Accounting Information System PDF

ACC-112: ACCOUNTING INFORMATION SYSTEM LESSON 1: 1ST SEMESTER | A.Y. 202Y – 202Y LECTURER: SIR/MS. THE INFORMATION SYSTEM: AN ACCOUNTANT’S PERSPECTIVE Middle management is accountable for the short-term pl...

ACC-112: ACCOUNTING INFORMATION SYSTEM LESSON 1: 1ST SEMESTER | A.Y. 202Y – 202Y LECTURER: SIR/MS. THE INFORMATION SYSTEM: AN ACCOUNTANT’S PERSPECTIVE Middle management is accountable for the short-term planning and coordination of activities necessary to Information accomplish organizational objectives.  Information is one of the vital resources of the business. Top management is responsible for longer-term planning  Information is being used by various users of information to and setting organizational objectives. make decisions. o You use information even if you are just in the  Every individual in the organization, from business operation management and not in the top operations to top management, needs information to management. accomplish his or her tasks. o It is not necessary to use information to make strategic decisions, even simple inventory or ordering decisions needed the information.  There is only a difference on the information we give Internal Information Flows depending on the level of management. o Low-level of management  information about day- HORIZONTAL flows of information to-day operations. ─ There is an exchange of information within that level. o High-level of management  information that will be ─ It used primarily at the operations level to capture useful for decision making (strategic decisions) transaction and operations data. ─ The horizontal flow supports operations-level tasks with INTERNAL AND EXTERNAL FLOWS OF INFORMATION highly detailed information about the many business transactions affecting the firm. ─ This includes information about events such as the sale and shipment of goods, the use of labor and materials in the production process, and internal transfers of resources from one department to another. VERTICAL flows of information ─ Upward and downward flow of information. ─ Summarized information pertaining to operations and other activities flows upward to managers at all levels. ─ Management uses this information to support its various planning and control functions. o From the lowest level (operations personnel) to the highest level (top management)—pass the information for strategic decisions. ─ The vertical flow distributes information downward from senior managers to junior managers and operations  The organization is divided into three management tiers: personnel in the form of instructions, quotas, and budgets. o Operations Management o From the highest level (top management) to the o Middle Management lowest level (operations management)—the o Top Management decision of the top management will be cascaded to the operations personnel.  Operations Personnel  who knows the day-to-day operations. INFORMATION REQUIREMENTS o They have the detailed data/information about their day-to-day information such as their daily sales  Each user group has unique information requirements. (customers), purchasing (suppliers), salaries of o The level of detail and the nature of the information employees, laborers, and others. these groups receive differ considerably. o This detailed information is being on to the  The lower the level of the organization, the greater the need operations management, which is the reason behind for detail. controlling of the day-to-day operations.  The higher the level of the organization, the greater the need to be more aggregated information and less need for Operations management is directly responsible for detail. controlling day-to-day operations. o Aggregated information passed to managers should o Operations management will give the information to already be validated. the middle management. APRIL KAE APRIL KAE APRIL KAE 1|Page  o Managers cannot use the highly detailed information o There is still a need to distribute to users because needed by operations personnel. they might make a decision but uninformed. o Management information is thus more summarized o Your information might be accurate, but it will only and oriented toward reporting on overall be useless if it will not be distributed. performance and problems rather than routine o However, not all information are provided to all operations. users. o Users have different needs of information based on their unique information requirements. WHAT IS A SYSTEM?  A group of interrelated multiple components or subsystem DATA BEING COLLECTED that serve a common purpose. o Ex. Clock – there is a lot of multiple components  The information system accepts input, called transactions, inside that serve to measure time. which are converted through various processes into output o Ex. Computer system – consist of the hardware, information that goes to users. software, and liveware (they are interrelated and used to researching, studying, playing, etc. TRANSACTIONS SYSTEM DECOMPOSITION vs. SYSTEM INTERDEPENDENCY  An event that affects or is of interest to the organization and is processed by its information system as a unit of work. System Decomposition Financial Transactions  The process of dividing the system into smaller subsystem parts. o It is an economic event that affects the assets and  This is a convenient way of representing, viewing, and equities of the organization. understanding the relationships among subsystems. o It is reflected in its accounts. o We need to divide the system into subsystem to o It is measured in monetary terms (it has a monetary understand well how they work. effect). o Ex. Financial Statement (overall system)  we divide o Ex. Purchase of an airline ticket  Dr. Expense and each part such as asset, liabilities, or revenue Cr. Cash (decrease in cash) (subsystem) in order to better understand the data they needed. Nonfinancial Transactions o All other events processed by the organization’s information system. System Interdependency o These are events that do not meet the narrow definition of a financial transaction.  Distinct parts not self-contained ( not independent). o Ex. An airline reservation  no commitment by the  They are reliant upon the functioning of other parts of the customer (there is no paying of cash) system. o We also need to get nonfinancial transactions as o A system’s ability to achieve its goal depends on the data. effective functioning and harmonious interaction of o For instance, you have raw materials being bought its subsystems. from abroad. While not yet purchasing those raw  All distinct parts must be functioning or the system will fail. materials, you still don’t have a liability or a financial  If a vital subsystem fails or becomes defective and can no transaction. You need a data about foreign exchange longer meet its specific objective, the overall system will fail (nonfinancial data) to know if the peso is weaker or to meet its objective. stronger. If foreign exchange is higher, it means the o Since they are interdependent to each other, one peso is weaker so you might decide not to buy the subsystem that doesn’t work, whole system will not raw materials yet. work. o Nonfinancial transaction can also be a data about the o Ex. If the fuel pump (a vital subsystem of the fuel performance of an individual. system) fails, then the fuel system fails. o Ex. If the hardware (a subsystem of computer) fails, Ex. If the performance of the employee is good, then then the computer system fails. you can give bonus ( financial transaction). o Ex. You cannot make an income statement if your cash conversion cycle is not accurate or precise. This o Nonfinancial data can eventually be financial data. is because the cost of goods sold (COGS) that should have been in the income statement is computed Ex. Nonfinancial data – years of service. But, using the cash conversion cycle. eventually, when you retire and give retirement pockets (from nonfinancial to financial). WHAT IS AN INFORMATION SYSTEM? o We also maintain data which are nonfinancial in  The information system is the set of formal procedures nature because it has something to do with our (subsystems) by which data are collected, processed into future transactions and decision making. information, and distributed to users. o Collect data = Analyze business transactions o Process information = Financial statements o Distribute to users both external and internal. APRIL KAE APRIL KAE APRIL KAE 2|Page  TRANSACTIONS PROCESSED BY THE INFORMATION SYSTEM  Transactions give us financial and nonfinancial data that will be collected and processed by the information system.  As this information processed those data, it will now turn into information. That information will be used by the user, whether internal or external, in order for them to make decisions. WHAT IS AN ACCOUNTING INFORMATION SYSTEM? Accounting is an information system.  It identifies, collects, processes, and communicates economic information about a firm using a wide variety of technologies.  It captures and records the financial effects of the firm’s transactions. AIS SUBSYSTEMS  It distributes transaction information to operations personnel to coordinate many key tasks. Transaction Processing System (TPS)  AIS subsystems process financial transactions and  The TPS is central to the overall function of the information nonfinancial transactions that directly affect the processing system by converting economic events into financial of financial transactions. transactions, recording financial transactions in the o Ex. Changes to customers’ names and addresses are accounting records (journals and ledgers), and processed by the AIS to keep the customer file distributing essential financial information to operations current. personnel to support their daily operations. o Although not technically financial transactions, these changes provide vital information for processing General Ledger/Financial Reporting Systems (GL/FRS) future sales to the customer.  A reporting system which is producing the traditional financial statements, such as Statement of Financial Position, Statement of Comprehensive Income, Statement AIS vs. MIS of Cash Flows, Tax and Returns, and other reports required by PFRS or IFRS. Accounting Information Systems (AIS) process Management Reporting System  Financial transactions (e.g., sale of goods).  The MRS provides the internal financial information  Nonfinancial transactions that directly affect the processing needed to manage a business. of financial transactions (e.g., addition of newly approved  This is a reporting system with special purpose financial vendors) reports or modified reports that could be used by the internal users in making decisions. Management Information Systems (MIS) process  Management often requires information that goes beyond A GENERAL MODEL FOR ACCOUNTING INFORMATION SYSTEM the capability of AIS.  The management information system (MIS) processes  It describes all information systems, regardless of their nonfinancial transactions that are not normally processed by technological architecture. traditional AIS. o Ex. Tracking customer complaints – as organization grow in size and complexity specialized functional areas emerge requiring additional information which could be used in the production or even in the planning or control of the business FRAMEWORK FOR INFORMATION SYSTEMS  Information system as an overall system is subdivided into Accounting Information System and Management Information System. APRIL KAE APRIL KAE APRIL KAE 3|Page  ELEMENTS OF GENERAL MODEL  Trading partners (customers and suppliers) receive transaction-oriented information, including purchase ~ End Users ~ Database Management orders, billing statements, and shipping documents. ~ Data Sources ~ Information Generation ~ Data Collection ~ Feedback Internal Users ~ Data Processing  Internal users include management at every level of the organization, as well as operations personnel. DATA  Data are facts, which may or may not be processed (edited, summarized, or refined) and have no direct effect on the Data Sources user. ─ Data sources are financial transactions that enter the information system from both internal and external sources. INFROMATION o Not only have we captured external financial transactions but also internal financial transactions.  Information is often defined simply as processed data.  Information causes the user to take an action that he or she otherwise could not, or would not, have taken. External Financial Transactions  Information is determined by the effect it has on the user, not by its physical form. ─ External financial transactions are the most common source of data for most organizations. Example: ─ These are economic exchanges with other business entities  A purchasing agent receives a daily report listing raw and individuals outside the firm. material inventory items that are at low levels. o Ex. the sale of goods and services, the purchase of inventory, the receipt of cash, and the disbursement This report have information content for the of cash (including payroll). purchasing agent and causes the agent to place orders for more inventory. Internal Financial Transaction  If a personnel manager received this report, it is a ─ Internal financial transactions involve the exchange or mere collection of facts, or data, causing no action and movement of resources within the organization. having no information content. o Ex. the movement of raw materials into work-in- process (WIP), the application of labor and overhead  One person’s information is another person’s data. to WIP, the transfer of WIP into finished goods  Information is not just a set of processed facts arranged in inventory, and the depreciation of plant and a formal report. Information allows users to take action to equipment. resolve conflicts, reduce uncertainty, and make decisions.  If output from the information system fails to cause users to act, the system serves no purpose and has failed in its Transforming the Data into Information primary objective. We need to transform those data (unprocessed) to information (processed) because certain or all data might FEEDBACK be irrelevant to the company. Transforming data to information in order to be useful to  Feedback is a form of output that is sent back to the system the end users. as a source of data.  Ex. An inventory status report signals the inventory control clerk that items of inventory have fallen to, or below, their Functions for transforming data into information according to the minimum allowable levels. general AIS model: Internal feedback from this information will initiate the (1) Data Collection inventory ordering process to replenish the inventories. (2) Data Processing (3) Data Management External feedback about the level of uncollected customer (4) Information Generation accounts can be used to adjust the organization’s credit- granting policies. I. Data Collection END USERS ─ Data collection is the first operational stage and the most External Users important stage in the information system. o This is because if you do not have data (not collected  Include creditors, stockholders, potential investors, regulatory any), you do not have anything to transform. agencies, tax authorities, suppliers, and customers. o If the information captured was wrong.  Institutional users, such as banks, the SEC, and the Internal Revenue Service (IRS) receive information in the form of ─ The objective is to ensure that event data entering the financial statements, tax returns, and other reports that the system are valid, complete, and free from material errors. firm has a legal obligation to produce. APRIL KAE APRIL KAE APRIL KAE 4|Page ─ If transaction errors pass through data collection ─ Regardless of the database’s physical form, we need undetected, the system may process the errors and something to store the information and retrieve it. generate erroneous and unreliable output. o The data should be stored properly, otherwise, when ─ This could lead to incorrect actions and poor decisions by the data has been unorganized, then the processed the users. data might not be useful. o As an accountant, we need to transcend to Accounting Information in a way that we do not need Database management involves fundamental tasks: to do journalizing, posting, trial balances, and (1) Storing others—we are being transformed to being an  The storage task assigns keys to new records and analyst. stores them in their proper location in the database. o Not all owners are accountants. o We are the one who analyze the information and give (2) Retrieving it to the management—we are giving  One of the critical ones. recommendation to the management in order for  Retrieval is the task of locating and extracting an them to decide. existing record from the database for processing. Ex. A company does not do preventive maintenance. (3) Updating After years of using it, the major repairs are slowly  After processing is complete, the storage task becoming visible just because they did not do preventive restores the updated record to its place in the maintenance. database. o Updating data whenever there is a transaction. An accountant or analyst can recommend the owners to o Ex. Inventory count is 10 pieces. Some of those start and maintain the preventive maintenance in order finished goods were sold. not to incur a huge amount of money. o So there is a need for updating or records. Capturing Transaction Data (4) Deleting  Capturing information data that are accurate and  Deletion is the task of permanently removing irrelevant. obsolete or redundant records from the database. o We need to delete the financial information that Recording Data onto Forms is unnecessary. o The company can decide to delete or not delete  These forms could be sales invoice (when there is information. inventory), official receipts, (when there is a product sold),  There is a deletion of information because there is and special journal (transferred them to journal entries). another set of transactions that are to be paid during the period. Validating and Editing the Data  If the management opt not to delete the information  We will validate the data and, in case of financial because it is said necessary. information errors, edit them. III. Information Generation II. Data Processing ─ Information generation is the process of compiling, ─ Once collected, data usually require processing to produce arranging, formatting, and presenting information to users. information. o Compiling, arranging, and formatting the data in ─ Tasks in the data processing stage range from simple to such a way of Financial Statements. complex. o Presenting the information to the relevant users, o Classifying both internal and external, that will be useful in their o Transcribing decision making. o Sorting o Batching ─ Information generation is already emit in a good accounting o Merging information system because we can just click something o Calculating that will automatically generate the information o Summarizing requirements of the users. o Comparing o There is already a format. o Ex. The manager needs a report, with accounting ─ In AIS, we don’t need to do it manually but it already have information system, the format that the manager a system that do the processing. needs are already generated and just can download ─ Ex. mathematical algorithms (such as linear programming it, and can be represented as needed by those models) used for production scheduling applications, internal users. statistical techniques for sales forecasting, and posting and summarizing procedures used for accounting applications. o Financial Accounting  follows a standard (PFRS) and concerns about information based on the needs of the external users. II. Data Management External reporting, the organization has a great deal ─ The organization’s database is its physical repository for of latitude in the way it meets the needs of internal financial and nonfinancial data. users. ─ It can be a filing cabinet or a computer disk. APRIL KAE APRIL KAE APRIL KAE 5|Page  o Management Accounting  does not follows a INFORMATION SYSTEM OBJECTIVES IN A BUSINESS standard and concerns about information based on CONTEXTS the needs of the internal users. Each organization must tailor its information system to the needs Thus, internal reporting poses a less structured and of its users. Therefore, specific information system objectives generally more difficult challenge than external may differ from firm to firm. reporting. This means that the accounting information system available will be adjusted to fit the operations. o They are not recorded on different books, the If the accounting information system do not adjust, then difference only is the information given/presented it is useless. internally or externally.  In which the breakdowns are part of the Three fundamental objectives are common to all systems: financial accounting. The goal of information system is to support… Characteristics of Useful Information  Stewardship function of management. o Stewardship refers to management’s responsibility Regardless of physical form, useful information has the following to properly manage the resources of the firm. characteristics: o The information system provides information about resource utilization to external users via traditional “Useful To Users” financial statements and other mandated reports. A. Relevance o Internally, management receives stewardship  The contents of a report or document must serve a information from various responsibility reports. purpose.  Relevant to the user.  Management decision making.  The information system should present only relevant o The information system supplies management with data in its reports. the information they need to carry out their decision-  Ex. A production manager made a production report making responsibilities. and gave it to the HR manager (person who is irrelevant to the physical form of information).  The firm’s day-to-day operations.  Not all information related to the company is o The information system provides information to considered relevant already. operations personnel to assist them in the efficient and effective discharge of their daily tasks. B. Timeliness  The age of information is a critical factor in determining ORGANIZATIONAL STRUCTURE its usefulness.  The structure of an organization reflects the distribution of There could be instances that the information is responsibility, authority, and accountability throughout the correct, but not timely  not considered. organization.  Films achieve their overall objectives by establishing  Information must be no older than the time of the measurable financial goals for their operational units. action it supports.  Ex If a manager makes decisions daily to purchase FUNCTIONAL AREAS inventory from a supplier based on an inventory status report, then the information in the report should be no  Segmenting by business function is a very common method more than a day old. of organizing a business. o Understanding the pattern of responsibility, C. Accuracy authority, and accountability is essential in assessing  Information must be free from material errors. the users’ information needs.  Firms organize into segments to promote internal There could be an instances that the information is efficiencies through the specialization of labor and cost- relevant to user and passed on time, but the content effective resource allocations. itself is not correct/erroneous.  Managers within a segment can focus their attention on narrow areas of responsibility to achieve higher levels of D. Completeness operating efficiency.  No piece of information essential to a decision or task should be missing.  Ex. A report should provide all necessary calculations and present its message clearly and unambiguously. E. Summarization  Information should be aggregated in accordance with the user’s needs.  Lower-level managers tend to need information that is highly detailed.  As information flows upward through the organization to top management, it becomes more summarized. APRIL KAE APRIL KAE APRIL KAE 6|Page INENTORY / MATERIALS MANAGEMENT ~ The objective of the personnel function is to effectively manage this resource. Purchasing – Receiving – Stores ~ A well-developed personnel function includes recruiting, training, continuing education, counseling, evaluating, ~ The objective of materials management is to plan and labor relations, and compensation administration. control the materials inventory of the company. ~ A manufacturing firm must have sufficient inventories on hand to meet its production needs and yet avoid excessive FINANCE inventory levels. ~ Idle inventory can become obsolete, lost, or stolen. ~ The finance function manages the financial resources of ~ As a practical matter, most organizations maintain safety the firm through banking and treasury activities, portfolio stocks to carry them through the lead time between management, credit evaluation, cash disbursements, and placing the order for inventory and its arrival. cash receipts. ~ The finance function also administers the daily flow of cash Purchasing is responsible for ordering inventory from in and out of the firm. vendors when inventory levels fall to their reorder points. Receiving is the task of accepting the inventory previously ACCOUNTING ordered by purchasing. ~ The accounting function manages the financial information resource of the firm. Stores takes physical custody of the inventory received and releases these resources into the production process It plays 2 important roles in transaction processing: as needed. a) Accounting captures and records the financial effects of the firm’s transactions. PRODUCTION Movement of raw materials from the warehouse into Production Planning – Quality Control – Maintenance production. ~ Production activities occur in the conversion cycle in which Shipments of the finished products to customers. raw materials, labor, and plant assets are used to create Cash flows into the firm and deposits in the bank. finished products. The acquisition of inventory, and the discharge of financial obligations. Production planning involves scheduling the flow of materials, labor, and machinery to efficiently meet b) Accounting distributes transaction information to production needs. operations personnel to coordinate many of their key tasks. Quality control monitors the manufacturing process at various points to ensure that the finished products meet COMPUTER SERVICES / INFORMATION TECHNOLOGY FUNCTION the firm’s quality standards. ~ Like accounting, the IT function is associated with the Maintenance keeps the firm’s machinery and other information resource. manufacturing facilities in running order. ~ Its activities can be organized in a number of different ways. MARKETING o One extreme structure is the centralized data processing approach. ~ The marketing function deals with the strategic problems o At the other extreme is the distributed data of product promotion, advertising, and market research. processing approach. ~ Computer services function is important because this will help us to process the data properly to become an DISTRIBUTION information. ~ Distribution is the activity of getting the product to the customer after the sale. ~ This is a critical step. ACCOUNTING INTERDEPENDENCE ~ Much can go wrong before the customer takes possession of the product.  Information reliability rests heavily on the concept of o Excessive lags between the taking and filling of accounting independence. orders, incorrect shipments, or damaged merchandise can result in customer dissatisfaction  Accounting activities must be separate and independent of and lost sales. the functional areas that maintain custody of physical ~ Ultimately, success depends on filling orders accurately in resources. the warehouse, packaging goods correctly, and shipping o One person cannot take all the responsibilities of them quickly to the customer. accounting. o There should be a segregation of authority and duty. o In this case there could be a problem, in terms of PERSONNEL integrity. ~ One of the greatest resources.  Accounting supports these functions with information but does not actively participate in the physical activities. APRIL KAE APRIL KAE APRIL KAE 7|Page  Decision makers in these functions requires that such vital o Systems maintenance information be supplied by an independent source to ensure  There a lot of various areas below. its integrity.  IT activities are consolidated and managed as a shared organization resource.  End users compete for these resources on the basis of need. COMPUTER SERVICES FUNCTION  The IT function is usually treated as a cost center whose  Computer services contains both the Central Data operating costs are charged back to the end users. Processing, as well as Distributed Data Processing.  Most companies used centralized system.  Like accounting, the IT function is associated with the information resource. Potential Advantages of Distributed Data Processing  Its activities can be organized in number of different ways. i. Cost reductions in hardware and data entry tasks. o The data can be entered and edited at each of the Distributed Data Processing IPU (individual processing units) thus, eliminating a centralized tasks of data conversion and data control. o Application complexity can be reduced, which in turn reduces development and maintenance costs. ii. Improved cost control responsibility. o Managers assume the responsibility for the financial success of their operations, as they are already decentralized. iii. Improved user satisfaction since control is closer to the user level. o Perhaps the most often cited benefit of Distributed Data Processing is improved user satisfaction. o Users desire to control the resources that influence their profitability. o Users want systems professionals (analysts, programmers, and computer operators) who are  Reorganizing the computer services function into small responsive to their specific situation. information processing units that are distributed at the o Users want to become more actively involved in end users and placed under their control. developing and implementing their own systems.  Functions of business has its own information processing units. iv. Back up of data can be improved through the use of  Not centralized. multiple data storage sites. o The ability to back up computing facilities to protect against potential disasters such as fires, floods, sabotage, and earthquakes. Most organizational structures fall somewhere between these extremes and embody elements of both. Potential Disadvantages of Distributed Data Processing Centralized Data Processing i. Loss of control. o This data processing will have various people holding the data. ii. Mismanagement of company resources. o Information processing services represent a significant expenditure for many organizations. o Information process services, such as computer operations, programming, data conversion, and database management. o Distributing responsibility for these resources will inevitably lead to their mismanagement and suboptimal utilization of resources. iii. Hardware and software incompatibility. o Distributing the responsibility for hardware and software purchases to user management can result  All data processing is performed by one or more large in uncoordinated and poorly conceived decisions. computers household at a central site that serves users o Such hardware and software incompatibilities can throughout the organization. degrade and disrupt communications between  Primary Areas: organizational units. o Database administration o Data processing iv. Redundant tasks and data. o Systems development APRIL KAE APRIL KAE APRIL KAE 8|Page  o Each of the department will have the processing The Flat-File Model units which can be done in centralized ( isa na lang). o Autonomous systems development activities  The flat-file approach is most often associated with so-called distributed throughout the firm can result in each legacy systems. user area reinventing the wheel. o These are large mainframe systems that were implemented in the late 1960s through the 1980s. v. Consolidating tasks usually segregated. o There are processing units but have one report, there would be a problem as to consolidation. o The distribution of the IT function to individual user areas results in the creation of many very small units that may not permit the necessary separation of incompatible functions. vi. Difficulty attracting qualified personnel. o End-user managers may lack the knowledge to evaluate the technical credentials and relevant experience of candidates applying for a position as a computer professional. o If the organizational unit into which a new employee is entering is small, the opportunity for personal growth, continuing education, and promotion may be limited. o For these reasons, IPU managers sometimes experience difficulty attracting highly qualified personnel, which increases the risk of programming errors and systems failures. vii. Lack of standards. o Because of the distribution of responsibility in the DDP environment, standards or developing and documenting systems, choosing programming languages, acquiring hardware and software, and evaluating performance may be unevenly applied  The flat-file model describes an environment in which or nonexistent. individual data files are not related to other files.  End users in this environment own their data files rather than share them with other users. THE EVOLUTION OF INFORMATION SYSTEM MODELS  Thus, stand-alone applications rather than integrated systems perform data processing. Manual Process Model  One of the problems of flat-file model is data redundancy. o The data redundancy demonstrated in this example  The manual process model is the oldest and most traditional contributes to three significant problems in the flat-file form of accounting systems. environment:  Transaction processing, information processing, and (1) data storage accounting are physically performed by people, using paper (2) data updating documents. (3) currency of information o Traditionally, this model also includes the physical task of record keeping. Data Storage o Often, manual record keeping is used to teach the ─ Excessive storage cost of paper documents and/or principles of accounting to business students. magnetic form. ─ To meet the private data needs of users,  Useful to study because: organizations must incur the costs of both multiple o Learning manual systems helps establish an important collection and multiple storage procedures. link between the AIS course and other accounting ─ Some commonly used data may be duplicated courses. dozens, hundreds, or even thousands of times. o The logic of a business process is more easily understood when it is not shrouded by technology. Data Updating o Manual procedures facilitate understanding internal ─ Changes or additions must be performed multiple control activities, including segregation of functions, times because the systems are different. supervision, independent verification, audit trails, and ─ When users keep separate files, all changes must be access controls. made separately for each user. o Ex. A change to a customer’s name or Because human nature lies at the heart of many address must be reflected in the appropriate internal control issues, we should not overlook the master files. importance of this aspect of the information system. Currency of Information APRIL KAE APRIL KAE APRIL KAE 9|Page  ─ In contrast to the problem of performing multiple  Each data element is stored only once, thereby updates is the problem of failing to update all the eliminating data redundancy and reducing data user files affected by a change in status. collection and storage costs. ─ If update information is not properly disseminated, (2) Single update. the change will not be reflected in some users’ data,  Because each data element exists in only one resulting in decisions based on outdated information. place, it requires only a single update procedure. Task-Data Dependency  This reduces the time and cost of keeping the ─ User’s inability to obtain additional information as his database current. or her needs change. (3) Current values. ─ The user’s information set is constrained by the data  A single change to a database attribute is that he or she possesses and controls. automatically made available to all users of the ─ Users act independently rather than as members of attribute. a user community.  Ex. A customer address change is immediately reflected in the marketing and product services Data Integration views when the billing clerk enters it. ─ This model limits data integration ─ Separate files are difficult to integrate across multiple users. ─ The flat-file approach is a single-view model. ─ Files are structured, formatted, and arranged to suit What is the difference between the database model and flat-file the specific needs of the owner or primary user of model? the data. ─ Such structuring, however, may exclude data The most striking difference is the pooling of data into a attributes that are useful to other users, thus common database that all organizational users share. preventing successful integration of data across the With access to the full domain of entity data, changes in organization. user information needs can be satisfied without obtaining additional private data sets. Users are constrained only by the limitations of the data The Database Model available to the entity and the legitimacy of their need to access it.  An organization can overcome the problems associated with flat files by implementing the database model to data management. The REA Model  R (resources) E (events) A (agents).  With the organization’s data in a central location, all users have access to the data they need to achieve their respective objectives. o Access to the data resource is controlled by a database management system (DBMS).  The DBMS is a special software system that is programmed  REA is an accounting framework for modeling an to know which data elements each user is authorized to organization’s critical resources, events, and agents (REA) access. and the relationships between them. o The user’s program sends requests for data to the  Once specified, both accounting and non-accounting data DBMS, which validates and authorizes access to the about these phenomena can be identified, captured, and database in accordance with the user’s level of stored in a relational database. authority.  Advances in database technology have focused renewed o If the user requests data that he or she is not authorize attention on REA as a practical alternative to the classic to access, the request is denied. accounting framework. o Clearly, the organization’s procedures for assigning user authority are an important control issue for Resources auditors to consider. ─ Economic resources are the assets of the organization. Through data sharing, the following traditional problems ─ They are defined as objects that are both scarce and associated with the flat-file approach may be overcome: under the control of the enterprise. (1) Elimination of data redundancy. Events APRIL KAE APRIL KAE APRIL KAE 10 | P a g e  ─ Economic events are phenomena that affect changes o Ex. the accountant must specify accounting rules and in resources. techniques to be used, internal control requirements, ─ They can result from activities such as production, and special algorithms such as depreciation models. exchange, consumption, and distribution.  The principal cause of design errors that result in system ─ Economic events are the critical information failure is the absence of user involvement. elements of the accounting system and should be captured in a highly detailed form to provide a rich Accountant as System Designers database.  The accounting function is responsible for the conceptual system, while the computer function is responsible for the Agents physical system. ─ Economic agents are individuals and departments  The conceptual system determines the nature of the that participate in an economic event. information required, its sources, its destination, and the ─ They are parties both inside and outside the accounting rules that must be applied. organization with discretionary power to use or o The design of the conceptual system involves dispose of economic resources. specifying the criteria for identifying delinquent ─ Example of agents include sales clerks, production customers and the information that needs to be workers, shipping clerks, customers, and vendors. reported.  The REA model requires that accounting phenomena be Accountant as System Auditors characterized in a manner consistent with the development of multiple user views.  External Auditors  Under the REA model, business organizations prepare o Attest fairness of financial statements. financial statements directly from the event database. o They are the one that expresses an opinion about the  REA is a conceptual model, not a physical system. fairness of a company’s financial statements.  The most notable application of REA philosophy is seen in o Assurance service: broader in scope than traditional the proliferation of ERP systems. attestation audit.  IT Auditors Enterprise Resource Planning Systems o Evaluate IT, often as part of external audit.  Enterprise resource planning (ERP) is an information system  Internal Auditors model that enables an organization to automate and o In-house IS and IT appraisal services. integrate its key business processes. o This is what currently using by entities.  ERP breaks down traditional functional barriers by facilitating data sharing, information flows, and the introduction of common business practices among all organizational users.  ERP packages are sold to client organizations in modules that support standard processes. ERP Modules o Asset Management o Financial Accounting o Human Resources o Industry-Specific Solutions o Plant Maintenance o Production Planning o Quality Management o Sales and Distribution o Inventory Management THE ROLE OF THE ACCOUNTANT Accountant as an Information System Users  Accountants must be able to clearly convey their needs to the systems professionals who design the system.  The accountant should actively participate in systems development projects to ensure appropriate systems design. o If the accountants are part of creating the information system, then we would be able to design it in accordance with their needs in the process.  The accountant’s participation in systems development should be active rather than passive. APRIL KAE APRIL KAE APRIL KAE 11 | P a g e