Transcript Accounting Information Systems: Essential Concepts and

Chapter 1: The Study of
Accounting Information
Systems
Slides Authored by Somnath Bhattacharya, Ph.D.
Florida Atlantic University
What Is Accounting?
 It is the principal way of organizing and reporting
financial information. It has been called the
“language of business.”
 Accounting and information systems comprise
the functional area of business responsible for
providing information to the other areas to
enable them to do their jobs and for reporting the
results to interested parties.
 To that end, an accounting system is used to
identify, analyze, measure, record, summarize,
and communicate relevant economic information
to interested parties.
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
What Is An AIS?
What important functions does the
AIS perform in an organization?
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.
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
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.
What Is a System?
 A System is an entity consisting of interacting
parts that are coordinated to achieve one or more
common objectives. Systems must possess
Organization:
Transactions-Journals-Ledgers-Financial Statements
Interrelationships:
The relationship between Subsidiary ledgers and the
General Ledger
Integration:
Individual transactions to Financial Statements
Central Objectives:
Financial Reports, Budgets, Management Reports
Data Versus Information
Data are raw facts and figures
that are processed to produce
information
Information is data that have
been processed and are
meaningful and useful to users.
The terms “meaningful” and
“useful” are value-laden terms and
usually subsume other qualities
such as timeliness, relevance,
reliability, consistency,
comparability, etc.
Functional Steps in Transforming
Data into Information
Data collection - capturing, recording,
validating and editing data for
completeness and accuracy
Data Maintenance/Processing classifying, sorting, calculating data
Data Management - storing, maintaining
and retrieving data
Data Control - safeguarding and securing
data and ensuring the accuracy and
completeness of the same
Information Generation - interpreting,
reporting, and communicating information
What Is an Information
System?
 An Information system is a framework in which
data is collected, processed, controlled and managed
through stages in order to provide information to
users
 It evolves over time and becomes more formalized as
a firm grows and becomes more complex. It can be
a manual or computerized system
 Firms depend on information systems in order to
survive and stay competitive
The Universal Data Processing
Model
Storage
Processing
Consumers
Exchange Events
Internal Events
Environmental Events
}
Accounting Information
System
An Accounting Information
System is a unified structure that
employs physical resources and
components to transform economic
data into accounting information
for external and internal users.
Objectives and Users of AIS
Support day-to-day operations
Transaction processing
Support Internal Decision-Making
Trend Analyses
Quantitative & Qualitative Data
Non-transactional sources
Help fulfill Stewardship Role
Resources Required for an AIS
Processor(s): Manual or Computerized
Data Base(s): Data Repositories
Procedures: Manual or
Computerized
Input/Output Devices
Miscellaneous Resources
AIS as an MIS Subsystem
Sales/
Marketing
Production
Info
AIS
Personnel
Finance
Relationship of AIS & MIS
MIS
Finance
Sales/Marketing
Production
AIS
Personnel
Order entry/Sales
Billing/A.Rec./Cash receipts
Purchasing/A. Pay./Cash disb.
Inventory
Payroll
General ledger
Production
Reasons for Studying
Accounting Information Systems
Career accountants will be users, auditors, and
developers of AIS
Modern-day AIS are complex because of new
technologies
Concepts studied in AIS are integrated into
every other accounting course
Information-Oriented
Professionals
An array of professionally trained persons
from different fields of study have focused on
providing information to users
These professionals include system and
managerial accountants and auditors,
system analysts and industrial engineers
Professional certifications are increasing.
These include Certified Computing
Professional, Certified Information
Systems Auditor, Certified Managerial
Accountant, Certified Fraud Examiner,
etc.
The Business Environment
and the AIS
The Business Firm as a System
Environment
of the Firm
Business
Firm
Figure 2-1
Organization
Information
System
Operational
System
Organization’s
functions
AIS Transaction
Cycles
Business Events
from Operations
System Characteristics of
Business Firms
Objectives
Environment
Constraints
Input-Process-Output
Feedback
Controls
Subsystems
Examples of AIS Subsystems
(Merchandising)
Order entry
Sales
System
Shipping
Inventory
System
Revenue
Cycle
Billing/
A. Receivable
Cash Receipts
System
Purchasing/
A. Payable/
Cash Disb.
System
Receiving
Expenditure
Cycle
General
Ledger
System
Ext/Fin. reporting
Tax & req. reporting
Internal reporting
Human
Resource
Management
(Payroll)
System
No Planning/Control, Investment, or Production Cycles reflected here
Examples of AIS
Subsystems: Service Firm Revenue
Billing/
A.Receivables
Cash Receipts
System
Human resource
Management
System
(payroll)
Service firm Revenue Cycle
General
Ledger
System
No Purchasing, Production, Planning/Control, Investment Cycles
reflected here
Examples of AIS
Subsystems: Production Cycle
Inventory
System
Production
System
Purchasing/
A. Payable/
Cash Disb.
System
Production Cycle
General
Ledger
System
Human
Resource
Management
(Payroll
System
No Revenue, and Investment Cycles reflected here
Organizational Structure in
Business Firms
Hierarchical
Matrix: Blend functional and projectoriented structures
Decentralized
Network
A Networked
Organizational Structure
Marketing
Consulting
Services
Consultant
Training
Consultant
Recruitment
Customer
Project
Team
Figure 2-5
Operation
Management
Customer
Services
Management
The Operational System of
a Manufacturing Firm
Facilities
Manufacturing Firm
Labor
(human
services)
Supporting
Operations
Material
from
Supplier
Acquiring
Materials
Producing
Finished
Goods
Storing
Finished
Goods
Data
Shipping
Finished
Goods
Goods
to
Customer
Information
AIS
Funds
Figure 2-7
Data and information flow
Physical flows
Funds
Useful Data Elements
Concerning a Business Event
The nature of the element and when it
occurred
Which “agents” were involved
What kinds of resources were involved
and in what quantities
Where the event took place
Data Management:
Some Specifics
Field 1 Field 2 Field 3
File
{
Field 1 Field 2 Field 3 Records
Field 1 Field 2 Field 3
Some More Specifics
 The manual activity of journalizing transactions is
equivalent to the computerized recording of
transactions in a transaction file
 In general, manual accounting journals are
equivalent to computerized transaction files
 Similarly, manual general ledger and subsidiary
ledgers are equivalent to computerized Master
files. e.g., There is typically 1 record in the
general ledger for each account in an entity’s
chart of accounts
 Examples of Master files include:
Accounts Receivable Master File
Accounts Payable Master File
Inventory Master File
AIS Enhancements Through
Information Technology and
Networks
Importance of IT and Computer
Networks to Accountants
To use, evaluate, and develop a modern
AIS, accountants must be familiar with IT
Computers enable accountants to perform
their duties more quickly, accurately, and
consistently than by manual methods
Software such as electronic spreadsheets
aid accountants in analyzing financial
statements and in developing budgets
IT Components of Interest
to Accountants
Devices for data entry
Data Processing
Data Communication
Information Generation
Data Bases
Data Modeling concepts
Evaluation of internal controls in AIS
Variety of software packages
Computer Networks
Networks & Accountants
Because they transmit data and information,
networks are an integral part of AIS
Networks are vulnerable to high level risk thus
requiring special controls and security measures.
Need to prevent loss of accounting records &
information
Need to ensure accuracy of data
Networks may be used to consolidate data into
financial information
Gains from IT for Accountants
 Faster processing of transactions and other data
 Greater accuracy in computations of and
comparisons with data
 Lower cost of processing each transaction
 More timely preparation of reports and other
outputs
 More concise storage of data, with greater
accessibility when needed
 Wider range of choices for entering data and
providing outputs
 Higher productivity for employees and managers,
who learn to use computers effectively in their
routine and decision-making responsibilities
Task Matching to Computers
Manual
 Exceptional/infrequent
transactions
 Setting objectives and policymaking judgments
 New problems
 Supervising employees
 Social communications
 Making complex strategic
decisions
Figure 3-1
Computerized
 Collecting and processing large
volumes of routine
transactions
 Storing large quantities of data
and information
 Monitoring and controlling
continuous processes
 Answering specific inquiries
based on stored data
 Preparing complex analyses
and extensive reports
 Helping gather data and
understanding the
relationships between all types
of decisions
Limitations of Infoage’s
Legacy AIS
 Large portion of personnel time and effort spent
on systems maintenance
Little time & effort for value-added services
Little flexibility to changing business conditions
 Financial and Operational data not integrated
Difficult to generate data with both financial and non-financial
components
 The transaction processing systems focus on
chart of accounts classification
Ignore the multidimensional aspects of transactions
Files related to applications are not integrated
 Inefficiencies of the manual system remodeled in
automated form
Business processes and accounting procedures not analyzed and
improved upon prior to conversion to automated form
 System not geared to generate timely decisionsupport information
Computer programmers required to write new programs for ad hoc
queries
Types of Network
Architectures
Wide-Area Networks
Formed among computers and interconnected devices that are geographically
distant from one another
Local-Area Networks
A type of distributed network created when
two or more linked computers are grouped
within a limited geographical area
Centralized WANs - I
 Concentrates all application processing at one
geographical location
 Consists essentially of one (or a cluster of) central
mainframe computer(s) and one or more physically
remote terminals
 Typically all hardware, software, and data processing
personnel are located at corporate headquarters
 Advantages include:
 the concentrated computing power of a large processor
low operating costs per transaction leading to economies of
scale
can facilitate the use of a database approach
facilitate better security provisions
allow for greater standardization and professional planning and
control of information-related activities
Centralized WANs - II
 Best suited for
Firms with centralized organizational structures
Firms with homogeneous operations
Firms with low processing activity at remote sites
 Examples include
Savings and loan institutions
Banks with many ATMs and branches
Merchandizing chains
Motels
Airlines
 Drawbacks include
Inflexibility
Expensive and complicated software needed
Vulnerable to disasters as a result of complete dependence on
central computer
Not user-friendly
Distributed WANs - I
This links fully functional computers in different
geographical locations.
Each remote site processes its own applications.
However, users may not have easy access to
centralized data or be able to transmit data and
information rapidly.
Computers may be interconnected by data
communications hardware and software to other
remote sites and to a central computer facility to
form an “enterprise-wide” network.
Distributed WANs - II
 Distributed databases are useful when:
Large volumes of data need to be processed at remote locations
Managers and employees need very fast access to data on a
frequent basis
 Databases may be distributed by replication or partition.
Replication: Copies of files from the main data base are stored
at remote locations
Partition: Segments of files are allocated to various locations
within the network
This avoids data redundancy, but increases the complexity of
transmitting data throughout the network
Likely to become the dominant approach as technology improves
At present most data bases are a hybrid of the two approaches
Benefits of Distributed
WANs
 Can be responsive to diverse needs of users
 Enable network facilities to be used efficiently
since processing jobs can be routed to unused
computer systems in the network
 Are robust against individual computer failures
 Flexible and adaptable to change
 Best suited for firms with:
Decentralized organizational structures
Diverse operations or user groups
Clustered functions at various locations
Multiple products
Manufacturing operations
A variety of services
Drawbacks of Distributed
WANs
Difficulty in maintaining adequate control and
security
Each distributed processing location needs its own
set of controls and security measures
Given the smallness of each location,
organizational independence is not easily
achieved
Managers may sacrifice control and security for
greater productivity
Difficulty and cost of coordinating the relatively
independent and sometimes incompatible
computer systems
Added costs for multiple computers, other system
components, and communication services
LANs
A LAN may be connected to other LANs
and/or WANs via hardware devices known
as gateways or bridges
At the heart of a LAN is the workstation
Microcomputer-based workstation
Traditional workstation
Super workstation
Peer-to-Peer LANs
In smaller LANs, every workstation
functions as both a client and a server
This allows all users to share data and files on
all workstations
Called peer-to-peer network since no
workstations are dedicated to perform only
server functions
Compared to a server network, peer-to-peer
networks are less costly, easier to install, and
compare well against server networks of
similar size
Number expected to significantly increase in
the near future
Server Networks
 May interconnect hundreds of workstations
 More difficult to manage and interpret than peer-to-peer
networks
 Provide greater security than peer-to-peer networks
 At least one workstation is dedicated to performing
specific server tasks
 Examples include:
Servers
Database servers
Print servers
Communications servers
Transaction processing servers
 Large server networks often contain multiple servers
The Network Operating
System
 In peer-to-peer networks, the Network Operating
Software (NOS) is installed in each user workstation
 In a server network, most of the NOS is installed in the
file server and a portion also resides in each workstation
 To run centralized LAN applications, the NOS installed in
the file server interacts with the NOS and the local
operating system installed in the workstation. The client
workstation NOS initiates a request to the file server
NOS to load files and programs into the client
workstation’s RAM
 In a peer-to-peer network, a client NOS initiates a
request to another client NOS, which also functions as a
server, to load the requested files and/or programs into
RAM
More Networks
Examples of pre-developed network
configurations resident in Network Interface
Cards include: Ethernet, Token Ring, and ARCnet
The International Standards Organization has
issued the Open Systems Interconnection (OSI)
model
Open Systems Architecture
Seamless exchange of data, files, and software
between LANs and WANs built with multiple vendors’
hardware, software, and networking components
Client/Server Networks
This model splits data processing between
a user workstation (client) and one or
more servers
Majority of servers are dedicated database
servers, thereby enabling client to share
data and files, conduct database searches,
and update the database
One of the fastest growing segments of IT
Cooperative Client/
Server Computing
Most commonly implemented mode of
client/server architecture
Facilitates the optimal sharing of
computer resources since the client(s) and
server(s) jointly process the data
Clients typically employ Graphical User
Interfaces (GUIs)
Data-processing locale is transparent to
the user
Network Topologies
The STAR and RING topologies apply to
both distributed WANs and LANs
The BUS topology applies only to LANs
All three found in client/server networks
All three may be combined to form hybrid
configurations
The STAR Configuration
Figure 3-3a
The RING Configuration
Figure 3-3b
The BUS Configuration
Figure 3-3c
Enterprise-wide Processing
and Data Systems
 Enterprise-wide on-line transaction processing systems
collect and process mission-critical accounting and
operational applications
 Enterprise Resource Planning Systems (ERP) such as
SAP R/3 overcome the limitations of legacy applications
 Firms typically develop two types of On-line Analytical
Processing (OLAP) systems that supplement ERP or
legacy systems
A firm can model the relevant aspects of business events
contained within the business processes allowing for the use of
relational database-related query language commands
Firms can create a data mart or data warehouse to generate
predefined reports for executives and other managers
Data Marts and Data
Warehouses
 Both Data Marts and Data Warehouses organize and
store copies of “informational” or decision support data
 A Data Mart stores copies of decision support data in a
data base for a portion of a company
 A Data Warehouse stores copies of decision support
data in an integrated data base for an entire enterprise
 As opposed to applications-oriented data in legacy
systems, data in a data mart or warehouse are stored by
subject areas (e.g., customers)
 Data may be stored in both summarized or “raw” form
 Both have “drill down” and “data mining” features
Specialized Inter-organizational
Systems/Networks
Internet Commerce and Electronic Commerce
Point-of-Sale Systems/Networks
Electronic Funds Transfer (EFT) Systems
Electronic Data Interchange (EDI) Systems
Value Added Networks (VANs)
The Internet (TCP/IP)
The World Wide Web (WWW)
Hypertext information retrieval system
Intranets
Extranets