Chapter 1 AIS Accounting Information Systems PDF

Chapter (1): Accounting Information Systems: An Overview Explain System Concept, Goal Conflict, and Goal Congruence. System → is a set of two or more interrelated components that interact to achieve a goal. often composed of smaller subsystems that support the larger system....

Chapter (1): Accounting Information Systems: An Overview Explain System Concept, Goal Conflict, and Goal Congruence. System → is a set of two or more interrelated components that interact to achieve a goal. often composed of smaller subsystems that support the larger system. ▪ For Example → Faculty of commerce English section is a system composed of various departments, each one of which is a subsystem. Moreover, the faculty of commerce itself is a subsystem of the university system. ▪ Each subsystem is designed to achieve one or more organizational goals. Changes in subsystem cannot be made without considering the effect on other subsystems and on the system as a whole. ▪ The systems concept also encourages integration, which is eliminating duplicate recording, storage, reporting, and other processing activities in an organization. ▪ For Example → companies that used to have separate programs to prepare customer statements, collect cash, and maintain accounts receivable records now combine these functions into a single application. Goal Conflict Goal Congruence Occurs when a decision or action of a It occurs when a subsystem achieves its goals while subsystem is inconsistent with another contributing to the organization’s overall goal. The subsystem or the system as a whole. systems concept also encourages integration. Distinguish Data from Information Data → are facts that are collected, recorded, stored and processed by an information system. ▪ Businesses need to collect several kinds of data such as : A. The activities that take place. Example: collecting data about a sale (Date - total amount) B. The resources affected by the activities. Example The resource sold (Good or Service – quantity sold - unit price). C. The people who participate in the activity. Example (Customer – Sales Person). Information → is data that have been organized and processed to provide meaning and improve the decision making process. ▪ As a Rule → users make better decisions as the quality and quantity of information increase. ▪ Information overload → Exceeding the amount of information a human mind can absorb and process resulting in a decline in decision making quality and an increase in the cost of providing information. ▪ The value of information → is the benefit produced by the information minus the cost of producing it. ▪ The major benefits of information are a reduction of uncertainty, improved decisions, and a better ability to plan and schedule activities. ▪ The costs are the time and resources spent collecting, processing, and storing data as well as distributing information to decision makers. Discuss the Characteristics of Useful Information. ▪ Information costs and benefits can be difficult to quantify, and it is difficult to determine the value of information before it has been produced and utilized. ▪ The expected value of information should be calculated as effectively as possible so that the costs of producing the information do not exceed its benefit. ▪ Characteristics of useful information → Questions Part ▪ True or False 1. Information is organized and processed data that provides meaning. Answer → True 2. System is a set of two or more unconnected components that interact to achieve a goal.  Answer → False 3. The major benefits of information are an increase of uncertainty, improved decisions, and a better ability to plan and schedule activities. Answer → False 4. Users can make better decisions as the quantity and quality of data increase. Answer → False ▪ MCQs: 5. Which of following is not a characteristic that makes information useful A. It is reliable. B. It is timely. C. It is inexpensive. D. It is relevant Answer → C 6. The report was carefully designed so that the data contained in the report became information to the reader. Match this description with the information characteristic: a. timely. b. complete. c. understandable. d. verifiable. Answer → C 7. Which of the following statements below shows the contrast between data and information? A) Data is the output of an AIS. B) Information is the primary output of an AIS. C) Data is more useful in decision making than information. D) Data and information are the same. Answer: B 8. Information is best described as A) raw facts about transactions. B) data that has been organized and processed so that it is meaningful to the user. C) facts that are useful when processed in a timely manner. D) the same thing as data. Answer: B 9. The value of information can best be determined by A) its usefulness to decision makers. B) its relevance to decision makers. C) the benefits associated with obtaining the information minus the cost of producing it. D) the extent to which it optimizes the value chain. Answer: C 10. ________ information reduces uncertainty, improves decision makers' ability to make predictions, or confirms expectations. A) Timely B) Reliable C) Relevant D) Complete Answer: C 11. Information that is free from error or bias and accurately represents the events or activities of the organization is  A) relevant. B) reliable. C) verifiable. D) timely. Answer: B 12. Information that does not omit important aspects of the underlying events or activities that it measures is A) complete. B) accessible. C) relevant. D) timely. Answer: A 13. Information is ________ when two knowledgeable people independently produce the same information. A) verifiable B) relevant C) reliable D) complete Answer: A 14. -----------occurs when a decision or action of a subsystem is inconsistent with another subsystem or the system as a whole. a. Goal conflict b. Goal congruence c. Integration. d.The value of information Answer: A Definition of AIS Accounting Information System (AIS) → Is a set of interrelated activities, documents and technologies designed to collects data, process it, and report information to an interest group cof internal and external decision makers in organizations. ▪ A well-designed AIS can significantly enhance decision making in organization by responding to many elements of International Accounting Standards Board (IASB Conceptual Framework). ▪ The International Accounting Standards Board (the IASB or the Board) issued the Revised Conceptual Framework for Financial Reporting (the Revised Conceptual Framework) on 29 March 2018. ▪ The revised version includes comprehensive changes to the previous Conceptual Framework, issued in 1989 and partly revised in 2010. ▪ The previous Conceptual Framework (the 2010 Conceptual Framework) was criticized for its lack of clarity, the exclusion of certain important concepts and for being outdated in terms of the IASB’s current thinking. The Conceptual Framework ▪ The purpose of the Conceptual Framework → 1. To assist the Board in developing standards. 2. To help preparers develop consistent accounting policies where there is no applicable standard in place. 3. Finally, to assist all parties to understand and interpret the standards. ▪ The conceptual framework is arranged in eight chapters, as follows (Reading): ▪ The Conceptual Framework states that the objective of financial reporting → To provide financial information about a reporting entity that is useful to existing and potential investors, to lenders, and to other creditors who want to make decisions about providing resources to the entity. ▪ The Qualitive Characteristics of Accounting information →  Accounting Information System ▪ A well-designed accounting information system relates to the conceptual framework (How) by → 1. Capturing data on the elements of financial statements. - AIS document changes in assets, liabilities, equity, revenues, expenses, gains, and losses. Many continue to use a traditional debit/credit format for doing so. 2. Transforming those data into relevant and reliable information. - Well-designed accounting information systems also can gather data beyond the elements of financial statements. - Items like sales by geographic area, customer characteristics and transaction histories, demand for inventory items, can improve decision making by enhancing the elements of relevance (predictive value, feedback value, comparability, timeliness, and understandability). - Additionally, internal controls in the accounting information system promote verifiability, and representational faithfulness (free from error, complete, neutral). 3. Recognizing and adapting to the cost–benefit constraint. - AIS → are all about choices and trade-offs: What data should I capture? What information technologies should I use to process them? What information should I report? Importance of AIS ▪ AIS is an important area of study for future accountants because: - It cuts across traditional functional lines in accounting. - It provides the “big picture” and allows students to develop their critical-thinking and problem-solving skills. - It skills are important to your career success specially in audit career because auditors needs to evaluate the accuracy and reliability of information produced by the AIS. - To do so, they must understand how a system is developed, how it operates, and how it can be properly controlled. They must be able to evaluate and understand the strengths and weaknesses of an AIS. Questions Part ▪ True or False 1.The AIS is a system that collects, records, stores, and processes data to produce data for decision makers. Answer → False 2.A well-designed accounting information system relates to the conceptual framework by capturing information on the elements of financial statements. Answer → True 3.AIS is an important area of study for future accountants because it provides the “big picture” and allows students to develop their critical-thinking and problem-solving skills. Answer → True 4.A well-designed accounting information system relates to the conceptual framework when internal controls in the accounting information system promote relevance, comparability, and understandability of information. Answer → False 5.The purpose of the Conceptual Framework is to assist the preparers in developing standards. Answer → True 6.A well-designed accounting information system relates to the conceptual framework by recognizing and adapting to the cost–benefit Constraint not (Assumption) Answer → False ▪ MCQs: 1) An accounting information system (AIS) processes ________ to provide users with ________. A) data; information B) data; transactions C) information; data D) data; benefits Answer: A 2) Accounting Information System is a system that collects, records, ------------ , and process data, to produce information for decision makers. A) Captures B) Controls C) Stores D) None of these Answer: C 3) A well-designed accounting information system relates to the conceptual framework when internal controls when internal controls in the accounting information system promote ---------- and representational faithfulness. A) Comparability B) Understandability C) Verifiability D) Timely Answer: C 4) Data must be converted into information to be considered useful and meaningful for decision making. There are six characteristics that make information both useful and meaningful. If information is free from error or bias and accurately represents the events or activities of the organization, it is representative of the characteristic of A) relevancy. B) timeliness. C) understandability. D) reliability. Answer: D 5) Data must be converted into information to be considered useful and meaningful for decision making. There are six characteristics that make information both useful and meaningful. If information is free from error or bias and accurately represents the events or activities of the organization, it is representative of the characteristic of A) relevancy. B) timeliness. C) understandability. D) reliability. Answer: D 6) Inventory information is provided in real time by a firm's accounting information system. The accuracy of this information is questionable, however, since the production manager often reports stock outs of components that the system indicates are in stock. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) timely Answer: B 7) Cheryl Metrejean has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Ms. Metrejean. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above? A) relevant B) reliable C) complete D) verifiable Answer: D 8) Which of the following tradeoffs between characteristics of useful information is least objectionable? A) incomplete information received on a timely basis B) irrelevant information received in an understandable format C) unreliable information easily accessible D) verifiable information received in unreadable format Answer: A 9.An AIS can improve decision making by providing accurate information in a ------- manner. A) relevant B) reliable C) complete D) timely Answer: D  Accounting Information Structure ▪ Most accounting information systems comprise six parts → 1-Inputs (Data): - The data about organization and its business processes. - The type of data included in an AIS depends on the nature of the business, but it may consist of the following: Sales orders Customer billing statements Sales analysis reports Purchase requisitions Vendor invoices Check registers General ledger Inventory data Payroll information Timekeeping Tax information - The data can be used to prepare accounting statements and financial reports, including accounts receivable aging, depreciation or amortization schedules, a trial balance, and a profit and loss statement. - Having all of this data in one place—in the AIS—facilitates → a business's record-keeping, reporting, analysis, auditing, and decision-making activities. For the data to be useful, it must be complete, accurate, and relevant. - On the other hand, examples of data that would not go into an AIS include memos, correspondence, and presentations. These documents might have a relationship to the company's finances. 2-Processes - The software used to process the organization’s data. - The software component of an AIS is the computer programs used to store, retrieve, process, and analyze the company's financial data. - Before there were computers, an AIS was a manual, paper-based system, but today, most companies are using computer software as the basis of the AIS. - Quality, reliability, and security are key components of effective AIS software. - Managers rely on the information it outputs to make decisions for the company, and they need high-quality information to make sound decisions. 3-Outputs - System outputs for most organizations would include the general-purpose financial statements as well as internal reports such as variance analyses. 4-Storage. - Data in an accounting information system could be stored locally (as in a cash register or a transactions file) or remotely (as on an external network). - The information technology infrastructure used to → collect, store, process and transmit data and information. - Information technology infrastructure is just a fancy name for the hardware used to operate the accounting information system. - Most of these hardware items a business would need to have anyway and can include the following: Computers Mobile devices Servers Printers Surge protectors Routers Storage media A back-up power supply - In addition to cost, factors to consider in selecting hardware include speed, storage capability, and whether it can be expanded and upgraded. - Perhaps most importantly, the hardware selected for an AIS must be compatible with the intended software. - A good AIS should also include a plan for maintaining, servicing, replacing, and upgrading components of the hardware system, as well as a plan for the disposal of broken and outdated hardware. 5-Internal controls - The internal controls of an AIS are the security measures it contains to protect sensitive data. - These can be as simple as passwords or as complex as biometric identification. - Biometric security protocols might include storing human characteristics that don't change over time, such as fingerprints, voice, and facial recognition. - An AIS must have internal controls to protect against unauthorized computer access and to limit access to authorized users, which includes some users inside the company. - It must also prevent unauthorized file access by individuals who are allowed to access only select parts of the system. - An AIS contains confidential information belonging not just to the company but also to its employees and customers. This data may include: Social Security numbers Salary and personnel information Credit card numbers Customer information Company financial data Financial information of suppliers and vendors - All of the data in an AIS should be encrypted, and access to the system should be logged and monitored. - An AIS also needs internal controls that protect it from computer viruses, hackers, and other internal and external threats to network security. - It must also be protected from natural disasters and power surges that can cause data loss.  6-People - The people in an AIS are the system users. - An AIS helps the different departments within a company work together. Professionals who may need to use an organization's AIS include: Accountants Consultants Business analysts Managers Chief financial officers Auditor Functions of AIS ▪ Accounting information systems have three basic functions: 1.The first function of an AIS is the efficient and effective collection and storage of data concerning an organization’s financial activities, including getting the transaction data from source documents, recording the transactions in journals, and posting data from journals to ledgers. 2.The second function of an AIS is to supply information useful for making decisions, including producing managerial reports and financial statements. 3.The third function of an AIS is to make sure controls are in place to accurately record and process data.  The Role of AIS in the Value chain ▪ The objective of most organizations is to provide value to their customers. This requires performing a number of activities. ▪ An organization's value chain consists of: - Five Primary Activities that directly provide value to its customers - Four Support Activities allow the five primary activities to be performed efficiently and effectively. ▪ Primary Activities: 1- Inbound logistics: - Consists of receiving, storing, and distributing the materials an organization uses to create the services and products it sells. - For example, receiving, handling, and storing steel, glass, and rubber are some of inbound logistics activities of an automobile manufacturer. 2- Operations activities: - Transform inputs into final products or activities. - For example, assembly line activities at an automobile manufacturer convert raw materials into a finished car. 3-Outbound logistics: - Activities distribute finished products or services to customers. - For example, shipping automobiles to car dealers is an outbound logistics activity.  4-Marketing and sales activities: - Help customers buy the organization's products or services. - Advertising is an example of a marketing and sales activity. 5-Service activities: - Provide post-sale support to customers. - Examples include repair and maintenance services. ▪ Support Activities: 1-Firm infrastructure: - Is the accounting, finance, legal, and general administration activities that allow an organization to function. The AIS is part of the firm infrastructure. 2-Human resources activities: - Include recruiting, hiring, training, and providing employee benefits and compensation. 3-Technology activities: - Improve a product or service. - Examples include research and development, investment in new information technology, Web site development, and product design. 4-Purchasing activities: - Purchase raw materials, supplies, machinery, and buildings used to carry out the primary activities. How an AIS can Add Value to an organization ? ▪ As a support activity, the AIS adds value by providing accurate and timely information so the five primary value chain activities can be performed more effectively and efficiently through Well-designed AIS. ▪ As well designed AIS can do this by → 1-Improve the quality and reducing the costs of products or services. ▪ For example, an AIS can monitor machinery, so operators are notified immediately when performance falls outside acceptable quality limits. ▪ This helps maintain product quality. It also reduces the amount of wasted materials and the costs of having to rework anything. 2-Improving efficiency ▪ A well-designed AIS can make operations more efficient by providing more timely information. ▪ For example, a just-in-time manufacturing approach requires constant, accurate, up-to- date information about raw materials inventories and their locations. 3-Sharing knowledge. ▪ A well-designed AIS can make it easier to share knowledge and expertise, perhaps thereby improving operations and even providing a competitive advantage. 4-Improving the efficiency and effectiveness of its supply chain ▪ For example, allowing customers to directly access the company's inventory and sales order entry systems can reduce the costs of sales and marketing activities. ▪ Moreover, if such access reduces the customers' costs and time of ordering, both sales and customer retention rates may increase. 5-Improving the internal control structure. ▪ Security, control, and privacy are important issues in today's world. ▪ An AIS with the proper internal control structure can protect systems from problems such as fraud, errors, equipment and software failures, and natural and political disasters. 6-Improving decision making. ▪ An AIS can improve decision making by providing accurate information in a timely manner. Questions Part ▪ True or False: 1-Customer billing statements is type of data need to be collected in business. Answer → True 2-Computers used to storage the organization’s data. Answer → True 3-Accountant (People) is one of AIS components. Answer → Ture 4-The hardware used to process the organization’s data. Answer → False 5-Quality, reliability, and security are key components of effective AIS software. Answer → Ture 6-presentation is type of data need to be collected in business. Answer → False 7-Most accounting information systems comprise 5 parts. Answer → False 8- Accounting information systems have four basic functions. Answer → False 9-Operations activities is Support activity in the value chain. Answer → False 10-Just-in-time manufacturing approach is an example of improving efficiency that enables AIS to add value to an organization. Answer → Ture 11-Getting the transaction data from source documents, recording the transactions in journals, and posting data from journals to ledgers is a function of an AIS. Answer → Ture  12-Information overload is the benefit of produced by the information minus the cost of producing it. Answer → False 13- The value of information is the benefits produced by information minus the cost of producing it Answer → Ture 14- The AIS is comprised of the human and capital resources within an organization that are responsible for collecting and processing transactions and preparing financial data. Answer → Ture 15- Inbound logistics are activities to distribute finished products or services to customers. Answer → False 16. One of the characteristics of useful information is cost effective Answer → False 17. The software used to storage the organization`s data. Answer → False 18. The major benefits of information are an reducing of uncertainty, improved decisions, and a better ability to plan and schedule activities. Answer → True 19.Presentations is kind of data need to be collected in business. Answer → False 20.The expected value of information should be calculated as effectively as possible, so information is produced whose benefits exceed its costs. Answer → True 21.General ledger is kind of information need to be collected in business. Answer → False ▪ MCQs: 1- Which of following is primary activity in the value chain? a. Purchasing. b. Accounting. c. Post-sales service. d. Human resource management Answer: C 1) An accounting information system must be able to perform which of the following tasks? A) collect transaction data B) process transaction data C) provide adequate controls D) all of the above Answer: D 2) Which of the following is not an example of a common activity in an AIS? A) buy and pay for goods and services B) sell goods and services and collect cash C) summarize and report results to interested parties D) record sales calls for marketing purposes Answer: D 4) The primary objective of accounting is to A) implement strong internal controls. B) provide useful information to decision makers. C) prepare financial statements. D) ensure the profitability of an organization. Answer: B 5) The AIS must include controls to ensure A) safety and availability of data. B) marketing initiatives match corporate goals. C) information produced from data is accurate. D) both A and C Answer: D 6) An AIS provides value by A) improving products or services through information that increases quality and reduces costs. B) providing timely and reliable information to decision makers. C) creating new products. D) both A and B Answer: D 7) When the AIS provides information in a timely and accurate manner, it stands as an example of A) improved decision making. B) improving the quality and reducing the costs of products or services. C) improving efficiency. D) all of the above Answer: D 8) Accounting information plays major roles in managerial decision making by A) identifying situations requiring management action. B) reducing uncertainty. C) providing a basis for choosing among alternative actions. D) all of the above Answer: D 9) The process of creating value for customers is the result of nine activities that form a A) value chain. B) capitalist operation. C) profitable business. D) information system. Answer: A 10) The value chain concept is composed of two types of activities known as A) primary and support. B) primary and secondary. C) support and value. D) technology and support. Answer: A 11) Which of the following is a primary activity in the value chain? A) infrastructure B) technology C) purchasing D) marketing and sales Answer: D 12) Arranging delivery of products to customers constitutes ________ in value chain analysis. A) shipping B) inbound logistics C) outbound logistics D) delivery Answer: C 13) ________ are examples of activities that constitute inbound logistics A) Activities that transform inputs into final products or services B) Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells C) Activities that provide post-sale support to customers D) Activities that help customers to buy the organization's products or services Answer: B 14) One activity within the value chain is research and development. This activity can be identified as a A) firm infrastructure activity. B) human resources activity. C) technology activity. D) purchasing activity. Answer: C 15) In the value chain concept, Providing employee benefits and compensation is considered what king of the activity? A) Primary activity. B) Support activity. C) technology activity. D) purchasing activity. Answer: B 16) In the value chain concept, upgrading IT is considered what king of the activity? A) Primary activity. B) Support activity. C) technology activity. D) purchasing activity. Answer: B 17) Which Parts of an AIS best describes a monthly financial statement A) Input. B) Internal Control. C) Output. D) storage. Answer: C 18) The data in a report was checked by two clerks working independently. Match this description with the information characteristic A) Timely. B) Complete. C) understandable. D) verifiable. Answer: D 18) The data in a report was checked by two clerks working independently. Match this description with the information characteristic A) Timely. B) Complete. C) understandable. D) verifiable. Answer: D 19) Companies that used to have separate programs to prepare customer statements, collect cash, and maintain accounts receivable records now combine theses functions into a single application. This is example of: A) Goal conflict B) Goal Congruence C) Integration D) information overload. Answer: C 20) Which of the following is a function of an AIS? A) reducing the need to identify a strategy position B) transforming data into useful information. C) allocating organizational resources D) automating all decision making Answer: B 21) Which of the following is not information AIS Provides to add value to an organization? A) increasing information overload. B) Improving the internal control structure. C) share knowledge D) providing accurate information in a timely basis. Answer: A 22) ---------- is tyoe of data need to be collected in business. A) Presntations. B) Sales order C) A and B D) None of these. Answer: B 23) Quality, --------, and security are key components of effective AIS software. A) Timely. B) reliability C) Comparability D) understandability. Answer: B 24) An AIS with proper -------- structure can protect systems from problems such as fraud, errors, equipment and software failures and natural and political disasters. A) Internal control. B) Supply chain C) A and B D) None of these Answer: A 25) Just in time manufacturing approach is an example of improving ------------ That enables AIS to add value to an organization. A) efficiency of Operations B) Internal Control C) Efficiency of supply chain. D) The quality and reducing the costs of products. Answer: A 26) Getting the transaction data from source documents, recording the transactions in journals, and posting data from journals to ledgers is a ------ of an AIS. A) Function. B) structure C) Importance D) all of these Answer: A 27) The major benefits of -------- are a reduction of uncertainty, improved decisions, and a better ability to plan and schedule activities. A) Information. B) Data C) System D) all of these Answer: A 28) -------- used to storage the organization`s data. A) Computers. B) Servers C) A and B D) None of these Answer: C 29) providing the “big picture” and allows students to develop their critical-thinking and problem- solving skills is a -------- of an AIS. A) Function. B) structure C) Importance D) all of these Answer: C 30) The value of ---------- is the benefit produced by the information -------- the cost of producing it. A) Information , Minus B) Information , Add Answer: A