual Framework
Qualitative characteristics
Primary
Relevance: information makes a difference in decisions
Reliability: information can be relied upon for decisions
Secondary
Comparability: between organizations
Consistency: across time
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10. FASB Conceptual Framework
Assumptions
Economic entity: a business is separate from its owners
Going concern: a business will survive long enough to meet its current obligations
Periodicity: the life of a business is divided into time periods for financial reporting
Monetary unit: the value of a dollar is stable
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11. FASB Conceptual Framework
Principles
Historical cost: in general, items in the AIS are recorded at their historical cost
Realization: revenue can be recorded in the AIS when the earnings process is essentially complete
Matching: expenses should appear on the income statement with the revenue they helped generate
Full disclosure: give decision makers all the information they need
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12. FASB Conceptual Framework
Constraints
Cost effectiveness: the benefit of having information must exceed the cost of obtaining it
Materiality: dollar amounts must be large enough to make a difference in decisions
Conservatism: when choosing between accounting practices, make the choice that presents the “worst case” scenario
Industry practices: follow the conventions of the industry in financial reporting
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13. Typical AIS structure Inputs Processes Outputs Storage
Such as source documents
Processes
Journals, ledgers, information technology
Outputs
General purpose financial statements and other reports
Storage
Paper-based or electronic
Internal controls
Designed to
Safeguard assets
Promote operating efficiency
Encourage adherence to management rules
Ensure reliable financial reports
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14. Information competence
Problems in accounting information systems often have more than one “correct” answer
In other words, they are non-deterministic
But, some answers are clearly incorrect
Research is often required to address problems in AIS
Therefore, accountants must be able to evaluate information
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15. Information competence
Definition
Information competence is the ability to find, evaluate, use, and communicate information in all of its various formats (Curzon, 1995)
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16. Information competence
Types of information
Sponsored / commercial
Someone has paid a fee or given other consideration
Popular / practitioner
Has been reviewed. May be descriptive in nature.
Scholarly
Has been reviewed. Typically intended for academic audiences.
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17. Information competence
Criteria for evaluating information (UMUC)
Authority
Accuracy
Objectivity
Currency
Coverage
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18. Information competence
Authority
Who created the information?
For what purpose?
Objectivity
Does the information contain advertising?
Is it available freely?
Accuracy
Where did the information come from?
Any obvious factual errors?
Currency
When was the information created / written?
When was it last updated?
Coverage
Is the information continually “under construction?”
Does it provide sufficient depth?
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19. Textbook structure Part One: Introduction and Basic Concepts
Nature and purpose of AIS
Transaction processing
Professionalism and ethics
Internal control
Part Two: Documentation Techniques
Flowcharting
Data flow diagramming and database design
REAL modeling
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20. Elements in the Study of AIS

21. Implications for both public and private accountants
Sarbanes-Oxley Act of 2002
Section 404 –
Management must identify, document, and evaluate significant internal controls
Auditors must report on management’s assertions regarding internal controls
Section 409 –
Requires disclosure to the public on a “rapid and current” basis of material changes in an organization’s financial condition.
Implications for both public and private accountants

22. Accounting Systems and Subsystems
A system is a set of interdependent elements that together accomplish specific objectives.
A subsystem is the interrelated parts that have come together, or integrated, as a single system, which we have named System 1.0.

23. Information System Model
An information system (IS) (or management information system [MIS]) is a manmade system that generally consists of an integrated set of computer-based and manual components established to collect, store, and manage data and to provide output information to users.
The Figure on the next slide depicts the functional components of an information system.

24. Information System Model

25. Purpose of AIS
Collect, process and report information related to the financial aspects of business events
Often integrated and indistinguishable from overall information system
Like the IS, the AIS may be divided into components based on the operational functions supported.

26. Information Qualities

27. INFORMATION QUALITIES
STATEMENT OF FINANCIAL ACCOUNTING CONCEPTS NO. 2: “QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION”

28. Information Qualities Control Matrix

29. Management Decision Making
1. Intelligence: Searching the environment for conditions calling for a decision.
2. Design: Inventing, developing, and analyzing possible courses of action.
3. Choice: Selecting a course of action.

30. Management Decision Making

31. Vertical information flows
Strategic
Management
Vertical information flows
Tactical Management
Operations
Management
Operations and
Transaction Processing
Horizontal information flows

32. Management Problem Structure and Information Requirements
Horizontal flows relate to specific business events, such as one shipment, or to individual inventory items.
the information moves through operational units such as sales, the warehouse, and accounting.
Vertical Flows relate to the flow of information to and from strategic management through tactical management, operations management, and operations and transaction processing

33. Management Problem Structure and Information Requirements
Higher up the pyramid, the less structured the decision
Less defined
External orientation
More summarized information
Future oriented
Less frequent
Less accurate
Lower down the pyramid, the more structured the decision
More defined
Internal orientation
More detailed information
Historical
More frequent
More accurate

34. Accountant’s Role
Designer—application of accounting principles, auditing, information systems, and systems development
User—participate in design
Auditor—provide audit and assurance services

35. A weekend edition of the NY Times contains more information than the average person was likely to come across in a lifetime in seventeenth-century England.

36. More new information has been produced in the last 30 years than in the previous 5,000.

37. About 1,000 books are published internationally every day, and the total of all printed knowledge doubles every eight years.

38. The world produces between 1 and 2 exabytes of unique information per year, which is roughly 250 megabytes for every man, woman, and child on earth.

39. Data Powers of Ten Byte - 8 bits Kilobyte – 1,000 bytes or 103 bytes
Megabyte – 1,000,000 bytes or 106 bytes
Gigabyte – 1,000,000,000 bytes
Terabyte – 1,000,000,000,000 bytes
Petabyte – 1,000,000,000,000,000 bytes
Exabyte – 1,000,000,000,000,000,000 bytes

40. Data Powers of Ten Zettabyte – 1,000,000,000,000,000,000,000 bytes
Yottabyte –
1,000,000,000,000,000,000,000,000 bytes

41. Textbook structure
Part Three: Systems Analysis and Information Technology
Information technology basics
Information systems models
XBRL
E-business and ERP systems
Part Four: Business Processes
Sales / collection
Acquisition / payment
Other business processes
Business process management
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42. Textbook structure Part Five: Other Topics in AIS
Computer crime and IT security
Decision-making models and knowledge management
Professional certifications and career planning
Auditing and evaluating the AIS
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