Transcript Chapter 2

Chapter 1
The
Information
System: An
Accountant’s
Perspective
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Value System
An organization’s value chain and the
value chains of its suppliers, distributors,
and customers collectively form a value
system
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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
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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
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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.
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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
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Information in Business
Information is a business
resource:
... needs to be appropriately
managed
...is vital to the survival of
contemporary businesses
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What is Information?
Information is processed data that is
used to make decisions, resolve
conflicts, and/or reduce uncertainty.
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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.
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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
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Examples of Systems
Biological
cell
human body
Mechanical
water heater
computer
Others
solar system
mathematics
E = mc2
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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.
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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.
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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
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Transactions
Financial
Transactions
Nonfinancial
Information
System
User
Decisions
Information
Transactions
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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
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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).
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AIS vs. MIS?
IS
AIS
GLS/FRS
TPS
MIS
MRS
Finance
Marketing
Production
HRS
Distribution
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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
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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
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1. Data Collection
capturing transaction data
recording data onto forms
validating and editing the data
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2. Data Processing
classifying
transcribing
sorting
batching
merging
calculating
summarizing
comparing
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3. Data Management
storing
retrieving
deleting
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4. Information Generation
compiling
arranging
formatting
presenting
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Organizational Structure
The structure of an organization helps to
allocate
responsibility
authority
accountability
Segmenting by business function is a very
common method of organizing.
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Functional Areas
 Inventory/Materials Management
purchasing, receiving, and storage
 Production
production planning, quality control, and
maintenance
 Marketing
 Distribution
 Personnel
 Finance
 Accounting
 Computer Services
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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.
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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
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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
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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
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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.
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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
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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
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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
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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.
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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.
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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
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