Accounting Information Systems

Accounting Information Systems (AIS)

• Unlike subjects like intermediate accounting, AIS lacks a well-defined, universally agreed upon body of knowledge
• AIS course content sparks debate among college faculty
• Legislation aids in resolving some debates

Sarbanes-Oxley Act (SOX)

• Established standards for public company corporate governance
• Impacts public companies, management, and auditors
• Crucially impacts AIS students through effects on internal control standards and auditing procedures

Chapter Focus

• Intended to provide accountant's perspective on AIS
• Structured in three parts: information environment, organizational structure impact, and accountant responsibilities

Learning Objectives

• Recognize primary information flows
• Identify accounting information systems and management information systems differences
• Differentiate between financial and nonfinancial transactions
• Know general model's principal features for information systems
• Understand organizational structure and functional business areas
• Distinguish external, internal auditing, and advisory services concerning AIS

The Information Environment

• Information is a vital business resource, like raw materials, capital, and labor
• Vast information quantities flow daily to meet internal needs
• Information flows outward to external users interested in the firm

Organizational Levels

• Business is organized into levels, in a pyramid structure
• The base level comprises business operations, and then there are three management tiers i.e. operations, middle, and top management

Activity Levels

• Business operations involve product-oriented work, such as sales, cash receipts, distribution and manufacturing
• Operations Management manages day-to-day activities
• Middle Management handles short-term planning and coordination
• Top Management focuses on long-term planning and setting objectives

Direction of Information Flow

• Horizontally, supporting tasks at operations-level with detailed transaction data
• Vertically, from instructions, quotas, and budgets to junior levels & summarized info to senior levels

External Interaction

• A third information flow involves exchange between organization and external users, such as customers, suppliers and stakeholders

Information Objectives

• To support daily business operations
• To support management decision-making
• To support the stewardship function of management (responsibly manage+report finances)
• These objectives results in diverse info sets, varying in detail and nature.
• Financial statement information is accrual based

Information Systems Framework

• Information systems are formal procedures for data collection, storage, processing into outputs, and user distribution
• An example manufacturing firm's information system divides into AIS and management information system(MIS)

Conceptual versus Physical Systems

• Figure 1-2 shows the hypothetical manufacturing firm
• AIS and MIS identification and distinguishing; AIS is the accounting information system and MIS is the mangement information system
• Physical information systems integrate MIS/AIS for efficiency but a conceptual view helps understand domain

Transactions

• Center on the concept of a transaction
• System accepts inputs called transactions, which are turned into output information
• Transactions are either financial or nonfinancial; a transaction is an event that affects the organization and is processed as a unit of work by MIS or AIS
• Financial transactions are economic events that affects assets and equities, are reflected in accounts, and is measured in monetary term
• Sales to customers and inventory purchases are financial transactions
• Nonfinancial transactions do not meet the financial transaction definition
• adding suppliers is important information but the company has no legal compulsion to process it correctly

Overlap of AIS and MIS

• Financial/nonfinancial data are related and use same physical system
• A financial portfolio management system tracks stock prices (nonfinancial) and automatically places trades (financial)

Accounting Information System (AIS) Subsystems

• AIS processes financial and nonfinancial data that directly impacts processing financial transactions to keep customer files current
• Three major subsystems:
• Transaction Processing System (TPS): Supports daily operations reporting
• General Ledger/Financial Reporting System {GL/FRS): Produces financial statements/tax returns
• Management Reporting System (MRS): Provides special purpose reports for internal use like budget and variance report

Management Information System (MIS)

• Often requires accounting information that goes beyond the domain of AIS
• Emerges as specialized functions grow in size and complexity
• Processes nonfinancial transactions not normally in AIS

Need to distinguish between AIS and MIS

• SOX requires corporations to design and implement internal controls across entire financial reporting process
• This includes FRS, GSL and TPS that provide data for financial reporting
• Management must certify controls and auditors express opinions on their effectiveness
• Conceptual view required due to the integrative nature of modern info systems

The risks of the information system must be known

• Need to know the "key process" for each
• Need to know what the legal areas of responsibility are
• Management and audit must be efficient and adequate under SOX

AIS Subsystems

• Chapters are separated for in depth study of each AIS
• The roles of each subsystem are outlined briefly

Transaction Processing System

• Converts the economies events into financial transaction
• Records financial transaction in the accounting records (journals and ledgers)
• Distributes essential financial information to operations personne
• it is the central to the overall information system

General Ledger/Financial Reporting Systems

• FRS and GSL are two closely rated sub-system that together comprise the GL/FRS are closely rated sub-system because of their interdependent operations
• Bulk input to the GL systems comes from the transactions cycle that summarizes transactions activity tot he general control accounts
• Others are less common and infrequent
• FRS measures status of financial resources and communicate for external users
• It call nondiscretionary reporting because the organization has view or choice of information
• Information consists of financial statement tax returns

Management Reporting System

• Manager must respond rapidly to day to day routine
• MTS provides the Internal Financial Information needed to manage a business from MIS
• The reports are produced in the MRS including budgets,variance reports costs-profit-analysis reporting in the current costs data
• Called discretionary reporting because the organization show what information of reports and to present it

A General Model for AIS

• Shows the essential connections that make- up the basic elements of theAIS applications and include feedbacks that allow this to
• be accomplished via databases
• database management
• Info genartation
• feedback

End Users

• Fall into two general groups: externally and internally

External Users

• Creditors
• Stockholders
• Potential investors -Regulatory agencies Government agencies
• Tax authoritics suppliers and customers

internal users

• at all levels of an organization
• reporting is highly volatile and subject to external scrutiny
• balance is a challenge

Data Vs information

• Distinctions of data and information
• Data of facts which may or may not be processed/ edited/refined and no direct effect on users with action
• Information causes the users to take action and they had not or otherwise would not have taken
• Info is determined by effect it has with us not physical form
• One Persons of information can be another Person's data
• Action is a consciously triggered by info and the difference from doing nothing because of being uninformed
• data-system has pervasive implications for a information data system output fails to cause users to act the system serves no purpose

Data Source

-Financial transaction

• Enter to information systems from either Internal or external source
• External transaction are the most common
• Economic exchanges with other business entities and individuals from outside the firm
• Sales of goods and services are processed by the outside firm as well as internal

Data Collection

• is the first operational stage in the information system objective is to ensure that event-data
• enter the system are valid, completely and free from material errors this this is most important stage
• Transaction errors passes through data collection may process errors, generate erroneous/ unreliable outputs, this can lead to and from decision by the users
• Two rules determine the designing of data systems called, relevance and efficiency
• Data collection should only contains relevant data that is to determine what is relevant and what is not relevant
• Data collect at only data, ultimately continue to be relevant also define preventives to from the system if and collection should designed

Data processing

Data normally requires from the data is in the production system for such linear programming

• Simple Complex
• It can example and that is the mathematical algorithm

Database Management

• Data is also the physical repository for financial data
• Business Data from is are organized in a logical Hierarchy
• Levels illustrate in data Hierary in figure 1-5
• Data Attribute: The more most Elemental piece of data base potentially and -Useful is an attribute is the logical and relevant characteristics of an entities of which from captures data and -Logical because there any that really and all and to comments entity in the receivables entire -As proofed and is the set and from addition as a not chance the additions

database

• database management involves fundamentals including storage retrival and deletion of data
• storage tasks assign keys to new records in databses
• retrievals the task of located extracting exiting record for processings.
• Information genartion is processes compiling, and arranging, and presenting info.
• must serve a purpose by supporting a managers decisions or a clerk tasks information

General notes on information

• must older the time frame or support
• material to a difficult concept to quantify, depends on case at hand. Material error is made by causing user to fail

General Notes on Organizational structure

• section we see how the design and/or audit of AIS requires an understanding of the functional segments and activities that constitute an organisation's structure
• Indeed, so-called AIS actually involve diverse accounting and nonaccounting activities and personnel: The shaded functions in below

functional segmentation

• Segmentation by business function is a common method of organising functional segmentation derive from follow resources that follow and the following resources

Material Management

• The objective of materials management is to plan and control the material events of from company -manufacturing firm and we have sufficient inventory had with its functions material of and material for of to manage functions

Production

• productions Activities occur in the conversion cycle and which are materials labor and plant assets are used to create finishes production

Marketing

• Marketplace to know about, access a firm's products
• Is operational
• Sales order entry

Distribution

• activity of getting products to the customer and getting the products in the process

Personnel

• A valuable resources to business
• Compensation, administration and training for the personnel

Finance

• Financial resources that flows in and out of the firm from banking activities
• Response to cashes through

The accounting function

• Captures and recorded at financial fact that from transaction
• Distribute transection in operational for coordinate many activities -Inventory and control and costs recording -Payable, receivable and more

The value of information

• To Lead the user to desired action
• When attributes are consistently present, information has reality provides value that users
• Unreliable information has no value lead to dysfunctions to the users

Acction Independence

-information reliability and heavy on Independence -For accounting must separate and independent of the functional areas that manage and maintain

Info Technology

• IT functions data processing data base administrations

Figure 1.6

• The four IT functions.
• data processing
• system development in which organisation acquire information data systems and make decisions
• data base administration
• network administrations

Data Processing

• Function for
• Hardware software and all to support use infastructure
• Centralised and distributed processes

Centralised Data Processes

• performed by large computers housed in a common data center that servers

Distributed Data Processing

• Users processed transactions locatly

System Development and Maintenace

• Are meeting the system and organisation needs from maintaining maintaning. Systems and
• Maintence is responsible for Making Change to

system Development

• Organisions in formstion in two way they purchase commerecial software
• Commerecial software
• turny systems for impleted users of with little or no modifications
• Microsoft, Oracle, Software

Systems Maintance

• over course in life in system and for years modified trimens as user needs change and the evolve Maintenance can 88% and 90% because of Maintance activities
• Database Administration maintains all that shared between authorsed uses and heads is responsibles security integrity databses
• Network admininstrations
• Collection that allow users
• monitor network activity ensure that networks is bengt to hackers

SOX implications

• Overseeing IT functions is now a key job of management and auditors.

Accounting's role in systems development

• Specifying conceptual design that needs to be reported and what it was to help

Accountants as Audits

• Accountant have to perform Various of and audits that involving and has.
• Function and the auditor and with
• Independent attestation
• Express and audit

External Andits

• Auditor express from Auditors independence
• Auditor express from Auditors lack interest

Atteet Seevice.

An important detinition be made regarding the extemal auditor's attestation function and the rapidly growing field of advisory services, which many public accounting firms offer. Advisory services are professional services offered by public accounting firms to improve their client orga-

Explore accounting information systems, internal controls, and auditing procedures. Understand the impact of legislation like Sarbanes-Oxley Act (SOX) on AIS courses. Focus on data integrity, financial impact forecasting, and software system implementation.