The Information Environment & Objectives

The Information Environment

• Accounting information systems (AIS) are specialized subsets of information systems used to process financial transactions
• Information flows include the movement of data into and out of an organization
• Trading partners are a category of external user
• This includes customer sales and billing information
• It also includes purchase information for suppliers
• And inventory receipts information
• Stakeholders are entities either inside or outside an organization that have a direct or indirect interest in the firm

Information Objectives

• Three fundamental objectives common to all organizations:
• To support the firm's day-to-day operations
• To support management decision making
• To support the stewardship function of management

S&S Consumer Electronics Case

• Scott Parry and Susan Gonzalez opened S&S to sell appliances and consumer electronics, pursuing a "clicks and bricks" strategy with a physical store and an electronic storefront
• To prepare for their grand opening in five weeks, Scott and Susan need to decide on:
• Pricing strategies to be competitive yet profitable
• Credit extension terms and accurate tracking methods
• Hiring, training, and supervision of employees, including compensation, benefits, and payroll processing
• Cash flow tracking methods to avoid cash squeezes
• Appropriate product mix and inventory quantities for the limited showroom
• They need to determine information needs for themselves and external entities, plan for data gathering, storage, and dissemination, and define necessary business processes and website functionality

Information System Framework

• An information system consists of the procedures for data collection, processing, and distribution to users
• A management information system (MIS) processes nonfinancial transactions, unlike traditional accounting information systems
• A transaction is an event that affects an organization and is processed as a unit of work
• A financial transaction is an economic occurrence impacting assets and equities, measured financially, and reflected in firm accounts
• Nonfinancial transactions don't meet the criteria of a financial transaction

System / Data / Information

• A system is two or more interrelated components interacting to achieve a goal, usually composed of supporting subsystems
• Goal conflict arises when a subsystem's goals clash with another subsystem's or the system's overall goals
• Goal congruence occurs when a subsystem helps achieve the organization's overall goal
• Data are raw facts that are collected, recorded, stored, and processed by an information system without directly affecting a user's actions
• Information is organized and processed data that provides meaning and improves decision-making, which triggers user action
• The value of information is the benefit produced by the information minus the cost of producing it

7-Eleven Japan Example

• Each 7-Eleven in Japan uses a computer to:
• Track the sales of 3,000 items in each store, analyzing product movement based on time and weather
• Keep record of customer purchases to ensure frequently purchased items are in stock
• Auto-orders sandwiches/rice from suppliers three times daily for freshness
• Allow automatic supplier access to 7-Eleven sales data for demand forecasting
• Coordinates deliveries with resulting decreasing deliveries from 34 to 12 a day.
• Generate color graphic displays that indicate which store areas bring most sales/profits

Accounting Information System (AIS)

• Accounting Information System (AIS) Includes:
• The transaction processing system (TPS)
• Which covers the revenue, expenditure, and conversion cycles
• The general ledger/financial reporting system (GL/FRS)
• Which produces financial statements, tax returns, and other legal reports
• The management reporting system (MRS)
• Which provides the internal financial information needed to manage a business

AIS Subsystems

• Transaction Processing System manages daily financial transactions
• General Ledger/Financial Reporting Systems follow nondiscretionary reporting
• Little to no choice in the information provided
• This includes financial statements, tax returns, and legal documents
• Management Reporting System follows discretionary reporting
• Can choose what information to report and how to present it; variance, budgets, responsibility reports

General Model For AIS

• The general model for AIS describes all information systems, regardless of their technological architecture
• End users are those for whom the system is made
• End users include external and internal users.
  • External users include creditors, stockholders, potential investors, regulatory agencies, tax authorities, suppliers, and customers
  • Internal users include management at all levels of the organization as well as operations personnel

Data vs. Information

• Data are facts that may/may not be processed, edited, summarized or refined
• Has no direct effect on the user
• Information causes the user to take action
• Data sources are financial transactions that enter the information system from either internal or external sources
• Data collection is the first operational stage in the information system
  • To ensure that event data entering the system is valid, complete, and free from material errors

Data Processing

• Data processing manages the computer resources used to perform the day-to-day processing of transactions
• Database is a physical repository for financial data
• Database management is a special software system that is programmed to know which data elements each user is authorized to access
• Includes
  • Data Attribute
  • Record
  • File
• Information generation compiles, arranges, formats, and presents information to users
• Information generation includes: relevance, timeliness, accuracy, completeness, summarization
• Feedback loops through the system

Business Processes and Transactions

• A transaction is an agreement between two entities to exchange goods or services, or an event in economic terms by an organization
• The process of capturing transaction data to producing financial statements is called transaction processing
• Business activities feature give-get exchanges
• These exchanges are: Revenue, expenditure, production, human resources/payroll, and financing cycles

Transaction Cycles

• The revenue cycle is where goods and services are sold for cash or a future promise to receive cash
• The expenditure cycle is where companies purchase inventory for resale or raw materials to use in producing products in exchange for cash or a future promise to pay cash
• The production or conversion cycle is where raw materials are transformed into finished goods
• The human resources/payroll cycle is where employees are hired, trained, compensated, evaluated, promoted, and terminated
• The financing cycle is where companies sell shares in the company to investors and borrow money, and where investors are paid dividends and interest is paid on loans

Organizational Structure and Functional Areas

• Physical AIS includes many types of technologies and configurations, people and tasks from across the organization
• The sales processing system includes sales, credit, inventory control, warehousing, shipping, billing, accounts receivable, general ledger, and data processing
• Segments are functional units of a business organization
• Functional areas are Materials Management, Production, Marketing, Distribution, Personnel, and Finance
• Resources influence Functional Segments
• Materials influences Materials Management, Production, Marketing, and Distribution
• Labor influences Personnel
• Finance influences Financial Capital
• Information influences Accounting and Information Technology

IT & The Accounting Function

• Reliability is the information property that makes it useful to users
• Independence is the separation of accounting of record-keeping functions from functional areas with custody of physical resources
• Centralized data processing is one or more computers housed at a central site that serve users throughout the organization.
• Distributed data processing (DDP) reorganizes the IT function into small information processing units (IPUs) distributed to end users
• Systems Development: Commercial software is pre-coded and purchased while Turnkey systems are those completely finished and tested
• Custom software is explicitly built
• Systems maintenance involves the software development life cycle while Enterprise resource planning (ERP) is a system assembled of prefabricated software components
• Network administration: network is a connection of computers/devices to communicate and share data and applications
• Maintain the hardware/software of the organization network

Outsourcing the IT Function

• IT outsourcing means contracting a consultant to maintain an ethical corporate IT function
• Including managing IT assets and staff and delivery of IT services
• Such delivery of services includes:
  • data entry
  • delivery of data center operations
  • delivery of application development
  • application maintenance
  • network management
• Cloud computing is where shared data centers deliver hosted IT services over the Internet
• Categories include
  • Software as a service (SaaS) in which service providers host applications for client organizations over a private network or the Internet
• Infrastructure as a service (laas) is the provision of computing power and disk space to client firms who access it from desktop PCs
• Platform as a service (PaaS) enables client firms to develop and deploy onto the cloud infrastructure consumer-generated applications using facilities provided by the PaaS vendor.

The Role of Accountants

• Accountants design/audit AIS, and often serve on the development teams
• Conceptual systems produce alternate new system designs,
• Physical systems store data, and
• Data storage makes data available to all users
• Auditors express opinions on firms financial statements:
• Attesting to fair presentation of client firms financial statements.
• Substantive tests determine database contents fairly reflect transactions.
• IT Auditing and Testing of Controls must also functions properly .

Internal And External Audits

• Internal audits are the appraisal function within the organization
• External audits are completed by experts
• Checks integrity of financial aspects, internal auditing included

Accounting information systems process financial transactions. Information flows include data movement in/out of an organization. Fundamental objectives support daily operations, management decisions, and stewardship.