Accounting Information System Ch 1 - Systems an Overview

Accounting Information Systems9th EditionMarshall B. Romney Paul John Steinbart

Prentice Hall Publishing Company Copyright 2003

Accounting Information Systems: An OverviewChapter 1


Learning ObjectivesExplain what an accounting information system (AIS) is and describe the basic functions it performs.Discuss why studying the design and management of an AIS is important.Explain the role played by the AIS in a companys value chain and discuss ways that the AIS can add value to a business.Describe and contrast the basic strategies and strategic positions that a business can adopt.


Introduction: S&S Inc.Scott Parry and Susan Gonzalez form S&S, Inc., to sell consumer electronic devices.Parry and Gonzalez decide to pursue a clicks and bricks strategy.They plan to hold the grand opening of S&S in five weeks.


Introduction: S&S, Inc.What types of important decisions do Scott and Susan have to make?How to organize their accounting recordsHow to design a set of procedures to ensure that they meet all of their government obligationsHow to price their products


Introduction: S&S, Inc.Whether to extend credit, on what terms, and how to accurately track what customers owe and have paidHow to hire, train, and supervise their employeesHow to keep track of cash flowsThe appropriate product mix and quantities to carryWhat functionality to provide on their websiteImportant decisions, continued


IntroductionThis chapter defines an accounting information system (AIS).It discusses why AIS is an important topic to study.It describes how an AIS adds to an organizations value chain.It describes and contrasts the basic strategies that a business can pursue.


Learning Objective 1Explain what an accounting information system (AIS) is and describe the basic functions it performs.


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:PeopleProceduresDataSoftwareInformation technology infrastructure


What Is An AIS?What important functions does the AIS perform in an organization?It collects and stores data about activities and transactions.It processes data into information that is useful for making decisions.It provides adequate controls to safeguard the organizations assets.


Learning Objective 2Discuss why studying the design and management of an AIS is important.


Why Study AIS?In Statement of Financial Accounting Concepts No. 2, The FASB...defined accounting as an information system.stated that the primary objective of accounting is to provide information useful to decision makers.


Why Study AIS?The Accounting Education Change Commission recommended that the accounting curriculum should provide students with a solid understanding of three essential concepts:The use of information in decision makingThe nature, design, use and implementation of an AISFinancial information reporting


Why Study AIS?To understand how the accounting system works.How to collect data about an organizations activities and transactionsHow to transform that data into information that management can use to run the organizationHow 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 companys financial statements.Tax professionals need to understand enough about the clients AIS to be confident that the information used for tax planning and compliance work is complete and accurate.


Why Study AIS?One of the fastest growing types of consulting services entails the design, selection, and implementation of new Accounting Information Systems.A survey conducted by the Institute of Management Accountants (IMA) indicates that work relating to accounting systems was the single most important activity performed by corporate accountants.


Information Technologyand Corporate StrategyThe same survey conducted by the Institute of Management Accountants (IMA) also indicates that the second most important job activity of corporate accountants is long-term strategic planning.


The CITP DesignationCITP: certified information technology professionalIdentifies CPAs who possess a broad range of technological knowledge and the manner in which information technology (IT) can be used to achieve business objectivesReflects the AICPAs recognition of the importance and interrelationship of IT with accounting


Ten Most Important Activities Performed By Accountants1.Accounting systems and financial reporting2.Long-term strategic planning3.Managing the accounting and finance function4.Internal Consulting5.Short-term budgeting

6.Financial and economic analyses7.Process improvement8.Computer systems and operations9.Performance evaluation10.Customer and product profitability analyses


Factors InfluencingDesign of the AIS


Learning Objective 3Explain the role played by the AIS in a companys value chain and discuss ways that the AIS can add value to a business.


The Value ChainThe ultimate goal of any business is to provide value to its customers.A business will be profitable if the value it creates is greater than the cost of producing its products or services.


The Value ChainAn organizations value chain consists of nine interrelated activities that collectively describe everything it does.The five primary activities consist of the activities performed in order to create, market, and deliver products and services to customers and also to provide post-sales services and support.


The Value ChainPrimary ActivitiesInboundLogisticsOutboundLogisticsOperationsMarketingand SalesService


The Value ChainThe four support activities in the value chain make it possible for the primary activities to be performed efficiently and effectively.


The Value ChainSupport ActivitiesInfrastructureHumanResourcesTechnologyPurchasing


The Value SystemThe value chain concept can be extended by recognizing that organizations must interact with suppliers, distributors, and customers.An organizations value chain and the value chains of its suppliers, distributors, and customers collectively form a value system.


The Supply ChainRaw Materials SupplierManufacturerDistributorRetailerConsumer


How An AIS Can Add ValueTo An OrganizationAn AIS adds value...by providing accurate and timely information so that five primary value chain activities can be performed more effectively and efficiently.


How An AIS Can Add ValueTo An OrganizationAn AIS adds value by:improving the quality and reducing the costs of products or services.improving efficiency.Improving decision making capabilities.increasing the sharing of knowledge.A well-designed AIS can also help an organization profit by improving the efficiency and effectiveness of its supply chain.


Information and Decision MakingWhat is information?The term data refers to any and all of the facts that are collected, stored, and processed by an information system.Information is data that has been organized and processed so that it is meaningful.


Data Needs For Activities


Information and Decision MakingCharacteristics of Useful Information


Information and Decision MakingWhat is decision making? Decision making involves the following steps:Identify the problem.Select a method for solving the problem.Collect data needed to execute the decision model.Interpret the outputs of the model.Evaluate the merits of each alternative.Choose and execute the preferred solution.


Information andDecision MakingDecisions can be categorized as follows:in terms of the degree of structure that existsby the scope of the decision


Decision StructureStructured decisions are repetitive, routine, and understood well enough that they can be delegated to lower-level employees in the organization.An example is:Extending credit to customers.


Decision StructureSemistructured decisions are characterized by incomplete rules for making the decision and the need for subjective assessments and judgments to supplement formal data analysis. An example is:Setting a marketing budget for a new product.


Decision StructureUnstructured decisions are nonrecurring and nonroutine.An example is:Choosing the cover for a magazine.


Decision ScopeDecisions vary in terms of the scope of their effect.Operational control is concerned with the effective and efficient performance of specific tasks.Management control is concerned with the effective and efficient use of resources for accomplishing organizational objectives.Strategic planning is concerned with establishing organizational objectives and policies for accomplishing those objectives.


Learning Objective 4Describe and contrast the basic strategies and strategic positions that a business can adopt.


Information Technologyand Corporate StrategyNew developments in IT affect the design of an AIS.What basic requirements are needed to evaluate the costs and benefits of new IT developments?


Information Technologyand Corporate StrategyDevelop a basic understanding ofcorporate strategies.how IT developments can be used to implement existing organizational strategies.how IT developments can be used to create an opportunity to modify existing strategies.


Information Technologyand Corporate StrategyBecause an AIS functions within an organization, it should be designed to reflect the values of that organizational culture.


Strategy and Strategic PositionsTwo Basic StrategiesTo be a lower-cost producer than competitorsTo differentiate products and services from competitors


Strategy and Strategic PositionsThree Basic Strategic Positions Variety-based strategic positionNeed-based strategic positionAccess-based strategic position


Strategy and Strategic PositionsWhat role does the AIS play in helping organizations adopt and maintain a strategic position?Data collection about each activityTransforming data into information that can be used by management to coordinate those activities


What is the Value of Information?The value of information is the benefit produced by the information minus the cost of producing it.


The Role of the AISThe Internet makes strategy more important than everEnterprise resource planning (ERP) systems integrate all aspects of a companys operations with its traditional AIS. The key feature of ERP systems is the integration of financial data and other nonfinancial operating data.


End of Chapter 1


Accounting Information System Ch 1 - Systems an Overview

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study ais

information useful

defined accounting

accounting recordshow

larger system

important functions

basic functions

types of important decisions