Transcript Chapter 2
Chapter 1 The Information System: An Accountant’s Perspective 1 The Information Age In the information age, fewer workers are making products, and a large segment of the employee population is involved in producing, analyzing, and distributing information. Knowledge workers comprise much of the labor force. A major contributor to the information age is the Internet. 2 Why Study AIS? Statement of Financial Accounting Concepts No. 2 (SFAS 2), Financial Accounting Standards Board, defines accounting as being an information system Primary objective – to provide information useful to decision makers 3 Why Study AIS??? Many other systems courses cover the design and implementation of IS AIS focuses on accountability and controls which safeguard an organization’s assets and data and are incorporated in all IS 4 Information Technology and Corporate Strategy Information technology must be aligned with the corporate strategy Corporate strategy is one of the factors that should influence the design of an AIS New developments in IT affect the design of an AIS – changed the way accounting and many other business activities are performed IT can be used to accomplish the basic functions of the AIS 5 AIS and Corporate Strategy Many opportunities to invest in IT so that the AIS can be improved to add value to an organization. Limited resources Must identify which potential AIS improvements are likely to yield the greatest return Must understand an organization’s strategy 6 Strategy and Strategic Positions Michael Porter, world-renowned professor of business at Harvard, Must deliver greater value to the customers or create comparable value at a lower cost Be a lower-cost producer than competitors Differentiate one’s products and services from one’s competitor and in doing so at costs below its industry average 7 Strategy and Strategic Positions Strategic positions: Variety-based position – producing or providing a subset of the industry’s products or services – Jiffy Lube: focuses on oil changes and lubrication services Needs-based position – try to serve most or all of the needs of a particular group of customers – AARP: focuses on retirees 8 Strategy and Strategic Positions Access-based position – serving a subset of customers who differ from other customers in terms of factors such as geographic location or size, which creates different requirements for serving those customers – Edward Jones: stock brokerage offices are located primarily in smaller towns and cities not served by the larger brokerage houses 9 The Value Chain and The Value System Primary Activities – Activities that produce revenue or produce interaction with customers • Inbound logistics – receiving storing, and distributing the inputs required to produce products or services • Operations – transform inputs into final products or services • Outbound logistics – distributing products or services to customers • Marketing and Sales – help customers to buy organization’s products services • Services – repair and maintenance functions 10 The Value Chain and Value System Support activities –make it possible for the primary activities to be performed efficiently and effectively • Firm infrastructure – accounting, finance, legal support, and general administrative activities • Human resources – recruiting, hiring, training, and providing employment benefits and compensation • Technology – activities to improve products or services • Purchasing – procuring raw materials, supplies, and property, plant, and equipment 11 Value System An organization’s value chain and the value chains of its suppliers, distributors, and customers collectively form a value system 12 How an AIS Can Add Value Improves the efficiency and effectiveness of value chain activities Improve products or services by increasing quality, reducing costs or adding desirable features Increase efficiency of operations by delivery of timely information Provides timely and reliable information to improve decision making Improves the sharing of knowledge and expertise 13 Internal & External Flows of Information Top Management Stakeholders Middle Management Operations Management Customers Operations Personnel Day-to-Day Operations Personnel Suppliers Internal Information Flows Horizontal flows of information used primarily at the operations level to capture transaction and operations data Vertical flows of information downward flows--instructions, quotas, and budgets upward flows--aggregated transaction and operations data 15 Information Requirements Each user group has unique information requirements. The higher the level of the organization, the greater the need for more aggregated information and less need for detail. 16 Decision Structure Structured decisions – repetitive, routine, and understood well enough that they can be delegated to lower-level employees Semi-structured decisions – incomplete rules for making the decision, need subjective assessments and judgments to supplement formal data analysis Unstructured decisions – nonrecurring and nonroutine 17 Information in Business Information is a business resource: ... needs to be appropriately managed ...is vital to the survival of contemporary businesses 18 What is Information? Information is processed data that is used to make decisions, resolve conflicts, and/or reduce uncertainty. 19 What is a System? A group of interrelated multiple components or subsystems that serve a common purpose System or subsystem? A system is called a subsystem when it is viewed as a component of a larger system. A subsystem is considered a system when it is the focus of attention. 20 System Decomposition vs. System Interdependency System Decomposition the process of dividing the system into smaller subsystem parts System Interdependency distinct parts are not self-contained they are reliant upon the functioning of the other parts of the system all distinct parts must be functioning or the system will fail 21 Examples of Systems Biological cell human body Mechanical water heater computer Others solar system mathematics E = mc2 22 What is an Information System? An information system is the set of formal procedures by which data are collected, processed into information, and distributed to users. 23 Information System Objectives in a Business Context The goal of an information system is to support ...the stewardship function of management. ...management decision making. ...the firm’s day-to-day operations. 24 Transactions A transaction is a business event. Financial transactions economic events that affect the assets and equities of the organization e.g., purchase of an airline ticket Nonfinancial transactions all other events processed by the organization’s information system e.g., an airline reservation--no commitment by the customer 25 Transactions Financial Transactions Nonfinancial Information System User Decisions Information Transactions 26 What is Accounting Information Systems? Accounting is an information system which identifies, collects, processes, and communicates economic information about an entity to a wide variety of people regardless of the technology captures and records the financial effects of the firm’s transactions distributes transaction information to operations personnel to coordinate many key tasks 27 AIS vs. MIS Accounting Information Systems (AISs) process financial (e.g., sale of goods) and nonfinancial transactions (e.g., addition of newly approved vendor) that directly affect the processing of financial transactions. Management Information Systems (MISs) process nonfinancial transactions that are not normally processed by traditional AISs (e.g., tracking customer complaints). 28 AIS vs. MIS? IS AIS GLS/FRS TPS MIS MRS Finance Marketing Production HRS Distribution 29 AIS Subsystems Transaction processing system (TPS) supports daily business operations General Ledger/ Financial Reporting System (GL/FRS) produces financial statements and reports Management Reporting System (MRS) produces special-purpose reports for internal use 30 The General AIS Model The External Environment The Information System External Data Sources Database Management Data Processing Data Collection Information Generation Feedback Internal Sources of Data Internal End Users The Business Organization Feedback External End Users Transforming the Data into Information Functions for transforming data into information according to the general AIS model: 1. Data Collection 2. Data Processing 3. Data Management 4. Information Generation 32 1. Data Collection capturing transaction data recording data onto forms validating and editing the data 33 2. Data Processing classifying transcribing sorting batching merging calculating summarizing comparing 34 3. Data Management storing retrieving deleting 35 4. Information Generation compiling arranging formatting presenting 36 Organizational Structure The structure of an organization helps to allocate responsibility authority accountability Segmenting by business function is a very common method of organizing. 37 Functional Areas Inventory/Materials Management purchasing, receiving, and storage Production production planning, quality control, and maintenance Marketing Distribution Personnel Finance Accounting Computer Services 38 Accounting Independence Information reliability requires accounting independence: Accounting activities must be separate and independent of the functional areas maintaining resources. Accounting supports these functions with information but does not actively participate. Decisions makers in these functions require that such vital information be supplied by an independent source to ensure its integrity. 39 The Computer Services Function Distributed Data Processing Reorganizing the computer services function into small information processing units that are distributed to end users and placed under their control Most companies fall somewhere in between. Centralized Data Processing All data processing is performed by one or more large computers housed at a central site that serves users throughout the organization. Primary areas: database administration data processing systems development 40 systems maintenance CENTRALIZED COMPUTER SERVICES FUNCTION President VP Marketing VP Computer Services Systems Development New Systems Development Data Base Administration DISTRIBUTED ORGANIZATIONAL STRUCTURE IPU Data Control Systems Maintenance VP Marketing VP Production VP Finance Data Processing Data Computer Preparation Operations Data Library President VP Finance VP Administration Treasurer Controller IPU IPU VP Production Manager Plant X IPU IPU Manager Plant Y IPU Potential Advantages of DDP Cost reductions in hardware and data entry tasks Improved cost control responsibility Improved user satisfaction since control is closer to the user level Backup of data can be improved through the use of multiple data storage sites 42 Potential Disadvantages of DDP Loss of control Mismanagement of organization-wide resources Hardware and software incompatibility Redundant tasks and data Consolidating tasks usually segregated Difficulty attracting qualified personnel Lack of standards 43 Centralized Databases in an IPU Environment: CDB vs. DDP The data is retained in a central location. Remote IPUs send requests for data. Central site services the needs of the remote IPUs. The actual processing of the data is performed at the remote IPU. 44 The Evolution of IS Models: The Flat-File Model User 1 Transactions Data Program 1 A,B,C User 2 Transactions Program 2 X,B,Y User 3 Transactions Program 3 L,B,M Data Redundancy Problems Data Storage - excessive storage costs of paper documents and/or magnetic form Data Updating - changes or additions must be performed multiple times Currency of Information - potential problem of failing to update all affected files Task-Data Dependency - user’s inability to obtain additional information as needs change Data Integration - separate files are difficult to integrate across multiple users 46 The Evolution of IS Models: The Database Model User 1 Transactions Database Program 1 User 2 Transactions Program 2 User 3 Transactions Program 3 D B M S A, B, C, X, Y, L, M An REA Data Model Example R Inventory E M Line items M A M Sales 1 Party to M Sales person M 1 Pays for Made to Customer 1 M M 1 Cash Increases M Cash Collections M Received from 1 Received by Cashier 34 REA Model The REA model is an accounting framework for modeling an organization’s economic resources (the assets of the organization), economic events (phenomena that affect changes in resources), and economic agents (individuals and departments that participate in an economic event), and their interrelationships. Entity-relationship diagrams are used to model 49 these relationships. Accountants as Information System Users Accountants must be able to clearly convey their needs to the systems professionals who design the system. The accountant should actively participate in systems development projects to ensure appropriate systems design. 50 Accountants as System Designers The accounting function is responsible for the conceptual system, while the computer function is responsible for the physical system. The conceptual system determines the nature of the information required, its sources, its destination, and the accounting rules that must be applied. 51 Accountants as System Auditors External Auditors attest to fairness of financial statements assurance service: broader in scope than traditional attestation audit IT Auditors evaluate IT, often as part of external audit Internal Auditors in-house IS and IT appraisal services 52