The Information System : An Accountants Perspective
- 1. CHAPTER ONE The Information System: An Accountant’s Perspective
- 2. The Information Environment The information environment is the ecosystem where data is collected, processed, stored, and shared to support decision-making. Components: o Internal data sources: Transaction records, employee data, production logs. o External data sources: Market trends, regulations, competitor information.
- 3. A system is a set of interrelated components that interact to achieve a goal Most systems are composed of smaller subsystems The systems concept encourages integration (i.e., minimizing the duplication of recording, storing, reporting and processing).
- 4. Every organization has goals. The subsystems should be designed to maximize achievement of the organization’s goals Even to the detriment of the subsystem itself Example: The production department (a subsystem) of a company might have to forego its goal of staying within its budget in order to meet the organization’s goal of delivering product on time. Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger system. Goal congruence occurs when the subsystem’s goals are in line with the organization’s goals. The larger and more complicated a system, the more difficult it is to achieve goal congruence.
- 13. Accounting Information Systems (AIS) Accounting Information system (AIS) collects, records, stores, and processes data to produce information for decision makers. It combines IT, accounting, and business functions to manage financial data. Components: 1. The people who use the system 2. The procedures and instructions used to collect, process, and store data 3. The data about the organization and its business activities 4. The software used to process the data 5. The information technology infrastructure, including the computers, peripheral devices, and network communications devices used in the AIS 6. The internal controls and security measures that safeguard AIS data
- 14. Framework of AIS and Its Subsystems Framework: o Inputs: Data entry (e.g., sales transactions). o Processes: Data processing and analysis. o Outputs: Financial reports, dashboards. o Storage: Databases and cloud systems. o Controls: Access control, audit trails. Key Subsystems: o Revenue Cycle: Sales and cash collections. o Expenditure Cycle: Purchasing and vendor payments. o Production Cycle: Manufacturing and inventory. o HR/Payroll Cycle: Employee records and payments. o Financing Cycle: Sources and uses of fund. General Ledger and Reporting: Centralized financial records.
- 16. Role of the Accountant in AIS Accountants play the following role in AIS: Manager Consultant Evaluator Provider of accounting and tax services Traditional function: Bookkeeping, preparation of financial statements. Evolving function: System design, data analytics, ensuring compliance with regulations. Example: Accountants collaborate with IT teams to design controls for ERP systems.
- 17. AIS vs. MIS An Accounting Information System (AIS) and a Management Information System (MIS) are both crucial tools for organizational decision-making, but they serve different purposes and audiences. AIS is primarily focused on financial and accounting data, designed to collect, process, and report financial transactions to ensure compliance with regulations and provide accurate financial information to stakeholders such as management, auditors, and investors. On the other hand, MIS is broader in scope, encompassing all types of organizational data to support strategic and operational decision-making. While AIS is specialized for accounting functions, MIS integrates information from various departments—like sales, marketing, and human resources—providing a holistic view of the organization’s performance. In essence, AIS is a subset of MIS, tailored for financial reporting, whereas MIS serves as a comprehensive tool for overall business management.
- 18. Accounting as a System View as a System: o Input: Transactions, invoices. o Process: Summarizing, analyzing. o Output: Reports like income statements, tax filings. o Feedback: Used for planning and control Users of AIS 1. Internal Users: Management, employees, accountants. 2. External Users: Investors, regulators, creditors.
- 19. Management Structure, IT, and Corporate Strategy Alignment: IT and AIS should support organizational goals. Corporate Strategy: AIS provides insights for competitive advantage, such as: o Identifying profitable products. o Tracking costs and efficiency. AIS and Corporate Strategy • An organization’s strategy influences an AIS. • A strategy is the overall goal the organization hopes to achieve (e.g., increase profitability). • Once an overall goal is determined, an organization can determine actions needed to reach its goal and identify the informational requirements necessary to measure how well they are obtaining that goal. Strategic Role: • Enhances operational efficiency. • Supports business intelligence tools. Examples: • Data from AIS informs cost-reduction strategies. • Integration with CRM to align sales and finance. Predictive analysis: The use of data warehouses and complex algorithms to forecast future events, based on historical trends and calculated probabilities.
- 20. How AIS Adds Value Improving the quality and reducing the costs of products or services. Improving efficiency. Sharing knowledge. Improving the efficiency and effectiveness of its supply chain. Improving the internal control structure. Improving decision-makingg.
- 21. AIS in Decision making: Decision-making is a complex, multistep activity: identify the problem, collect and interpret information, evaluate ways to solve the problem, select a solution methodology, and implement the solution. An AIS can provide assistance in all phases of decision-making, and reports can help identify potential problems. An AIS can help improve decision-making in several ways: • It can identify situations requiring management action. • It can reduce uncertainty and thereby provide a basis for choosing among alternative actions. • It can store information about the results of previous decisions, which provides valuable feedback that can be used to improve future decisions. • It can provide accurate information in a timely manner. • It uses this information to optimize the amount of each product carried at each store. • It can analyze sales data to discover items that are purchased together, and it can use such information to improve the layout of merchandise or to encourage additional sales of related items.
- 22. The Role of the AIS in the Value Chain The AIS is part of the firm infrastructure.
- 23. Models of Decision-Making 1. Rational Model: Logical, data-driven. 2. Bounded Rationality: Limited by resources or information. 3. Intuitive Model: Based on experience and judgment. Role of AIS: Provides accurate and timely data for all models. Human Aspect of AIS Importance of training and change management. Addressing resistance to new systems. Ethical considerations in handling sensitive data.
- 24. Computer Hardware and Software in AIS Hardware: Servers, storage devices, networking equipment. Software: ERP systems (SAP, Oracle), accounting software (QuickBooks, Tally). Computerized Accounting Systems Automates accounting tasks. Advantages: o Efficiency, scalability, integration. o Real-time updates. • Challenges: Cybersecurity, data corruption. Tools to Implement AIS 1. Flowchart Tools: Visualize processes (e.g., Lucidchart, Microsoft Visio). 2. Database Tools: SQL Server, PostgreSQL for data management. 3. Reporting Tools: Tableau, Power BI for data visualization. 4. ERP Platforms: SAP, Oracle for comprehensive system integration.