IntroductionAccountingInformationSystems.ppt

8/10/2019 IntroductionAccountingInformationSystems.ppt

1/85

2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 1 of 85

C HAPTER 1

Accounting InformationSystems:

An Overview


2/85


INTRODUCTION

Questions to be addressed in this chapterinclude: What is the meaning of system, data, and

in format ion?

What is an accounting information system (AIS)?

Why is the AIS an important topic to study?

What is the role of the AIS in the value chain?

How does the AIS provide information for decisionmaking?

What are the basic strategies and strategic positionsan organization can pursue?


3/85


SYSTEMS, DATA, AND INFORMATION

A system is:

A set of interrelated components

That interact

To achieve a goal


4/85



Most systems are composed of smaller

subsystems . . .

. . . and vice versa!


5/85



Every organization has goals.

The subsystems should be designed tomaximize achievement of the organizations

goals. Even to the detriment of the subsystem itself.

EXAMPLE: The production department (asubsystem) of a company might have to

forego its goal of staying within its budget inorder to meet the organizations goal ofdelivering product on time.


6/85



The systems conceptencourages integration(i.e., minimizing the duplication of recording,

storing, reporting, and processing).

Dataare facts that are collected, recorded,stored, and processed by an information system.

Organizations collect data about:

Eventsthat occur

Resourcesthat are affected by those events

Agentswho participate in the events


7/85 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 7 of 85


Informationis different from data.

Information is data that have been

organized and processed to provide

meaning to a user.

Usually, more information and better

information translates into better

decisions.




However, when you get more information

than you can effectively assimilate, you

suffer frominformation overload.

Example: Final exams week!

When youve reached the overload point,

the quality of decisions declines while the

costs of producing the informationincreases.




Benefits of information

- Cost of producing information

Value of information

Benefits of information may include: Reduction of uncertainty

Improved decisions Improved ability to plan and schedule activities


10/85




Benefits of information

- Cost of producing information

Value of informationCosts and benefits of information are oftendifficult to quantify, but you need to try whenyoure making decisions about whether to

provide information.


12/85




Characteristics that make informationuseful:

Relevance

Reliability

Its dependable, i.e., free from error or bias

and faithfully portrays events and activities.





Relevance

Reliability

Completeness

It doesnt leave out anything thats important.





Relevance

Reliability

Completeness

Timeliness

You get it in time to make your decision.





Relevance

Reliability

Completeness

Timeliness

UnderstandabilityIts presented in a manner you can

comprehend and use.





Relevance

Reliability

Completeness

Timeliness

Understandability

Verifiability

A consensus notionthe nature of theinformation is such that different people

would tend to produce the same result.




Characteristics that make informationuseful: Relevance

Reliability Completeness

Timeliness

Understandability Verifiability

Accessibility

You can get to it when you need it and in aformat you can use.



Information is provided to both:

External users

Internal users





External users

Internal users




External users primarily use information

that is either:

MANDATORY INFORMATIONrequired by a

governmental entity, such as Form 10-Krequired by the SEC; or

ESSENTIAL INFORMATIONrequired to

conduct business with external parties, suchas purchase orders.




In providing mandatory or essential

information, the focus should be on:

Minimizing costs.

Meeting regulatory requirements.

Meeting minimum standards of reliability and

usefulness.





External users

Internal users




Internal users primarily use discretionary

information.

The primary focus in producing this

information is ensuring that benefits

exceed costs, i.e., the information has

positive value.



25/85


An AIS is a system that collects, records,stores, and processes data to produceinformation for decision makers.

It can: Use advanced technology; or

Be a simple paper-and-pencil system; or

Be something in between. Technology is simply a tool to create,

maintain, or improve a system.

WHAT IS AN AIS?


26/85


The functions of an AIS are to:

Collect and store data about events,resources, and agents.

Transform that data into information thatmanagement can use to make decisionsabout events, resources, and agents.

Provide adequate controls to ensure that the

entitys resources (including data) are: Available when needed

Accurate and reliable

WHAT IS AN AIS?


27/85


Its fundamental to accounting.

WHY STUDY ACCOUNTINGINFORMATION SYSTEMS?

Accounting is an information-providingactivity, so accountants need to

understand: How the system that provides that

information is designed, implemented,and used.

How financial information is reported.

How information is used to makedecisions.


28/85




Other accounting courses focus on howthe information is provided and used.

An AIS course places greater emphasison:

How the data is collected andtransformed.

How the availability, reliability, andaccuracy of the data is ensured.

AIS courses are not number-crunchingcourses.


29/85



The skills are critical to career success.


Auditorsneed to evaluate the accuracy

and reliability of information produced bythe AIS.


30/85





Tax accountantsmust understand theclients AIS adequately to be confident thatit is providing complete and accurateinformation for tax planning andcompliance work.


31/85





Inprivate industryandnot-for-profit,

systems work is considered the mostimportant activity performed byaccountants.


32/85





Inmanagement consulting, the design,

selection, and implementation ofaccounting systems is a rapid growth area.


33/85



Other careers requiring AIS knowledge: IT Consultant

Implementation Team Member

Business Analyst Budget Analyst

Financial Analyst

Systems Analyst

Controller

Accounting Clerk

CFO

Others?


34/85




The AIS course complements othersystems courses.

AIS topics are tested on the new CPAexam.


Makes up about 25% of the BusinessEnvironment & Concepts section of the CPAexam.


35/85




The AIS course complements othersystems courses.

AIS topics are tested on the new CPAexam.

AIS topics impact corporate strategyand culture.



36/85



AIS

OccupationalCulture Strategy

InformationTechnology

AIS design isaffected byinformationtechnology, the

organizationsstrategy, and theorganizations

culture.


37/85



AIS



Information technologyaffects the companys

choice of businessstrategy. To performcost-benefit analyses onIT changes, you need tounderstand businessstrategy.


38/85



AIS



Although cultureaffects the design ofthe AIS, its also true

that the AIS affectsculture by alteringthe dispersion andavailability ofinformation.


39/85


The objective of most organizations is to

provide value to their customers.

What does it mean to deliver value?

Lets peek in on a conversation at Joes

pharmacy . . .

ROLE OF THE AIS IN THE VALUE CHAIN


40/85



Well, Mr. PharmaceuticalSalesman, your proposal looksgood, but your prices are about

5% higher than your competitors.


41/85



Thats true, but were

comfortable with thatbecause of the value-added that we bring to

this arrangement.


42/85



What is that value-added,and how do you convert it

into dollars?


43/85



Blahblahblahcustomer serviceblahblahblah


44/85


Although adding value is a commonly usedbuzzword, in its genuine sense, it means makingthe value of the finished component greater thanthe sum of its parts.

It may mean: Making it faster

Making it more reliable

Providing better service or advice

Providing something in limited supply (like O-negativeblood or rare gems)

Providing enhanced features

Customizing it



45/85


Value is provided by performing a series of

activities referred to as the value chain.

These include:

Primary activities

Support activities

These activities are sometimes referred to

as line and staff activities respectively.



46/85




These include:

Primary activities

Support activities





47/85


48/85


Primary activities include:

Inbound logistics

Operations


Transforming those inputs into products orservices.

For the pharmaceutical company, this step

involves combining the raw chemicals andelements with the work of people and equipment toproduce the finished drug product that will be soldto customers.


49/85



Inbound logistics

Operations

Outbound logistics


Distributing products or services to customers.

For the pharmaceutical company, this step involvespackaging and shipping the goods to drug stores,doctors, and hospitals.


50/85



Inbound logistics

Operations

Outbound logistics

Marketing and sales


Helping customers tobuy the organizations

products or services.

A pharmacy rep mayvisit with drug stores,doctors, etc. to inform

them about theirproducts and takeorders.


51/85



Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service


Post-sale support provided tocustomers such as repair andmaintenance function.

A pharmaceutical firm willtypically not be repairing its

product (though the product maybe periodically reformulated).

The pharmaceutical company ismore likely to be providingadvisory services to pharmacists,etc.


52/85




These include:

Primary activities

Support activities





53/85


Support activities include:

Firm infrastructure


Accountants, lawyers, and administration.

Includes the companys accountinginformation system.


54/85



Firm infrastructure

Human resources


Involves recruiting and hiring newemployees, training employees, payingemployees, and handling employeebenefits.


55/85



Firm infrastructure

Human resources

Technology


Activities to improve the products or services(e.g., R&D, Web site development).

For the pharmaceutical company, these activitieswould include research and development tocreate new drugs and modify existing ones.


56/85



Firm infrastructure

Human resources

Technology

Purchasing


Buying the resources (e.g.,materials, inventory, fixedassets) needed to carry out theentitys primary activities.

In the pharmaceutical company,the purchasing folks are tryingto get the best combination of

cost and quality in buyingchemicals, supplies, and otherassets the company needs torun its operations.


57/85


Information technology can significantly

impact the efficiency and effectiveness

with which the preceding activities are

carried out. An organizations value chain can be

connected with the value chains of its

customers, suppliers, and distributors.


Good AIS value chain:

UPS spends over $1 billion a year on

information systems resulting in greatercustomer control over delivery, higherdriver productivity, and lower costs.

Bad AIS value chain: Limited Brands tangled integration of over 60

incompatible information systems resulted in400 trailers trying to jam into a 150 trailer lot.


58/85


Pharmaceuticals, Inc.

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics

Marketing & SalesService

Customer Pharmacy

Inbound Logistics

OperationsOutbound Logistics

Marketing & Sales

Service

For example, the inbound logistics ofPharmaceuticals, Inc., links to the outboundlogistics of its suppliers.


59/85



Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics


Customer Pharmacy

Inbound Logistics


Marketing & Sales

Service

And the outbound logistics ofPharmaceuticals, Inc., links to the inboundlogistics of its customers.


60/85



Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics


Customer Pharmacy

Inbound Logistics


Marketing & Sales

Service

The linking of these separate value chainscreates a larger system known as a supplychain.


61/85



Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service


Smith Supply Co.

Inbound Logistics

Operations

Outbound Logistics


Customer Pharmacy

Inbound Logistics


Marketing & Sales

Service

The linking of these separate value chainscreates a larger system known as a supplychain.

Informationtechnology can

facilitate synergisticlinkages that improvethe performance ofeach companys value

chain.


62/85


63/85


There is variation in the degree of

structure used to make decisions:

Structured decisions

Semistructured decisions


Incomplete rules.

Require subjective assessments.

EXAMPLE: Deciding whether to sell autoinsurance to a customer with a tainteddriving history.


64/85


There is variation in the degree of

structure used to make decisions:


Semistructured decisions



Non-recurring and non-routine.

Require a great deal of subjectiveassessment.

EXAMPLE: Deciding whether to beginselling a new type of insurance policy.


65/85


There is also variation in the scope of a

decisions effect:

Occupational control decisions


Relate to performance of specific tasks

Often of a day-to-day nature.

EXAMPLE: Deciding whether to orderinventory.


66/85


There is also variation in the scope of a

decisions effect:

Occupational control decisions

Management control decisions


Relate to utilizing resources to accomplishorganizational objectives.

EXAMPLE: Budgeting.


67/85


68/85


In general, the higher a manager is in the

organization, the more likely he/she is to

be engaging in:

Less structured decisions

Broader scope (i.e., strategic planning)

decisions



69/85


Corporations have: Unlimited opportunities to invest in

technology.

Limited resources to invest in technology. Consequently, they must identify the

improvements likely to yield the highestreturn.

This decision requires an understanding ofthe entitys overall business strategy.

THE AIS AND CORPORATE STRATEGY


70/85


Michael Porter suggests that there are two

basic business strategies companies can

follow:

Product-differentiation strategy

Low-cost strategy



71/85




follow:

Product-differentiation strategy Low-cost strategy



72/85


73/85




follow:

Product-differentiation strategy

Low-cost strategy



74/85


75/85


76/85


Porter also argues that companies mustchoose a strategic position among three

choices:

Variety-based strategic position


Offer a subset of the industrys

products or services.

EXAMPLE: An insurance companythat only offers life insurance asopposed to life, health, property-casualty, etc.


77/85


78/85



choices:


Needs-based strategic position

Access-based strategic position


Serve a subset of customers who differ fromothers in terms of factors such as geographiclocation or size.

EXAMPLE: Satellite Internet services areintended primarily for customers in rural areaswho cannot get DSL or cable services.


79/85



choices:


Needs-based strategic position

Access-based strategic position

These strategic positions are notmutually exclusive and can overlap.



80/85


Choosing a strategic position is importantbecause it helps a company focus its efforts as

opposed to trying to be everything to everybody.

EXAMPLE: A radio station that tries to play all types

of music will probably fail.

Its critical to design the organizations activities

so they reinforce one another in achieving the

selected strategic position. The result is synergy,which is difficult for competitors to imitate.



81/85


The growth of the Internet has profoundlyaffected the way value chain activities areperformed: Inbound and outbound logistics can be streamlined

for products that can be digitized, like books andmusic.

The Internet allows companies to cut costs, whichimpacts strategy and strategic position.

Because the Internet is available to everyone, intenseprice competition can result. The outcome may bethat many companies shift from low-cost to product-differentiation strategies.

The Internet may impede access-based strategicpositions.



82/85


83/85


The authors believe:

Accounting and information systems should

be closely integrated.

The AIS should be the primary informationsystem to provide users with information they

need to perform their jobs.



84/85


85/85

http://wps.pearsoned.co.uk/ema_ge_romney_ais_12/194/49668/12715133.cw/index.

html

IntroductionAccountingInformationSystems.ppt

Documents