AIS REVIEWER

• Accounting Information Systems, 6th Edition, was written by James A. Hall.

Internal & External Information Flows

• Internal information flows include performance information
• External information flows includes budget information and instructions
• These flows occur between top management, middle management, operations management, operations personnel, customers, stakeholders, and suppliers.

Internal Information Flows

• Horizontal information flows are used at the operations level to capture transaction and operations data.
• Vertical information flows include downward flows of instructions, quotas, and budgets.
• Vertical information flows include upward flows of aggregated transaction and operations data.

Information Requirements

• Every user group has unique information requirements.
• The higher the organizational level, the greater the need for aggregated information and the less need for detail.

Information in Business

• Information is a business resource and must be appropriately managed.
• Information is vital to the survival of contemporary businesses.

What is a System?

• A system consists of interrelated multiple components or subsystems that serve a common purpose.
• A system viewed as a component of a larger system is called a subsystem.
• A subsystem is considered a system when it is the focus of attention.

System Decomposition vs. System Interdependency

• System decomposition is the process of dividing a system into smaller subsystem parts.
• System interdependency means distinct parts are not self-contained and rely on the functioning of other parts.
• If all distinct parts do not function, the system can fail.

What is an Information System?

• An information system includes the formal procedures to collect, process data into information and distribute it to users.

Transactions

• A transaction is a business event.
• Financial transactions are economic events affecting the organization's assets and equities, such as the purchase of an airline ticket.
• Nonfinancial transactions include all other events processed by the organization's information system.
• An example of nonfinancial transactions include airline reservation with no commitment by the customer.

What is Accounting Information Systems?

• Accounting is an information system which identifies, collects, processes, and communicates economic information about a firm using various technologies.
• It captures and records the financial effects of the firm's transactions.
• It distributes transaction information to operations personnel to coordinate key tasks.

AIS versus MIS

• Accounting Information Systems (AIS) process financial transactions like the sale of goods
• AIS also processes nonfinancial transactions that directly affect the processing of financial transactions, like the addition of newly approved vendors.
• Management Information Systems (MIS) processes nonfinancial transactions not normally processed by traditional AIS, such as tracking customer complaints.

AIS Subsystems include

• Transaction processing system (TPS) supports daily business operations.
• General Ledger/ Financial Reporting System (GL/FRS) produces financial statements and reports.
• Management Reporting System (MRS) produces special-purpose reports for internal use.

The General AIS Model

• Data collection feeds into data processing which feeds into information generation
• These processes are managed via database management
• They also operate within a feedback loop

Data Sources

• Data sources are financial transactions that enter the information system from internal and external sources.
• External financial transactions are the most common source of data for most organizations such as the sale of goods, purchase of inventory, and receipt/disbursement of cash.
• Internal financial transactions involve exchanging or moving resources within the organization such as moving raw materials W.I.P., and applying labor/overhead, etc.

Transforming the Data into Information

The general AIS model has functions include:

• Data collection
• Data processing
• Data management
• Information generation

Data Collection

• Data collection consists of capturing transaction data, recording data onto forms and validating/editing the data.

Data Processing

• Data Processing consists of classifying, transcribing, sorting, batching, merging, calculating, summarizing and comparing
• Transforming raw data into a format that can be used for analysis and decision-making.

Data Management

• Data management consists of storing, retrieving, and deleting
• Data must be available, accessible and secure.

Information Generation

• Information Generation involves compiling, arranging, formatting and presenting.

Characteristics of Useful Information

Regardless of physical form or technology, useful information must have:

• Relevance; Serves a purpose
• Timeliness; No older than the time period of the action it supports
• Accuracy: Free from material errors
• Completeness; All information essential to a decision or task is present
• Summarization; Aggregated in accordance with the user's needs

Information System Objectives in a Business Context

• The goal of an information system is to support the stewardship function of management, management decision making, and the firm's day-to-day operations.

Organizational Structure

• The structure of an organization helps allocate responsibility, authority, and accountability.
• Segmenting by business function is a common method of organizing.

Functional Areas

Functional areas include:

• Inventory/Materials Management
• Production
• production planning, quality control, and maintenance
• Marketing
• Distribution
• Personnel
• Finance
• Accounting
• Computer Services

Accounting Independence

• Information reliability requires accounting independence.
• Accounting activities must be separate and independent of the functional areas maintaining resources.
• Accounting supports different functions with information, but cannot actively participate with operational data.
• Decision makers providing vital information require that the information be supplied by an independent source to ensure its integrity.

The Computer Services Function

• Distributed Data Processing reorganizes the computer services function into small information processing units, distributed to end users under their control.
• Centralized Data Processing performs all data processing by one or more large computers at a central site, serving users throughout the organization.
• Centralized Data Processing: Primary areas include database administration, data processing, systems development, and systems maintenance.

Potential Advantages of DDP

• Cost reductions in hardware and data entry tasks.
• Improved cost control and responsibility.
• Increased user satisfaction from improved control.
• Data backup via multiple data storage sites.

Potential Disadvantages of DDP

• Loss of control.
• Mismanagement of company resources.
• Incompatible hardware and software.
• Redundant tasks and data.
• Segregated tasks are also consolidated.
• Difficulty attracting qualified personnel.
• Lack of standards.

Manual Process Model

• Transaction processing, information processing, and accounting are physically performed by people, usually using paper documents.
• Provides a link between AIS courses and other accounting courses.
• Easier to understand business processes without technology.
• Facilitates understanding internal controls.

Data Redundancy Problems

• This model suffers from data storage issues like excessive storage costs of paper documents and/or magnetic form, as well as Data Updating issues, where changes must be made multiple times
• Other issues involve Currency of Information, Task-Data Dependency, and Data Intergration

REA Model

• The REA model is an accounting framework, modeling an organization's Economic Resources, Economic Events, and Economic Agents.
• Interrelationships occur among resources, events, and agents.
• Entity-relationship diagrams (ERD) often model these relationships.

ERP: Definition

• ERP is a set of integrated business applications or modules with common business functions such as general ledger, accounting, or order management.
• IT software integrates business activities across an enterprise.

What is ERP?

• ERP is short for enterprise resource planning which attempts to integrate all functions across a company to meet those specific needs.
• Support business through optimizing, maintaining, and tracking business functions.
• Includes product planning, parts purchasing, inventory control, and product distribution, to order tracking.

Components of ERP

• Human resources
• Manufacturing
• Supply chain management
• Finance/accounting
• Project management
• Customer relationship management

Accountants as Information System Users

• Accountants must be able to clearly convey their needs to the professionals designing the system.
• The accountant should actively participate during development to ensure proper design.

Accountants as System Designers

• The accounting function is responsible for the conceptual system, the computer function for the physical system.
• The conceptual system determines information requirements, sources/destination, and accounting rules.

Accountants as System Auditors

• External Auditors attest to fairness of financial statements
• IT Auditors evaluate IT, often as part of external audit
• Internal Auditors are in-house IS and IT appraisal services