AIN1501-001-2018 Accounting Information Systems PDF

Accounting information systems in a computer environment Only study guide for AIN1501 Authors Mr NJ Booyse...

Accounting information systems in a computer environment Only study guide for AIN1501 Authors Mr NJ Booyse Ms C Leonard Mr DPJ Scott Ms GM Viviers Contributor Mrs A Mc Gee Curriculum and learning development: Ms M Madiope Ms GNW Moleko College of Accounting Sciences School of Accountancy Department of Management Accounting University of South Africa, Pretoria © 2017 University of South Africa All rights reserved Printed and published by the University of South Africa Muckleneuk, Pretoria AIN1501/1/2018–2020 70501386 InDesign New PRTOU-Style  CONTENTS OVERVIEW xi PART 1: INTRODUCTION TO INFORMATION SYSTEMS 1 Topic 1 ± Nature of information and information systems 3 Study unit 1: Information 4 1 Introduction 4 2 What is information? 4 3 The uses and users of information 6 3.1 Internal users 6 3.2 External users 7 4 Summary 8 Self-assessment 9 Study unit 2: Information systems 11 1 Introduction 11 2 What is a system? 12 3 Open or closed systems 12 4 System performance measurement 12 5 What is an information system? 13 6 The role of information systems in organisations 13 7 Computerised information systems 14 8 Accounting information system (AIS) 15 8.1 Definition 15 8.2 Why study accounting information systems (AIS)? 15 9 Summary 16 Self-assessment 16 Study unit 3: Information strategy 18 1 Introduction 18 2 What is an information strategy? 18 3 The relationship between information, information system and information strategy 19 4 Information strategy 19 5 Benefits of an information strategy 20 6 Summary 20 Self-assessment 21 iii..... C. o.n.t.e n.t.s  Study unit 4: The Information system (IS) department 22 1 Introduction 22 2 Information system department 22 2.1 Objectives of the IS department 22 2.2 Composition of the IS department 23 2.3 Hiring and terminating IS staff 24 2.4 Organising the IS department 25 2.5 Centralisation of an IS department 25 2.6 Decentralisation of the IS department 26 2.7 Outsourcing the IS department 26 3 Evaluating the IS department 26 4 Summary 27 Self-assessment 27 PART 2 ± INFORMATION TECHNOLOGY INFRASTRUCTURE 29 Topic 2 ± Information technology components 31 Study unit 5: Hardware 32 1 Introduction 32 2 Role of hardware 32 3 Hardware components 33 4 Input devices 33 5 Processing ± the central processing unit (CPU) and primary memory 36 5.1 Central processing unit (CPU) 36 5.2 Executing instructions 36 5.3 Clock speed 37 5.4 Primary memory 37 6 Secondary storage 37 7 Output devices 40 8 Other hardware components to note 41 9 Types of computer systems 42 10 Computer system hardware selection and upgrading 44 11 Summary 45 Self-assessment 46 Study unit 6: Software 49 1 Introduction 49 2 System software 50 2.1 Operating system 50 2.2 Types of operating systems 51 2.3 Factors to consider when choosing a computer operating system 51 2.4 Utility software 52........... iv C o n t e n t s  2.5 Database management system 54 2.6 Network operating system and management software 54 3 Application software 55 3.1 Types of application software 55 3.2 Factors to consider when choosing application software 56 4 Software trends and issues 56 5 Software development 58 6 Summary 58 Self-assessment 59 Topic 3 ± Computer networks 61 Study unit 7: Components of communication networks 62 1 Introduction 62 2 Purpose of communication networks 62 3 Components of communication networks 63 3.1 Communication media or channels 63 3.2 Specific hardware needed for communication 64 3.3 Data communication protocols 65 3.4 Software needed for communication 65 4 Summary 66 Self-assessment 66 Study unit 8: Network configurations 67 1 Introduction 67 2 Communication network configuration 67 2.1 Network topologies 67 2.2 Geographical scope 68 2.3 Selecting a suitable network configuration 69 3 Distributed processing 69 4 Client server systems 69 5 Cloud computing 70 6 Summary 70 Self-assessment 71 Study unit 9: The internet, intranets and extranets 72 1 Introduction 72 2 The internet and how it works 72 2.1 How the internet works 72 2.2 Internet applications 73 2.3 E-commerce 75 2.4 Using the internet as a research tool 75 3 Intranets and extranets 75 4 Summary 76 Self-assessment 76 v........... C o n t e n t s PART 3: THREATS, CONTROLS, PRIVACY AND ETHICS 77 Topic 4 ± Threats in a computerised environment 79 Study unit 10: Threats to computerised information systems 80 1 Introduction 80 2 The relationship between vulnerability, threats, exposure and risks 80 3 Common threats to an information system 81 3.1 Natural threats (resulting from natural, external vulnerabilities) 81 3.2 Environmental threats (resulting from environmental, internal vulnerabilities) 81 3.3 Human threats (as a result of the acts of human beings) 81 4 Summary 86 Self-assessment 87 Topic 5 ± Controls in a computerised environment 89 Study unit 11: Computer and accounting information system controls 90 1 Introduction 90 2 Information system security policies 91 2.1 Defining an information system security policy 91 2.2 Documents containing guidelines for an information system policy 91 3 Controls 93 3.1 Controls classified by type 93 3.2 Controls classified by function 96 4 Disaster planning 100 5 System controls 102 6 Summary 103 Self-assessment 103 Topic 6 ± Privacy and ethical matters in a computerised environment 105 Study unit 12: Privacy and ethical concerns and measures to address these concerns 106 1 Introduction 106 2 Privacy and the individual 106 3 Privacy and the organisation 107 4 Ethical issues 108 4.1 Ethics and the individual 109 4.2 Ethics and information 109 4.3 Ethics and the organisation 109 5 Summary 110 Self-assessment 111........... vi C o n t e n t s PART 4 ± SYSTEM DEVELOPMENT 113 Topic 7 ± The system development process 115 Study unit 13: System development lifecycles 116 1 Introduction 116 2 What is information system development? 117 3 Reasons why an information system need to be replaced or improved 117 4 Factors affecting the success of system development 117 5 Re-engineering business processes 118 6 System development lifecycles 118 6.1 Traditional system development lifecycle (SDLC) 118 6.2 Prototyping 120 6.3 Rapid application development (RAD) 121 6.4 End-user development lifecycle 121 7 Outsourcing the information system 122 8 Summary 123 Self-assessment 124 Study unit 14: System investigation and system analysis 125 1 Introduction 125 2 System investigation 125 2.1 Development team 126 2.2 Feasibility analysis 126 2.3 System investigation report 127 3 System analysis 127 3.1 The steps involved in a system analysis 127 3.2 Different techniques to gather information on the existing information system 128 4 Summary 130 Self-assessment 130 Study unit 15: System design 131 1 Introduction 131 2 System design and its purpose 131 3 The system design process 132 3.1 Logical and physical system design 132 3.2 Interface design 133 3.3 System security and controls 133 3.4 Generating system design alternatives 134 3.5 Evaluating and selecting a system design 134 3.6 Financial options 134 3.7 System design report 136 vii..... C. o.n.t.e n.t.s  4 Summary 136 Self-assessment 137 Study unit 16: System implementation 138 1 Introduction 138 2 System implementation 138 3 Steps in the system implementation process 138 3.1 Step 1: Acquiring hardware 139 3.2 Step 2: Acquisition or development of software 139 3.3 Step 3: Preparation of current users 140 3.4 Step 4: Hiring and training of new staff (if needed) 140 3.5 Step 5: Site preparation 140 3.6 Step 6: Data preparation 140 3.7 Step 7: Installation of new hardware 140 3.8 Step 8: Testing 141 3.9 Step 9: Start up 141 3.10 Step 10: User acceptance 142 4 Summary 143 Self-assessment 143 Study unit 17: System review and maintenance 144 1 Introduction 144 2 System review and maintenance 144 3 System review and maintenance approaches 145 4 The system review process 145 4.1 Review team 146 4.2 Factors to consider during the system review process 146 4.3 Different aspects of the review process 146 4.4 Review methods 147 4.5 The system review report 147 5 The system maintenance process 148 5.1 The maintenance team 148 5.2 Types of system maintenance 148 5.3 System maintenance documentation and financial implications 149 6 Summary 149 Self-assessment 150 PART 5: BUSINESS APPLICATIONS 151 Topic 8 ± Application of information systems 153 Study unit 18: Overview of information systems and operational information systems 154 1 Introduction 154........... viii C o n t e n t s  2 Information systems in perspective 154 3 Transaction processing system 155 3.1 What is a transaction processing system (TPS)? 155 3.2 Business functions 156 3.3 Advantages of a TPS 156 4 An enterprise resource planning system (ERP) 157 4.1 What is an ERP? 157 4.2 Advantages and disadvantages of an ERP system 157 5 Summary 158 Self-assessment 158 Study unit 19: Management information system and decision support system 159 1 Introduction 159 2 The problem-solving and decision-making process 160 3 Management Information System (MIS) 161 3.1 What is an MIS? 161 3.2 Characteristics of an MIS 161 4 Decision support system (DSS) 161 4.1 What is a DSS? 161 4.2 The characteristics of a DSS 163 5 The differences between DSS and a MIS 164 6 Summary 164 Self-assessment 164 Study unit 20: Knowledge management and other specialised information systems 165 1 Introduction 166 2 Knowledge management system (KMS) 166 2.1 What is a KMS? 166 2.2 The characteristics of a KMS 166 2.3 Two applications of a KMS 167 3 Group support system (GSS) 169 3.1 What is a GSS? 169 3.2 GSS alternatives 170 3.3 The characteristics of a group support system (GSS) 170 3.4 Applications for a GSS 171 4 Executive support system (ESS) 171 4.1 What is an ESS? 171 4.2 Characteristics of an ESS 172 4.3 Applications for an ESS 172 5 Summary 173 Self-assessment 173 ix..... C. o.n.t.e n.t.s Topic 9 ± Electronic commerce 175 Study unit 21: Electronic commerce 176 1 Introduction 176 2 The importance of knowledge about e-business concepts 176 3 Concepts, advantages and disadvantages 177 3.1 E-business, e-marketing, m-commerce and e-commerce 177 3.2 The main e-commerce categories 179 3.3 Advantages and disadvantages of e-commerce and m-commerce 180 4 Summary 182 Self-assessment 182 Study unit 22: Electronic commerce related threats and controls 183 1 Introduction 183 2 E-commerce specific threats 183 2.1 Information threats 184 2.2 Technology threats 184 2.3 Business threats 185 3 Controls to mitigate e-commerce threats 186 4 Summary 188 Self-assessment 189 BIBLIOGRAPHY 190........... x C o n t e n t s  OVERVIEW Welcome During the last twenty years, there have been significant changes in the functioning and development of the business world and the economy. A dramatic increase in innovations and technology forced businesses to perform more professionally. Computers and other communication networks have been a driving force behind this shift and contributed much more than ever believed. It is difficult to imagine that, in just 20 years, processes changed from slow, manual and cumbersome to instantaneous, cutting-edge technology that is fast and reliable. This resulted in what we call the new economy, a term that is not yet well known. The new economy is based on these technologies and continuing to grow in importance. What exactly is the new economy? In its most basic form, it is a global state where communication technology creates global competition. It creates change so rapidly that many people refer to it as a revolution instead of an evolution. To those of you who wish to enrich your minds, welcome to the AIN1501 module! As Henry Ford said, ``Anyone who stops learning is old, whether twenty or eighty. Anyone who keeps learning today is young. The greatest thing in life is to keep your mind young.'' Please note that successful completion of this module will not make you a computer specialist; it will rather ensure that you have good background knowledge of accounting systems in a computer environment. You will be able to use this background knowledge in your studies, whether you wish to become an accountant, an auditor, or a business specialist. This module is therefore a basic but important building block for other modules that you still have to master. The module is not practically oriented; however, it does give you the knowledge base you will need to deal with problems in later modules. In the following module, Practical accounting data processing (AIN2601), you will have the opportunity to apply the knowledge and skills you acquired in the AIN1501 module practically. Because technology changes so rapidly, information technology is not a rigid or unchangeable area of study. It is therefore your duty as a student to ensure ± after the successful completion of this module ± that you keep up to date with the latest developments in the relevant field. Knowledge is only meaningful if it is relevant and up to date! As Richard Anthony de los Santos II said, ``In all the years I've lived, I have yet to stop learning''. Before starting your studies, it is important that you take note of a few important matters that follow below. General objectives of this module Information in the global economy is instantaneous and easily accessible. This speeds up an organisation's business cycle and allows it to maximise profit in shorter periods. Technology result in that people use their brainpower significantly more than physical power, and this requires specific education and knowledge. AIN1501 is intended for people who are interested in qualifying as accountants or management accountants, including students who are planning to register at SAICA or xi..... O. v.e.r v. i.e.w  CIMA. Students who are working towards a qualification in the field of information technology will also benefit from this module. This module provides you with the theoretical knowledge needed to understand the fundamental aspects of computerised information systems in a business environment. The theoretical knowledge will enable you to function as a user, designer, or evaluator of accounting information systems in the workplace. Lastly, the AIN1501 module provides you with the knowledge you need, to understand the computer principles and concepts concerned with information. It aims to make you aware of computers and information systems, with specific reference to their operation, the particular functions they can perform in the processing of accounting data and the associated risks and controls. Prerequisites and co-requisites Students who register for this module should be able to. communicate effectively in the English language. learn from predominantly written material. communicate what they have learnt comprehensibly in the medium of instruction. take responsibility for their own learning and progress with guided support It is assumed that students have. reading and comprehension skills to enable them to read questions and case studies, comprehend their content and follow a logical thought process. the ability to apply the basic principles they have been exposed to in the tutorial matter to specific questions or case studies and to formulate an opinion or recommendation, or draw a conclusion from this application Structure of this study guide and the module The module is divided into five distinctive parts, each containing several topics. Topics are the main study areas in each part, and each topic is divided further into study units. You will find the outcomes, which you are required to achieve for each topic in this guide, at the beginning of each topic. The parts of the course are described below. PART 1 Explains the nature of information systems. (Topic 1) This topic introduces you to information, information systems and information strategy and it deals with the information system department. PART 2 Explains the information technology infrastructure. (Topics 2±3) The second topic deals with information technology components and terminology, such as hardware and software, and the third topic explains computer networks and data communication............ xii O v e r v i e w PART 3 Describes the security and ethical risks associated with the use of computers in business and the controls that should be in place to minimise these risks. (Topics 4±6) This section deals firstly with the threats and secondly with the controls in a computerised environment. Topic 6 explains privacy and ethical matters. PART 4 Explains the principles related to information system development. (Topic 7) This section deals with system development processes. PART 5 Distinguishes between strategic information systems and their business applications. It also explains concepts of electronic commerce (e-commerce) and its risks. (Topic 8±9) The first section of this topic concentrates on the application of different strategic information systems and Topic 9 continues by discussing the threats and controls associated with e-commerce. xiii..... O. v.e.r v. i.e.w  Content AIN1501 (figure 1) Figure 1 below contains a schematic presentation of the content of the AIN1501 module. AIN1501 Accounting information systems in a computer environment Part 1 Part 2 Part 3 Part 4 Part 5 Introduction Information Threats, System Business to information technology controls, development applications systems infrastructure privacy and ethics ! ! ! ! ! Topic 1 Topics Topics Topic Topics Nature of 2 Information 4 Threats in a 8 Application of 7 The system information technology computerised information development and components environment systems process information 3 Computer 5 Controls in a 9 Electronic systems networks computerised commerce environment 6 Privacy and ethics matters in a computerised environment FIGURE 1: A schematic presentation of the content of the AIN1501 module Study material and resources Prescribed study material The study guide ± AIN1501 is the only prescribed study material for this module. Supplementary literature/additional reading Check for additional enrichment material on MyUnisa (https://my.unisa.ac.za). The bibliography at the end of the study guide gives a number of additional resources if you would like to read more about specific topics. Assignments The assignments are set out in Tutorial Letter 101, together with the necessary instructions. Your assignments should be submitted for marking by the due dates. It is in your best interest to answer and submit as many assignments as possible, since. they form an important, integral part of your studies. you will not be allowed admission to the examination without submitting the compulsory assignment. they facilitate preparation for the examination. some assignments, as indicated in Tutorial Letter 101, are taken into account when calculating your year mark; the higher your year mark, the better chance you have of succeeding in the module........... xiv O v e r v i e w Critical success factors Our aim in designing the study guide was to give you the best possible opportunity to master the knowledge, skills and values required by the discipline and the demands of professional practice. To discover what other support we offer you, please refer to Tutorial Letter 101. To ensure that you are successful in your studies, we would advise you to do the following:. Start as early as possible on your studies. We have found that students who start early have time to reflect on their studies and formulate their own informed opinions.. Use your time sensibly.. Work systematically through the contents of the study guide.. Set realistic goals.. Believe in yourself. We have designed this module using the SAQA guidelines with regard to the notional hours you will need to work through the course material successfully. You will need at least 120 hours to read and study all the study material, do your assignments and prepare for the examination. Research has shown that students who complete their assignments diligently are more likely to pass their examinations than those who do the minimum. You will not be able to pass this module successfully if you only try to memorise detail. We suggest that you allow yourself enough time to read a chapter, use different techniques to summarise the content, and spend time reflecting on the issues and principles involved. Study programme guideline Topic Part Topic Hours No 1 1 Nature of information and information systems 14 2 Information technology components 14 2 3 Computer networks 10 Assignment 1 1 4 Threats in a computerised environment 10 5 Controls in a computerised environment 6 3 6 Privacy and ethical matters in a computerised environment 4 4 7 System development process 24 Assignment 2 1 8 Application of information systems 14 5 9 Electronic commerce 10 Assignment 3 2 Review 8 Examination paper 2 Total hours 120 xv..... O. v.e.r v. i.e.w  Teaching strategy Our teaching role focuses on facilitating your learning experiences towards achieving specific outcomes. Furthermore, for each of the topics that comprise this module, the learning experiences were designed with the aim of enabling you to master the learning content at a predetermined competence level. Meaning of words Throughout this module, we communicate the learning outcomes and self-assessment criteria phrased in terms of what you should be able to do. This process involves the use of action words, which are typically verbs or phrases containing verbs that describe what is expected from the student in the learning activity. It is our objective to ensure that the words we use to indicate a requirement clearly state what you need to do. You should also ensure that you clearly understand the requirements conveyed by the range of words we use in the study material for this module. We list below (in alphabetical order) examples of some of the action words that you will come across in this module, together with their meanings for the purposes of this module. Action word Meaning Compare Examine in order to observe resemblances, relationships and differences Complete Finish/add what is required Define State precisely the meaning/scope/total character; make clear (especially the outline); give a concise description of the distinguishing features Describe Give clearly the distinguishing details or essential characteristics Determine Decide; come to a conclusion/make a decision, include reasoning Discuss Examine/consider the opposing arguments Draft Prepare a preliminary version Explain Set out the meaning of something; clarify the meaning, provide supporting evidence; argue the truth of something Identify Establish by consideration, select, recognise Illustrate Explain, clarify by means of an example to illustrate the nature, meaning and importance of something (see Explain) List Record/item, record/itemise names or things belonging to a class Mention/ Specify by name; cite names, characteristics, items, elements or Name/ facts State Record Put in writing; set down for reference and retention Summarise Give a condensed version; state the key aspects Tabulate Arrange/organise in table form Preparing for the examination When commencing your studies, we recommend that you prepare a schedule, which allocates time to each study unit, leaving sufficient time for revision closer to the exam............ xvi O v e r v i e w  This study guide contains what you need to complete the module successfully. We suggest the following study method:. Work systematically through each topic.. Read the learning outcomes of each topic in the study guide to accustom you with the aims of each of the nine topics.. Evaluate yourself continuously by working through the self-assessment activities provided in the study guide. When doing revision and preparing for the examination, it is recommended that you. review each study unit thoroughly using your detailed summaries. attempt to answer the assignments under exam conditions and compare your answers with the solutions provided. attempt to provide comprehensive and meaningful answers to the additional problems and questions included at the end of the relevant chapters in your prescribed textbooks The study programme on page XV serves as a guideline for your study programme for the year. Examination technique Comply with the examiner's requirements by. carefully reading the instructions on the front page of the question paper. providing relevant answers only. presenting your answer in the correct format. following the examiner's instructions carefully Satisfy the examiner by. handing in a neat answer book Give your best by. planning your answer carefully. being aware of the time allocation for each question. reading the question carefully and planning your answer (remember to answer what is required of you). answering the easier questions first. not leaving the examination venue before the allocated time has elapsed Conclusion We recognise the increasing impact of computer technology in the day-to-day business activities of accountants. This module (AIN1501) and the next module (AIN2601) combine the theoretical and practical understanding of accounting with the ability to define and develop information systems that harmonise human and computer resources. Accountants are in a prime position to understand the main business activities of organisations and the information needs of individuals and groups both within and outside organisations. These two modules will give you a deeper and clearer understanding of the use of information technology in information systems and of the organisational and social impact of computers. xvii..... O. v.e.r v. i.e.w  Since you are a student at a distance education institution, you should see this study guide as your lecturer, that is, we are transferring the knowledge to you through it. Enjoy your studies and remember, the sooner you tackle the work, the more time you will have to review before the exams. Finally, we trust that you will enjoy this module. All the best for your studies Your AIN1501 lecturers Accounting information systems in a computer environment (AIN1501) MODULE PURPOSE This module is intended for people who are interested in qualifying as accountants or management accountants, including students who are planning to register at SAICA or CIMA. Students who are working towards a qualification in the field of information technology will also benefit from this module. The aim of this module is to equip students with theoretical knowledge of the fundamental aspects of computerised information systems in a business environment, which will enable them to function as users, designers and evaluators of accounting information systems in the workplace. Part 1 Introduction to information systems Part 2 Information technology infrastructure Part 3 Threats, controls, privacy and ethics Part 4 System development Part 5 Business applications........... xviii O v e r v i e w  PART 1 Introduction to information systems PURPOSE...................... The purpose of part 1 is to assist you in developing an understanding of information and the need for information in organisations. In addition, you will be exposed to the nature of information systems and information strategy. This part is also intended to equip you with knowledge of the management of the information system department. Part 1 Part 2 Part 3 Part 4 Part 5 Introduction Information Threats, System Business to information technology controls, development applications systems infrastructure privacy and ethics ! ! ! ! ! Topic 1 Topics Topics Topic Topics Nature of 2 Information 4 Threats in a 8 Application of 7 The system information technology computerised information development and components environment systems process information 3 Computer 5 Controls in a 9 Electronic systems networks computerised commerce environment 6 Privacy and ethics matters in a computerised environment 1........... P A R T 1  TOPIC 1 Nature of information and information systems LEARNING OUTCOMES ______________________________ After studying this topic, you should be able to ± define information and list the characteristics of information ± describe the uses and users of information in a business environment ± explain an information system and its role in an organisation ± define a computerised information system ± describe an accounting information system and the importance of having knowledge of accounting information systems ± explain an information strategy and its importance for the organisation ± describe the relationship between information, information system and information strategy ± explain concepts of the information system department This topic consists of four study units Part 1 Part 2 Part 3 Part 4 Part 5 Introduction Information Threats, System Business to information technology controls, development applications systems infrastructure privacy and ethics ! Topic 1 Nature of information and information systems SU 1: Information SU 2: Information systems SU 3: Information strategy SU 4: The Information System department 3........... T O P I C 1  STUDY UNIT 1 Information In this study unit What is information? The uses and users of information ! ! ! Definition Internal users External users ! The information creating process ! ! ! ! Internal External Internal External sources soaures sources sources ! The characteristics of information 1 INTRODUCTION We are living in the information age. Information is everywhere. The most obvious reason for processing data is to reduce uncertainty and therefore most organisations value information as a strategic asset. No organisation can function without information. It is one of the key elements in the support of any business process and forms the basis of an organisation's future planning and decisions. Understanding the impact of information on an organisation is crucial in running a successful business. Such an understanding helps managers to ensure that their organisation stays on track in a continuously changing environment. In this study unit, we look at information, the characteristics of information and the uses and users of information. 2 WHAT IS INFORMATION? To understand information it is important to look at the term ``data'' first. Data are the raw material available for processing into information. Data consist of numbers, letters, audio and video data and relate to facts, events and transactions............ 4 T O P I C 1  NOTE...................... The word data is actually the plural form of the word datum.............................................................................................. Information is a set of facts or data organised and processed in such a way that it provides additional value beyond that of the facts themselves. Information is derived from data or raw facts that represent real-world elements, as illustrated in the following table: In other words, information is data that have been processed in such a way as to be meaningful to the person who receives it. This information provides knowledge that leads the user to make decisions. In a business environment, the creation of information for decision-making can be illustrated as follows: Knowl- Decision- Activity Data Information ! ! ! ! edge making FIGURE 1.1: The creation of information Example _____________________________________________________________ Sale took place ! Data are the number of sales for all the days in the year ! Information is these numbers processed in totals per month and per year ! Knowledge is recognising which month and areas are best for business ! Management makes decisions on where to focus and where to discontinue the business FIGURE 1.2: The creation of information (example) The characteristics of information When using information for decision-making purposes, it should comply with the characteristics described in the table below: Characteristics Explanation Accurate Information should be without any errors. Inaccurate data entered into a process will provide inaccurate information. Information should be checked to ensure correctness. Accessible Information should be easily available to users in order to meet their needs. Up-to-date Information needs to include the latest possible information and information recording time of data should be minimised. 5........... S t u d y u n i t 1  Characteristics Explanation Detail Some users may need details of all events while others need a information summary. Information should contain all the important facts, but no more than are necessary. Flexibility Information is flexible if it is usable for more than one purpose. Relevance of Information should be relevant to the needs of the users. information Cost- The value of information should always be balanced with the cost effectiveness of producing the information. Reliability Information is reliable if one can depend on it. Reliability depends on the source of information. A rumour is not reliable. Timely Information should be delivered when it is needed. Format of Information should not be overly complex and should be supplied information in the required format. Too much information or information in the wrong format leads to difficulty in determining what is important. 3 THE USES AND USERS OF INFORMATION The users of information can be both internal and external users. These users of information, both internal and external, first need to be identified before decisions on information needs can be made. Such users need information in order to perform a specific task or make specific decisions. Internal users may need information for future planning and forecasting, for measuring performance or for control in the organisation or about specific processes. External users, such as investors or financiers, may need information on the performance of the organisation for possible future investment, while clients may need information on products and services. This can be illustrated as follows: USERS ! ! Internal users External users ! ! ! ! Internal External Internal External sources sources sources sources FIGURE 1.3: The uses and users of information 3.1 Internal users Internal users use information to assist them in performing their daily tasks. This information can be from an internal or an external source. The following examples will explain the use of these two types of information source............ 6 T O P I C 1 3.1.1 Examples of internal users and the information needed by them are the following: Management: To coordinate the activities of the organisation, to do future planning, to make important decisions based on the information, to measure performance and control activities. Managers need internal information about their budgets and products in order to carry out their financial planning and make informed decisions. They also need external forecasting information on the economy, as well as on interest and exchange rates. Financial managers: Financial managers need information on the financial perfor- mance of the organisation in order to make decisions on cash flow and financing. Hence, management financial statements are an internal source of information. Financial managers also need external information on possible sources of finance in order to make financing decisions. Production managers: Internal information on sales quantities and sales forecasting is needed to control and plan the production process. Production managers use external information on new technology and production processes to improve the performance of the department. Staff managers: Staff managers use internal information on qualifications needed and salary levels. External information on employees and their qualifications should also be available to place employees in appropriate jobs. Marketing managers: Internal information needed relates to products, target markets and prices in order to make decisions on possible promotions and advertising methods. External information on the different media to use for advertising and their tariffs is needed, as well as on general market conditions, the economy and competitors. Sales managers: Internal information is needed on production costs and all overhead costs in order to make decisions on sales prices. External information on clients and their spending patterns is used to approach the clients and determine opening times for retail outlets. Purchase manager: Internal information is necessary on the quantity of the various products or raw material needed by the production department. The purchase manager also needs external information on suppliers and prices in order to make informed decisions on the best quality and prices. Employees: Employees need to have internal information on the sustainability of the organisation for job security reasons and external information on labour laws and unions. 3.2 External users Users outside the organisation may also need information from internal and external sources for various reasons. Financial statements form one of the most important sources of information in this regard. 3.2.1 Examples of external users and the information they need, from internal or external sources, are the following: Shareholders: Shareholders need to make informed decisions on whether to hold or extend their investment or to look at other investments. In order to make these decisions they need internal information on the financial and overall performance of the organisation and external information from other organisations. Suppliers: Suppliers need internal information on the sustainability and creditworthiness of the organisation for future planning and on products and services in order to supply 7........... S t u d y u n i t 1  the organisation with excellent service. External information on creditworthiness is available from references and credit bureaus. Customers: Customers need internal information about products and services in order to make decisions on what and where to buy. They also need information on things like discount, interest rates and payment terms, and whether finance is available or not. Customers can use external information on the products and services of different suppliers for comparison purposes. Financial institutions: In order to supply finance, financial institutions need internal financial information to determine the creditworthiness of the organisation. This creditworthiness can also be evaluated from external sources, such as references and credit bureaus. Government: The most important need for information by the government is for use by the South African Revenue Services (SARS). SARS needs internal financial information to determine the tax liability of the organisation. On the other hand, it also needs information from external sources like banks and other organisations to obtain information on the organisation's earnings. Payroll, taxes and employees' retirement fund deductions are also reported to SARS. Possible future employees: Future employees need access to internal information on the sustainability of the organisation for job-security reasons and external information on labour laws and unions. Information from external sources, such as the published financial statements, can also help a job applicant to determine the sustainability of the possible future employer. Activity 1.1 Visit one of the following:. an administration department of a business. the management of a business. the owner of a business. any employed person you know Try to obtain answers to the following questions:. What personal information from your employees do you use in your business and why do you need this information?. What information on your sales do you use and for what purpose?. What information do you try to obtain on your competitors and why do you need it? _____________________________________________________________ 4 SUMMARY Information is a key resource within the organisation and forms the basis of decisions made by internal users such as management and external users such as customers and suppliers. It is essential to keep the characteristics of information in mind when collecting information and to ensure that the information obtained is useful. ``Information is a necessary resource, produced by information systems and is a key building block to the management and decision-making in any organisation'' (Van Wyk........... 8 T O P I C 1  2006:1). In the next study unit (study unit 2), you will deal which the role played by information systems and computerised information systems in organisations. Self-assessment..................................... a. Briefly define the term ``information'' from a business perspective. b. Define the term ``data''. c. List and describe ten inherent characteristics that determine the value and relevancy of information for specific users in a specific situation. d. Name and describe five internal users and five external users of information in an organisation. e. Draw a diagram to illustrate the process of creating information. f. Application question: SPCE SPCE is a manufacturing organisation that manufactures specialist portable communication equipment. In recent years, the development of new technology such as wireless mobile telephones, infrared thermal imaging and global positioning has allowed competitors to create new products. The market for such equipment has ± at the same time ± grown significantly in the private and public sectors. Accordingly, SPCE recognised that its market share is decreasing and that it does not know as much about its competitors and the needs of its clients as it should. Required: As the management accountant of SPCE, you are required to advise the board on what internal and external information it needs in order to solve the problem that SPCE is facing. Assessment feedback............................................ Your answer to the application question above could have included the following: The following internal information is needed:. Information on sales quantities and sales forecasting of SPCE is needed to control and plan the production process and to determine whether the production department can keep up with possible changes in the market in order to retain market share.. Information on staff qualifications and salary levels will help to evaluate employees' skills and to compare them with those of the competitors. Do they have the skills to make the new and better products?. Information on products, target markets and prices to make decisions on possible promotions and advertisement methods.. Information on the quantity of the various products or raw material.. Information on creditworthiness of the organisation for future planning and the development of possible new products and services in order to supply customers with excellent service.. Information on the manufacturing equipment. 9........... S t u d y u n i t 1  The following external information is needed:. Information on competitors' products and services to compare them with SPCE's products.. Information on potential financiers in order to make financing decisions on possible technology upgrades.. External information on new technology and production processes to improve competition.. Information on different marketing strategies and the cost involved.. Information on clients and their spending patterns in order to approach clients and determine possible opening hours for SPCE wholesale/retail outlets.. Information on suppliers and prices in order to make informed decisions on suppliers in terms of cutting costs and prices.. Information on regulations applicable to cell phones, infrared equipment and global positioning system (GPSs), amongst others............ 10 T O P I C 1 STUDY UNIT 2 Information systems In this study unit Introduction to systems (definition) ! What is an information system? (definition) ! ! ! The role of Computerised Introduction to information systems in information systems accounting information organisations systems ! ! Components Process 1 INTRODUCTION In the previous unit, we looked at the information used in almost all organisations. Organisations use information systems to manage their information, to reduce uncertainties and costs and to increase revenues and service delivery. Organisations make decisions on a daily basis and need planning to implement such decisions. In order to plan, knowledge of resources, time scales for implementation and possible outcomes is needed. This knowledge comes from the information provided by information systems. Systems form part of our daily lives. The school system, which you have moved through, is possibly the most important system you have experienced. A world with no systems would be a disorganised place. In this study unit, you will learn more about information systems, and the role played by information systems and computerised information systems. 11........... S t u d y u n i t 2  2 WHAT IS A SYSTEM? A system is a set of two or more components that serve a common purpose and interact to achieve a common goal. A system consists of subsystems or elements that perform specific functions supporting the larger system (Romney & Steinbart 2009:26). The components of a system and the relationship among them can be explained as follows: Input Processing Output ! ! FIGURE 2.1: The components of a system 3 OPEN OR CLOSED SYSTEMS Systems operate within their environment. Some systems have no effect on their environment and do not affect the environment within which they operate. A system that is isolated from its environment is called a closed system. An example would be an automatic washing machine, where the dirty clothes, washing powder and knowledge are the input and the processing stage of the washing cycle would be the selection of a suitable programme and the operating of the machine. The clean clothes are the output. An open system interacts with its environment. The environment affects it and it, in turn, affects its environment. Most business systems are open systems. For example, a purchasing system, where the purchase order requests comprise the input. The processing stage consists of identifying the items and the quantities that should be ordered and the output comprises placing the order with preferred suppliers. Feedback includes the communication of order dates, quantities and delivery dates to the department that placed the order. This system is an open system and the external environment affects the system, for instance suppliers' prices, the transportation of items and the availability of items to an organisation. 4 SYSTEM PERFORMANCE MEASUREMENT A system need to be properly managed and controlled, like any other function in the organisation. To ensure that the information system adds value and supports the organisation the quality must be monitored. System performance measurement is the monitoring of the working of the system to ensure it is effective, fulfil its responsibility and make the contribution it is supposed to make. System performance can be measured as follows:. Effectiveness. This is a measurement of the outcomes against a predetermined level of output. It measures the extent to which the information system meets its goals............ 12 T O P I C 1. Efficiency. This measures outputs against inputs to determine the rate of output over input.. Performance standards. This is a set of specific performance expectations for the information system. Observable activities explain how the job should be done. The performance standards document explains the results that are expected for satisfactory performance of the system. A system variable is the quantity or item that can be controlled by the decision maker. The price a company charges for its products is a system variable because it can be controlled by the company and they can decide to change the price. A system parameter is a value or quantity that cannot be internally controlled, meaning it cannot be changed by a decision-maker in the company. An example is the cost of raw material, as the supplier determines this cost. 5 WHAT IS AN INFORMATION SYSTEM? An information system is an organised way of collecting, processing, managing and reporting information for informed decision-making to achieve goals (Romney & Steinbart 2009:809). An information system is a set of interrelated elements or components that collect (input), manipulate (process) and disseminate (output) data and information, and provide a feedback mechanism to meet an objective. Input refers to the act of gathering and capturing raw data. It can be a manual or automated process but, regardless of the method used, the accuracy of the input is critical in order to achieve the desired output. Processing involves the conversion or transformation of data into useful outputs while the term output refers to the production of useful information, usually in the form of documents and reports. The term feedback refers to the output used to make changes to input or processing activities. 6 THE ROLE OF INFORMATION SYSTEMS IN ORGANISATIONS Information systems are the heartbeat of any organisation. According to BPP-LM-CIMA E1 (2009:54), information systems assist organisations with the following functions:. Planning For long-term (strategic) planning, management needs historic information on annual profit to determine growth. Information on the needs of consumers is also required to enable management to set realistic objectives. Information on available resources, markets, possible outcomes of scenarios, suppliers and lots more is needed to do short- term (operational) planning. Information systems provide this information and assist with the daily tasks of management. You will learn more about strategic and operational planning in Principles of management accounting (MAC2601) and Principles of strategy, risk & financial management techniques (MAC2602). 13.... S.t.u d.y.u.n i.t.2. Recording transactions Transactions are recorded to use as evidence, thus meeting legal requirements and to assess profitability. An information system is used to capture and process these transactions. You will learn more about the practical application of this in Practical accounting data processing (AIN2601).. Decision-making One of management's daily tasks is to make decisions and choose between alternatives. If relevant information is available, it will reduce uncertainties and support the decision maker in selecting an option. An information system supports the decisions taken by management. You will learn more about the information required to make decisions in Principles of management accounting (MAC2601) and Principles of strategy, risk & financial management techniques (MAC2602).. Control and performance measurement Plans and objectives are put in place to enable management to measure performance. Management must ensure that plans are executed and the objectives are met. Information on the different business units and the business as a whole is required to control and monitor performance and to take corrective action. You will learn more about management's role in decision-making in Principles of management accounting (MAC2601). 7 COMPUTERISED INFORMATION SYSTEMS People can use a computerised information system to gain access to meaningful information. An example of a computerised information system is an ATM machine. A computerised information system is a set of hardware, software, telecommu- nication, people and procedures that is used to collect, store and process data into information. A computerised information system consists of different components. Components of a computerised information system ! ! ! ! ! Hardware Software People Procedures Databases FIGURE 2.2: The components of a computerised information system........... 14 T O P I C 1. Hardware (Discussed in detail in part 2, topic 2, study unit 5). Software (Discussed in detail in part 2, topic 2, study unit 6). Telecommunication, networks and the internet (Discussed in detail in part 2, topic 3, study unit 7, 8 and 9). People People need to interact with the computer to enter data and retrieve information. People run, manage and maintain a system and are the most important element in a computerised information system.. Procedures Policies, methods, rules and strategies for using the system are necessary to ensure order and control. Poorly developed and inadequate implementation of procedures will waste time or result in wrong decisions.. Databases A database comprises facts and information, organised and stored in two or more related data files. A database contains information on sales, purchases, inventories, employees, customers and much more. A computerised information system process The following diagram illustrates the computerised information system process and the relationship between the different stages: Output of Making Activities Input of data Processing ! ! ! ! information decisions ! ! Store data or information FIGURE 2.3: The computerised information system process 8 ACCOUNTING INFORMATION SYSTEM (AIS) 8.1 Definition An accounting information system collects, records, stores and processes financial data to supply information for decision makers. 8.2 Why study an accounting information system? A career in accounting or auditing will challenge you to evaluate the reliability and accuracy of the information from an accounting information system (AIS). In order to do 15.... S.t.u d.y.u.n i.t.2  so you will need to understand the development, operation and control of the system and be able to identify the strengths and weaknesses of the system. Activity 2.1 Why will an organisation have an advantage over its competitors if its information system can produce information about sales figures, product availability and client requirements faster than its competitors can? Feedback For long-term (strategic) planning, management needs information on future sales to determine the growth in the market. This enables management to make faster provision for financing possible production expansion, while competitors do not have the information yet. Current product information enables management to plan possible improved products and new products to satisfy the needs of customers before competitors recognise the gap in the market. Timely information on customers' needs enables management to plan accordingly. Getting this information before competitors, can enable the organisation to become market leaders. _____________________________________________________________ 9 SUMMARY Information produced by information systems, forms the basis for major day-to-day decisions. People and organisations use information systems to help them achieve their goals. To use information systems effectively, it is essential for individuals to understand them in order to perform their daily tasks. Computerised information systems are essential for today's organisations as they process information more accurately and much faster. That is also the reason why an accounting information system have become an important component of any successful business. The next study unit (study unit 3) deals with organisational strategy to manage information effectively. Self-assessment..................................... a. Define a system. b. Draw a diagram to illustrate the relationship between the components of a system. c. Briefly discuss the performance measurement of an information system. d. Briefly describe an information system. e. Name and describe the role of information systems in organisations. f. Define a computerised information system. g. Name the six stages of the computerised information process. (You can use a diagram to illustrate your answer.)........... 16 T O P I C 1 h. Name the components of a computerised information system. i. Define an accounting information system. j. Briefly explain why the study of accounting information systems is important for future accountants and auditors. 17.... S.t.u d.y.u.n i.t.2  STUDY UNIT 3 Information strategy In this study unit Information The relationship Elements of information strategy between strategy concepts information, including information information systems and ! ! ! technology information Information Information Information strategy system technology management strategy strategy strategy ! The need for an information strategy 1 INTRODUCTION An information system is a tool (asset) used in an organisation. In the absence of proper management and control, the information system could easily become more of a liability than an asset to the organisation. In the first two study units of this topic, we dealt with information and information system. In this section, we will provide you with information to help you to obtain a better understanding of the term information strategy and its relationship to the previous two terms. 2 WHAT IS AN INFORMATION STRATEGY? An information strategy refers to our decisions or plan on how to use the available information, how to collect more relevant, useful information and how to use the information technology to manage the process. In order to gain a better understanding of this definition we need to look at the meaning of the term ``information technology''. Information technology refers to the processing of data, using electronic systems (computer systems) and all communication links and software that go with it............ 18 T O P I C 1  Revisit the definitions for the terms ``information'' and ``information system'' in the previous study units. 3 THE RELATIONSHIP BETWEEN INFORMATION, INFORMATION SYSTEM AND INFORMATION STRATEGY IINFORMATION STRATEGY ! ! Manage Manage and and control control ! ! INFORMATION INFORMATION SYSTEM For management Collecting, processing, Provide relevant and usable to make informed ! managing and decisions reporting information Information technology ! make these processes possible ! FIGURE 3.1: The relationship between information, information system and information strategy For a thorough understanding, we need to differentiate between. information. the way it is collected, processed and stored. the plan to manage and control information and an information system An information system provides management with relevant and usable informa- tion. Management can now use this information to make informed decisions. In order for an information system to be effective and information to be managed properly, organisations need a plan on how to manage their information and information systems. This plan is the information strategy. Information technology enables these processes and makes them fast and efficient. 4 INFORMATION STRATEGY The information strategy should be in line with the overall strategy of the organisation and support the organisation's strategic plan. Information strategy refers to the overall plan an organisation has to create and develop its information system (BPP-LM-CIMA (P3), 2009, p. 258). BPP-LM-CIMA E2 (2009:228) divided information strategy into three elements: 19.... S.t.u d.y.u.n i.t.3  Information strategy ! ! ! Information system Information technology Information management strategy strategy strategy FIGURE 3.2: The three elements of information strategy. The information system strategy is a long-term plan for system in order to provide information to support business strategy.. The information technology strategy entails selecting, operating and managing the technology elements of the information system strategy.. The information management strategy refers to the people involved in the use of information technology and these people's roles. It deals with the relationships between them and with the management process needed to use information technology. 5 BENEFITS OF AN INFORMATION STRATEGY. An information system contributes to the achievement of goal congruence between the information system's objectives and the organisation's objectives.. Information strategies ensure that the required information is acquired, retained and shared with all stakeholders.. Information strategies minimise development and maintenance costs, which are expensive.. Organisations are more likely to create a sustainable competitive advantage.. Information strategies ensure better quality information and therefore better decisions by management. Activity 3.1 Visit the management or the owner of one of your local companies or businesses and try to get a look at their information strategy. Ask them the following questions: a. Do you have an information strategy (a plan to manage your information and information system)? b. Do you think such a strategy is necessary; and if so, why? _____________________________________________________________ 6 SUMMARY Owing to rapid developments in the field of information technology, an information strategy should be managed effectively and management should plan carefully ways in which to handle the information system. Such a plan is known as an information strategy. Information technology assists organisations with the management of information, the information system and the information systems' strategy............ 20 T O P I C 1  An organisation that does not have an information system strategy is like a rowing boat adrift on a big ocean. By drawing up a proper strategy for the organisation's information system, the capital and other resources invested can be used to the organisation, its customers and stakeholders' advantage. The next study unit (study unit 4) will discuss the management of the information system department in detail before we elaborate more on the components of a computerised information system in part 2. Self-assessment..................................... a. Explain the terms:. information technology. information strategy b. Name and explain the three elements of the information strategy. c. Explain the need for an information strategy. 21.... S.t.u d.y.u.n i.t.3  STUDY UNIT 4 The Information System (IS) department In this study unit Objectives of Composition Hiring and Organising Evaluating the IS of the IS terminating IS the IS the IS department department staff department department ! ! ! Centralising Decentralising Outsourcing 1 INTRODUCTION As you will know by now, information is no longer only a nice to have, but rather a necessity in the business environment, enabling users to make sensible decisions. Accessible, accurate, complete, economical, flexible, relevant, reliable, secure,