Rais11_ch1

8/2/2019 Rais11_ch1

1/37

CHAPTER 1

Accounting InformationSystems:

An Overview

8/2/2019 Rais11_ch1

2/37

INTRODUCTION

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

information?

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?

8/2/2019 Rais11_ch1

3/37

SYSTEMS, DATA, AND INFORMATION

A system is:

A set of interrelated components

That interact

To achieve a goal

8/2/2019 Rais11_ch1

4/37


Every organization has goals. The subsystems should be designed to

maximize 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.

8/2/2019 Rais11_ch1

5/37


The systems concept encourages integration(i.e., minimizing the duplication of recording,storing, reporting, and processing).

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

Organizations collect data about:

Events that occur Resources that are affected by those events

Agents who participate in the events

8/2/2019 Rais11_ch1

6/37


Information is different from data.

Information is data that have beenorganized and processed to providemeaning to a user.

Usually, more information and betterinformation translates into betterdecisions.

8/2/2019 Rais11_ch1

7/37


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

8/2/2019 Rais11_ch1

8/37


Benefits of information

- Cost of producing information

Value of information

Costs may include time and resources spent: Collecting data

Processing data Storing data Distributing information to users

8/2/2019 Rais11_ch1

9/37


Characteristics that make informationuseful: Relevance

Reliability Completeness

Timeliness

Understandability Verifiability

Accessibility

8/2/2019 Rais11_ch1

10/37

Information is provided to both:

External users

Internal users


8/2/2019 Rais11_ch1

11/37

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.

WHAT IS AN AIS?

8/2/2019 Rais11_ch1

12/37

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?

8/2/2019 Rais11_ch1

13/37

WHY STUDY ACCOUNTING

INFORMATION SYSTEMS?

AIS

OccupationalCulture Strategy

InformationTechnology

AIS design isaffected byinformationtechnology, the

organizationsstrategy, and theorganizationsculture.

8/2/2019 Rais11_ch1

14/37

ROLE OF THE AIS IN THE VALUE CHAIN

Well, Mr. PharmaceuticalSalesman, your proposal looks

good, but your prices are about 5%higher than your competitors.

8/2/2019 Rais11_ch1

15/37


Thats true, but werecomfortable with thatbecause of the value-

added that we bring to this

arrangement.

8/2/2019 Rais11_ch1

16/37


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

dollars?

8/2/2019 Rais11_ch1

17/37


Blahblahblahcustomer serviceblahblahblah

8/2/2019 Rais11_ch1

18/37

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


8/2/2019 Rais11_ch1

19/37

Value is provided by performing a seriesof 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.


8/2/2019 Rais11_ch1

20/37


Primary activities

Support activities




8/2/2019 Rais11_ch1

21/37

Primary activities include:

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Service


8/2/2019 Rais11_ch1

22/37


Primary activities

Support activities




8/2/2019 Rais11_ch1

23/37

Support activities include:

Firm infrastructure

Human resources

Technology

Purchasing


8/2/2019 Rais11_ch1

24/37

Information technology can significantlyimpact the efficiency and effectivenesswith which the preceding activities are

carried out.

An organizations value chain can beconnected 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, higher driverproductivity, and lower costs.

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

incompatible information systems resulted in 400trailers trying to jam into a 150 trailer lot.

8/2/2019 Rais11_ch1

25/37

There is variation in the degree ofstructure used to make decisions:

Structured decisions


Repetitive and routine.

Can be delegated to lower-level employees.

EXAMPLE: Deciding whether to write an autoinsurance policy for a customer with a clean

driving history.

8/2/2019 Rais11_ch1

26/37



Semistructured decisions


Incomplete rules.

Require subjective assessments.

EXAMPLE: Deciding whether to sell autoinsurance to a customer with a tainted drivinghistory.

8/2/2019 Rais11_ch1

27/37



Semistructured decisions



Non-recurring and non-routine.

Require a great deal of subjective assessment. EXAMPLE: Deciding whether to begin selling a

new type of insurance policy.

8/2/2019 Rais11_ch1

28/37

There is also variation in the scope of adecisions effect:

Occupational control decisions


Relate to performance of specific tasks

Often of a day-to-day nature.

EXAMPLE: Deciding whether to orderinventory.

8/2/2019 Rais11_ch1

29/37



Management control decisions


Relate to utilizing resources to accomplishorganizational objectives.

EXAMPLE: Budgeting.

8/2/2019 Rais11_ch1

30/37



Management control decisions

Strategic planning decisions


The what do we want to be when we grow uptypes of questions.

Involves establishing:

Organizational objectives

Policies to achieve those objectives

EXAMPLE: Deciding whether to diversify thecompany into other product lines.

8/2/2019 Rais11_ch1

31/37

In general, the higher a manager is in theorganization, the more likely he/she is tobe engaging in:

Less structured decisions

Broader scope (i.e., strategic planning)decisions


8/2/2019 Rais11_ch1

32/37

Michael Porter suggests that there are twobasic business strategies companies canfollow:

Product-differentiation strategy

Low-cost strategy

THE AIS AND CORPORATE STRATEGY

8/2/2019 Rais11_ch1

33/37

Porter also argues that companies mustchoose a strategic position among threechoices:

Variety-based strategic position


Offer a subset of the industrysproducts or services.

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

8/2/2019 Rais11_ch1

34/37



Needs-based strategic position


Serve most or all of the needs of a particular group of

customers in a target market. EXAMPLE: The original Farm Bureau-based

insurance companies provided a portfolio of insuranceand financial services tailored to the specific needs of

farmers.

8/2/2019 Rais11_ch1

35/37




Access-based strategic position


Serve a subset of customers who differ from others interms of factors such as geographic location or size.

EXAMPLE: Satellite Internet services are intended

primarily for customers in rural areas who cannot getDSL or cable services.

8/2/2019 Rais11_ch1

36/37




Access-based strategic position

These strategic positions are notmutually exclusive and can overlap.


8/2/2019 Rais11_ch1

37/37

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 and music. 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 be that

many companies shift from low-cost to product-differentiation strategies. The Internet may impede access-based strategic

positions.


Rais11_ch1

Documents