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 3 It processes data into information that is useful for making decisions.
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
users is a framework in which data is collected, processed, controlled and managed through stages in order to provide information to 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 Exchange Events Internal Events Environmental Events
}
Consumers
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):
Data Base(s):
Manual or Computerized Data Repositories
Procedures:
Computerized Manual or
Input/Output Devices
Miscellaneous Resources
AIS as an MIS Subsystem
Sales/ Marketing Production Info AIS Personnel Finance
Relationship of AIS & MIS
Finance MIS 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 managerial accountants system analysts
and and
auditors
, 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
Figure 2-1 Environment of the Firm Business Firm 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
Receiving
Purchasing A. Payable Cash Disb System
.
/ / Revenue Cycle Expenditure Cycle
A
.
Billing
/
Receivable Cash Receipts System General Ledger System
Ext/Fin. reporting Tax & req. reporting Internal reporting
Resource Management
(
Human 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 project oriented structures Decentralized Network
A Networked Organizational Structure
Consultant Training Marketing Consulting Services Consultant Recruitment Operation Management Customer Project Team Customer Services Management
Figure 2-5
The Operational System of a Manufacturing Firm
Facilities
Manufacturing Firm
Labor (human services) Material from Supplier Acquiring Materials Producing Finished Goods Supporting Operations Storing Finished Goods Shipping Finished Goods Goods to Customer Data 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 Field 1 Field 2 Field 3
Records
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 financial information into
Gains from IT for Accountants
Faster processing Greater accuracy of transactions and other data in computations of and comparisons with data Lower cost More timely of processing each transaction preparation of reports and other outputs More concise accessibility storage of data, with greater 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 policy making judgments New problems Supervising employees Social communications Making complex strategic decisions
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 Figure 3-1
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 decision support information
Computer programmers required to write new programs for ad hoc queries
Types of Network Architectures
Wide-Area Networks Formed among computers and inter connected 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 low operating costs per transaction scale of a large processor leading to can facilitate the use of a database approach facilitate better security provisions economies of allow for greater standardization and professional planning control of information-related activities and
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 information rapidly.
to centralized data or be able to transmit data and Computers may be interconnected by data communications hardware and software form an “enterprise-wide” network .
to other remote sites and to a central computer facility to
Distributed WANs - II
Distributed databases are useful when: Large volumes of data frequent basis need to be processed at remote locations Managers and employees need very fast access to data on a 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 Each distributed processing location needs its own set of controls and security measures Given the smallness of each location, achieved Managers may sacrifice control and security greater productivity Difficulty and cost of coordinating computer systems components, and communication services for the relatively Added costs for multiple computers, other system
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 Super workstation workstation
Peer-to-Peer LANs
In smaller LANs, every workstation functions as both a client and a server
This allows all users to all workstations share data and files on
Called peer-to-peer network workstations are dedicated to perform only server functions since no
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 the near future significantly increase in
Server Networks
May interconnect hundreds of workstations More difficult to manage networks and interpret than peer-to-peer Provide At least greater security than peer-to-peer networks one workstation is dedicated specific server tasks to performing 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 ARC net 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 a user workstation more servers between (client) and one or 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 client/server architecture of 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 the user is transparent to
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) SAP R/3 such as 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 store copies of “informational” organize and or decision support data A Data Mart stores copies of decision support data data base for a portion of a company in a 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” Both have “drill down” and “data mining” features form
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