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Chapter 1: The Information System: An Accountant's Perspective

This document provides an overview of information systems from an accountant's perspective. It discusses internal and external information flows, the components of an accounting information system including transaction processing, general ledger, and management reporting systems. It also describes how information is collected, processed, and distributed to support management decision making and day-to-day operations. Finally, it discusses the roles of accountants as both users and designers of information systems.

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485 views10 pages

Chapter 1: The Information System: An Accountant's Perspective

This document provides an overview of information systems from an accountant's perspective. It discusses internal and external information flows, the components of an accounting information system including transaction processing, general ledger, and management reporting systems. It also describes how information is collected, processed, and distributed to support management decision making and day-to-day operations. Finally, it discusses the roles of accountants as both users and designers of information systems.

Uploaded by

Astxil
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 1: The Information System: An Accountant’s

Perspective

Internal & External Information Flows

Internal Information Flows


Horizontal Flows of Information are used primarily at the operations
level to capture transaction and operations data.
Vertical Flows of Information:

• Downward Flows — instructions, quotas, and budgets


• Upward Flows — aggregated transaction and operations data
Information Requirements

• Each user group has unique information requirements.


• The higher the level of the organization, the greater the need for
more aggregated information and less need for detail.
Information in Business

• Information is a business resource that:


o needs to be appropriately managed.
o is vital to the survival of contemporary businesses.
What is a System?

• A group of interrelated multiple components or subsystems that


serve a common purpose.
• System or subsystem?
o A system is called a subsystem when it is viewed as a
component of a larger system.
o A subsystem is considered a system when it is the focus
of attention.
System Decomposition versus System Interdependency
System Decomposition

• the process of dividing the system into smaller subsystem parts


System Interdependency:

• distinct parts are not self-contained they are reliant upon the
functioning of the other parts of the system
• all distinct parts must be functioning, or the system will fail
What is an Information System?
An information system is the set of formal procedures by which data are
collected, processed into information, and distributed to users.
Transactions

• A transaction is a business event.


• Financial Transactions
o economic events that affect the assets and equities of the
organization
o e.g., purchase of an airline ticket
• Nonfinancial Transactions
o all other events processed by the organization’s
information system
o e.g., an airline reservation — no commitment by the
customer
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.
• It distributes transaction information to operations personnel to
coordinate many key tasks.
Accounting Information Systems (AIS)

• process financial transactions; e.g., sale of goods


• nonfinancial transactions that directly affect the processing of
financial transactions; e.g., addition of newly approved vendors
AIS Subsystems

• Transaction Processing System (TPS)


o supports daily business operations
• General Ledger/ Financial Reporting System (GL/FRS)
o produces financial statements and reports
• Management Reporting System (MRS)
o produces special-purpose reports for internal use
Management Information Systems (MIS)

• process nonfinancial transactions that are not normally


processed by traditional AIS; e.g., tracking customer complaints

IS

AIS MIS

Financial Human
Marketing Distribution
GLS/FRS TPS MRS Management Resource
Systems Systems
Systems Systems
General Model for AIS

Data Sources
Data sources are financial transactions that enter the information
system from internal and external sources.

• External financial transactions are the most common source of


data for most organizations.
o E.g., sale of goods and services, purchase of inventory,
receipt of cash, and disbursement of cash (including
payroll)
• Internal financial transactions involve the exchange or
movement of resources within the organization.
o E.g., movement of raw materials into work-in-process
(WIP), application of labor and overhead to WIP,
transfer of WIP into finished goods inventory, and
depreciation of equipment
Transforming the Data into Information
Functions for transforming data into information according to the
general AIS model:
1. Data Collection
• Capturing transaction data
• Recording data onto forms
• Validating and editing the data
2. Data Processing
• Classifying • Merging
• Transcribing • Calculating
• Sorting • Summarizing
• Batching • Comparing
3. Data Management
• Storing
• Retrieving
• Deleting
4. Information Generation
• Compiling
• Arranging
• Formatting
• Presenting
Characteristics of Useful Information
Regardless of physical form or technology, useful information has the
following characteristics:

• Relevance: serves a purpose


• Timeliness: no older than the time period of the action it
supports
• Accuracy: free from material errors
• Completeness: all information essential to a task is present
• Summarization: aggregated in accordance with the user’s needs
Information System Objectives in a Business Context
The goal of an information system is to support:

• the stewardship function of management


• management decision making
• the firm’s day-to-day operations
Organizational Structure

• The structure of an organization helps to allocate:


o responsibility
o authority
o accountability
• Segmenting by business function is a very common method of
organizing.
Functional Areas

• Inventory/Materials Management
o purchasing, receiving and stores
• Production
o production planning, quality control, and maintenance
• Marketing • Finance
• Distribution • Accounting
• Personnel • Computer Services
Accounting Independence
Information reliability requires accounting independence.

• Accounting activities must be separate and independent of the


functional areas maintaining resources.
• Accounting supports these functions with information but does
not actively participate.
• Decisions makers in these functions require that such vital
information be supplied by an independent source to ensure its
integrity.
The Computer Services Function
Organization of IT Function in a Centralized System

Organizational Structure for a Distributed Processing System

Potential Advantages of DDP

• Cost reductions in hardware and data entry tasks


• Improved cost control responsibility
• Improved user satisfaction since control is closer to the user
level
• Backup of data can be improved through the use of multiple data
storage sites
Potential Disadvantages of DDP

• Loss of control
• Mismanagement of company resources
• Hardware and software incompatibility
• Redundant tasks and data
• Consolidating tasks usually segregated
• Difficulty attracting qualified personnel
• Lack of standards
Manual Process Model

• Transaction processing, information processing, and accounting


are physically performed by people, usually using paper
documents.
• Useful to study because:
o helps link AIS courses to other accounting courses
o often easier to understand business processes when not
shrouded in technology
o facilitates understanding internal controls
The Evolution of IS Models: The Flat-File Model
Data Redundancy Problems

• Data Storage - excessive storage costs of paper documents


and/or magnetic form
• Data Updating - changes or additions must be performed
multiple times
• Currency of Information - potential problem of failing to update
all affected files
• Task-Data Dependency - user’s inability to obtain additional
information as needs change
• Data Integration - separate files are difficult to integrate across
multiple users
The Evolution of IS Models: The Database Model

An REA Data Model Example


REA Model

• The REA model is an accounting framework for modeling an


organization’s
o economic resources; e.g., assets
o economic events; i.e., affect changes in resources
o economic agents; i.e., individuals and departments that
participate in an economic event
o Interrelationships among resources, events and agents
• Entity-relationship diagrams (ERD) are often used to model
these relationships.
Accountants as 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.
Accountants as System Designers

• The accounting function is responsible for the conceptual system,


while the computer function is responsible for the physical
system.
• The conceptual system determines the nature of the information
required, its sources, its destination, and the accounting rules that
must be applied.
Accountants as System Auditors

• External Auditors
o attest to fairness of financial statements
o assurance service: broader in scope than traditional
attestation audit
• IT Auditors
o evaluate IT, often as part of external audit
• Internal Auditors
o in-house IS and IT appraisal services

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