1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Chapter 1: Introduction to Accounting Information Systems Accounting Information Systems 9e Gelinas ►Dull ► Wheeler

2. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives  Appreciate the complex, dynamic environment in which accounting is practiced.  Know the relationship between the AIS and the organization’s business processes.  Know the attributes of information.  Recognize how information is used for different types of decisions and at various levels in the organization.

3. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives (cont’d)  Recognize how the information system supports the management function.  Recognize the accountant’s role in relation to the current environment for the AIS.  Understand how to use this textbook effectively to learn AIS.

4. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Focus of the Course  Internal Control — a process to provide reasonable assurance that organizational objectives will be achieved.  Chapters 7 and beyond (8, 9, 11, 12, 13, 16)

5. What is an Information System?  An Information System (IS) is interrelated components to collect, process, store and distribute information to support mainly decision makings in an organization  Information technology (IT) describes the combination of computer technology (hardware and software) with telecommunications technology (data, image, and voice networks).  CBIS vs. Manual IS

6. Data vs. Information  Data refers to raw facts Example: inventory part number or sales orders  Information refers to data that have been processed and presented in a form suitable for human interpretation Example: total number of registered students based on each major or geographical purchasing pattern of SUV

7. Example of data

8. Example of information

9. Why study AIS?  Information Age Bill Gates (how much rich?), List of GDPhow much richList of GDP Major TANGIBLE product of Microsoft Information age phenomena  Population of “facebook.com” : 800 million active user  US: 310 million Accounting service  Software  Online

10. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Example of why studying AIS  Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. SOX was enacted in response to the accounting scandals in the early 2000s. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards.

11. WorldCom scandal  Fierce competitors to AT&T and Sprint  Used to have: 88,000 employees 60,000 miles of telephone lines around the world Revenue of $40 billion  Collapsed because of the accounting fraud $11 billion One of the biggest (second: Lehman Brothers, ENRON)  A main trigger Simple: failure of systems integration Four different billing systems © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12. Sarbanes-Oxley Act of 2002 (cont’d) Implications for both public and private accountants: Section 404 (as modified by PCAOB Auditing Standard No. 5) –  Management must identify, document, and evaluate significant internal controls.  Auditors must report on the effectiveness of the organization’s system of internal controls.

13. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Sarbanes-Oxley Act of 2002 (cont’d) Implications for both public and private accountants: Section 409 –  Requires disclosure to the public on a “rapid and current” basis of material changes in an organization’s financial condition.  None of sections possible w/o AIS

14. More examples  Average American relies on more than 250 computers per day More so in accounting  45 of the 2008 Fortune 500 companies were IT companies  Dell Computer is one of them – it was started in 1984 and now has 65,000 employees worldwide 1-14

15. Downside of information age  $490 – credit card number and PIN  $147 – driver’s license number  $147 – birth certificate  $6 – PayPal logon and password  $78-$294 – billing data including account number, address, birth date, etc 1-15

16. Type of Jobs based on Type of Decisions-Makings  Better to have a job that complies with rules of information age….  Structured Small accounting book keepers and small independent travel agencies Routine & Repetitive Problems are predictable Problems can be solved by applying standard solutions

17. Type of Jobs based on Type of Decisions-Makings  Unstructured Accounting consultant Non-routine, Unpredictable, and Fuzzy Standard solutions are not applicable Solve problems by individual judgment

18. Type of Jobs based on Type of Decisions-Makings  Semi-structured Production/inventory accounting manager Combination of non-routine and predictable (production Scheduling) Require a combination of standard solution procedures and individual judgment

19. Effect of Information Age  1) Globalization (Nike Corporation) Global accounting thru computer network (Internet) Dramatic increase of global management  2) Organizational Change Less traditional middle management : collect, process, store and distribute information for various decision makings Cross functional (project based – virtual team or organization)

20. What’s ahead?  Post information age IBM WatsonWatson Khan Academy: education industry Khan Academy Uncertainty (i.e., product life cycle)  Singularity in 2045: Singularity Technological creation of smarter-than-human intelligence Exceed the sum total of human brainpower © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

21. Functions of an information system

22. Competitive Advantage Thru IS or AIS  Definition of competitive advantage Competitive advantage is a significant benefit (ideally long term) to a business over its competitors because of the quality or superiority of products or services which will persuade customers to buy from them rather than from competitors.  Initiative # 1: Cost leadership Achieve competitive advantage by providing lower cost than competitors Wal-Mart: Always Low Price (read this article!): lower price using computerized purchasing and inventory system Wal-Mart: Always Low Price

23. Competitive Advantage Thru IS or AIS  Initiative # 2: Differentiation Achieve competitive advantage by providing more unique and value added products/services than competitors First ATM system by Citibank  Initiative # 3: Focus (Cost leadership + Differentiation) Achieve competitive advantage by providing lower cost + unique and value added products/services Amazon.com (others: SW, DVD, games and extra value added information for each product)

24. Competitive Advantage Thru IS or AIS  Initiative #4: Enhance products and services First Online Order Tracking system by FedEx  Initiative #5: Create new products and services E*Trade.com

25. Risks of IS or AIS success  IS can be easily copied by competitors.  IS can bring on litigation or regulation SABRE by AA: first computer-based online reservation system. Monopolization of the entire market by monopolizing information  Bad timing on-line home banking in the early 1980s by chemical bank  Fail to integrate system: WorldCom

26. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Elements in the Study of AIS

27. Key Information Qualities  Validity: information about actual authorized events and objects.  Accuracy: correspondence or agreement between the information and the actual events or objects that the information represents.  Completeness: degree to which information includes data about every relevant object or event necessary to make a decision and includes that information only once. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

28. Information Qualities Matrix © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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. 4.Implementation

30. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Steps in Decision Making

31. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Management Problem Structure and Information Requirements

32. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Horizontal and Vertical Information Flows  Horizontal information 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 information flows service a multi-level management function from operations and transaction processing through tactical, operations, and strategic management.

33. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Accountant’s Role in Current Business Environment  Designer — application of accounting principles, auditing principles, IS techniques, and systems development methods to design an AIS.  User — participate in the AIS design process.  Auditor — provide audit and assurance services.